Property Management is one of the most important factors in determining the success of your investments in real estate. That is why we’ve put together The Ultimate Guide to Property Management.
To give you an overview of what goes into property management we have created the following flowchart.
Follow along as we touch on each of these topics.
We will continue to update this over time with improvements and additional resources. Please let us know what you loved and what we need to add in the comments section. Our aim is to make this the end-all be-all of Property Management!
Property Management Strategies
When it comes to managing your rental properties there are three main ways to approach it.
- Self Manage Your Properties
- Hire a Property Manager or Management Company
- Half Self Manage/Half Outsource to Property Manager
We will touch on all of these strategies but let’s start with managing your own properties.
We assume that if you’re reading this you already own at least one rental property. If you do not, we have many recorded classes and other resources on how to buy a property and what to look for when evaluating potential rental properties. Just leave a note in the comments and we will send you more information on our resources related to buying rental properties.
Even if you do not plan to manage the property yourself we recommend that you at least skim this section as it will help you understand what goes into property management, making it easier to manage your property manager. If you’d prefer to watch a video, then check out the recording below of a class we taught titled “Property Management Mastery”.
Step one of the Property Management Process is preparation. This includes steps you should take to ready the property and yourself.
Ready the Rental Property
This step is important whether you’re going to self-manage the property or hire a manager to do it for you. Before you rent out a property make sure it’s mechanically sound. Have the property inspected by a professional to identify any issues you may need to correct. Once you have the report identifying what needs to be fixed, hire the appropriate professional to complete the necessary repairs. Not only is this crucial for protecting your investment, but it sends a clear message to your future tenants that you are committed to maintaining the property and they should be too.
Make sure to address the following:
- Carpet, flooring, and interior paint
- Exterior of house including siding, roof, windows, doors, yard, fence, etc
- Change the locks to all exterior doors
- Reset the garage door openers in case the previous occupants synced it with their car
- Service furnace and air conditioner
- Check that you have functioning Carbon Monoxide and Smoke Detectors
- Change any batteries in the Carbon Monoxide and Smoke Detectors
- Inspect bathrooms and kitchen for any plumbing leaks, caulking, grout or other issues
After the property is rent-ready, record a walk-through video of the entire interior and exterior. Take photos of every room and area of the house. This includes:
- Walls, ceilings, doors, windows, floors, inside closets
- Outside and inside of all appliances
- Model and serial numbers of all appliances for ease of ordering replacement parts
- Toilets, showers, sinks, under each sink, and inside cabinets and drawers
- Garages, patios, porches, decks, and any out buildings on the property
If you do not have a photograph of the condition prior to tenant move-in it will be very difficult to disprove any tenant disputes.
After you’ve documented the condition of the property you can start preparing yourself to be a landlord.
Know The Law
Being a landlord requires more than sitting back and cashing rent checks. As with any business endeavor, there are legal liabilities when renting out a property. We will mention this several time throughout this page but it is so important we want to state it up front. Consult a lawyer for all legal matters. While we intend for this to be a comprehensive guide for informational purposes, it is not legal advice.
Furthermore, while we will discuss federal laws regarding rental properties, there are likely additional laws and ordinances set by your city, county, and state governments. Obviously we cannot cover all of these for each different city and state so be sure to review them and consult an attorney well versed in the laws pertaining to the location of your rental properties. Examples are diverse and include everything from occupancy limits to which payment methods for rent you must accept.
Fair Housing Act
Before you even start marketing your property to potential renters, review the Fair Housing Act (FHA) and discrimination laws. These are federal statues meant to ensure a housing market of equal access to everyone regardless of race, religion, color, national origin, sex, familial status, or disability. When advertising a property for rent you cannot specify any preference for or against any protected class. The same holds true when evaluating potential tenants but we will cover that later.
Service Animals and Assistance Animals
Review service and assistance animal laws and regulations. As a landlord, even if you have a “no pets” policy, you may be asked to make reasonable accommodation for assistance and service animals belonging to a tenant.
Currently, the FHA defines an assistance animal as “an animal that works, provides assistance, or performs tasks for the benefit of a person with a disability, or provides emotional support that alleviates one or more identified symptoms or effects of a person’s disability.” Assistance animals are not required to be individually trained or certified and can a dog or some other type of animal. When evaluating a request for reasonable accommodation you should consider:
- Does the tenant have a disability (physical or mental) that substantially limits one or more major life activities?
