Knowing how to manage rental properties is critical to your success and depends on your available time, budget, and skills. The key to your success is learning the steps involved in managing rental properties, including buying a rental property, finding qualified tenants, managing maintenance and repairs, and managing rental property finances.
If you want help with how to manage rental properties consider Avail. Avail can help you screen tenants, post vacancies, collect rents, and schedule maintenance repairs. You can start today with their 30-day free trial, and your first unit is always free.
1. Buy a Rental Property
It’s important to know how to manage rental properties before you buy them. You need to decide whether you’ll manage properties yourself, use rental property software, or outsource to a property management company. You can use a cash flow projection that includes projected income and expenses to budget for rental home management.
The cash flow projection will help you learn how to manage rental properties because you will have to research and learn upfront what to expect for rental income and expenses. Expenses include mortgage debt, taxes, rental property insurance, advertising, maintenance and repairs, municipal expenses, vacancies, utilities, filing an annual report for the business entity, legal, and accounting.
Repairing a Rental Property
If you want to make cosmetic updates and fix any deferred maintenance you inherited in the purchase, the time to do so is before tenants move in. You’ll want to plan and budget for these before buying a rental property to avoid overspending. You’ll also want to factor your repair and maintenance costs for the whole year.
Here are some common formulas investors use when preparing their repair budget:
- 1% Rule: maintenance costs about 1% of the property value per year.
- 50% Rule: Maintenance and repairs are equal to 50% of your total operating costs.
- 5x Rule: Maintenance costs average 1.5% of monthly rental income.
- Square Foot Formula: Maintenance will cost about $1 per square foot per year.
When buying a rental property, it is important to have a home inspection to determine if there are any issues with the property, deferred maintenance, or if you will need to do any modifications for the property to meet your intended use. Some issues can be negotiated with the seller depending on the type of sale or whether the property is being sold as-is.
2. Determine Rent and Tenant Qualifications
When you create your cash flow projection as part of your overall rental home management strategy it’s important to project what you might expect to receive in rental income. Before you find tenants, you want to go further and determine what you can reasonably charge for rent. Then, you can advertise vacancies and decide on your tenant requirements.
Conduct Market Research
Just as you should compare homes when buying a rental property, you can compare advertised rental units with your units. For example, you want to consider numbers of bedrooms, baths, square footage, if anything is included in rents such as heat and hot water, the location, which floor the unit is on, and any upgrades and features units have such as cosmetic upgrades.
When you decide to buy a rental property, you will want to do market research to determine market rents for where your property is located. You can find comparable rents on websites like Craigslist, Zillow, and other sites where landlords publish units for rent. You can check local newspapers and magazines that advertise rentals.
From this research, you will get a good idea of what rents are for the area. Be careful to not over- or under-price your units. While cosmetic upgrades make a unit more competitive, they don’t command significantly higher prices. You want to consider all the ways your unit compares with others and price competitively. Always consider how it will impact your overall rental home management strategy when pricing rentals.
Determine Tenant Requirements
Before you can rent your unit you want to think about who the ideal tenants would be for your rental. You must follow fair housing laws and cannot discriminate against others, but you also want to be mindful about who you rent to. Some things you want to consider are past rental history, employment history, minimum income requirement, credit scores, number of references, and criminal background information.
You can advertise vacant units on Craigslist, Zillow, Facebook Marketplace, and local newspapers just as you used them to find current market rents. Newspaper ads typically are more expensive. You can advertise for free to low-cost online. Make sure your ads give enough details about the unit, yard and neighborhood.
Here is a list of items you will want to include in your ad:
- Date unit is available
- Number of bedrooms and baths
- Which floor the unit is on and square footage
- Eat-in kitchen, if applicable
- Building and grounds amenities such as parking, laundry, hardwood floors, granite countertops, decks, etc.
- Neighborhood amenities i.e., close to schools, transportation, major routes, shopping, quiet neighborhood, country setting, etc.
- Amount of rent
- Pet and smoking policy
- If any utilities are included
- Additional money needed such as first and last month’s rent and security deposit, and amount
- Application fee paid by tenant, if applicable
- Preferred way to contact you
Landlords should include a number of the items from this list to craft a listing that will make their property attractive for potential tenants. Use descriptive language with words like, “sunny,” “large,” “bright,” cheerful,” and so on. You can look at other ads online to see how landlords describe their rentals.
Here is a sample:
Available Aug. 1. Bright, sunny, 3 bedroom 2 bath, first floor apartment. 1500 sq. ft. Eat-in, fully-applianced kitchen with tile floors and granite countertops. Refinished hardwood floors throughout. 10 foot ceilings. Large cedar deck. Coin-op laundry. Ample off-street parking. Quiet desirable family neighborhood. Close to schools, shopping, and bus line. Easy access to major routes. $1500 per month, no utilities, no smoking. Pet-friendly. First and last month’s rent. Application fee of $35.
