Owning real estate is an efficient and productive addition to your investment portfolio. For an investment property that you don’t plan to live in, whether it’s your second home or you’ve done this a few times before, you’re faced with decisions about how to best use that investment for your goals.
Some investors will remodel their new property and sell it for a return. Others will use it for their vacation home, rent it to other vacationers, or both! But if your goal is to earn income over the long term from this property, you’re likely asking yourself, now what?
Renting to long-term tenants is a great strategy to build your wealth, but it is by no means a passive endeavor. From finding tenants, to managing the property, to finding new tenants again, you’ll need to weigh your options of taking on all the responsibilities or hiring a professional property manager. Managing your own rental takes time, money, and organization that can get in the way of life’s other responsibilities. Between accounting, adhering to local laws and regulations, property maintenance, and creating procedures for working with tenants, your plate will be full. If these responsibilities are too much to handle, the commission charged by a property management company may be a welcomed expense.
Your Local Landlord Tenant Laws and Regulations
The laws and regulations for rental properties differs across states, counties, and cities. Some locations are more regulated than others and whoever manages the property will need to be an expert in each.
If you decide to do it yourself, you’ll need to make sure you’re aware of the responsibilities and requirements for landlords in leasing, property maintenance, and payments. Check your local government’s website for more information and consider joining a local landlord association who provides support and updates for its members. To avoid getting into legal trouble, you’ll want to make sure your procedures are within the law, including how you tour and ask tenants to apply. It’s also recommended that you have a lawyer review your lease contract before accepting tenant applications.
Most professional property managers are aware and practiced in the local laws and regulations. They will also likely have a lease template that has been reviewed by lawyers, so they know it’s legal and enforceable. When talking with your local Windermere Property Management office, be sure to ask them about their processes for following the local laws, including their leasing procedures.
Investment Property: Managing the Money
Another important consideration is how you’ll manage the monies for your investment property. You’ll need to manage the security deposit, any fees you plan to charge, a way to take the monthly rent payment, and a savings account for property maintenance.
If you plan to manage the unit yourself, you’ll need to set up bank accounts in accordance with the local laws and keep track of the accounting for tax season. You’ll also want to make it easy for your tenants to pay rent. Check to see if your bank offers some form of ACH that you can set up or inquire about where tenants can send checks for deposit.
Professional management companies will have an accountant who manages the funds and tracks the income and expenses for property owners. You’ll likely set up a deposit and withdrawal agreement to make it easy to get your monthly check and pay any invoices. You can imagine the amount of time this saves!
When interviewing with a property manager, ask them where they hold deposits and their systems for rent payments. Oftentimes they’ll have software that makes it easy for tenants to pay online and track the monies they receive from tenants. Be sure to understand how you get paid as well and when you can expect those payments to be made each month.
Moving In Tenants and Investment Property Maintenance
The beginning of a tenancy can set the tone for the rest of the lease. Build trust and respect with your tenants from day one; be upfront with your expectations for communication, especially about maintenance issues. It all starts with a move-in condition report.
A move-in condition report is a detailed document that notes the state of the property before the tenants have lived in it so that you can compare that to its condition when they move out. This helps you understand what damage, if any, is the tenant’s responsibility and what comes out of your pocket.
If you plan to manage the property yourself, you’ll want to find resources online or from your local landlord association about the best practices for move-in to make sure you don’t miss anything important as you inspect the exterior and interior of your rental property with the tenants.
Professional property managers have a wide range of services, which means even if you don’t hire one to handle every aspect of the rental, they may offer support with move-in. Their experience and knowledge will come in handy, along with their tried and tested procedures, leaving less to chance when the tenants move out.
Maintaining the property will differ for each investor depending on the condition of the home, the appliances, and your local laws that outline responsibilities for all parties involved. In some cases, you may never hear from a tenant about an issue or request, while other cases will require more hands-on work.
As a landlord, it’s a good practice to have a list of vendors you trust to handle common issues and emergencies. You also have the option to do the handiwork yourself if you are nearby and equipped to do so. Be sure your tenants know and understand how you’ll handle maintenance requests and work with them to schedule appointments.
Property managers usually already have a list of preferred vendors who they have worked with before. They will likely have someone at the ready for a wide range of issues which comes in handy, especially in the wake of large incidents that can book up the service providers in the area.
When interviewing professionals, be sure to ask them about their experience with moving tenants in, and their procedure and vendor list for maintenance requests. You’ll also want to know how they’ll communicate with you and manage payment for the invoices.
Which One Is Right For You?
After taking these factors into consideration, it’s up to you to determine what makes the most sense for your needs and lifestyle. If you feel comfortable managing your investment property and you know you have the time and ability to handle maintenance requests in a timely manner (especially emergencies), then being a landlord is right for you.
However, if you prefer to be more hands off and use the property for passive income with less effort on your part, hiring a professional for a commission might be worth it.
Originally posted by Meaghan McGlynn