I firmly believe that learning how to manage your rental properties as a Real Estate Investor is instrumental to the success and profitability of your income properties and your sanity, especially in today’s market where so many investors are buying and holding property.
As a Real Estate Investor, you don’t have to hire a property management company to manage your rentals unless you really want to. You can manage them yourself easily if you set down some specific rules for your tenants and your business. Once you reach a number of rentals where it becomes a lot more work than you want to deal with, then you may want to hire a property management service. But if you own fewer than 30 rental properties for example (I’m talking about single family homes or duplexes) you can definitely handle the management yourself by simply following a few rules.
Always make sure you run a tenant check on every tenant before you put them in your property, don’t just settle for the first person who has the money in hand. This is a tough lesson to learn but if you put a quality tenant in your property to begin with you will have a lot fewer problems overall. Most of the tenants who are in my properties have been in them 5 years or more. These are the kind of tenants I want to work with and you will too.
The First Rule is that you don’t bend the rules. This was a tough one learned by the school of hard knocks for me. In the early days, I used to get “sucked in” by all of our tenant’s excuses, which obviously caused a lot of stress. I knew I had to make some changes quickly if I wanted my rental business to succeed. And since I wanted my rental portfolio to be a part of my long-term income plan, I needed to figure out how to make the system work for me.
I finally figured out that if the tenant wasn’t paying their rent, I had to come out of pocket to pay the mortgage. I very quickly realized that these tenants were in effect stealing from us and from our business. So, I put on my “big girl pants” and got tough, no more excuses were acceptable. Tenants have a responsibility to pay their rent and pay it on time.
So, when rent isn’t in the post office box on the day it is due, the tenant is served immediately with a 3 day notice or notice to quit. In the state of Florida, you can charge a fee to serve this notice on top of the past due rent and I add that amount to what was past due. I have my handyman deliver the notice. I then hired a really good attorney to handle the rest of the eviction process for me. I quickly learned that this was the easiest way to deal with evictions and the most stress free.
This brings us to Rule Number 2, which is that tenants mail their rent to a specific address every month. DO NOT pick up rents from tenants! And DO NOT use your home address as a mailing address! Get a post office box, it gives you anonymity and you don’t have to worry about your mail being stolen. It is the tenant’s responsibility to make sure the rent gets to you and gets to you on time. I cut no slack for holidays or weekends either. Rents are also due before the last day of the month so my business has the money in hand to make our mortgage payments on time.
All of my “rules” are laid out in an airtight lease I developed from the very beginning which outlines everything I expect from my tenants and what they can expect from me. And as problems have arisen over the years, we have added new clauses to our lease to cover them.
Rule Number 3 is that we charge late fees for each day the rent is late. There is no “grace period”. Within the body of our lease, these late fees are called “additional rent” because otherwise the courts don’t recognize them as a compensable expense. This is language you definitely want to add in your lease. The courts don’t consider late fees when they give a judgment to a land lord, but they will add on additional rent. We immediately added this language to our lease so the court adds this amount to any judgment we receive when we have to evict a tenant.
Rule 4 - lay out in your lease specifically what repairs the tenant is responsible for while renting from you. This was another lesson I learned the hard way from the “school of hard knocks”. One night a tenant called around dinner time and had a stopped up kitchen sink. So, my husband went over to the property only to discover that there was a child’s cup stuck down in the garbage disposal, blocking any water from going down the drain. From this experience, I added another clause to our lease. This clause states that the tenant is responsible for the first 65.00 of all repairs, and there is a charge of 35.00 for our handyman to go look at any problem for the tenant. When we added this clause to the lease, it very quickly stopped all the “nonsense” calls we were getting. And we now have a handyman who handles these types of calls.
Rule 5 - Get someone else to do all repairs for you. My husband and I have put together a list of vendors we use for any repairs our properties might need including a general handyman, a pest control person, a plumber, an electrician, an air conditioning person and an appliance store that gives us excellent discounts on appliances for our units. The way we worked this out is very easy and works very well. When a tenant contacts us about a repair, we contact the vendor needed to do that repair. The vendor contacts the tenant directly and they make the arrangements to meet. The vendor takes a look at the problem and calls our office for authorization to do the repair. This cuts down on a lot of time and hassle for us and takes care of the tenant’s problem quickly and efficiently without us having to get in the middle of it.
Rule 6 - Whether or not a landlord should allow pets in rental units is always a big question for a lot of the Real Estate Investors I meet. I have the answer to this dilemma. In some units, I do allow pets, but once again there are specific rules. We have specific weight limitations and the tenant is only allowed one pet. The tenant must provide photos of the pet which are attached to a separate pet lease which outlines all the conditions of having a pet in the unit. Some of the conditions are based on common sense and some are county ordinances. The tenant is required to a pay an additional amount of non-refundable security deposit for the pet and an additional amount of monthly “pet” rent. Having more than one pet in a unit is grounds for immediate eviction. The tenant also signs off that they are responsible for any damage the pet causes to the unit or to another person. We also do not allow breeds of dogs which are labeled as “vicious”. Generally speaking we have found that pet owners have a tendency to stay in the unit longer than non-pet owners.
The Other Rule I have always personally lived by is that I would not rent a unit that I would not live in myself. Landlords, take the time and the effort to maintain your units properly. Not only are you protecting your asset but you are also making it a lot more comfortable for a tenant who will then want to stay long term. As I mentioned before, thinking of all the tenants I currently have; the shortest time a tenant has currently been in one of my units is three years and the longest is fifteen years.
Building specific rules into your real estate investing business regarding property management is the best way to protect yourself, your assets and run a stress free rental business. For more information on property management and finding all the sellers and buyers you need for your real estate investing business, visit my website at www.marketingmagiclady.com.