Managing Rental Properties | Guide for Investors Part 2
Today’s topic “managing rental properties” came to me from another viewer. I received an email from someone who asked me, “How do you manage a property?” I went down in memory lane, and I have to go back to my prior experiences as to how I did to manage a property. I’m going to walk you from beginning to end to give you an idea of how I typically go about the relationship building with the tenant and how I managed the property at the time.
Now, keep in mind, you have to check your local rules as the owner or investor, in some states where you are not allowed to manage your properties. The last time I checked, New York was not one of those, and therefore, that’s why I did it.
Suppose you have the capital, and you actually can afford property management. In that case, I strongly recommend you to do that because it is 10%, very well paid, 12 for some states. Still, it will free you from so much that you can use that time to expand your real estate portfolio or invest it in your relationship with your family, with your loved ones. If you’re just getting started and you can’t afford one, here’s what you’re going to do.
You’re going to go ahead, and you’re going to post a listing on pages like Zillow, or Craigslist, Facebook Market, you name it. Make sure you have lovely pictures because people like space. If you don’t want to take pictures, you can also do a video. I released a video not so long ago that talked about how you can sell the ideal place, the perfect apartment, or the ideal rental for someone who’s looking to rent from you. Here’s the link right here. You can check it out.
For those working on the posting, make sure the pictures are bright, the property looks spacious, and always give them your contact information. You can have them reach out to you via email or call, and then once you build up enough of a list of people who have contacted you, you give them the details about the property, and you schedule an open house. That’s how I did it. You prepare the open house, “This is the place that’s being rented.”
Why would you want to schedule an open house? Because you will want to get a sense of what it’s like to interact with that prospective tenant somewhere down in the future. Now, in my experience, I always do that in-person unless I’m delegating the service and have someone else manage my property. When I used to manage the property, I liked to see who was potentially going to be my tenant.
Why, because I need to determine whether this relationship will work out for me as well. It’s not just so much about the rental and receiving the income. It was also about, “Is this person going to take away my peace of mind? Is this person somewhat risky to rent it out? Is this person a pain to deal with,” because there are some tenants out there that are very, very obnoxious.
You want to schedule an open house because you will want to get a sense of what it’s like to interact with that prospective tenant somewhere down in the future.
For example, let me try to look back. The first time I helped my parents manage their rental, I was 20 years old or something like that. I did precisely that and hosted an open house for two hours. An average of 10 people showed up, some families, some of them were young professionals, adults, you name it. There was a wide array of people that showed up. You can tell right away why some of those tenants were not going to be right for you.
For example, I got the very posh-posh, upscale person who complained about the cabinets not being aligned, or the color, or the lighting. The cabinets were lovely, but I don’t know; for whatever reason, this person didn’t think so. “Oh, how often are you going to come by?” This person was asking a lot of somewhat unreasonable questions.
Then, I got a couple that came in. This woman was very rude, and she was like, “Well, there’s something wrong with this place because you’re asking such a low rent,” and stuff like that. In my mind, I was like, “Well, I think it was rated properly, but if you want to give me more money, sure, I will take it.” This person was trying to find anything wrong with the property.
You do not want to rent to someone like that because, down the line, there could be a potential lawsuit, they’re going to complain, they’re going to burn your phone, they’re going to call you for every little thing that they don’t think it’s right because, in their minds, there’s something wrong.
I also interacted with a couple of people who have not rented before. It was their first time, so they didn’t have much of an experience, but they were willing to pay money upfront to make sure you rent it for them. You have to be careful with that. Some people do have it, and they’re genuine, and they can afford that, but there are some other people who, for whatever circumstances, they’re not willing to wait a little longer, and they need to rent a place right away.
That’s why you need to do a background check. Maybe they didn’t have a rental record, but they have a criminal record. You don’t want to rent to a family like that or don’t want to rent to a criminal record person. Depends on the circumstances, I don’t want to be too judgmental, but play it by ear. Those are things that you definitely should look out for.
In the end, I ended up renting it to a young family, they were in their early 20s, and they had kids. I decided to rent it for them because the interaction was delightful and went above and beyond to produce the documents. That in itself told me that they were very responsive; they were responsible people because they’re willing to make things happen, even though they were young, and they didn’t want that to be an excuse or a reason to get them not to get the apartment. That’s one.
Now, the third one is the actual background check. You can go online, and you punch in the information that the person provided to you during the application process. You can get access to their background. How many times was this person evicted? To me, an eviction is a big no-no. It’s an automatic disqualifier. You can access their credit history, which is credit as criteria. Now, I’ve had mixed views when it comes to credit.
