The number one reason investors shun long term investing strategies is the perceived hassle of “landlording”. The concern is that this type of investment brings with it tenant calls at three o’clock in the morning, relentless maintenance, collecting trouble and the like. Since real estate investing success has as much to do with its return on investment as the overall investor experience, this is a valid concern that shouldn’t go unaddressed. So, I put together a list of 7 powerful tips to minimize the need for property management, eliminate hassle and increase your bottom line by saving on property management fees.
Property Management Tip 1: Buy New or Newer Properties
Most property management nightmares begin at the purchase. Seduced by “bargains” and equity, investors purchase three decade old properties with significant deferred maintenance and years of neglect. These “steals” often come with galvanized plumbing, electrical issues and air conditioning systems that have seen better days. Needless to say, these investors are setting themselves up for a bad experience that will often override any benefits brought by cash flow or captured equity. Instead, we advise our clients to purchase new or newer properties instead: Currently we don’t advise purchasing any properties built before 2005 (with some very rare exceptions). The reason behind this is that in a recently built home all major systems are also recent therefore less prone to breaking. Buy new (or newer) and avoid most issues that come with older properties.
Property Management Tip 2: Screen your Tenant well
This has to be both the simplest and most important property management tip in this list. Often in a rush to get the property occupied as soon as possible, investors will skip through the tenant screening process. Big mistake! The screening process uncovers whether or not the tenant has the financial ability or employment stability to afford the home or whether he/she has been a responsible tenant in the past. Inexperienced investors often view the tenants ability to afford the rent as the tenants problem, until it becomes their problem. In our practice we thoroughly screen tenants often rejecting several applications before accepting one that works. And that ends up being a win win for everyone: Our clients get a tenant that pays on time and takes good care of the property and the tenants get into a property they love and can comfortably afford.
Property Management Tip 3: Require Bank Deposits for rent payments
The advancement of banking technology in recent years can help real estate investors collect rent effortlessly and keep their tenants accountable faster. It used to be that tenants would mail a check which the landlord would receive and have to make another trip to the bank to deposit it. If a week passed and the rent check wasn’t there, the landlord would call and be told the check was in the mail. Ten days later, still no check and the tenants were then facing a situation where they would have to pay two months rent in quick succession so they’d skip out and rent a different property somewhere else. No more. Now we advise our clients to require that the tenant make a bank deposit or transfer straight into the landlords account. The tenant gets a deposit slip which serves double duty as a receipt and the landlord can log on to their Online Banking to make sure the deposit was made. If rents not there, it wasn’t put there and the landlord can hold the tenant accountable faster and collecting faster. Then, if the investor has their mortgage payment automatically deducted from that same account, they have a seamless system in their hands.
Property Management Tip 4: Buy and keep a home warranty policy at all times
Home warranty policies are an investor’s best friend. They work like an insurance policy: The client pays an annual premium (typically $300-400) and the home warranty company covers all major systems like the HVAC, plumbing, electrical, appliances etc. For every service call, there’s a $50-65 service charge and the rest is covered. So say the A/C stopped cooling: The tenant would call the 1-800 number for the home warranty company, they would send in a service technician next business day, the repair would be completed and all that would be owed is the minimal service charge. Having a home warranty only works seamlessly if you follow Tip #1 and buy a new or newer property. If instead your AC system was installed when Reagan was president, the home warranty company can decline coverage based on pre-existing condition. But this strategy has worked amazingly well for our clients. But what it the tenant has a knack for arranging service calls for every little thing? That issue is solved by our next tip.
Property Management Tip 5: Include a reasonable repair deductible in the lease
You want to make sure that the tenant has a vested interest in maintaining the property well. One way to do this is to always collect an appropriate security deposit. Another is the include a repair deductible clause in the lease. Typically our clients request the first $100 of repairs to be covered by the tenant (except on those repairs mandated by law to be covered by the Landlord in entirety). This ensures that the tenant doesn’t call you for very minor repairs every other day and it aligns the Landlord’s and Tenant’s interest in proper property preservation. Also, this clause when combined with Tip# 4 above, allows for repairs to be fully completed without the investor having to hear about it or pay for it as the deductible would cover the service charge for the home warranty.
