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As of 2019, about 36% of households in the US rent. Since almost three-quarters of landlords are individual investors, owning a rental property may be a great financial move. The first step is to buy and prepare a property.
But, once you have a rental property you’ll need to actually manage it. This involves a wide variety of aspects, from finding tenants to performing maintenance to navigating unforeseen issues. Here’s what you need to do to be successful at managing rental properties.
Setting and Collecting Rent
Once your property is ready to be rented, you’ll need to set a price for rent. The first step is to take a look at other rentals in the area that are similar to yours. In addition, you should look at the rest of the market. For instance, how many rental properties are available?
These figures can help you get a base rent price. But, also consider if your rental has additional benefits. If so, you should be able to charge more for them.
Once you find tenants, you’ll also need to consistently collect rent. You have a few options when it comes to collection. Some landlords prefer to receive a check. Others allow tenants to setup auto-pay through their bank or use electronic collection services, such as Zelle, Paypal, or Venmo, for example.
Each method offers its own benefits and downsides. Consider what would be beneficial to you and work for your potential tenants. Just remember that if your collection service includes a fee, you need to bake this into your rent price.
Finding Tenants
Finding good tenants is critical to avoiding issues with your rental properties. Start by advertising your property. Begin by using common rental sites and local publications to get the word out.
Currently, Zillow Rental Manager is a powerhouse of a platform for collecting potential tenant leads, because it cross-posts to dozens of other sites and its listings tend to rank high in Google Search results. In the past, Craigslist used to be an effective place to post rental listings, but less and less renters are using it today.
You can also list your property to other sites like Apartments.com, Cozy, Zumper, and Rentometer.
Screening Tenants
Next, you should create a process for getting to know more about your potential tenants. You can start by creating a questionnaire to see if they are a good fit. Just be sure to follow all Federal Fair Housing Act rules.
You also need to confirm their employment and income. Call their references and any former landlords. It’s also important to run a credit and background check. These can help find issues you might otherwise miss.
It’s a good idea to have an in-person conversation with potential tenants to get to know them a bit more. This can take place when you review the rental agreement with them. Make sure your tenant fully understands the rental agreement.
Before you hand over the keys, do a walkthrough with the tenant and have them document any damage present at move-out. I’d recommend using a formal Move-In Checklist. This can prevent disagreements later about any issues.
Maintenance
If your tenant needs help with the rental or has an issue, they will contact you or your property manager, if you choose to use one. You need to be able to resolve any issues and keep maintenance up to date. Doing a walkthrough at least once a year can help spot any issues before they become problems.
When managing rental properties, staying on top of regular maintenance will go a long way. Set up regular checks for appliances and have the contacts of local reliable contractors. There will be some small issues that pop up. If your tenant notifies you of these, you may be able to perform small repairs yourself. However, make sure to set aside a maintenance fund for when you need to call in help.
If there is a major problem where the tenant must relocate for some time, it is up to you to provide them housing if they have already paid. Make sure to check the local laws regarding this, as some areas also require accommodations for upcoming times.
Navigating Issues and Changes
One of the biggest ways to prevent any issues from arising when you manage rental property is to have good communication with your tenants. Make sure you tell them anything they need to know. At the same time, be sure they know that they can come to you if there are any issues.
It is much better to hear about needed repairs early, while you can fix them before they expand in scope. This is particularly true if you are dealing with water damage, which can rapidly expand in scope if it is not immediately addressed. Your tenants also deserve to live in clean, well-maintained properties, with properly running appliances.
Over time, you may need to increase rent to keep pace with inflation. Reasons to raise rents include that you need to able to pay repair technicians fair market wages (which will rise over time) and your home insurance policy will increase slightly year-over-year.
Put simply, although your mortgage may be fixed, your operational expenses are likely to rise over time. Make sure you disclose the fact that you might increase rent to your tenants.
Payments and Rules
Having a late fee policy is key to ensuring rent is paid regularly and on time. Make sure you disclose your policy in the rental agreement so your tenants are aware. You can work with tenants if there is a one-time issue.
In addition, you should have a plan in case you need to evict a tenant. Eviction is a complex legal process with the rules varying by the municipality. Be sure you can give notice and read what your local laws are. A lawyer can help you if it is confusing.
Before renting to anyone, make sure your rental contract is thorough. There are examples online, but a local lawyer can be helpful when you are starting out. A good rental agreement will give you better legal protection in case any issues arise.
If you don’t know where to start, try by reaching out to a attorney, contacting an experienced landlord, or asking your local association of realtors to share their standard lease with you.
Using a Property Management Company
The process of learning how to manage a rental property can be a bit daunting since there are many financial and legal factors involved. Some landlords choose to hire a property management company to make the process easier.
This is also a great option if you want a more hands-off approach. This guide can help you understand what to expect from a property management company. In general, they can take care of all of the steps from finding tenants to handling maintenance.
The Basics of Managing Rental Properties
Rental real estate can be a great way to earn an income. If you’re serious about this investment approach, then you’d better be prepared for the process of managing rental properties.
Whether you do it yourself or hire a management company, the steps above will always stay the same.