How to Manage an Investment Property

Choosing to manage a rental property can be an exciting choice for a new landlord. It can also be a daunting business to get right when you are new to it. We’ll review the basic things you need to know to make a success of your investment property business.

Return on Investment

how to manage investment propertyBefore jumping into purchasing an investment property, you want to be sure you will have a good return on investment. You will want to look at the capitalization rate and ensure that your investment is giving you a decent return of about 4% to 6%. You need to take into account how much similar homes are leasing for in the same area. You need to evaluate the numbers before you purchase a home. Consider the cost of the home, the maintenance, insurance, property taxes, and mortgage. Then you need to look at how much “like homes” are renting for in the area. For example, if you need to charge $3,000 in order to get a 4% cap rate, and the homes around there are renting for $2,500, the home may not be a good investment.

Other factors may include you want to rent the home as an Airbnb or VRBO property. If that is the case, do your due diligence and make sure it is permitted in the city, area and if there is an HOA, it may not be allowed. Consider what investing in other types of property that you may be interested in purchasing whether it be a duplex, apartment building, or a commercial building.

Buying and Repairing

The first step in your rental property business is to actually buy the house. Once you have the property you need to get it to a good state of repair so that it is ready to rent. You will want to address any deferred maintenance before having tenants move into a property. Ensuring that the home is in good condition will likely attract a better tenant. There are some simple repairs that will boost the home value and appearance which will make the home more appealing for a tenant.

Rental Prices

Before the home is ready to go on the rental market, you need to decide how much should be charged to live in the property. You may have already checked on the rental market in your area before purchasing, but if not you need to do some research.

You’ll need to check what similar properties are renting for in the same area. If your rental has benefits over similar homes, you will be able to charge more, or less if it lacks the advantages.take care of rental property

You should also consider the type of person you want to live in your property. While it is illegal to discriminate against potential tenants, there are some things you can require from them.

Setting employment and income requirements as well as the number of references needed can reduce your chances of getting a bad tenant. Are you happy to have tenants who smoke and what about pets? A good recommendation is to ask the tenant for a pet resume and information about their pet. These things need to be decided before the property is advertised.

Attracting Tenants

To find tenants you’ll have to advertise. Homeowners frequently utilize online property sites to find their new rental, on sites like Zillow. Local publications and magazines can also offer a good source of potential tenants.

To make sure that you find a tenant that isn’t going to cause you trouble, you need to interview them. There are some rules which need to be followed when asking questions of a potential new tenant. Avoid asking about their race, size of their family, and disabilities, to be within the law.

Check any information they provide is accurate. This means calling references, former landlords, and employers. You should also run credit and background checks to avoid problems in the future.

Rental Contracts

Tips for managing investment propertyYou need a rental agreement for the tenant to sign. This should protect you by setting out the rules and payment arrangements. You need sections on eviction, payments, maintenance, and the deposit.

If you don’t feel confident in writing this yourself, a real estate attorney can help or you could adapt examples found online. Or you can certainly hire a professional Realtor (more on that later).

When you are ready to have your tenant sign the agreement, go through it with them first. This will make sure they understand what you expect and allow them to ask questions if they don’t.

You should also walk-through the investment property with the tenant, so any damages to the home won’t be disputed with them later. Document any problems, so that if the property isn’t left in the same condition, you can use some or all of their deposit to make repairs.

One scenario that may arise is that a tenant may ask for a rent to own purchase of your home. This is something to be carefully considered, as you are agreeing to the terms at a future date.

When You Have a Tenant

When your tenant has moved their things into your property, the work doesn’t end. While there will be less to do, you will still need to be available to your renter and deal with maintenance issues they have.

You should agree with your tenant to check the home once or twice a year. This will allow you to stay on good terms with the renter and check that smaller issues don’t become major expenses.

There will be small maintenance issues with the home from time to time, so you should have a list of reputable local contractors to call on. You can use them for regular check-ups on appliances in the home as well.

Collecting the Rent

Manage your investment propertyYou should have set out how you expect to be paid rent in the rental agreement. You should use a method that is convenient for you and the renter, whether it is electronic or a check in the mail.

If you have long-term tenants, you will have to consider increasing the rent at some point. This may seem difficult, but you should try to keep pace with the local market, so you don’t lose out.

Your rental agreement should cover late rent payments and what will happen. You need to enforce this policy, which may include late payment fees.

If the worst comes to the worst, you will have to evict your tenant. It isn’t going to be a nice thing to do but maybe your only option if they fail to stick to their end of the agreement.

The eviction process will involve an official notice, which gives them the chance to turn things around. If that doesn’t work, you will have to file an eviction notice with the court. You will incur legal fees with an eviction process.

These are the main points you need to get right to successfully manage rental property. While it may seem overwhelming at first, when you have the basics down, you can focus on being a great landlord.

Hire a Realtor

There are some excellent Realtors out there who will be able to help you with this process. There are excellent questions to ask when hiring a Realtor. Be sure to discuss how they work, and how they will market your home. Also, ask them to explain the real estate commission.

It is recommended that you hire a Realtor when you are looking for an investment property so they can help you to determine if the property is a wise investment as well. There are some great suggestions for finding the best investment property.  Your Realtor will guide you through the home buying process and ensure that you obtain a pest inspection and a home inspection.

Once you have found and purchased a property, hire a Realtor to list the home in the MLS and properly market it. In today’s times, it is especially important to have a tech-savvy Realtor who has a strong internet presence. Often times, state Realtor associations have screening systems in place for a homeowner to determine if they want to rent the home to a particular applicant. Additionally, your Realtor will put together the lease for the landlord.

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Property Management

One last consideration is do you want to be a landlord? Remember, when you are a landlord, each time there is something wrong with the property, the tenant calls you directly. If you decide that you want to be a landlord, then you will need some systems in place and handymen that are on-call. Or consider hiring a property management company to manage it for you. They generally take a percentage but will handle collecting the rent, repairs, and maintenance as it arises.

Final Thoughts

Owning an investment property is not for everyone! However, it is an excellent way to invest your money to get a good return on your investment. The key is to have it occupied all the time, so it is just sitting not making any money. Having good tenants makes a difference if you are acting as a landlord.

How to Manage an Investment PropertyHow to Manage an Investment PropertyHow to Manage an Investment Property

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ABOUT ME

Sharon Paxson is a full-time REALTOR® with Compass and has been specializing in residential real estate throughout the Newport Beach area since 2005 assisting Buyer’s, Seller’s, Landlords and Tenants with their real estate needs.

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