There's no pretending that when it comes to buying rental property what most people are afraid of is 'getting the bad tenant.'
I hear it time and time again within our community and often it is a fear that actually holds people back from taking the leap into buying rental property.
And while I will qualify that it is a valid fear to have (we have had some bad apples in our journey) by no means do those bad tenants outweigh all of the positives that have come along in our path to financial independence.
So if you're excited about investing in rental property and curious about how to get it right when it comes to self-managing your properties, then you're in the right place.
Getting Started with Managing Rental Property
The truth is that when you self-manage properties you do a lot more than just answer the phone a few times and show a property when its vacant.
If you want to do it right and get good tenants in your properties then the passive nature of investing in rental property disappears a bit.
While you'll be putting in a little more work, the reality is that you'll be keeping more money in your pocket by not paying someone else to manage it for you.
So you have to weigh the options.
Time vs. Money
That's really what it comes down to. If you choose to go the route of hiring a property management company or even an individual person to handle it for you, you will be paying out each month for that service.
But that is time that you will be getting back in an already crazy life that we all have.
On the flip side, when you self-manage those first initial properties you truly do learn a lot about the whole process of investing in rental property.
So if you're officially curious about the fact that you can be successful with self-managing your properties and keep money in your pocket, but you're not sure where to start...No problem!
We're here to help!
4 Things to Consider When Self-Managing
While on the surface it may seem fairly simple to self-manage your property...
=>take some pictures
=>Write a listing on Craigslist
=>answer some phone calls
=>show the property
=>get a tenant solidified
=>collect rent checks
There's a bit more involved in the process. And I'll admit when we first got started I was clueless about the varying parts of self-managing property.
Those are all key pieces of the management process, each one of those aspects mentioned above goes much deeper when it comes to execution.
1) Taking Pictures
When you are going to take pictures or video of your property you're going to want to be strategic about the media you choose. You'll want to take pictures when you have good light in the property so it highlights the nature lighting of the property.
Why? In today's online world, many renters judge the rental based on the pictures. So if you have crappy pictures, no pictures or pictures with bad lighting you're likely not going to get a lot of interest on the property.
You also need to make sure that you're taking pictures of the rooms that people really want to see. Potential tenants want to see pictures of the kitchens, bathrooms, main living spaces, master bedroom and any amenities/storage that exists at the property.
It's great to list those things in the listing...but if you can show those things it only helps.
2) Writing a Listing:
If you've spent any time researching rental listings in your area you'll know from experience that a thorough listing with all of the 'right information' is also crucial to getting interest in your property.
People want answers right away, so the more information you can provide on your listing the better.
Not only that, but the language you choose to use and the adjectives you use to describe the property will only help in attracting good tenants.
What do I mean? Here's some of the things you should include in your listing:
*recent updates to the property
These are just a few of the things you should include on a listing. Get a checklist of what to include on a listing in our RentalRookie Pro Community.
Bur realize that a listing that lacks detailed information and good language and grammar skills will only attract the wrong type of tenants.
3) Showing the Property
If we've learned anything in our journey, this was one of those hard lessons that we learned right away.
We bought our first property...spent time renovating it and were ready to get it rented.
We put up a listing had a ton of calls and scheduled our first showing.
We drove 45 minutes to our rental (we couldn't afford anything in our town) and anxiously awaited our potential tenant.
And guess what.......
He didn't show.
I was shocked. I couldn't believe the fact that a grown adult stood us up. That they didn't have the courtesy to call or text and let us know that they couldn't make it.
They just didn't show.
I'd be lying if I said that only happened once. But after it happening a few times to us we learned our lesson about showing properties.
Now we only show our properties to groups of individuals. It's almost like an open house. We schedule a time and let those interested know. That way if we have 5 confirmed viewers and one doesn't show it's not a big deal because 4 others showed up.
Our time wasn't wasted.
This was one of those lessons we had to learn through trial and error.
But one I hope you don't make in your own journey.
4) Screening the Tenants:
This may be one of the most important pieces of success. It's important that you have a system in place that allows you to screen your tenants.
Gone are the days of renting to the first person who turns in an application or the one who just seemed really nice when you met them.
This is your money and your asset and you want to make sure you're putting the best potential tenant in that property who will care for and respect your property.
There are a number of things that go in to tenant screening that you must not leave out when you are vetting your potential tenants:
*solid rental applications
*rent to income ratio
These things will give you a good idea of the person you will be handing over your property to.
Is it fool proof? Could you get a bad tenant?
But you're setting yourself up for getting a better tenant by throughly vetting them before you ever give them the keys to your property.
