Real estate can be one of the best investments you can make. If you plan on investing in and managing rental property, organizational and management skills are a necessity, along with a working knowledge about real estate matters. Here are 5 tips for managing investment property.
Screen Tenants Well
Evaluate prospective tenants by utilizing background checks, credit histories, personal references and employment histories. Require every applicant to provide credit and employment references. Don’t be influenced by personal references. Contact previous real estate agents, landlords, employers, accountants, and/or bankers. Ask the question:
Do you believe the applicant(s) would be able to pay $x per month for y months and keep the property clean and in good condition?
Set Expectations for Tenants
Talk with your tenants and set expectations. Ensure that payment arrangements are clear verbally and in the lease. Be consistent. Make late fee assessments clear in the lease agreement and collect late fees when necessary.
Let all tenants know upfront they need to get any changes to the property approved by you. Let them know that any unauthorized changes can result in a loss of the security deposit. When managing investment properties, you want them to appeal to a broad population. Keep carpets and walls relatively neutral and avoid any exotic colors. Ensure that your tenants know they are free to make cosmetic upgrades as long as they are approved by you first.
Take pictures of the inside and outside of the house before a tenant moves in and/or out. Be sure the pictures are dated.
Consider Using a Professional Managing Agent
Utilizing the services of an experienced, professional managing agent can save you time and hassle. Professional Managing Agents have detailed up-to-date knowledge of the residential tenancy legislation, an understanding of local vacancy and rental movements, a background in repairs and maintenance, a reliable network, an awareness of housing price movements, and knowledge of insurance and property taxation.
A Professional Managing Agent can help you manage inspections, property showings, tenant issues, and hiring an agent allows you to remain somewhat anonymous acting as the buffer between you and the tenant.
Consider the cost carefully as hiring a Professional Managing Agent will reduce your income. Across the country, property management fees normally run from 7% to 10% of income on averag
Cover Your Assets
Obtain liability, fire, theft, and other insurance on rental property. As a landlord, you should have commercial insurance, not a typical homeowner’s policy. In addition to insurance, you need to have at least one Limited Liability Company (LLC) to protect your assets rather than owning the property personally.
Have reasonable expectations as an investor. Don’t expect to buy an investment property and immediately enjoy a positive cash flow, meaning the rent you collect exceeds all of your out-of-pocket expenses. Many investment property owners go 3 to 5 years before cash flow turns positive. Immediate positive cash flow usually happens when the investor makes a large down payment and has relatively low mortgage costs.
Have an idea of how much rent you can charge. Research how much comparable properties rent for. A good rule of thumb is to set the rent at 95% of the current market value. Rental properties which are listed just below market value attract the best referenced tenants and maintain minimum levels of vacancy and repair/maintenance.
Owning investment property can be very rewarding, but you can’t expect to sit back and collect income year after year without doing any work on your property. Investment real estate can be a worthwhile investment if you are well prepared to face any challenges that may come along.