When you first buy a rental property, you become a business owner and a real estate investor. It’s important to learn how to become a good landlord or hire a good rental property manager.
Whether you manage your properties by yourself or you’ve hired a capable property manager, being a landlord needs significant time and effort to ensure your properties are providing a return on your investment and building your wealth.
In this article, we’ll be sharing a guide on managing a rental property so that you’ll be able to succeed with owning your rental property.
- Tips for First-Time Landlords and Property Owners
- What is the most important thing to do after purchasing a rental property?
- How to increase the rental value for tenants?
- Hiring a property manager
- Is it necessary to hire a property management company?
- Is hiring a property manager an entirely hands-off experience?
- Does hiring a property manager take my liability away?
- Why do property management companies have bad reviews?
- What are the different types of management fees?
- Property Maintenance and Repairs
- What are the most common repair requests?
- What to do when tenants want to make repairs or renovations?
- Vacancy Rates, Rent, and Evictions
- Are there more or fewer vacancies within the last few years?
- Have rental prices ever dropped?
- How to deal with tenant evictions?
- How to deal with a tenant doing Airbnb rentals?
- Finding Tenants for Your Property
- Where is the best place to advertise rental listings?
- What questions to ask when interviewing applicants?
- How do you properly turn down an applicant?
Tips for First-Time Landlords and Property Owners
What is the most important thing to do after purchasing a rental property?
The first thing you should do after you purchase your property is to contact your tenants right away. As surprising as this sounds, most of the time properties trade between owners, and there’s no communication between the new owner and the tenants. This often leaves tenants confused about where they should pay rent. Having a good relationship between landlords and tenants ensures that it’s a win-win for everyone, so the most important thing that new landlords need to do is introduce themselves to the tenants and ask if they have any concerns about the property.
Along with contacting the tenants, you need to keep in mind that you shouldn’t disrupt something that doesn’t need to be disrupted. For example, don’t raise their rent as soon as you take over. You’ll cultivate a better long-term relationship if you give the tenants some time to adjust to the new landlord.
After a few months, you’re free to set the tempo and new rules. Every building or property is different, so if there are maintenance or repair issues that need to be handled, you obviously need to take care of them right away. The purpose behind this is if a tenant is not confident with the new landlord and their management, they can just submit a notice to move out within the next month or two. Having to fill a vacancy as a new owner can sometimes cost you 1-2 months of rental income simply because you initially did not manage your property correctly.
How to increase the rental value for tenants?
Every tenant has a list of things they would love to have in their next rental home. There are many strategic things you can do as an owner to give your tenants a better living experience under your property. Upgrading or adding amenities will not only increase the living experience but will also allow you to attract better tenants who are willing to pay more for those amenities. In the rental property business, being able to increase the amount of rental income you get from your units also significantly increases the price value of your property.
Parking is such a necessity, especially in parking-impacted metropolitan areas. Every potential tenant and resident will ask about parking. So if you have an opportunity to make extra parking available by either organizing your lot better or pouring concrete over unused lawn space, not only will it add value to your tenants but it will also add more rental income for your property. Sometimes it takes clearing out some shrubs or part of the yard, but there’s always a place where we could strategically place a parking slab.
Updated Kitchens and Bathrooms
The next item on people’s lists is updated kitchens and bathrooms. Upgraded kitchens with stainless steel appliances and updated bathrooms will not only attract a larger selection of applicants but will also allow owners to charge higher rent and lease the unit faster.
While it does take at least a year to receive your ROI from the full-scale kitchen and bathroom renovations, it’s important to consider some things when performing these upgrades:
Keep it simple. There’s no need to overcomplicate upgrades and go for a luxurious 5-star kitchen unless your rental property is a luxury unit. Go for a durable, affordable, yet stylish upgrade.
Research your competition. Look at what the other similar units in your location are offering. It doesn’t make sense to invest heavily in kitchen and bathroom upgrades when the higher rent doesn’t match the competition in your area.
With several states in the US experiencing record-high heat waves every year, air conditioning has been a sought-after requirement for many tenants. Even though landlords are not legally required to provide an air conditioner in a rental property, many landlords install an air conditioning unit to increase the desirability of the property. Air conditioning is something that a lot of units don’t have, but as split systems have gotten much cheaper, that investment will easily pay for itself.