Yes, I know a lot of people say, “Well, credit, it’s great, it’s a big determining factor,” but you don’t always know what happened with that person’s life before they came to your door and asked to rent your unit or your house. Sometimes they have to declare bankruptcy because they got through a divorce and lost everything, or maybe this person had just arrived in this country. They just moved to the US and didn’t have any credit whatsoever. There are other factors that you need to consider.
Now, if this person is very mean and they’re very condescending, and on top of that they have poor credit, yes, forget it, don’t rent it to that person, but if you’re seeing that they’re doing everything possible, above and beyond, give them an opportunity. I’ll leave that up to your discretion. My property manager rented one property to a family like that.
They were from Asia, and they had just arrived in this country maybe about a month or two ago, and they were living with their in-laws, and they wanted to find their place, but unfortunately, they didn’t get any chance to qualify just because they didn’t have credit. My property manager raised it to my attention, and he said, “Well, I think they’re going to be good candidates because they went above and beyond to produce every single document that I’ve asked for. They turned it around fast enough, they provided employment letters, they provided bank accounts, they do have money, they can afford it.”
Again, I’ll leave that up to your discretion. You don’t have to go by what I say, but I made a judgment call, and it worked out perfectly fine. Once you are done through the whole qualifying process, how do you manage the property itself? I’ve learned that I like to build add-ins into the lease and give my tenants credit for things they typically do. I’m all about streamlining.
For example, suppose you have a house where the grass needs to be cut. In that case, the garbage needs to be sorted out. It has to be taken out on a specific day, and I knew that, right away, I didn’t have the time for it, I will build that in into the lease, “Tenant is responsible for cutting the grass. Tenant is responsible for shoveling the snow,” and you set how often they need to do that.
For example, in a snowstorm, that’s a no-brainer, they have to clean it up right away, but for grass cutting, probably maybe twice a month or something like that, that should be good. What I do is that, if they do those types of services, I give them credit. For example, I do research and estimate how much it would be like to pay somebody to cut the grass, and I discount that from the rent. It’s streamlining.
Some of you might think, “Well, isn’t that the same thing?” Not really, because if you’re paying somebody to come in and cut the grass, now you’re managing two people. You’re managing the person who’s paying you the rent, and you’re also managing the person who’s cutting your grass, and you need to make sure that the person shows up on time, yadda, yadda.
Meanwhile, if you’re doing it all through the tenant, it’s a one-stop-shop. They will take care of everything, and then you discount it from the rent. A lot of tenants will love that. They would love to get a discount on the rent. Give it a try to see if it works out for you. For security reasons, I also install cameras in the hallway, if it’s a multi-family unit, again, at the front of the house. You’ll have to check regulations in your state or in your area to see if that’s legal.
I do that mostly because of liability reasons. I do that because somebody might fall in front of the house, and they might sue you, claiming that you didn’t take care of certain things. Meanwhile, you have the camera there, facing upfront. Not spying in their premises, in their bedrooms, or anything like that, but having it placed in common areas. I put them in the hallways, where there are stairs, where people come in and out, to ensure that everything is still in order because you cannot be in the property 24/7.
If somebody claims something happened, somebody fell because there was a hole in the door there, and I never fixed it. I can always go back to those security videos and see, “Hey, there was never a hole in that floor. You created that. You’re lying.” Whatever can help you protect yourself against any liability. It is the same thing with any outdoor camera, checking the vicinity. It’s for the protection of your tenants as well. You want to make sure they’re also safe and feel safe in a house you are providing for them.
I like electronic locks rather than actual locks because the password’s a lot easier to change. You don’t have to keep replacing the keys every time a tenant moves out, or, if they lose it, you don’t have to deal with anyone losing their keys in the middle of the night. Two o’clock in the morning, and they can’t get in. Just get one of those electric locks. You just put it in the door, and all they got to do is to punch in a password.
If they forget, they can always write it down on their phone, whatever. It will eliminate the elements of surprise. You will not have to deal with those three o’clock calls in the morning because they forgot their keys.
Last but not least, rent collection. Some of you have seen my video about Venmo. I love Venmo. I always put in a request, and I ask for the rent. They transfer the money over to my account. I never left the house. Everything is in my account. You can also do that through Zelle. Make sure you put those provisions in the rent contract. Rent can be paid in the form of cash, check, money order, or using electronic services like PayPal or Venmo, or even Zelle, for those who have those electronic services because it leaves an audit trail.
Every time you put in a request, it is recorded in your bank statement, is also recorded in Venmo, is also recorded in PayPal. Technology has made it great for us.
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