Because it’s a business investment, it’s important to manage a rental property carefully. Whether renting to college students or a couple in their first home together, you need to know what’s involved as a landlord. Here are some tips for managing both property and tenants as well as helpful information about managing different types of homes. Finally, we also help you decide whether you should hire a property manager or not.
Managing rental property: Tips
- Determine how long you intend to rent the property. Will this be a short-term rental, or would you prefer a long-term investment?
- Landlord insurance, property insurance and rental insurance on behalf of your tenants are all must-have requirements.
- Familiarize yourself with state and local laws, including home repairs and habitability requirements.
- If your property is part of a homeowners association (HOA), review any applicable documents and build accountability into your lease. You do not want to be held accountable for your tenants’ HOA fees, fines and infractions.
- The rent’s due date, security deposits (including those surrounding pets) and late fees or penalties for infractions, smoking, damages, etc., should be spelled out in your lease.
- Include pest control and lawn care details in your lease. No one wants to mitigate unexpected fines from their city or HOA because of poor property upkeep, sometimes totaling in the thousands of dollars.
- Scheduling an appointment with a lawyer is critical for reviewing your lease agreement and familiarizing yourself with your rights as a landlord. A one-time appointment won’t break the budget, and a lawyer will catch any loopholes you may have overlooked.
- Cover your bases and save rental applications and leases. Your lawyer can advise if you are required to hold onto these documents and for how long.
- Ensure all appliances are in working order. Repair and maintain them in a timely manner.
- Define notice periods in your lease agreement, and if a lease is expiring, don’t let a long-term lease lapse into a short-term, month-to-month rental that could leave you hanging.
- Save your receipts. These receipts could come in handy as documentation in court for eviction or for sharing upkeep costs with your tax preparer.
Tenant management tips
- Always do your due diligence and know who you are considering renting to. You may need to run a background and credit check when you meet prospective applicants.
- While you may have the best intentions when entering into a rental agreement, get all agreements in writing with a physical or electronic lease.
- When you find your dream tenant, set up rent reminders.
- Be prompt and communicative. Great landlords keep open lines of communication between themselves and their tenants, not only to stay in touch with the status of your property investment but also to be proactive about any concerns.
- Before the ink on the lease agreement dries and you hand over any keys to the property, ensure you have thorough documentation around the state of the property before the renters takeover.
- Regular property inspections are your best friend, helping you stay in the loop and mitigate bad situations before they get out of hand.
Managing single-family homes vs. multifamily
Whether managing a single-family home of one group of people, a family unit that lives under one roof or a multifamily property of many families sharing the same building, there’s no right or wrong way to approach renting out your space. Consider the benefits, your property limitations and your personal preferences.
Single-family homes tend to be less demanding than their multi-family property counterparts. Tenants often treat them like a home rather than a burn-and-churn apartment rental, and they may even choose to rent for longer periods to help save money. Single-family homes often have fewer tenant disputes and fewer appliances and electronics that require routine maintenance or repairs. You won’t have to worry about soundproofing between units to ensure your tenants’ quiet enjoyment of their rental unit—it’s easy to see the draw to this property type. One key drawback, however, is a single-family home isn’t making you money when it’s sitting empty.
Multifamily properties, by contrast, may require more of your attention and more of your free time. From neighbor disputes (both for neighboring properties and units) to routine repairs, there’s a lot more to juggle and consider—and that’s on top of the cost. Purchasing a multifamily property can easily cost more than purchasing a single-family home because of the extra space alone. One key benefit, however, is that if a single unit inside a multifamily property isn’t actively rented, you can still make a healthy income.
How much does a rental property manager cost?
If you prefer being as hands off as possible, a property manager is something to consider. A property manager can help juggle compliance, maintenance and repairs, rent collection and more. Sure, you’ll still have to weigh in from time to time and it’s not 100% hands-free, but if you’re willing to splurge on a property management service, you can anticipate spending 8% to 12% of the rent in a monthly fee for the service. If you go this route, you definitely want to consider this pricing as you set your rent so you’re not shorting yourself on this cost.
In addition to a monthly fee, it’s also not uncommon to be hit with a fee each time the unit is rented. This cost can sometimes tally up to 50% or more of the monthly rent. Additional fees for renewals and maintenance may also apply. If you’re considering short-term rentals, this can be a major strike against working with a property manager.
If you are to undertake these rental management efforts yourself, you’re only out your own time and energy—and perhaps the gas money to travel back and forth between the property and home base.
Hiring a property manager: Is it worth it?
If you manage more than two rental units, “it would be wise to hire a separate property manager,” said Heather Harvey, a property manager of nine apartment buildings and 54 separate units in Rock Island, Illinois. Multiple properties can be a particular challenge because there are simply “not enough hours in the day,” Harvey said.
But while hiring a single property manager can be helpful, you should find a good lawyer to assist on all evictions and use only that lawyer. This can make the eviction process smoother for the landlord, and working with a single lawyer can be particularly beneficial for keeping track of ongoing tenant cases. It can also help speed things along when the local government is behind in its court cases, as it is in Rock Island, Harvey said.
If you’re on the fence about hiring a property manager, calculate what you would charge for your own time and effort to maintain a property. Assign yourself a wage and multiply that by how much time you dedicate to managing your rentals each month. An 8% to 12% monthly fee may sound steep, but if you break the numbers down and compare them against the time you spend managing the property, it may be reasonable.
It’s easier than ever to manage rental property. While the process may seem daunting at first, the trick is to break it down. Once you view property management as a series of steps using these tips and tricks as guidelines, you can easily achieve a work-life balance while making extra income on the side.