You’ve purchased a rental property or two. Now it’s time to start realizing your return on investment (ROI) by effectively managing rental properties. The 2020 American Housing Survey says out of a sample size of 140,803 approximately 42,036 are rental units in the United States. It is estimated that 14,884 of those units are unoccupied.
Based on further research, data from the IRS Statistics of Income shows that about 19.8 million taxpayers in 2018 formally declared rental income for 17.7 million properties. Therefore, approximately 19 million landlords manage an average of 1 to 2 units. That’s a lot of people trying to navigate the business of renting and effectively managing rental properties while also navigating their primary careers and living their personal lives.
Of course, there are plenty of challenges that a landlord encounters when it comes to property management. These challenges include finding and keeping quality tenants to lower tenant turnover costs, avoiding legal trouble with tenants, encouraging timely payments and efficiently handling late rent payments, and managing multiple properties at once.
As you enter the world of property management, you want to ensure that your investment is successful.
Here are 9 tips for effectively managing your rental properties and getting your maximum ROI.
1. Set the Right Price
Soon after you close on a property, you must set the right rental price. After all, your rental rate must be high enough to cover your expenses while also being low enough to attract the best tenants. It’s a tricky balance because a higher rent may result in your unit sitting empty for a longer time, but a lower-than-market rate can lead to you collecting less rental income than is possible.
Take some time and analyze the price trends from the recent past. There may not be many rentals to compare with your unit, so you may need to research recent home sales to gauge how much buyers are paying for nearby homes. Feel free to utilize a mortgage calculator to determine the amount a neighboring homeowner may be paying for their monthly mortgage. Of course, you can eliminate the guesswork and purchase a rent analysis report to make an informed decision while you effectively managing rental properties.
Your property’s location is also a factor to consider when setting your rental price. If you are located close to a shopping mall, town square, parks, city center, schools, hospitals, or public transportation, you can charge a bit more. Tenants are usually willing to pay a premium to live near the places where they conduct their day-to-day lives.
2. Decide if you allow pets
Another rental rate determination is the presence of pets. Millions of renters will pay significantly more for a property that allows them to keep their pets. If you allow pets in your rental, you definitely have a competitive edge over other rentals. Some landlords collect a pet deposit upfront, while others add a fee to the monthly rent. Keep in mind that just because you allow pets doesn’t mean that you have to allow all pets. You, as the landlord, can determine which pets, as well as how many pets, can access your investment property.
As you conclude your research, make sure that the number you determine to be your rental rate covers your expenses, including home insurance, maintenance expenses, homeowner association fees, and mortgage. The goal is to strike a delicate balance between the investment costs plus a profit and quickly attract the right tenants.
3. Screen Your Tenants
Your tenant screening process begins the moment you place your rental property on the market. Hopefully, solid, comprehensive screening can snag an exceptional tenant who will pay rent on time and take care of your property.
The Federal Fair Housing Act protects people from discrimination when looking to rent or purchase a home, seeking housing assistance, getting a mortgage, or engaging in other housing-related practices. You cannot direct your tenant search so that it discriminates against anyone based on their race, national origin, color, religion, disability, familial status, or gender.
4. Get the Full Picture with a Credit and Criminal Background Checks
Criminal information is a matter of public record so that you can access the information at any time. You need the prospective tenant’s name and date of birth to run the report. Those with a criminal past may try to give you false information, so it’s prudent to check their valid ID to verify their identity.
As you can imagine, conducting a criminal check independently is very time-consuming. For the sake of accuracy and expediency, consider using an online service to get the job done. After all, about 28 percent of applicants have a criminal hit on their record.
Make sure you choose a tenant with good credit. If they can pay their bills, they are more likely to pay their rent promptly and take better care of your property than those with poor credit. While checking their credit, take the time to verify their income (you ideally want a tenant whose monthly income is three times your rental rate). Run a credit check (landlords frequently ask their applicants to pay the credit fee). Seek out any information on prior evictions, bankruptcies, or any civil judgments they may have had filed against them.
