About 36% of all households in the U.S. rent rather than own. That number is going to increase as more young people looking to buy their first homes get priced out of the real estate market.
That presents an opportunity as a real estate investor. You can make plenty of money from renting properties.
It takes the right investment and good property management skills.
Have you ever wondered what the property management process is like? Whether you’re running your own rental property or handing it off to a property management company, you should know how property management works.
1. Assess Your Property
Do you know how much you should rent your property for? That takes detailed analysis and thought to get a sense of what renters would pay.
Consider what other rentals are going for in the area, the square footage, and amenities. You might have just remodeled a unit in a downtown area. That allows you to command a premium price.
What happens if you overprice your property? For starters, your property will sit on the rental market for a long time. That means you don’t have rental income.
When you do finally fill the unit with a tenant, you’ll have a hard time keeping them. High rental turnover is expensive.
You constantly have to invest time and energy in showing the property and advertising it. That impacts the overall profitability of your investment.
You’re much better off pricing it right and getting a reliable tenant that takes care of the place for years.
2. Marketing the Rental Property
How will you let renters know that the apartment is available? You have to think about the type of tenant you want and where you list the property.
You can target renters on Facebook and Instagram with sponsored posts. Sites like Zillow, Craigslist, and Rent.com are sites that renters use to find properties.
Property management companies that have an online presence list properties directly on their websites. Property managers that have a good reputation attract the right tenants without heavy advertising.
3. Screening Tenants
Screening tenants seems straightforward, but it’s not. You have to comply with Fair Housing Laws in your tenant screening processes.
Property management companies use an application to initially screen tenants. This is to protect the landlord in case a person decides to file a lawsuit because they didn’t get the apartment.
They also charge an application fee between $20 and $50 to pay for background and credit checks. This fee also weeds out people who really want the apartment and those that don’t.
Ask for information such as employment, credit history, past issues such as bankruptcies, and references. Keep the process the same for everyone who applies to limit your liability.
4. Handle Rental Contracts
The rental contract is the most important aspect of the process. If you’re doing property management on your own, don’t pull an example of a lease agreement from Google.
Use an attorney to get a lease agreement that’s tailored to your needs.
5. Accept Payments
Once the tenant signs the lease, you should collect the deposit and first month’s rent. The laws in each state vary around how the deposit is held. Some laws put a cap on the amount of the deposit.
More property management companies accept payments online. This is important because you have to keep your financials straight. Apartments.com and reedyandcompany.com are examples of sites that allow tenants to pay online.
Some payment systems let you set up automatic withdrawals. That’s a great way to ensure on-time payments. Tenants appreciate the convenience.
They don’t have to log in each month to pay the bill. They might forget because they’re busy or away.
6. Inspection Checklists
Walk through the property with the tenant to make sure that everything works as advertised. Have a checklist of items that come with the apartment in each room. Mark anything that has damage or needs to be repaired.
This creates a record of the condition of the apartment when the tenant moves in. You can compare it to the condition of the unit when the tenant moves out.
It’s much easier to prove that the tenant caused issues with these checklists. That removes any argument if you have to withhold a portion of the deposit for repairs.
7. Property Repair and Maintenance
The only time you should contact the tenant is if there are issues with the unit. Stop by periodically to take care of the exterior of the building.
Make sure that you have a maintenance budget set aside in case of emergency repairs. You never know when a refrigerator needs replacing.
Property Management and Scaling Your Investments
Landlords that have a couple of properties usually DIY the property management process. That seems like a good way to maximize your profits, but you have to spend a lot of time on property management.
It could become another job. If you want to buy more properties, you’ll either have to hire someone to help you with maintenance or work with a property management company.
The advantage of a property management company is that they have the capacity, connections, and systems in place to handle each part of the property management process.
Property Management 101: Know the Process
Do you have a better understanding of how the property management process works? It takes a lot of time to manage one property. If you ever want to scale up your investments, you should hand your property management off to professionals.
They have the systems in place to manage each part of the process. You can sit back and enjoy the results of your good investments.