More and more tenant applicants are preferring to lease a property with in-unit laundry. In fact, on average, a tenant will pay $250 more per month to avoid having to go to the laundromat. If you have a closet, part of a kitchen, or somewhere you can install a washer and dryer, you can easily hire a plumber to run some water lines and a sewer connection to provide an amenity that will be worth so much to your tenants. They’ll pay more, stay longer, and will appreciate having this laundry within the units.
Vinyl Plank Flooring
For both landlords and tenants, carpet flooring has fallen out of favor within the last decade. Carpets are costly to clean, replace, and more people prefer non-carpeted floors. Vinyl plank flooring has emerged as the preferred choice instead of carpet. Although it may cost twice as much as carpet flooring, it will save you money in the long term.
Hiring a Property Manager or Management Compay
Is it necessary to hire a property management company or a property manager?
If you’re a new investor, you have zero property management experience, and you’re unfamiliar with the area of your property, then you definitely need to hire a property management company.
The biggest benefit to hiring a property manager is that they will have the right vendors or professionals. Day-to-day management doesn’t take that much time, but finding the right professionals to help you fix issues as they happen does take a lot of time. Nowadays it’s difficult to find the right people who can maintain and repair issues related to your rental property. Not only is it tough to find someone who is available, but it’s also hard to find someone trustworthy who can do the job right.
Most new investors will typically struggle with a ton of headaches because they may not know the area, the market rents, the vendors, or even how to deal with the city. Even though managing a property can be simple once it’s set up correctly, there’s a lot of effort that goes into getting a property into that stage. So if you’re not looking for a headache during your first year as a new investor, it’s a smart idea to hire a property manager or management company.
Is hiring a property manager an entirely hands-off experience?
For the most part, this experience can be however you want it to be. Every company is different and unique. There’s a level of co-management that some property managers are willing to accept, but it’s not ideal because this could risk having too many decision-makers. However, if you have an understanding with your property manager about a clear definition of the roles, then you can be somewhat hands-on. You can also be like most owners that are hands-off while receiving monthly reports and payments.
Does hiring a property manager take my liability away?
Every owner is liable and open to huge risks if they don’t know what they’re doing. When you hire a property manager, you’re also hiring someone who is naturally going to remove the liability of not knowing the legal way to approach certain situations. However, owners are still financially liable for the rental property.
Why do property management companies have bad reviews?
It’s fairly common for property management companies to have poor reviews online. The main reason why is that these reviews are mostly not from the property owners that hire them. Almost all of the reviews tend to come from tenants or tenant applicants who technically are not the target clients of property management companies. This doesn’t mean that all property management companies are horrible. It’s just the nature of the industry. It’s a business in which you’re dealing with people’s homes, and sometimes emotions can get escalated.
So if you’re a property owner looking for a property management company, make sure to take the reviews with a grain of salt.
What are the different types of management fees?
Every property management company has a different approach when it comes to management fees. In Southern California, you’ll see some companies charge between 4% to 10% of the monthly rental income. The issue is not about the management fee, but what else the company is charging for. A lot of companies will offer plans with different tiers, which is strange because all property managers essentially do the same things and have the capability to do the same things.
One thing you need to watch out for is a lease-up fee. This lease-up fee covers all expenses that may occur when trying to find tenants for a unit. A company may only charge a 5% management fee but also add on $500-$1,000 for every new lease.
The biggest pitfall you need to be aware of is being offered tier plans such as a company charging an extra 2% to cover evictions or an additional 1% to cover extra maintenance fees. First of all, it’s unnecessary to cover evictions because they shouldn’t be happening in the first place. If a property management company is dealing with a lot of evictions, then they’re not doing something right.
Most property management companies do the same things, so it doesn’t make sense to have tier plans or hidden fees. If you’re going to hire a property management company, we recommend that you look for a company that completely charges a percentage as a management fee because their success will be based on your success and it’s a win-win for everybody.
Property Maintenance and Repairs
What are the most common repair requests?
The most common repair request that you’ll get is for plumbing issues. Most rental properties were built between the 1920s and 1950s when pipes were built with galvanized steel. Most tenants also do not know how to properly dispose of their trash which can lead to toilet and drain blockages. So having a great plumber as part of your vendor list will save you from headaches more than you will expect. In fact, you need at least three trusted plumbers on your contacts list in case you run into plumbing issues.
