Rental properties are a great investment, but they take work to manage, especially if you do not use a property manager. I own 14 rental properties and I managed my rentals myself up until the start of 2014. My rental properties are all single family properties and easier to manage than multifamily rentals, but it still takes time. Not only does it take time, but you have to pay attention to details and be firm with tenants to successfully manage rental properties yourself. You can’t be easy on your tenants and you can’t ignore problems, because that is when rental properties can change from a great investment to a very poor investment.
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For more information on my rental properties check out my complete guide to purchasing long-term rental properties.
What is involved with managing rental properties?
There are many tasks associated with managing a rental property. However, most tasks come when first renting a property; once a home is rented there is much less work involved. Here is a break down of the basics of managing a rental property.
- Determine what to repair before a property is rented. I want to control what is repaired whether I manage a rental property or a property manager does. A property manager may help you with repairs before you rent a property, but they also may only help with maintenance and repairs after a home is rented. Even before you buy a rental property you should have a good idea of what is going to be repaired and how much it is going to cost. Out of state rental property owners may have to depend on someone else to manage the rental property repair process.
- Determine what to rent a home for. I also like to have control of this whether I am managing a house or using a property manager. A property manager wants to get houses rented fast, because the collect money based off the rent. They may not try to get top dollar, although some might. An agent on my team recently sold a home to an investor and that investor used a property manager. We had told the investor the home would rent for $1,500, before they bought it. The property manage they hired said they would rent it for $1,200! We urged the investor to rent it for more and they ended up asking for $1,600 a month. They rented it at $1,600 in two days and they were very happy they did not blindly take that property managers advice. Here is a great article on how to determine market rent.
- Rent a home. Renting a home is the hardest part of management; at least it should be. If you take time to screen tenants and pick the best tenants it will make you more money and save many future headaches. You have to have to advertise the property, show the home, check references, check credit, create a lease and collect money. Don’t pick a tenant because they are the only ones that will pay what you are asking. Don’t pick the first tenant that wants the house because you are tired of showing it. Pick the best tenant and don’t convince yourself a tenant you have doubts about will work out so you can start collecting rent. Here is a much more detailed article on how to rent a house. Property managers should have strict guidelines for who they rent homes too.
- Collect rent. When you rent a home you have to make sure your tenants pay on time and charge late fees if they don’t. If you let late rent slide, the tenants will think it is okay and they will keep paying late. They will get later and later with rent if they have no consequences and may stop paying completely. You have to be strict no matter who is late and what their story is. If tenants get too far behind don’t be afraid to start the eviction process. Starting the eviction process usually gets your tenants attention and they start paying rent. A property manager will collect rent and have no problem charging late fees.
- Evict a tenant. It is never fun to evict anyone and I try to avoid it, because an eviction is just asking for your tenant to trash a house. I have yet to go through a full eviction, but I have had mutually agreed upon move outs. If I can have a tenant move out on good terms, they are more likely to take care of the home and possibly pay me what is owed. I would rather lose a tenant who is not paying rent and rent the home to a tenant that will pay me, then tenant who is constantly behind. A property manager will handle rent collections and evictions.
- Check on your houses. Just because you have a tenant who always pays on time and never causes a problem, does not mean they are taking care of your property. I always write in the lease that I have the right to inspect the property with proper notice. I use this time to make sure the home is well maintained and I can change furnace filters, check smoke detectors and make sure no other repairs are needed. Some of the biggest problems come from landlords who rent a house and then never check it. The same tenant is in the property for years and they absolutely destroy a house and the landlord never knows. It is possible to destroy a house quickly, but usually the worst damage occurs over years of time. Some renters who always pay on time are doing so, because they don’t want landlord to come see the house. They may be trashing the property or doing something illegal like selling or making drugs. Property managers should check on your houses, but you never know if they are.