3. Find Qualified Tenants
Once you advertise your rental and start hearing from prospective tenants, the next steps are arranging to show the unit(s), having prospective tenants fill out applications, and collecting background check fees so you can qualify your tenant-applicants. To save time, consider holding an open house to show the unit or schedule group showings so you can reduce the number of times you have to show the unit.
You can use a paper rental application, get a template online, have an attorney create one for you, or use one of the many affordable and high quality online rental property software programs available. Online rental property software can provide tenant applications and perform tenant background screenings on your behalf. If you want to simplify the background check process, check out MyRental.
MyRental provides a wide variety of background reports and services to help identify quality tenants who are more likely to pay the rent on time each month, protect the property, and stay for longer periods of time.
4. Prepare Leases and Disclosures
In your rental agreement, you’ll need to include disclosures such as the mandatory lead paint notification, security deposit statement, and the statement of condition. The security deposit statement explains how security deposits are handled. Security deposits and last month’s rent should be placed in separate interest-bearing escrow accounts.
In some states, like Massachusetts, landlords are required to return the interest to the tenant on each anniversary of their tenancy via bank check. You should also have tenants inspect the unit shortly after the move in for any preexisting conditions and complete a statement of condition. This protects them at the end of their lease from being held responsible for any damage or repair issues you may not have noticed.
When you prepare your lease, you’ll need to decide what type of tenancy to offer. Do you want long-term tenants in a lease or would you prefer a month-to-month arrangement called a tenancy-at-will (TaW)? Each has its own pros and cons and needs to fit into your rental home management plan.
Lease vs Tenancy-At-Will Pros & Cons
Both lease and tenancy-at-will agreements have pros and cons. Knowing these will help landlords decide which type of rental agreement best suits their long-term goals for their rental property. Some landlords with multiple units use both.
Lease pros include:
- Consistent guaranteed rental income
- Less money spent on advertising vacant rentals
Lease cons include:
- Redoing lease agreements and paperwork every year
- More difficult to remove a tenant you’re unhappy with
Tenancy-at-will pros include:
- Rental paperwork only needs updating if something changes
- If you’re unhappy with a tenant you can remove them with a 30-day notice
Tenancy-at-will cons include:
- Higher tenant turnover, long term tenancy and rent not guaranteed
- More money spent to find and screen tenants
Ending a Lease or TaW
Whether you choose to rent your units with a lease or TaW, you need to give the tenant a minimum of 30-days’ notice when it’s time to end the tenancy. The 30-days typically ends on the last day of the month, so if you give notice on Jan. 5, your tenant would have until March 1 to vacate the rental.
With a lease, you want to talk to your tenant before the 30-day period begins to see if they plan to stay in the unit, to inform them of any pending increase in rent, or to let them know you don’t plan to continue renting to them. If you don’t plan to keep the tenant, be sure to provide them with notification in writing on or before the start of the 30 days.
If the landlord and tenant both decide to continue the rental agreement, have them sign the new lease before the first day of the new lease term, In a TaW you only have to renew the rental agreement if something is going to change such as other tenants moving in the unit or an increase in the rent.
5. Manage Maintenance and Repairs
Rental property maintenance and repairs are a key part of managing your properties and protecting their value. Rental maintenance includes interior and exterior maintenance, move in/move out maintenance, and emergency repairs. Maintaining your rental property is a big task, so you may want to outsource part or all of it to free up time for more important things.
Routine and Preventative Maintenance
Routine and preventative maintenance are done on a regular basis and include small-scale projects and general upkeep of your rental property. You want to create a plan and schedule maintenance duties so you don’t fall behind or so any damage doesn’t get worse. Regularly maintaining your rental property will help hold or increase its value, and well-kept buildings attract ideal clients while reducing risk of vandalism.
Here are some typical maintenance tasks:
- Clean and maintain common areas
- Inspect all landlord-owned appliances
- Make sure doors and windows are functional and locks work
- Inspect common areas for adequate lighting
- Check all fire and carbon monoxide equipment is functional
- Inspect heating and cooling units are functional
- Clean or repair any items needed on the interior and exterior
- Clean up yard, remove snow and ice, mow lawns, tend to gardens
- Inspect siding and foundation
- Remove any pests
Routine and preventative maintenance follows a weekly, monthly, annual, and seasonal schedule for both the interior and exterior of your building. As you’re inspecting the different areas, be sure to fix anything that needs repair.
Move In/Out Maintenance
Rental property maintenance is also necessary when existing tenants move out. In your security deposit statement it should explain that any damage caused by the tenant will be paid for by the tenant and deducted from their security deposit. This is damage that exceeds what is considered normal wear and tear. Using a move-in/move-out checklist can guide you as you inspect your units during tenant turnover.
Emergency Repairs and Maintenance
It seems as if every landlord has a story about getting a 2 a.m. call for an emergency at their property like toilets flooding, pipes bursting, fire alarms sounding, or something else. Why these things tend to happen in the wee hours is anybody’s guess. Still, these emergencies need to be addressed quickly.
You can either instruct tenants to call the fire department or make the call yourself. If you live a distance from your property or it is outside your skills and abilities to address the emergency, you want to have contractors phone numbers handy so you can call them right away. Ideally, you would want to outsource emergency repairs so you can hopefully still get a good night’s sleep!
