When you buy an investment property, you have two management options: property management or self-management.
Whatever you decide to do, rental management includes all tasks related to rent, tenants, property maintenance and repairs, business operations, and more.
Hiring a property management company means you’ll pay a percentage of your monthly rental income (usually 7-10 percent) someone else to fill vacancies, respond to maintenance requests, collect rent, and prepare the property for the next tenant after the lease expires.
A Note on Self-Management
Rather than paying a property management company to perform these tasks, some investors choose to retain that management fee as a profit and perform all rental management duties themselves.
Self-managing rental properties are a great way to stay connected to your portfolio and your tenants. And if you have long-term tenants and low-maintenance (read: new) properties, the job can be a lot easier.
On the surface level, self-management seems pretty straight forward: collect rent, coordinate maintenance and repairs, and find new tenants when current tenants want to move out. Simple, isn’t it?
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But beneath that shiny surface of easy landlordism lie the nitty-gritty details of rent management. What Happens When You Have Tenant Problems? Or when rent is always late? Or if the rent didn’t show up at all this month? What happens when your tenant decides to move out while your tenant is planning a vacation? or when a tenant drives in front of houseLeaving you to coordinate a major renovation?
It is in situations like these that your asset manager’s hard work pays off. Property managers are experts in the day-to-day operations of maintaining a profitable rental property and a once-in-a-lifetime rental scenario.
Even if you don’t have nightmare tenants, the middle-of-the-night maintenance calls may suddenly be worth paying 10 percent of your rental income to a property manager.
Here’s a look at some of the rental management tasks you may face with your investment property. You need to consider these situations when you decide between self-management or asset management for your investment portfolio.
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eviction
When you encounter a tenant who fails to pay rent or violates another lease term, you need to move. eviction process, But you must follow your state’s law for a legal eviction or you could be fined or worse – owed money by your rule-breaking tenant!
To begin an eviction, you must first identify the lease violations and give your tenant an opportunity to correct them. For example, if the tenant fails to pay rent on the due date, you serve a “cure or quit” notice giving the tenant official notice to pay the rent or move out. If the tenant doesn’t pay the rent or doesn’t move out by the specified date, you can file for eviction. Each of these steps takes your or your property manager’s time and energy.
If the eviction goes to court, you will need to make time to attend the hearing and then follow up with the decision.
Eviction is a lengthy legal process. A property manager will be trained on your state’s laws regarding how to legally and effectively complete the eviction. Furthermore, your property manager will be bound to abide by the lease in a clear black-and-white fashion and will not allow excuses or stories from your tenants.
vacant position
When your tenant moves out, you need to have a new tenant with as little time as possible. Vacancies are one of the scariest prospects for your bottom line and could be one of the biggest Cash flow killer for your real estate investment,
There are several strategies you can employ to avoid rental vacancies, including managing the termination of the lease yourself rather than waiting for the tenant to send you notice to terminate the tenancy.
Many states only require the tenant to give 30 days’ notice of intent to vacate. However, a month may not be long enough to find another tenant to move into the vacant property. Instead of waiting for the tenant to send the 30-day notice, a smart landlord or manager will contact the tenant 60 to 90 days before the lease expiration date to find out if the tenant plans to renew or relocate. If the tenant plans to move, you’ll have extra time to market the property.
If you only have one property and one lease, it’s fairly easy to stay on top of lease expirations. But the more properties and lease agreements you’re maintaining, the more time you’ll need to spend following up with tenants to avoid vacancies.
Other ways to avoid rental vacancy include promoting renovations, effectively marketing the property, screening your tenants, and staying on top of turnover tasks.
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raise the rent
If you have good tenants, the idea of raising the rent can be daunting. When you have a tenancy that is running smoothly, it is not unusual to ignore the annual reassessment of fair market rent. But neglecting a regular rent increase could mean that your property is suddenly worth hundreds of dollars less than fair market rent. so when you decide to implement a Rent increased by more than 10 percentYour tenants will get sticker shock, and you will suddenly be the target of their anxiety, stress, anger and frustration.
To avoid excessive rent increases that may drive your current tenants out of the property, I always recommend that you include regular rent increases in the lease agreement. I’m talking about $25 a year. A $25 rent increase once a year is easier in most people’s budgets than a $100 rent increase once every four to five years.
You may face pushback from tenants when a rent increase is discussed, regardless of whether it is a regular or one-time increase.
To keep your investment profitable, you will need to raise the rent on your tenants at some point. You need to decide whether you want to have these conversations with the tenants or if you want to delegate the responsibility to the property manager.
final thoughts
Managing evictions, vacancies, and rent prices are some of the biggest tasks a property manager can help reduce your responsibilities.
If you’ve started investing in real estate but have lost your motivation to continue building your portfolio, you may want to hire a property manager to handle the time-draining tasks involved in self-managing your investments. Might consider keeping it. You need to assess how your timing plays into your rental analysis in order to provide a profitable return on your investment.
Are you considering using a property manager? If so, what actions are you looking forward to not doing?
Share below!
Note by BiggerPockets: These are the views expressed by the author and do not necessarily represent the views of BigPockets.