Determining Whether You Should Self-Manage
Should I self-manage my property?
This is one of those questions you will have to ask yourself when you decide to buy that first rental property. But I will say that it is a loaded question.
It goes a lot deeper than just a yes or no question. There are a number of things that you need to think about when it comes self-managing and a number of questions you can ask yourself to help you determine what might be best for you and your current life situation.
Just like any other decisions in life, there are pros and cons to both. One of the biggest pros to self-managing your property is the fact that you keep more money in your pocket.
There are a number of questions that you need to take some time self reflecting on or discussing with your investing partner.
These will help you determine whether or not you should plan to self-manage your property or if being a landlord just isn't in the cards for you.
Consider some of these questions to help you decided if self-managing is right for you. All of the following questions relate to the varying aspects of managing property.
Do you have the time or desire to show your property?
Do you wish to keep all of the profit from the property in your pocket?
Are you willing to trade some money for a more passive investment option?
What do you plan to do if there is an emergency at the property? Who will take care of it? Who will you call?
How do you plan to screen your tenants to ensure you get a good tenant?
Are you aware of the national and state landlord-tenant laws that you will need to abide by as a landlord?
Protecting Yourself as a Landlord
When it comes to managing properties...there are a number of things you have to consider.
You've made it through the exciting part of finding, negotiating and buying this asset for you. Now it's time to get the right people living in it who will respect it and take care of your property for you.
Here are some quick tips, that range in varying topics, but all relate to managing properties that can help you save time and money.
We have had good success with home warranties and not so great success with them. But I think it's important to share some insight into what they are and how they can be beneficial for landlords.
What is a home warranty?
It is a service agreement, typically in place on an annual basis, that covers the cost of some major home items that can typically wear down over multiple years of use.
Sometimes sellers will include a home warranty in the negotiations and you'll automatically get it at closing. Other times it is something that you may want to talk to you real estate agent about getting in place so that you have it at closing.
Either way, you'll pay an annual premium that will potentially cover the cost of replacing larger ticket items or repairs in your property if there were to be issues.
For instance, with one of our properties we had an issue with our HVAC system. If you know anything about those systems....they are really expensive.
Luckily we had a home warranty and instead of $6,500 coming out of our pocket to replace the entire system, the home warranty company paid for the replacement.
The only cost we had to cover was the trade call fee and the $500ish that it cost to put a cement slab down for the HVAC system to sit on.
Otherwise, the home warranty company covered the bill.
So yes, they can be great and save you a lot of money when it comes to some of the bigger ticket items.
How do they work?
Once you have a home warranty in place, if an issue should arise that your tenant calls you about (with plumbing or with an appliance) you simply put a 'service/trade call' into the company.
They will give you a local contractor that works specifically with the home warranty company to come and check out the problem.
That 'service call' will require a fee every time you make one. (I think ours was $75 per trade call)
The technician will come to the property and diagnosis the problem. They will then complete some paperwork and submit it to the home warranty company to see if it qualifies under the warranty plan you have to be covered.
If so, then you'll move forward with the contract fixing/replacing the issue at the expense of the home warranty.
However, if it doesn't fall under the coverage for the plan then you will have to cover the bill for the repair.
So again, while they can come in handy for a lot of things...they don't cover everything. You'll want to make sure that you have a good grasp on what the warranty will cover and won't.
One other downside to using the home warranty is the timeline to get the problem fixed might take a little bit longer because there are so many hands in the pot. It's not just like calling your contractor you know and getting the problem remedied right away.
Because you have this 3rd party system involved, it may prolong the timeline. You'll want to make your tenant aware of that.
Believe it or not this is a hot topic in the landlord world.
No matter where you fall on the pet lover or pet hater scale there are important things you need to take note of and think about as a landlord to ensure that you protect yourself and follow your state's landlord laws.
If you do allow pets to live in your rentals one of the things you may want to consider is a pet deposit. This can be a refundable or non-refundable flat fee that you charge up front for the pet. This would cover any damage that was done specifically by the animal.
However, when it comes to pet deposits you'll want to ensure that you are aware of your specific state's landlord laws because some states do not allow you to charge this at all. Be sure to take some time to find out if you are allowed to charge this.
For some where you can't charge a pet deposit, I have heard of some landlords charging a bit of a higher rent each month because of the pet. This is perhaps an indirect way of compensating for the pet deposit; however, again you'll want to make sure that your state allows for this to happen.
No Pet Policy
Again, it is your right as a landlord to allow no pets in your properties. And for some of our properties, we have this policy. Just be aware that today many, many people have pets. And the truth is that pets are like another member of one's family. Therefore, people will pass on a great apartment at a great price if the pet can't live there.
