Passive income can feel not-so-passive when one takes the role of managing their own properties. The job can surpass the standard 40-hour workweek with to-do lists that include tenant checks, rent collections, property maintenance, and the list goes on. Some investors prefer to take the loads on themselves initially to keep a low REI budget and perhaps understand the trade before hiring professionals to run the properties. Such is the advice by Jesse Evans of Renters Warehouse, a national property management company. It’s helpful to learn the trade to be a more rounded investor, but ultimately, the “thankless” job is better left to the professionals due to heavy time consumption that could take away from the acquisitions component of an investor that keeps that revenue growing.
Whether it’s a DIY approach or hiring the pros, there are some basic rules of thumb to follow to avoid potentially expensive drawbacks in managing a rental portfolio.
Price Your Home Correctly
As an investor, you’re definitely shooting for the maximum return on your rental properties, so setting your rents appropriately is a major factor in ensuring your bills are paid with a little extra cash flow on the side to pay out your efforts because let’s face it, you’re not a baller if you’re not profiting. A couple of things to consider when setting rental rates include the time of year and season in your property location. Summertime tends to be the ample time for moving due to more pleasant weather and school being out, so rental rates inch up during that time of year. This is a good time for a lease signing to lock in more profitable rents throughout the year. By the same token, lease expirations at this time of year yield higher odds for renewals during a higher-rate season.
Researching the rental market in the immediate area with comparable properties is a given. Once there’s a good number of comps on the list, adjust the price based on amenities and features.
Handle Showings with Grace
When a lease comes to its end and a tenant prepares to leave the investment nest, there are ways to show the property to new tenants and ways NOT to show the property. To maintain cash flow and avoid vacancy days where no one is paying rent on the property, there may be times where an occupied property needs to be shown to potential tenants. If this is the preferred approach, there are ways to do this with grace without too much disruption or awkward moments. Having a cooperative tenant is key, and may sometimes require some incentives to maintain a clean unit, secure pets and perhaps even leave the property during the showing. Although none of this can be forced on a tenant, proper notice and small rewards like gift cards can go a long way.
Avoid “For Rent” signs if a tenant is still occupying the space, as to not disturb the tenant and/or possible create a recipe for potential revenue loss should an interested tenant knock on the door and be met with resistance from the current tenant. If a sign is absolutely necessary, adding “By Appointment” or “Do Not Disturb Tenants” is a must.
Finding a Good Tenant
Getting rent on time and not having property destroyed other than some regular wear and tear is essentially all a landlord could ask for, although the opposite rings true for some. Dodging disaster from late rent or mistreated property isn’t impossible if tenants are properly vetted. All potential renters should undergo a consistent, thorough screening from a landlord that don’t violate any fair housing laws. A rental application with a credit and criminal record check is the bare minimum effort to finding a good tenant but one could take it even further with reference checks from prior landlords and employers. Once a competitively priced property is listed, calls will flow in, so going as far as pre-qualifying tenants by phone is an efficient process to weed out the bad apples that could waste everyone’s time doing showings, reviewing applications, background checks, and references. Basic questions digging into their reason for moving and the time they plan to settle in could essentially filter out candidates that aren’t fit for the landlord’s profit timeline or quality standards. Digging in a little deeper with income inquiries can do an even better job of determining whether or not the potential tenant would be able to afford rent. Letting them know that a credit and criminal background check is part of the application process, along with employer reference checks will reveal to a landlord who is serious about renting and confident about their status as a renter.
The advice here barely starts to scratch at the surface of the landlord life. Managing properties takes work, albeit work that can be done by a serious investor looking to make a serious profit. It’s definitely a trade to dive into head-first to understand the ins and outs of the process, but ultimately, hiring a professional management company or even a staffed property manager is the most sensible on a time management standpoint. Things like rent collection, property maintenance, and even insurance coverage are additional components to consider as part of the job. Jesse Evans of Renters Warehouse delves deeper on these topics during the May 14 meetup.