NOTE: this is a guest post from long time reader and subscriber, Ray. He has been investing in real estate as his career for over 20 years and has agreed to share a few of his experiences. Thanks Ray!
Second only to financing, the actual management of investment property is probably the biggest hurdle most people face when deciding to invest in real estate. Many people decide to go it alone and manage a rental house, several houses, or even an apartment complex on their own having had no experience in dealing with tenants other than being one. And that my friends, is why a significant portion of people who decide to get involved with real estate either quit or fail:
They cannot separate being a property manager from living in a managed property.
When the pregnant girl living in their rental house gets 2 weeks behind and they drop by to see what’s going on, they remember being young and broke themselves, or they just cannot handle someone who cries and begs. Or when the intimidating man living in 4B hasn’t paid his rent in 45 days and has changed the locks himself, they freak out and don’t know what to do.
Many times, they just want to buy an investment property and turn things over to a property management firm (which charges anywhere from 10% to 15% of the gross rent). They mistakenly believe that they’ve washed their hands of the icky part of being a landlord but even if you hire a property manager to oversee your properties, you still need to know the basics of rental property management in order to hire a competent manager.
Going About Hiring a Management Company
If you’d prefer to avoid the hassle of managing your tenants or your property, consider hiring a management company. This is how I handle the vast majority of my properties, especially since many of them are located in other states. I simply cannot be everywhere so I use reputable management companies. I’m careful to evaluate these guys because I want them to handle things the way I would handle them. I expect them (and pay them) to find appropriate tenants, complete the signing of leases, as well as handle the everyday maintenance tasks and repairs. Some management companies are large-scale operations with dozens of clients; others are one-person firms in which your property manager also serves as your repair person and rent collector. Before you decide to turn over your property to a management company or property manager, always be sure to:
- Obtain references from past clients to verify that the company or manager is reputable and reliable.
- Meet the individual who will manage your property in order to get a sense of his or her knowledge, experience, and professionalism.
- Confirm that the company or manager carries insurance to protect you from legal claims filed by neighbors, tenants, and so on.
Good property managers are worth their weight in gold … well not really, but they are extremely valuable to real estate investors and they earn every dime they make.
Property Management Skills
It’s important that you or your manager have sufficient:
- People skills: Dealing with tenants, neighbors, repair workers, and HOA or co-op board members requires plenty of social interaction. You or your manager must be comfortable responding to requests and making demands, if necessary.
- Bookkeeping skills: You or your manager must be comfortable with the basic bookkeeping skills required to keep and track your monthly budget and maintenance record. It’s best to use computer software, such as QuickBooks, to generate these records and then store printouts in your paper files.
- Time and energy: Managing property often requires making in-person visits to the property to inspect problems and conduct routine repairs. You or your manager must be prepared to devote at least a few hours per month to in-person work on the property. This is YOUR investment! You gotta watch over it even if you’re using a property management firm.
Selecting and Managing Tenants
Most real estate investors inherit existing tenants when they buy a property. Keep the following tips in mind when managing your current tenants and finding new ones:
- Meet your tenants: When management and ownership change hands, your tenants will likely be a bit nervous. Set up a meeting with them to assure them that you’ll treat them fairly and discuss any changes to the property or new rules you plan to implement.
- Give written guidelines: Provide your tenants with a document that contains your contact information and a list of policies you intend to enforce in managing the property. Providing a written document ensures that tenants know the rules and can help justify your response if tenants break those rules.
- Respond promptly: If you’re understanding and responsive whenever problems arise—including on holidays and weekends—your tenants will come to trust and appreciate you as a landlord. In turn, they’ll be more likely to pay rent on time, respect your property, and renew their lease when the time comes.
- Select new tenants carefully: Establish a set of criteria, such as minimum income or savings requirements, for any new tenants you select, but be sure to heed any discrimination laws that may apply. Before you agree to lease property to anyone, meet your potential tenant in person and go with your gut instinct—if you’re at all unsure, keep looking.
Keeping your property well maintained can help avoid unwelcome surprises, such as major repairs that result from years of neglect. There are some key parts of the home that you should check, or have checked by a professional, regularly to detect problems. These include:
- Air conditioning units
- Furnace and water heater (or boiler)
- Septic system
- Electrical system
- Fireplaces and chimneys
- Windows and gutters
- Roof and attic
Also be sure to check dark, damp areas of the property, such as basements, for mold and mildew every time you visit. And remember, if the property management firm isn’t living up to their end of the bargain, you have every right to find another one.