- Do they have a disability-related need for an assistance animal?
When presented with a request for a reasonable accommodation we suggest consulting an attorney before making any decisions to make sure you are in compliance with the law.
In addition to reasonable accommodations under the FHA, a landlord may have further obligations under the ADA (Americans with Disabilities Act) for service animals. A service animal is “any dog that is individually trained to do work or perform tasks for the benefit of an individual with a disability, including a physical, sensory, psychiatric, intellectual, or other mental disability. The revised regulations specify that “the provision of emotional support, well-being, comfort, or companionship do not constitute work or tasks for the purposes of this definition.” Thus, trained dogs are the only species of animal that may qualify as service animals under the ADA (there is a separate provision regarding trained miniature horses), and emotional support animals are expressly precluded from qualifying as service animals under the ADA.”
To determine whether an animal is a service animal you may make the following two inquiries only:
- Is this a service animal that is required because of a disability?
- What work or tasks has the animal been trained to perform?
You cannot ask for a demonstration of the work or tasks or documentation, such as proof that the animal has been certified, trained, or licensed as a service animal. Furthermore, you cannot make the above inquiries if it’s readily apparent that the animal is trained to do work or perform tasks. One example would be a dog that is observed guiding an individual who is blind.
For more information check out the Housing and Urban Development (HUD) guidelines for service animals below.
These laws are complex and evolving and we advise you to consult an attorney for the most up-to date information.
In 1992, Congress passed the Residential Lead-Based Paint Hazard Reduction Act. For any housing built prior to 1978 the seller or landlord is required to disclose known information on lead-based paint and related hazards. You must also disclose the location of any lead-based paint and/or lead/based paint hazards on the property if it exists. Be sure to keep a record of the disclosure for 3 years.
Once you are familiar with the laws governing rental properties and their occupants you will need a lease. A lease is a binding legal contract between you and your tenant(s). You can find generic lease agreement templates online or you may be able to get one from your real estate broker. No matter the source, be sure to update it with any local requirements and have it reviewed by an attorney.
The terms of the lease should thoroughly address the rules and policies for living in your property as well as how disputes and conflicts will be resolved. Let us now go through some of them and what factors to weigh when determining your policies.
Length of Lease
A lease term of 12 months is quite common. Having a lease that expires after a year allows a landlord a convenient opportunity to adjust rent to keep pace with the market, add any provisions that are missing from the lease, and decide whether or not to renew a tenant’s lease. Shorter leases mean you have to go through the tenant-turnover and tenant screening processes more often which can be costly and time consuming. Longer leases may prevent you from being able to adjust rent to keep pace with inflation or they may stick you with a problem tenant for a long time.
When determining what rent you should charge we recommend that you start by looking to see what other properties nearby are charging for rent. Try to find properties similar in size, quality, amenities, and proximity to commerce and transportation. You can find this by checking other rental listings on Zillow, Craigslist and other sites where renters search for properties to rent.
Knowing what the break-even rent is for a property can also help to guide you. You can determine this easily with the Real Estate Financial Planner™ software. Just plug in the price you paid for the property, mortgage length, interest rate, down payment and your taxes and insurance on the property and the Real Estate Financial Planner™ will automatically calculate what rent you would need to charge each month to cover all of your expenses including mortgage, taxes and insurance. The goal of having a rental property is to generate passive income and this is achieved by charging rent that exceeds what the property costs you each month. While you may be not able to get break-even rent right away, rents tend to rise with inflation so you will likely achieve or exceed break-even rent within a short period of time.
What you charge for rent will likely change from one property to the next and one year to the next. Sometimes you will be able to increase what you’re charging for rents while some years you may need to drop the rent you are charging. It all depends on the supply of and demand for rentals in your local market.
How you charge tenants for utilities is largely personal preference although there may be some restrictions based on the city or state the rental property is located in. Some landlords prefer to include utilities in with the rent they charge while others like to bill the tenant for their actual usage. A third option would be for the tenant to put all utilities in their name and pay the utility company directly.
