One of the biggest challenges real estate investors face is managing rental properties after purchase. Someone needs to collect the rent, do the maintenance and handle any other tasks required to maintain a habitable condition for tenants and protect your investment.
Some landlords hire a property manager to handle these tasks, but that can also get expensive and may not make sense for everyone. So smaller landlords often decide to self-manage their rental properties to save money. Here is a closer look at how to self-manage rental property to help you determine if it makes sense for you.
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How Hard is It to Self-Manage Rental Property?
It all depends on the size of your portfolio and the property’s location. The more properties you own and the farther they are from where you live, the harder it will be to manage them on your own. If you purchase an investment property in your own neighborhood and rent it out to a single tenant, it shouldn’t be too difficult to manage independently. But if you start purchasing properties all over town, it may become more challenging. Likewise, if you are buying a property in a different city or state, you may need to hire someone else to help you take care of the day-to-day management tasks.
It also depends on how much time you have on your hands. If you have a full-time job, you may find it more difficult to self-manage your own rental properties than someone who is retired or works as a full-time investor. So, you should take stock of your availability and comfort level with property management work to decide if self-managing makes sense for you.
Step-by-Step Guide to Self-Managing Rental Property
1. Create a System for Determining and Collecting Rent:
The first step of managing your rental property is determining a fair market rent to charge tenants. You’ll want to make sure that you charge enough to cover the mortgage (if you have one) and offer a fair price that will attract attention. Take stock of all your monthly costs, and then look at the rents of other comparable properties in the area to determine a fair price. You can always adjust if you’re not getting enough interest. You should also create a system for collecting rent. This system could be as simple as setting up a business bank account and having your tenants mail you a check, or you could set up an online payment system. But you’ll want to be prepared for when your tenants move in.
2. Market Your Vacant Units:
Once you’ve set the rent, it’s time to market your properties and find tenants. You could enlist the help of a real estate agent, or you could do this on your own. Marketing methods include posting signs, posting ads on listing platforms, or simply telling friends and neighbors that you have available units. Once you start attracting interest, you’ll want to vet applicants by performing a credit check and reviewing their financial documents. Then, once you’ve found a suitable applicant, you can draft a lease agreement for them to sign.
3. Create a Maintenance Schedule:
Next, you’ll want to create a maintenance schedule to ensure you keep the property in good shape. You will want to set aside time to inspect the property on a routine basis and perform any seasonal tasks like clearing out the gutters, salting the driveway, cleaning the windows, doing the landscaping, etc.
4. Enforce the Lease Conditions:
One the tenant moves in, you’ll need to enforce the lease conditions. This means collecting the rent and sending notices if a tenant is late. It also means enforcing other terms within the contract, such as no smoking, pets, or allowing guests to stay for an extended period. It’s up to you to set the rules, and it’s also up to you to enforce them. While you may not be able to monitor the property every day, if you notice an infraction, you must deal with it accordingly.
5. Develop an Accurate Accounting System:
You will also need to develop an accounting system to track your income and expenses. You’ll want to know how much profit you’re making and set aside enough to pay your taxes. There is plenty of property management software that can help you with the bookkeeping, but you may want to hire an accountant to help you find deductions and pay your taxes. It will cost you, but a good accountant will help you reduce your tax bill and avoid audits.
6. Evict Tenants and Deal with Any Other Problems as They Arise:
Occasionally, you may have to evict a tenant if they stop paying rent or violate the lease terms. You should consult an attorney before doing anything and learn about the local tenant-landlord laws to be sure you follow the proper protocol. Otherwise, you could potentially end up getting sued for harassment. You’ll also want to respond to other potential issues, such as maintenance requests, tenant disputes, and other conflicts. No one said that being a landlord would be easy, and if you self-manage your own properties, you’ll be the main point of contact for any problems.
Advantages of Self-Managing Rental Property
The main advantage of self-managing a rental property is the cost savings. Property managers provide an essential service, but they aren’t cheap. So, depending on the size of your portfolio, it may not make financial sense to hire a property manager right away.
Another advantage of self-managing is that you have more control over the process. Property managers typically have their own systems and ways of doing business. Plus, they are not all created equal, and some are more competent than others. So, when you hire a property manager, you are putting your investment and reputation in someone else’s hands, which can be difficult for some.
Disadvantages of Self-Managing Rental Property
The primary disadvantage of self-managing is that its time-consuming and often challenging work. If you have a full-time job and a family, you may not have the time and energy to respond to every issue. But being a landlord comes with legal and financial responsibilities, and if you neglect the property or fail to respond to a complaint, you could lose money or get sued.
Plus, depending on your background, you may not have the knowledge and skills to collect rent, keep track of your books and perform maintenance. So, if you have to outsource all of these tasks, it may be cheaper to hire one property manager who can take care of everything.
Should You Self-Manage or Use a Property Management Company?
It all depends on your situation. Property managers are typically better for landlords who own multiple properties and don’t have the time or workforce to manage them all independently. Smaller landlords with only one or two properties are likely better off self-managing unless they live in another area and have the room in their budget to pay for a property management company.
Property managers typically charge between 8-12% of the rent collected as a service fee. So, if paying that fee would free up your time to focus on expanding your portfolio and bringing in more revenue, it may be worth it. But if you are also paying a mortgage and your margins are slim, to begin with, it may make more sense to self-manage your rental property for as long as possible.