Do you drive by the real estate signs offering rental property for sale and wonder if you’re cut out to be a landlord? How do you tell if being a landlord would bring you profit and fulfillment, or drag you down and make you crazy? Preferably BEFORE you buy that home and begin searching for tenants! We’ve got 8 smart tips on how to evaluate whether being a landlord is right for you!
Dipping a Toe Into Property Management?
By Elyse Umlauf-Garneau
Whether you’re an accidental landlord or you invested in property intentionally, you’ve probably been surprised by some of the quirks and challenges of rental management.
If you’re already in the property management game or if you’re thinking about making an investment, here are some need-to-know strategies for making your life easier and staying on the right side of the law.
Keep in mind that laws vary by state, province, and city, so it’s always wise to consult an attorney to be certain that you understand the risks associated with being a landlord.
- Set realistic expectations. Know that not everything will go smoothly all of the time. Property management isn’t a hands-off investment. Properties, tenants and homeowners’ associations all require some babysitting.Glitches can range from late rent payments and unexpected special assessments to finding that your rental has been trashed and is filthy. The latter was what Janis Leis ABR faced with one of her rentals. Leis, an associate broker with Prudential Fox & Roach, specializes in marketing property in Pennsylvania, New Jersey, and Florida.
So you need the emotional distance and fortitude to accept that a treasured investment was abused. You also need the cash to fix the damage and the ability to tap the right trades people to get the property ready for the next tenant.
- Cash reserves. No matter how well you crunched your numbers, rentals will unexpectedly swallow cash. So have money at the ready to cover emergencies, vacancies, and surprise expenses.”Never be paying this month’s mortgage payment with this month’s rent,” says Mia Melle, broker and president of operations for Renttoday.us, an Ontario, Calif., property management firm. “If you do, your financial situation is in tenants’ hands and you’re at their mercy,” she adds. Melle suggests having six months of mortgage payments set aside.
- Repair team. Unless you have the skill and desire to serve as a handyman, put together a go-to team of repair people that you can call for emergencies. Experts in plumbing, electricity and HVAC are all key.Tip: Other professionals are critical too. Contact an insurer to discuss exactly the coverage you need to protect your asset and shield yourself from liability.
- Oddball personal issues. “You never know what tenants are like until they move in,” comments Leis. Your lease stipulates that no pets are allowed, but your tenants adopted a Great Dane and now say they can’t get rid of it because it’ll break their kids’ hearts. I got injured on the job, my workman’s comp ran out, and I don’t have money for the full rent this month. My ex-spouse is late with child support. Your tenant is in jail and left behind his belongings.Know that you’re getting involved with strangers and that many of their problems become your problems. “There are always personality issues, and you’re dealing with people and odd situations you can’t prepare for,” says Melle.
- Business is business. You need emotional separation from tenants. It’s much harder to evict someone when you know the details of their health and marital problems, for instance, or to demand rent when someone is facing financial hardship.So you can be empathetic, but don’t act as a counselor, keep tenants off your dinner party guest lists, and don’t friend them on Facebook.
Melle says that everyone has a sob story. “But the fact is that the rent needs to get paid. You can’t be afraid of confrontation. If a tenant smells fear or sympathy, you can easily get walked on,” she comments.
- Stay on the right side of the law. Understand what you can and cannot do as a landlord, understand tenants’ rights, and stay on top of changes in laws that govern rentals. It’s your responsibility to know and adhere to the laws. “Tenants know their rights more than owners do,” observes Melle.’In addition, it’s critical for U.S. landlords to adhere to Fair Housing Act. ‘
Melle says people routinely get tripped up accidentally by Fair Housing. Just one troublesome spot is writing ads. Including something you intend as friendly and innocuous, such as “ideal for couples” or “near churches,” in ads could be seen as discriminatory. Some could believe that you’re discriminating against families with children or against those who attend religious services at places other than churches.
- Paperwork. Keep good records about who you have shown the property to and why you didn’t rent to the person. Also keep on file your leases, communication between you and tenants and management companies, and carefully track deductible expenses. In addition, file warranty information and instruction manuals for appliances.
- Opting for a property manager. Hiring a property manager lets you to delegate the more tedious day-to-day tasks of being a landlord. Such companies can handle just the leasing for you or you could rely on them for rent collection, maintenance, emergencies, day-to-day complaints, evictions, and any other management quirks that pop up. Here are some considerations:
- Is property management the company’s sole business? “If it’s a sideline, then you and your needs will be on the sideline too,” warn Melle.
- Be sure it’s not a one-man show. If a solo property manager has only a few properties, he’s probably out hustling for new business. Something–accounting, collections, or maintenance functions–could be being neglected, points out Melle, who says that you want a company with a dedicated staff for each of the key property management functions.
- Check references, read online reviews of prospective managers, and talk to others about who they use and what their experiences have been. You want a sense of both how a company services its clients–you–and how well it treats your clients–your tenants.