Including utilities in the rent can be attractive to both tenant and landlord. This streamlines the payments and interactions for both parties because everything is covered in one payment. Disputes over the utility bill will also be eliminated and you may attract tenants looking to avoid the hassle of dealing with utility payments. There is a potential for increased revenue as well since what the tenant pays may more than cover the actual cost of their usage. There is also the potential for lost revenue since the tenant has no incentive to be conservative in their water and electricity usage and you will get stuck paying the different. Also, your rent may appear to be higher than other comparable properties if tenants do not realize the rent includes the utilities.
Requiring your tenants to put the utilities in their own name eliminates some hassle for you as a landlord. Any disputes the tenant has over the bill will be directed at the utility company and you will not have to collect any additional payments from the tenant yourself. But, if your tenant stops paying their utility bills it may be more difficult for you to find out. The utility company may not reach out to you (the home owner) since the account is not in your name however, in some municipalities utility companies can and will put a lien against the property for any unpaid balance owed. Be sure to check with your local power and water companies to find out their specific policies. Don’t forget that in colder climates no heat in the property likely means frozen and burst pipes which can cause extensive damage! In any case, it is important to have a plan for how you will monitor the status of the utilities on the property.
Accepted Methods of Payment
Again, when determining what methods of payment you will accept for rent, security deposit and any application fees, check the laws in your area. Generally we advise landlords not to accept cash as it is more difficult to document than other forms of payment and walking around with large sums of cash may be unsafe for you personally. However, some states (such as California and possibly others) require that you accept cash payments from tenants. If you must accept cash, try to avoid accepting uncounted envelopes of money and always provide a receipt to the tenant and keep one for your records.
When collecting a reservation deposit and the first month’s rent you may want to request a cashier’s check, certified funds, or money order. Personal checks may be acceptable for subsequent rent payments once you’ve established that the tenant was able to pay the first month’s rent. Many landlords are now allowing online payments through payment portals or P2P platforms like Venmo or Zelle which don’t charge transaction fees. You may want to consider this since many younger tenants will expect such an option and the prevalence of checks is diminishing.
It’s important that your tenant be able to afford the monthly rent for your property. It is fairly common to require a gross monthly income at least three times the amount of rent. This is based on the widely held belief that spending more than 30% of your monthly income on rent is inadvisable as it won’t leave enough left over to pay for other expenses. Tenants may meet this requirement through a single occupant’s income or a combination of income from multiple tenants. Clearly state in your lease what your requirements are and what documentation they will need to provide for you to verify this. Examples include pay stubs from the 2 previous months, tax returns from the previous year, bank statements, or some combination thereof.
Minimum Credit Score
A credit score is a reflection of timeliness of payments and fiscal responsibility. You may decide to set a minimum credit score for tenants or you may not. Either way we suggest that you run a credit check to find out what their score is and to get a credit report. The credit report will give you an idea of how much debt they currently have, their payment history, any delinquencies, bankruptcy, liens against them or their property, and number of new credit accounts. It can provide a good picture of how likely they are to pay rent and pay it on time.
Set Your Security Deposit Amount
First, find out if there are any state or city laws which limit how much you can charge for a security or damage deposit. If there are not, check out what your competition is charging. If you’re not competitive you may end up driving away potential tenants. Once you have an idea what other landlords in your area are charging for security or damage deposits you can determine how much to charge for your property. It has become accepted practice to base the security deposit on some portion of monthly rent so you may want to consider half a month’s rent, a full month’s rent, or two month’s rent.
Rent Due Date and Late Payment Policy
Your lease should clearly state the date by which rent is due each month. Typically this is the 1st of the month. Should the tenant move in in the middle of the month we suggest that instead of prorating the first month of rent you charge them a full month of rent up front and prorate the second month’s rent. That way the tenant has demonstrated their ability to pay a full month of rent up front.
We set up our rental payment terms to reward our tenants for paying on time. If the payment is received on or before 5:00 PM on the 1st of the month the amount of rent due is slightly discounted (usually by $50). If the rent is not received on time but within 3 days of the due date the full amount of rent is due but no late fees. Once rent is more than 3 days late the tenant starts to incur penalties and late fees. Example, full rent is $1,500 per month. For rent paid on time, the amount due is discounted to $1450. If rent is late by less than 3 days the tenant owes the full $1500. Once rent is more than 3 days late the tenant starts to incur late fees of $50 per day. Unpaid rent 5 days after the due date may trigger eviction proceedings to begin.
