Are you thinking of taking the plunge and dipping a toe into the real estate rental industry? Owning an investment property can be a very lucrative income stream whether it's your main source of revenue or a side project. But before you jump in feet first, consider how you plan to handle each aspect of the venture as a property owner.
The first and most important is to determine your level of involvement in the rental properties you'll build or purchase. Will you be a hands-on property owner who collects rent and does repairs as needed or are you envisioning a property management company at the helm of your enterprise? This matters a great deal for the success of your real estate investment to pan out. Here's why:
Property Management Is Not for Everybody
Everyone has a finite number of hours in the day. If you also hold down a full-time job and have a family and pressing personal obligations, you might just not have the discretionary time needed to properly manage your rental property. This does a disservice to your residents who might have to wait too long for repairs or installations in a crunch. You could soon develop a reputation as a bad property owner — a label you certainly don't want.
Who Makes a Good property owner?
While of course this is not written in stone, retired individuals with some spare time on their hands and adequate handyman skills often make wonderful property owners. They have the time, the inclination and the abilities to tackle repair problems quickly and can get to know their residents well. That alone can generate a lot of good will between you and your resident if you share a friendly relationship with them.
Another example of a situation where being a hands-on property owner can work well is when you are a resident's actual physical neighbor, e.g., you're renting them the other half of the duplex or the basement apartment to them. Of course, not every property owner wants to share real estate with their resident, so your choices must be weighed against this reality as well.
Why Property Management Companies Are Often the Best Choice
Putting a little physical and metaphorical distance between you and your resident(s) can be the better choice for many property owners. For one, many property owners don't want to be bothered with the more mundane aspects of managing a rental property, like:
- Collecting rent
- Screening residents
- Evicting families
- Repairing properties
- Enforcing rules
Yet, all property owners will agree that in order to get and keep good residents and turn even a modest profit, all of the above need to be handled by a responsible individual. That makes a lot of potential property owners lean in the direction of a property management company. Below are just some of the ways that the right property management company can enhance your property owner experience.
Keeping it Legal
Knowing that you have the proper permits and that you are in accord with all building codes, local ordinances regarding occupancy and zoning laws is very important. Your property management company can do that for you, as well as work with your insurance company to make sure that your liability policy is in force and sufficient coverage is maintained.
You also need to make sure that you are 100% compliant with all HUD regulations and housing anti-discrimination laws. Running afoul of these can wind up costing you a barrel of money defending a protracted lawsuit.
You will need a filing system to keep track of applicants and residents, their signed leases and any infractions they may incur during their residency in your properties.
Screening the Tenants
Failing to screen the residents with background and credit checks and not verifying their references can spell disaster for property owners. Remember, it is a lot easier (and far cheaper!) to avoid renting to a problem resident than it is to evict them later.
Following Protocols for Rent Collection
You will need to develop policies and procedures for receiving and collecting security deposits and rent. These must be clearly stated in the lease that your residents sign. When a property management company is responsible for rent collection, it eliminates the sob stories a property owner must endure from their residents who come up short on their monthly rent.
Few property owners like to be the actual "heavy" with their residents, making sure the grass isn't an inch too long or the property too cluttered. When you retain a property management company, you will have someone who handles these more unpleasant aspects of property ownership.
Take the Strain Out of Property Ownership
Finding a reputable and reasonably priced property management company to manage your rental properties can eliminate much of the day-to-day stress many property owners experience. Learn how you can reap these benefits as well!