Ask for and check the references the tenant notated on the application. It is critical to determine if the applicant was a problem or high-maintenance tenant. The bottom line, go with your gut feelings. Trust your instincts as you determine who will move into your rental home.
5. Learn the Landlord-Tenant Laws
Educate yourself on landlord-tenant laws because various issues can lead to landlord-tenant litigation. Issues including tenants having pets forbidden by their lease. The tenant fails to keep the property clean, and, of course, the tenant breaking their lease. Other common disputes include noise violations, occupancy limits, parking issues, property damage, and holdovers after the lease term.
The most common and most important landlord/tenant dispute is whether the landlord brought their claim against the tenant in a procedurally correct manner. Two procedural issues are generally brought before the court when an eviction is sought. The first issue involves the service of a document called a “Predicate Notice.” The second concerns the service of the petition. Which is the document that commences the actual lawsuit. If there are disputes about the service of the petition, the court will hold a special hearing in advance of the actual landlord/tenant case. In contrast, any issues regarding the “Predicate Notice” are addressed in the actual landlord/tenant case.
A landlord can avoid or be prepared for these legal issues by closely reading through their state-specific landlord-tenant laws.
6. Have Consistent Rent Collection
Landlords can ensure timely rent payments each month by setting up online rent collections, allowing the tenant to set up automatic payments, and setting up automatic reminder emails and late fee notices. Automatic payments can help the tenant buildup or rebuild their credit.
Landlords should also avoid leniency with late rent payments. It develops bad habits among tenants (they can set a harmful precedent) and can ultimately harm cash flow. This can harm the landlord more especially when they have outstanding mortgage payments to make.
7. Assess Your Property’s Long-Term Needs
A landlord can avoid expensive maintenance costs by conducting consistent maintenance checks. They can increase their property’s value by renovating the right areas at the right time. Listen to your tenants when they share that their master bathroom sink is cracked. Or if they mention the paint in the living room is dark and outdated. They may also tell you that they’ve noticed the wooden deck is looking faded and unstable.
Get reasonably priced quotes, and update or repair those spaces promptly. Make sure the sprinkler system works and that the air conditioning unit is up to date. Of course, conducting routine maintenance checks and renovating your property will be much easier if you build a friendly/cordial relationship with your tenant.
8. Create Happy Tenants
It is a win-win situation when both the tenant and the landlord are satisfied with the rental arrangement. Tenant turnover can kill profitability, costing landlords thousands of dollars per month. Thus, it is critical to your success as a landlord to find ways to avoid tenant turnover and prevent vacancy. The average tenant turnover rate for independent landlords in the U.S. is 10 percent or less. Tidbit: tenant turnover is the lowest in the Southeastern United States.
A landlord can minimize tenant turnover by responding to maintenance requests as soon as possible, tracking those maintenance requests, and communicating promptly and often with the tenant.
9. Stay Organized
Being an efficient and effective landlord gets easier if you are organized. It’s important to take the business of renting your investment seriously. Promptly follow up with leads that express interest in your listed properties. You can efficiently process applications, and quickly post rental payments so your tenant’s credit record isn’t affected.
Being organized will help you, the landlord, to easily coordinate leads and meetings with prospective tenants. You’ll also be able to speedily narrow down applicants. With the best rental payment system, you can easily refer back to past or upcoming payments. One of the best systems to manage your entire rental process is Avail which finds your tenants, views their credit history, signs the leases, and collects rent on any device with tools built just for DIY landlords.
At the end of the day, leasing out your property can be challenging. However, being adept in various aspects of real estate, including pricing, renovation, real estate laws, lease agreements, and tenant screening, will enable you to maximize your ROI as you settle into your role as a successful landlord. Of course, we are here to help guide you through the process of effectively managing rental properties.