According to the National Multifamily Housing Council, renters occupy 37% of the total households in the U.S., with single family and multifamily apartments being the most famous choices, as of September 2015. Renting is apparently a growing trend in the urban areas, according to a report on the WSJ, stating that nine of out the 11 largest metros of the country have more renters than homeowners.
If you are a landlord in any of the largest metro cities in the country, this is probably the best time for business. However, landlording comes with its unique set of responsibilities and problems, starting with tenant calls, legal matters, maintenance, and efficient operation. A lot of new landlords find themselves overwhelmed with the amount of work involved in property management. Proper organization is the key to successful landlording, and we are going to cover some tips that can make your life so much easier, as a landlord.
LandLording Is A Business, Not A Hobby
If you are investing in rental property because of your interest or as a hobby, you’re likely to face additional issues. The first step you can take is to treat landlording as a business, hence creating systems and processes to achieve higher efficiency.
- Establish entities for both asset and personal protection
- Build systems to manage billing, maintenance, and repair with your minimal involvement
- Take a course on landlording, and educate yourself about its legal and financial aspects
- Keep emotions out of landlording, and start with a set of rules every tenant must follow
Once you have systems that minimize your direct involvement, rental investments can offer great rewards. Always remember:
“The major fortunes in America have been made in land.” ~ John D. Rockefeller
Ensure Positive Cash flow: This goes without saying, but still many first-time landlords are bogged down with negative cash flow during the first couple of months or even longer. A small miscalculation can trigger negative flash flow, depreciating your profits and account balance in the process. It will help to follow a conservative approach during cash flow calculation, and make sure to include at least 10% in property management costs, 5% to 8% in repairs, and a 6% margin for unexpected vacancy.
8 Tips to Manage Your Rental Properties Efficiently
1. Protect yourself and the property
Establishing the appropriate business entity is the very first step a landlord should take. It provides “professionalism” to the endeavor. The more like a business you treat your rental, the more successful that business will become. It also helps establish a brand that attracts better tenants. The right entity can protect the property from outside lawsuits, and can protect your other assets from problems with your tenants. You’ve worked hard for this asset, so protect it. And, all landlords should always be acting as a “manager” of the property, and not the “owner.” By having an LLC as the named landlord/owner, you become a merely manager for that LLC. There is no need to tell tenants that you also own the property. This provides a layer of privacy, and security, from disgruntled tenants. We also recommend getting a post office box or similar address (i.e., not your personal address) for all entities and agreements.
2. Start with a rental policy and good lease documents
If you don’t already have a rental policy, prepare one, and be diligent enough to align it with rental laws. Treat it as the user manual for your renters, and hand them a copy before they move-in. It includes rules around smoking, new construction or major/minor alterations, notice period, payment terms, late fee, eviction rules, and any important rules for stay in the house. You might want to consult a lawyer, and make sure that you are safe from any upcoming legal problems. Make sure to respect tenant privacy, and schedule any home inspections accordingly. You should also have a good set of documents, including: tenant application, lease, move-in and damage checklist, pet and other addenda, repair requests and the like. The clearer you are with tenants helps manage expectations, and thus problems in the future.
3. Practice diligence in tenant screening
Nothing could hurt as much as a bad tenant, making tenant screening a crucial part of the process. Start with the rental application, and include details such as credit or bank account, employer’s name, and previous tenancy record. Most of the tenants are comfortable in providing these details, and if an applicant argues about the required information, he is likely to create trouble in future, or has something to hide. It’s okay to be a little abrasive than to face the after-effects later.
4. Outsource time-consuming repairs
Unless you are handy with complex repairs, and love to fix things, it is best to outsource major repairs. Some tasks are easy to manage such as changing a light bulb or faucet, but fixing a leak in your ceiling or water logging problem is likely to be out of your skill set. Another benefit of hiring experts is timely resolution of the problem, and you can use your time towards something far more productive. If you own multiple properties, build relationship with trustworthy handymen or repair companies.
5. Setup office hours for tenant calls
You are ready for a party or leaving for a vacation, and suddenly receive a tenant call for a clogged toilet! There goes your mood for the day. The key to manage tenant problems efficiently is to set up office hours, and ask your tenants to follow the same, although try to take serious calls. Use your voicemail efficiently and until it’s an urgent matter, the tenant will be happy to leave a message.
6. Organize your paperwork
Proper organization will go a long way in landlording, and it will keep you out of major problems. Paperwork is a key component of rental real estate investing, and you can start with separate files for different sections. There are several ways to organize the paperwork, including individual folders for different properties; or separate folders for insurance, lease, and repair receipts; or an online repository for all the relevant forms. For the tech-savvy property owners, keeping the documents online could save you a lot of hassle, and you can even get them signed online with services like DocuSign.
7. Never forget landlord insurance
Rental properties are quite likely to encounter unforeseen problems, including accidents, natural disasters, and even thefts. A landlord insurance is your protection against all of these events, and some counties even have specific guidelines for landlord insurance. Here is a short list to start:
- Landlords building insurance
- Landlord liability insurance
- Loss of rent insurance
- Landlord content insurance
- Home emergency cover
8. Be prepared for evictions
Have a good eviction attorney as part of your team and be prepared to evict. Problem tenants generally continue to be problem tenants. Your instinct to be nice and accommodating usually results in tenants taking advantage of you. It is better to go through an eviction and get good tenants in your property then to deal with late or non-payment of rent or tenants ruining your property or causing you headaches. When you realize there are good tenants out there, you’ll be glad you got rid of the bad ones.
Another important tip is to avoid renting the property to family members or friends. It is quite likely to either ruin your relationships or leave you under a financial struggle. Many novice landlords fall into this trap, and end up with negative cash flow in near future.
In landlording, the key is to setup systems that can help you handle any problems whatsoever, and you joy in receiving the cash checks at the start of the month should outplay the worries of property management. Being a landlord is a rewarding experience, and with the right steps, you can achieve success as a landlord.