- Maintaining a house. I have contractors all my properties before I rent them, but I still have maintenance issues. Things break when you own a rental and you have to repair them. I am not interested in being a slumlord who doesn’t make repairs. I always plan for vacancies and I plan for maintenance when I figure my cash flow. That way when costs come up it does not hurt my bottom line, because I already calculated for them. If there are water issues, roof issues, electrical issues or any problem fix it. You want your house to be safe and well maintained. If you can’t afford to maintain your rental property you shouldn’t have rentals. Problems will happen at all hours of the day and might and if you are managing your rentals you will have I take those calls. A property manager will handle maintenance issues and should check with the owner of the property on any non emergency issues before work is done.
- Accounting and taxes. When you manage your own properties you have I keep track of expenses, rents, profit, loss etc. A good property manager will give you a year end report that has all your tax information, profit, losses and accounting information. I always send all my information to an accountant to make sure the expenses and taxes are calculated correctly. It is not easy to calculate taxes on rental properties because you can depreciate the structure which is an awesome tax advantage.
How much does a property manager charge?
There is a lot involved in managing rental properties, but not every rental will have issues that require a lot of management. I have had rental houses that never have a problem, are well maintained and the tenants always pay on time. I have had other rentals where the tenants are always having problems, pay late, or stop paying completely. I had one tenant who had a heart attack and could not work anymore. We came up with a mutually agreed upon plan where he would move out and try to pay me back for back rent owed. He never paid me, but I rented the house right away for more money than he was supposed to be paying and it worked out okay.
It is worth it for many people to use a property manager, especially if they can’t handle being tough on tenants. Property managers will cut into your profits, but they will save you time as well. Property management fees usually range from 8 to 12 percent of the monthly rents. Some property managers also charge a leasing fee, which could be one half or one months rent. In my area I can find property managers who charge 8 percent of the monthly rents with no leasing fees. I have thought about starting a property management company, but with fees that low it is hard to make much money. Here is a great article on how to find a property manager.
I have a real estate team that consists of real estate agents, assistants and me. When I gave up managing my rental properties, I handed the duties over to my team. Not only does my team help me with selling houses and my fix and flips; they manage my rental properties.
How much time does it take to manage rental properties?
There are many tasks associated with managing rentals, but it doesn’t take a lot of time for one property. The most time consuming part of managing properties is getting them rented. If you only have one rental property you should be able to spend a few hours a month managing it. Many of those hours will come from renting the home and much fewer hours will be from collecting rent, dealing with maintenance and other issues.
Managing one rental property, two or three rental properties is not too difficult either. Once you start getting four or more rentals it starts taking a significant amount of time to manage your properties. If you don’t have the time to manage them; get help. When you don’t take the time to screen tenants or check up on your properties is when you get serious problems.
For more information on why rental properties are such a great investment and how to start investing in rental properties. Check out my E book Retire Rich and Early with Real Estate at Amazon as a 113 page E book or here as a PDF.
Is it easier to manage single family homes?
All of my 11 rental properties are single family homes. I like single family homes for a number of reasons and one of the reasons is they are easier to manage. The reason single family homes are easier to manage is people are more likely to treat single family homes as their own house. Most people do not want to live in an apartment their entire life, they eventually want a house with a yard and a place they can call home. Many people want to eventually buy a house, but some would rather rent. Because people are more likely to call a single family rental their home, they will stay longer. My parents have had the same renter for 14 years in one of their single family homes. Many renters will also take care of a single family home better and even do some repairs themselves. On most single family rentals the tenants also pay all utilities which is less hassle when managing a rental property.
If you want to manage your own rentals, make systems to help you. Create a system to check your houses, to make sure rent is on time and to make sure accounting information is logged every month. It was not difficult for me to manage my rental properties, but I also started to let things slide at the end and that is when problems occur. If the tenants don’t think you are paying attention they will be more likely to try and take advantage of the situation. If you are looking to buy rental properties and do not think you can handle managing them, make sure you account for the cost when figuring your cash flow.