So just realize with a no pet policy that you will limit your potential tenant pool. And as long as you are aware of that and are ok with that up front...no pets it is!
Emotional Support Animals (ESA)
This is where it gets a little tricky and why in the landlord world this is a very hot and controversial topic. One thing that every landlord needs to realize is that even if you have a no pet policy in your rental emotional support animals are allowed in any rental.
You cannot deny someone to live in your property if they have an emotional support animal or in most cases charge any kind of pet deposit.
Why this is controversial?
As the cases of mental health continue to rise in our country, what landlords are finding is that it is pretty simple for anyone to online and find a site that can quickly provide an emotional support animal letter to anyone just to get around the no pet policy and pet deposit.
So many people are skirting the system just to have there pet live in the property with little the landlord can do about it.
At the end of the day, you have to allow a pet that is considered an emotional support animal in your property.
Something that seems to fly under the radar with renting is the idea that tenants should invest in renter’s insurance.
As a landlord investor, I recommend that you have a discussion with your tenants up front about what is covered under your policy, as an investor, if anything were to happen to the property.
As a landlord investor, we purchase insurance; however, in most cases it only covers the building, our personal property, and any damages that are done due to negligence of the tenant.
Our policies do not cover a renter’s belongings.
This is important for you to know as the owner of the property and you should most definitely have a conversation with your tenants about this up front.
In the event that something catastrohpic happens to your property and the tenant’s things, they will have been aware and had the opportunity to protect their belongings.
Renter’s insurance is actually pretty cheap, averaging around $15 a month. Cut back on a few lattes a month and your renters will have prepared to save their most valuable possessions.
Unfortunately, most renters think that something major will never happen to them, the invincibility belief. That is why we make it a requirement. We want tenants to be fully aware of their responsibilities and our responsibilities from the beginning.
Many of the big name insurance companies, State Farm, Geico, etc., offer renter’s insurance. And if renters already have policies with a company encourage them to check with their providers first for the opportunity to bundle their policies and save even more.
These are just a few of the many things that you need to consider when it comes to self-managing your rental property. Becoming as knowledgeable as possible to protect yourself and your property is going to be critical to your success as a landlord.
2 Mistakes to Avoid When Managing Rentals
1.) Don't skip over the follow up phone calls
I get it...I actually don't like making phone calls either. But when it comes to your money and your asset...you better make those phone calls.
It's easy to gloss over calling the employer to verify their employment or to skip over calling their previous landlord. But I can tell you that sometimes you get your best information about a potential tenant from those phone calls.
Once we had an employer actually tell us that he was going to be laying off our potential tenant in the next week. That was critical information for us because the guy who were going to rent to wouldn't have had a job in just a few days.
That could have opened up a huge catastrophe for us as landlords.
But we made that call and we found out that information before we ever made our decision.
So make those phone calls...even when you don't want to.
2.) Schedule Showings in a Group or Stack Them
Like I mentioned earlier, when we got started I never imagined that an adult would totally stand you up on a showing appointment.
And we learned that a few times before we made a major switch to the way that we show our properties.
After getting stood up a few times, we decided that when we have interested tenants we find a few different times that work for anywhere between 3-5 people at a time.
This does a few things.
One if someone ends up canceling or is a no show then we still have other people there viewing the property so it's not a waste of time.
Also, it shows the tenants that there are other people interested and in some ways may naturally build up some competition. When others can see that they aren't the only ones interested that might make them move a little quicker in the process.
So it's really a win win.
Wrap Up & Next Steps
The reality is that there are a number of things that you need to consider when you get started with self-managing rental property. And while it can keep money in your pocket and really allow you to see what being an investor landlord is all about, you've got to make sure you're doing it right.
It's important to keep in mind that you ultimately hand over your property, your asset to a total stranger to take care of. And not putting in the time to adequately screen your tenants can be very costly.
I don't say this to scare you. But I say it to reinforce the importance of making sure that you are taking your time to make the decision of whether to self-manage or not. And also, so if you choose to go down the landlord road you are aware of some of the major hurdles we had to make mistakes with along our own journey so you don't have to make those same mistakes.
If the thought of self-managing your property is a bit overwhelming but you're up for the challenge, check out our Self-Managing for Success course in our Pro Community for more guidance and tips.
AND if you're looking to get more questions answers and carry on the conversation about analyzing deals join our Private Facebook Group. It's our group of like minded investors who come together to support and help each along in the journey toward financial independence.