Ryan Barone is cofounder and CEO of RentRedi, a property management software that simplifies the renting process for landlords and renters.
As first-time landlords and property managers embark on a new and exciting journey in the rental industry, there are several key aspects to know about investing and property management that make the renting process more efficient, professional and even enjoyable for your tenants.
1. Factor in all your costs.
When you’re new to the rental business, it’s difficult to think of everything that goes into operating it, and you run the risk of underestimating operating costs. Start by creating a realistic budget that encompasses all potential costs, including those that might be easily overlooked, such as maintenance repairs and upkeep, taxes, insurance and utility bills.
It is especially helpful to perform a cost-benefit analysis as early as possible, even prior to shopping for a property. By forecasting or modeling out expenses versus income potential, you can quickly assess the possible profitability, cash flow and ROI from rental properties to determine whether the numbers work or don’t work in real time.
Also set aside a portion of your rental income or savings to build a solid emergency fund. These emergency costs may include maintenance of major appliances and home systems (e.g., heating, cooling, plumbing, electrical, HVAC), major structural repairs due to weather or other property damage, legal fees and longer-than-expected vacancies.
Finally, a rental property is a valuable asset, so it’s also important to purchase enough protective coverage to reduce your risks of significant out-of-pocket expenses for property damage, liability claims or loss of rental income. Two types of coverage that new landlords should investigate include landlord insurance and home warranties.
2. Comply with laws and regulations.
It’s imperative to brush up on current local and federal laws and regulations, from zoning codes to tenants’ rights. Neglect of legal requirements can lead to fines, legal fees or other costly consequences. It may feel overwhelming at first, but there are plenty of resources that help landlords learn about applicable laws and regulations.
State and local government websites typically have sections dedicated to landlord/tenant laws, ranging from eviction processes and rent control to general rights and responsibilities. On the federal level, the U.S. Department of Housing and Urban Development (HUD) provides valuable information and links to local resources.
There are also many local, regional and national organizations such as the Southern California Rental Housing Association and the National Multifamily Housing Council (NMHC) that offer webinars and workshops on rental housing laws and regulations.
When in doubt, always consult a legal professional. Whether you hire a private attorney, consult a legal aid organization or purchase forms from online legal services, getting professional advice and guidance will help to ensure you’re managing your properties properly and lawfully and avoiding costly legal conflicts.
3. Establish proper business practices.
Conducting proper tenant screening is the key to finding responsible tenants, so be sure not to skip this step. Finding a tenant who is responsible, can afford the rent and is a good fit for your property will help you avoid late or missed rent payments, costly property damage and high turnover and vacancy rates.
Your screening process should include running background checks to evaluate credit history, verifying employment status and income and procuring landlord references. There are several ways in which you can establish a clear-cut tenant screening process. For instance, my company and others in the industry offer online tools that you can use to run full background reports and proof of income verification.
Additionally, building pre-qualification and application processes can be huge time-savers when it comes to filtering out and determining which tenants are perfect for your rental. When collecting landlord references, be sure to look for important indicators that your tenant is qualified for your rental, such as on-time rent payment history, maintenance, any damage that occurred and whether the tenant is respectful and responsible.
Additionally, to secure consistent on-time payments and avoid unnecessary tension with your tenants, be sure to establish a consistent and efficient rent collection process. Starting out with clear payment guidelines in the lease will set expectations upfront and professionalize your business. You can add regulations about whether or not payments can be made in installments, which software or rent payment methods to use and who to contact regarding any repairs or other issues.
4. Keep up with property maintenance.
Finally, establish a clear process to proactively inspect your rentals, prevent larger issues and respond to maintenance requests in a timely fashion. For example, inspecting your property every six months and opening clear channels of communication with tenants can help prevent small repairs (like a leaky faucet) from becoming major issues (like severe water damage).
Regular inspections at least 2-4 times a year can minimize your maintenance expenses. Additionally, be sure to consult legal professionals about your state and local laws regarding maintenance turnaround times. For example, some states require that landlords fix any repair issues within 3-7 days.
Treat maintenance as an ongoing investment that protects your investment. Taking care of your property will not only keep your tenants happy, but it will also keep your property in good condition, preserving its value and avoiding more serious and expensive repairs in the future.
The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.
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