Contact your tenant immediately if you have not received rent by 5:00 PM on the due date. It’s possible the tenant lost track of the date and just forgot to pay. However, it’s also possible the situation may be more complicated. We will discuss how to resolve challenging tenant situations in another section so for now we will remind you to check with your attorney regarding the process for tenant evictions in your state.
Pet Deposit, Pet Rent, or No Pets
Decide whether or not you’ll allow pets in your rental property. Pets can do some serious damage to a property so you may want to opt out and just not allow any. They may also pose a threat to the physical safety and well being of other tenants or neighbors. Keep in mind though that having a no pet policy will significantly limit your pool of potential tenants as more than 68% of all U.S. households have pets.
If you want to be animal friendly, great! Check your local and state laws regarding any weight or breed restrictions which your tenants will need to comply with. Also check whether the laws in your area prohibit or limit the pet deposits or pet fees you can charge. Generally speaking a deposit is refundable while a fee is not so take that into consideration when setting up your lease terms. Some landlords may charge an additional pet deposit on top of the security deposit as well as monthly pet rent to cover any additional wear and tear the pet does to the rental.
Remember though that pet fees and deposits can not be levied on service animals and even “pet free” properties must accept tenants with service animals in most instances.
Property Access and Inspections
As a landlord you should inspect the interior and exterior of your rental properties at least every 6 months. This is so you can see if any repairs need to be made and to monitor any issues with how your tenant is treating the property and verify they are not violating the lease. Some states have laws governing how much notice you must give your tenant prior to accessing the property so be sure to research them when putting an access policy in your lease. A general rule of thumb is to provide 24 hours notice to the tenant and to provide a reason for why you’ll be coming to the property. You must also specify what time you intend to come by and it must be reasonable. In other words, an inspection at 3 AM would not be reasonable. There are of course exceptions and you may access the property without notice in case of an emergency. Keep in mind there are a few states which grant you access only if it’s written into your lease so be sure it’s addressed.
Other valid reasons for accessing the property include making repairs or showing the property to potential tenants when nearing the end of a current tenant’s lease.
Lease Renewal or Ending a Lease
If you do not wish to renew a lease with a tenant some states specify how much notice must be given to the tenant. These requirements are a minimum and you can give additional notice if you so wish. Your lease should also dictate how much notice you require from a tenant if they do not plan to renew their lease. Common lengths of time are 30, 60, or 90 days prior to the end of the lease. It is in your interest to ask for at least 60 days notice so you will have time to screen and select a new tenant.
Marketing Your Rental
The next step is to advertise your rental property to attract potential tenants. A sign in the yard of the property can be a great way to attract interest. Be aware that this may also alert potential thieves and criminals that the property is vacant. We highly recommend advertising the rental online as well. Some of the websites to consider are:
There may be others specific to the location of your rental which you may want to consider as well. Be sure to use lots of quality pictures of the interior and exterior of the property and use the best picture first. Create a catchy and descriptive headline for your ad. Highlight the attractive qualities of the property but be honest – don’t say parking is included if it’s not or that the kitchen appliances are all stainless steel if they aren’t.
When describing the features of the unit use bullet points, don’t just list everything in a long paragraph. Be sure to include:
- Property address
- Date available
- Monthly rent
- Security deposit
- Application fees
- Length of lease being offered
- Number of bedrooms
- Number of bathrooms
- Square footage of the property
- Recent upgrades to the property
- Parking or garage
- Pet policy
- Smoking policy
- Included appliances
- Occupancy limits
- What screening they will need to pass
- Proximity to transport, shopping centers, parks, schools
- Whether rent includes utilities
- Contact information
For the contact information you may want to consider using a local, randomized phone number (like you can get through Google Voice) to avoid having your personal number up for the world to see.
If you are using Craigslist, renew your ad every 48 hours to keep your listing towards the top of the list. Don’t renew it before then and don’t post duplicates of the same listing otherwise you’ll get flagged.
Start advertising in advance. Know that it may take 60 days or longer to find a qualified tenant. This also allows you to adjust the rent you’re asking for as necessary. Start high and lower the rent each week if you’re not getting enough calls about the property. Another reason to advertise early is because high quality tenants tend to plan ahead and look for rentals in advance of needing to move in. Tenants looking to move in right away might be lower quality. That is not to say this is always true or that you should use it as a way to screen potential tenants.
