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.
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.
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”.
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.
Once 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:
(1) Is this a service animal that is required because of a disability?
(2) 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.
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. 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.
When thinking about what rent to charge you should have an idea of what the break-even rent for a property is. 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!
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 months 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 tenants will expect such an option and the prevalence of checks is diminishing.
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.
Your lease should also address what happens if the tenant does not pay rent on time. Decide whether there is a grace period and what happens if payment has not been made by the end of the grace period.
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 having a no pet policy this 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 a 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 an emergency.
Other valid reasons for accessing the property include showing the property to potential tenants when nearing the end of a current tenant’s lease.
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 tenets of tenant screening below as well.
- Determine your credit and background check provider
- Create your tenant screening process
- Get of create a “Rental Application”
Do this in advance of needing to run a background or credit check to avoid any unnecessary delay in the 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.
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.
This is a work in progress so check back soon!