Outsourcing Maintenance and Repairs
Outsourcing maintenance and repairs saves time and money. There are several ways you can outsource. You can hire skilled subcontractors for routine and preventative maintenance such as landscapers, cleaners, and snow removal companies. You can call plumbers, electricians, and handyman services for repairs. Hiring professionals saves time because you don’t have to do it yourself. It saves money by getting the job done right the first time.
You can outsource to a property management company. Property managers are helpful if you own a lot of rental properties, feel overwhelmed by many tasks, don’t have the skills to manage the property, or have limited time. Property managers will advertise your property, screen tenants, show and rent your units, manage leases and tenants, collect rent, pay your bills and handle maintenance.
Rental property software is another way to outsource some of your rental home management. There are many great online programs that provide applications, leases, perform background checks, and allow you to communicate with tenants. If you’re interested in rental property software, consider Avail. Avail will help you screen tenants, post vacancies, collect rent and schedule maintenance. You can start today with their 30-day free trial, and your first unit is always free.
6. Collect Rent Payments and Deposits
You’ll need a process for collecting rent. It’s more convenient if you can collect rent online through rental property software like Avail or through ACH payroll deductions. Tenants can also mail you a rent check or if you live in or near the building you can stop by to collect the rent, though this is the least convenient.
Your lease agreement should include whether a fee is charged for late rent. How much you can charge for late fees varies by state. Some states allow a grace period. Others don’t. Also specify in your lease how late fees are paid and by when. Most tenants will include the late fee in their next rent payment. Late fees can be deposited into your rental business bank account.
Rental Property Bank Accounts
It’s best to have a separate bank account for managing your rental property instead of using your personal bank account. You can simply open a second account or use a business banking account with your LLC or trust listed as the account holder. The point is to not commingle property funds with your personal funds. From this account you can deposit rent and pay bills.
As mentioned, if you require a security deposit and/or last month’s rent, these each need to be placed in separate escrow accounts. This is the tenant’s money and must remain separate from your building’s revenue. Last month’s rent can be transferred to your business bank account when the tenant is in their last month. Security deposits are returned within a reasonable timeframe if there is no damage or unpaid rent.
7. Have a Plan for Evictions
If you properly screen tenants you can reduce the number of evictions. Even with careful screening, evictions will occur. You’ll want to have a plan in place before ever having to evict and understand the eviction process in the state where your property is located. Landlords who don’t plan for evictions end up losing more time and money from lost rent and sometimes property damage from vandalism.
It’s hard to not want to help when a tenant says they cannot pay the rent and just need time, or that they will get the rent to you by a certain date and don’t. You’ll need to decide how much time you want to give them, if any. Ideally, you should move forward with the eviction process according to your lease agreement as soon as possible.
It takes time to go through the eviction process. It varies by state, but here are some typical eviction process steps and and average of how long each step takes.
- Have tenants served notice: Up to one week
- File eviction with housing court: 15-30 days
- Attend hearing: In some jurisdictions it can take four or more months to get a court date
- If landlord gets judgment: Two to 10 days for tenant to leave (varies by state)
- If tenant doesn’t leave: A sheriff can remove them, one to a few days
In the worst case scenario you will have lost six or more months of rent. If the tenant damaged the rental, you’ll also need time for repairs and to get the unit rented. So you can see why it is important to act swiftly with evictions. If you wish to pursue the lost rental income and restitution for property damage, you’ll need to bring your case to small claims court.
8. Manage Rental Property Finances
Managing rental property finances starts with developing your cash flow projections before you buy your first rental property. To avoid income loss, you want to make sure you’ve projected all potential income and expenses, closing costs, vacancy rate, and credit loss. You can find vacancy rates online or through a local real estate investment club. Credit loss is when a tenant doesn’t pay the rent. You can estimate this expense by calculating the loss from previous years.
Once you own rental property you’ll manage a business bank account, rental and other income, escrow deposits, and a variety of bills such as mortgages, insurance, taxes, utilities, maintenance and repairs, annual filing of your legal entity, and more. Having a system for managing rental property finance will simplify the process.
Here are some typical rental property expenses:
- Mortgages and debt servicing
- Rental property insurance
- Property taxes
- Municipal expenses such as water, sewer, rubbish removal
- Repairs and routine maintenance costs
- Legal entity annual filing
- Legal and accounting fees
- Office expenses
- Mileage costs
- Permit fees
- Vacancy and credit loss
- Interest payments
- Banking fees
- Property management fees
- Eviction costs
How to manage rental properties depends on your available time, budget, and skills. You can choose your level of involvement when managing rental property from the DIY landlord who uses online rental property software, to investing in an alternative like a REIT where you have no involvement in the day-to-day operations and collect annual dividends.
If you’re interested in online rental home management, check out Avail. Avail can help you screen tenants, post vacancies, collect rents, and schedule maintenance repairs. You can start today with its 30-day free trial, and your first unit is always free.