In your advertisements do not state any preference for or limitation regarding applicants based on race, color, national origin, religion, sex, familial status, or handicap. Such statements are illegal and violate Fair Housing Laws.
The next step in getting your property rented is to be responsive! Answer your phone or return calls and emails quickly. Answer any questions they have, even if they ask for information already provided in your listing. Remember that people searching for a rental are looking at LOTS of ads so don’t hold it against them if they ask something listed in your ad. Also, be prepared because pre-screening starts with that initial phone conversation which will end up saving you and the applicants time in the long run. Ask everyone the same questions and be prepared to write down the answers. This is important in case there is any question later as to any discrimination occurring during your pre-screening. You may want to ask them the following questions:
- Name, Phone Number, and Email
- Who will be living there besides yourself?
- Their answer may violate the occupancy limit of your city or your property and exclude them from further screening for your property.
- How long are you looking to stay?
- If their answer is 3 months the pre-screening may be over depending on your requirements.
- When are you looking to move in?
- Make sure this matches the availability of the property.
- Will there be any pets? How many, breed, size, spayed/neutered, age?
- Maybe you don’t want pets or have breed restrictions in your area. Or, perhaps you don’t allow puppies.
- Do you have good landlord references?
- You will verify this later but it doesn’t hurt to ask up front and gauge their response.
- Are you renting now?
- If not find out their living situation. Perhaps they are staying with family, moving for work, or are a college student who will be renting for the first time.
- When does your lease expire?
- How much are you currently paying in rent?
- Hopefully this will be close to what you’re asking for rent for your property. If there is a large difference between the two you may want to ask them how to plan to afford your rent.
- Why are you moving?
- Maybe their lease is up. Maybe they’re getting evicted.
- Have you ever been evicted?
- Do you have any felonies or other convictions?
- You can verify their answers to both of the previous questions when you run a background check but asking up front might give them a chance to explain the circumstances.
- What is your approximate gross monthly income?
- Make sure that it meets your required twice the monthly rent or three times the monthly rent. Again, you will verify this later but ask up front.
Showing The Property
If the answers given by the potential tenant meet your written criteria, email them a walk-through video of the property. Ask them to watch the video and let you know if they think it will meet their needs. If so you can arrange for them to see the property. If they watch the video and don’t like what they see you’ve just saved yourself a bunch of time and hassle.
There are several options when showing prospective tenants a rental property. These include self-showings, open houses, and individual appointments. We will discuss each of these below. All of them have pros and cons and it’s important to consider them when deciding how you will handle showing your rental property to prospective tenants.
Self-Showing Your Rental
If the property for rent is vacant you may want to consider allowing self-showings. This allows the applicant to view the property when it’s convenient for them and eliminates having to coordinate your schedules as well as the hassle of people not showing up for an appointment. Also, it prevents you from having to deal with the safety concerns of being alone in a vacant property with a complete stranger. Self-showing can be as simple as having a lock-box at the property and texting the code to the applicant upon their arrival at the property. We recommend that you get a copy of their driver’s license or other official photo ID before sending the code to anyone. That way if something happens to the property you can follow up with them. While this method does involve some risk to the property there are some ways technology can help make self-showings safer.
Companies like Rently and ShowMojo use smart locks that integrate with their software to allow prospective tenants access to your rental property. To setup a showing, a prospective tenant must register on their website with an ID and valid credit card. Once they register they will receive a one-time access code specific to the lock bock at your property which expires after one hour. You can even set the hours you want to allow self-showings and sign up to have a survey sent to prospective tenants after they visit your property.
We suggest protecting the flooring as much as possible during this process since it will presumably be new. Since you will not be there to ask that shoes be removed you may want to lay contractors paper in all main walkways and to each window and door and leave a sign requesting that they stay on the paper.
You may want to consider printing out the advertisement of the property and leaving some copies inside on a counter top. That way prospective tenants can easily refer to the details of your rental such as the month rent, availability, etc.
Follow up with the prospective tenants after their tour. Find out what they thought and let them know the next steps if they are interested in applying to rent the property. Send them the rental application. Ask them to complete the application and return it to you along with the application fee. The application fee covers the cost of running a background and credit check and you should execute these for each person over the age of 18 who will be living at the property. We will cover how to review and evaluate the application and credit and background checks in the Tenant Screening section below.