Before you purchase a rental property, it’s also important to have a plumber assess it with a camera down the sewer line and pipes. In some cases, a plumbing inspection is more important than a home inspection because plumbing is a more expensive issue when it comes to repairs.
What to do when tenants want to make repairs or renovations?
When it comes to anything plumbing or electrical, you never want your tenants dealing with those kinds of repairs. The golden rule is to allow as few repairs made by tenants as possible. If a tenant wants to paint a room, let them know that it might cost extra for you to paint it back to standard. In case they use dark paint, which will take many coats to paint back to light colors, or use oil-based paint over water-based paint, at least you’ll be covered.
As long as you’re able to assess what potential damage the tenant can cause and what they’re willing to pay along with being upfront about what it may cost, you’ll be fine.
For the most part, it’s better for you to handle repairs and renovations yourself or hire a professional without the tenants having to be involved.
Vacancy Rates, Rent, and Evictions
Are there more or fewer vacancies within the last few years?
Vacancies have been significantly less during the last few years, and the demand for rental units has dramatically increased more than ever before. People who are looking to move are facing higher market rental rates, which keep them from moving.
Because of the shift toward a work-from-home culture, many more people are also fleeing expensive metropolitan markets like Los Angeles or San Francisco in favor of cities with cheaper rents. This increased competition and demand for rental units have not only driven prices higher but also decreased the number of vacancies.
Have rental prices ever dropped?
Rental prices never drop, especially in markets like California or New York. In the rental property industry, property values may fluctuate, but rent prices never go down.
How to deal with tenant evictions?
If you’re considering an eviction, you must contact an attorney. Tenant protection laws have been changing rapidly within the last few years, so it’s absolutely required to speak to a legal expert to advise you on what you should or should not do when dealing with the eviction process.
Evictions are not naturally a part of the day-to-day business of managing a rental property. If you take your time to select the correct tenants, then you’ll be able to avoid most evictions.
How to deal with a tenant doing Airbnb or short-term rentals?
Unless you’ve allowed your tenant to do short-term rentals on your property, you should immediately serve a notice to move out as soon as you find out that your tenant has been running an Airbnb rental on your property. It’s a huge liability to have unfamiliar people coming in and out of your property. If there’s a major problem, they won’t know who to call, and they might disturb other neighbors.
Finding Tenants for Your Property
Where is the best place to advertise rental listings?
The best way to get the most eyeballs and potential applicants is by advertising your listing on Zillow. You’ll potentially get between 20 to 30 calls per day, and you can probably find the right tenant within those calls on the first day.
If you don’t find your tenant within those first 20 to 30 calls, then your pricing is wrong. However, if you’re not even getting 5 phone calls in a day, then your price is probably too high.
You can also advertise your listing on Facebook Marketplace or Craigslist, but you’ll most likely get low-quality leads so save your time and advertise on Zillow.
What questions to ask when interviewing rental applicants?
When looking at tenant applications, there are two main things you need to look for: their credit score and their ability to pay the rent. Do they pay their bills on time? How consistent is their income? If they have any blemishes on their credit report, do they have any explanations for that problem?
When you’re interviewing your applicants, you can ask them about their jobs and previous places they’ve rented from. Get to know your tenant and make sure that they are nice and normal people who can get along with their neighbors. You can usually find out about them in a 10 or 15-minute conversation.
As for calling references, it’s not really a good source of information on tenants because you’ll never get bad references and they’re usually biased so it’s better to interview your tenant yourself.
How do you properly turn down an applicant?
It’s a tough scenario when you have to turn down an applicant. You’ll most likely receive a ton of phone calls and interview a lot of people when you list your property for rent. The best thing to do is to limit the number of applications you receive. You should accept the first-grade application, you should accept it instead of looking for a second or third-place application.
When you have to notify other applicants that they’ve been turned down, there are a lot of forms that you can fill out and send. In this case, honesty is usually the best policy. Even if they were a top applicant, you could let them know that in this market there are a lot of good applicants. Many times, you’ll have to turn down people who are perfectly qualified for the unit.