Property Management Tip 6: Setup a separate phone number for repair calls
In an attempt to be helpful and accessible, investors often provide their home or mobile phone information for repair requests to their tenants. This inevitably leads to those infamous phone calls at 2am. There’s a better way. It starts with educating the Tenant on how the process should go once there’s a repair request. The investor needs to clearly communicate that the fastest way to take care of the issue is to call the home warranty company directly and setup a service call. For other concerns, the investor should setup a dedicated, separate phone number. This doesn’t need to be a physical line – instead it can be a virtual phone number through Google Voice. This service allows you to get a free local phone number with voicemail. If the the tenant calls and leaves a voice message, that message is automatically transcribed and emailed to the investor. If the issue is truly an emergency, the investor can take immediate action. If not, they can choose to address it the following day on their terms. Having a dedicated, virtual phone number puts the investor in control and minimizes hassle.
Property Management Tip 7: Use a-la carte vendors as needed
Sometimes, even after taking all the necessary precautions and doing everything right, investors often find themselves in a position where they have to deliver a notice to vacate or proceed with eviction. The process can be arduous and frustrating but the good news is the investor doesn’t need to be involved in it. In every market, there are companies that offer these services on a need to do basis. Need to deliver a notice to vacate? You can pay $59 and have it delivered for you. Need to follow through with eviction? $500 will get it done. The crucial point is that you are only paying for these services if and when you need them. Instead, if you hire a professional management company, you will pay a portion of your gross rent every month whether anything needs to be done that month or not.
Hope you found these tips as powerful as I’ve seen them to be in my practice. But in the end, self management, just like professional management isn’t for every one. That decision depends on many factors: location of investor, number of investment properties, and investor inclination.
If there any any property management concerns you would like me to address, please comment below and I will be happy to help.
Oh Erion, usually I agree with you 100% but as a seasoned landlord I have to disagree with you on tips 4 & 5.
In my experience home warranties are a waste of money. They rarely ever cover what they say they will. I had three of them before I gave up and instead put that “insurance” payment into my repair budget. But to each his own. I don’t feel as strongly about this as I do tip 5.
Never ever ever require the tenant to pay for repairs that they did not cause. I cannot state this enough. You are lining yourself up for a world of hurt. That leaking pipe under the sink? Doesn’t effect the tenant and they don’t want to shell out $50. When you eventually find out about it now you have a $500 repair. The grout cracking the shower doesn’t effect the tenants ability to take a shower and they can probably look past the ugly factor for $50 but when you find out about it the water has seeped behind the wall and now you have tiles falling off and mold.
In the big scheme of things $50 is chump change so I am not sure what the rational behind this one is. The only thing I can think of is it is to avoid bigger repairs but that is just silly.
I would agree with you on the home warranty issue, in part. They ARE a big waste of money when the property is older as the companies administering them use the age to deny coverage. But when the properties are new or new-ish they can save you a lot of money and headache. Also, results can depend largely on which home warranty company you choose. Companies that offer lower premiums and lower service call charges are going to deny most of your claims. It’s all mathematics. They will NOT lose money under any circumstances. Finally, the decision depends on whether you as an investor have reached critical mass. If all you own is a property or two, saving the money from home warranty premiums into a repair fund will always end up in you spending more money on repairs than if you had the home warranties in place. But if you own 7-10 then the money saved from home warranties can amount to a quite large sum so the risk of higher loss is lower.
I disagree with you on the repair deductible issue even though I get where you are coming from. Every lease we have written in the last 5-6 years has had a repair deductible clause in it. The scenario you described where the tenants don’t report a minor issue to save $50 has happened zero times. And this is over hundreds of properties! Ultimately it boils down to the quality of the tenant – if the tenants you put into the property are the type that would cause damage to the property to save $50, it doesn’t matter whether there is a repair deductible clause in the lease or not. In the end, that clause is to make sure the tenant has a vested interest into the upkeep of the property and to eliminate many repair call on very minor items (changing lightbulbs comes to mind)
Those were 7 excellent tips. I would also like to suggest a property management tip. Make sure to keep your tenants happy so that they will want to keep renting from you. One easy way to do this is by quickly responding to all of their repair requests.
Thanks for the tips on managing your investment properties. I agree that you should set up a separate number for repair calls so you know what the calls are for. In my opinion, it is worth paying the fee to have a company manage a property for you so you don’t have to fuss with it.