Showings By Appointment
You may want to handle showings by setting appointments and personally providing a tour of the property. This will allow you to control who has access to the property and give you a chance to interact with prospective tenants one-on-one. Once they’ve asked to see the property in person send them your rental application and an email containing the date, time and location of the showing. Provide any relevant details regarding directions, parking, how to find you upon arrival, etc. Take as much guesswork out of the equation as possible. Ask them to reply to the email confirming the date and time of the showing.
If the showing is several days away send them a reminder email the day before the showing. On the day of the showing call them to confirm that the time still works. You will likely experience last minute cancellations and no shows no matter what you do so be prepared for that. If possible, schedule multiple showings for the same day 15 to 20 minutes apart. That way even if one of the applicants doesn’t show up you haven’t completely wasted your time going to the property. Plus, if an applicant isn’t done looking around after their 15 minutes are up they can keep browsing while you start the next tour. It may help motivate applicants to complete the application if they see other people interested in renting the same property.
Prior to the showing, leave a list of the names, contact information and appointment times with someone who will not be at the showing. Setup a system for checking in with that person so they can alert the authorities should you fail to confirm your well being.
On the day of the showing, arrive early to turn on all the lights and pick up if needed (usually only necessary if the property is currently being rented). Greet the applicant(s) outside, introduce yourself and invite them inside. We suggest protecting the flooring as much as possible during this process since it will presumably be new. You can do this by any of the following ways:
- Remove your shoes and ask them to do the same
- Lay contractors paper in all main walkways and to each window and door and ask everyone to remain on the paper
- Provide booties that they can place over their shoes
- Give the option to remove their shoes or put booties on
Provide the guest(s) a quick tour of the property, pointing out the best features. Do a little research on the area around the property as well and be sure to mention the proximity of schools, grocery stores, parks, restaurants, main streets, and transportation centers. Take this time to explain any pet fees, utility fees, security deposits, etc. Invite them to look around. If the property is unoccupied feel free to let them wander around. If there is a tenant currently living there you may not want to let applicants go around unsupervised as they may attempt to take prescription drugs from the bathroom or steal other small items which you could be liable for. Ask whether they have any questions. Let them know the next steps.
- Fill out rental application
- Application processing
- Notification of pass or fail
- Reservation deposit
While showing the property to prospective tenants yourself is a great way to learn more about them and get a sense of what kind of tenants they might make, it is also very time consuming and no-shows can be frustrating.
Hold an Open House
A third option is to hold an open house. Let prospective tenants know the date and window of time you’ll be at the property and invite them to come by and see the place. For example, Saturday the 15th from 1:00 PM to 3:00 PM. With an open house there’s less coordination involved than setting up individual appointments and you don’t have to deal with cancellations and no-shows. Plus, it can create a sense of urgency for renters to apply for the rental more quickly if they see competition for the unit. Provide a sign-in sheet to capture each attendee’s contact information so you can follow up with them after the open house.
However, this also means you have no idea whether 20 people will show up at the same time or if anyone will even show up at all. If no one comes by you’ve just wasted a couple hours. If a bunch of people come at the same time it might be difficult to interact with each of them individually or answer all their questions about the property.
Tenant screening can make or break you when it comes to your rental properties. We have an entire 2 hour class on this topic alone. When you have a chance we highly recommend that you watch it.
For ease of reference we will explore the principles of tenant screening below as well.
- Determine your credit and background check provider Do this in advance of needing to run a background or credit check to avoid any unnecessary delay in the tenant screening process.
- Create your tenant screening process Write this out so you can refer to it when necessary. Plan ahead and think through all possible what-if’s so you know what you’ll do in any given situation before it happens.
- Get or create a “Rental Application” The rental application is what you will have each potential tenant fill out during the tenant screening process. You can find one online or use this one here but you should review it with your attorney.
Get or create a “Rental Application Evaluation Criteria”. This will be the criteria by which you will evaluate all prospective tenants.
Get or create a “Rental Application Evaluation Worksheet”. You will fill out this worksheet as you evaluate each tenant applicant.
The rental application is how you will gather the information you will need to determine whether an applicant is qualified to rent your property or not. An application should be completed by each person over 18 who will be living at the property.