Property Management is a challenging process which requires a strategic plan with integrated systems and processes in place immediately upon acquiring properties. Property Management is a complex, and in many cases, challenging proposition, when an owner or a landlord is not versed in the specific do’s and don’ts. An Investment property is always a large financial commitment where one “assumes” they will obtain a good return on the money invested, not only in the acquisition but in the leasing and management. The step that most investors miss is the leasing and property management process, wherein most of the profits end up being lost, converting the investment from profitable to a loss.
The items that are imperative in property management are:
1) Property Management Software – choosing not only the right software, but proper training and integration is key. Many landlords assume that if they own a smaller portfolio of properties they may not require the same program as a larger apartment community. But in most cases, that is not always the case. For example, if you own 35 separate properties versus 350 units the need for software processing for rental payments, tenant work order submission, individual property income and expense tracking, lease renewals/expirations are all of the same level of importance whether 35 of them or 350 of them. IF these items are not properly tracked, it can lead to losses. But the main challenge is the labor portion of management will increase if these items are not automated through proper software.
2) Property Management Expertise - a team who understands the steps and challenges of property management. Most realtors are not versed in manangement. Their main priority and specializations are normally in sales. Not only are they normally compensated based on commission, but they are not set up with infrastructure to maintain the accounts. Because the management is a time when profit levels can decrease without warning and at a rapid pace, many landlords do not realize how imperative this period is and lose sight of what they need to do to maintain their investment.
3) Properly written Contracts, Leases, Notices – many landlords do not use the proper paperwork to protect themselves from poorly drafted lease agreements. Most state laws are geared to protect the renter and if a lease agreement does not discuss, in detail, the landlord’s rules, regulations, policies, they may not be protected from a renter not abiding by them.
4) Tenant Criteria & Screening Policy – It is beyond imperative that a landlord create a list of criteria of what they require in a quality renter. This will offer higher probability that the renter will pay on time and will also take good care of the property. The screening process is also a step that many landlords skip. During this time they usually allow the real estate person who is acquiring the renter to approve the prospect. This is not a good policy. The real estate person is being compensated based on the renter taking possession, so they do not have a stake in whether the renter is qualified. The screening process must include credit history, background and criminal check nationally, current employment verification with enough monthly income to cover the rent (min 3x income of one month’s rent) and past rental or mortgage history. During the current economic period this is not as simple as just looking at a credit score. It is important to spend the time to look at the whole picture.
For example, a prospective renter may have lost a job and been out of work, which affected their credit scores. So a landlord should look closely at the time line of the credit and if scores were satisfactory before the job lose and again at the current time when renter acquired a new job that gives better idea of their ability to be a quality renter. If they show a stable living currently, this potential renter should at least be considered.
5) Resident retention program – Many landlords do not even know what this means. If you have a quality renter it is in the landlord’s best interest to have them continue on for additional years as their lease expires. In order to insure their quality renters will choose to renew over and over a landlord must offer good “customer service.” Customer service includes responding in a practical manner to tenant repair requests, questions, etc. Communication is the key. A landlord will incur unnecessary costs if they have to turnover a rental to a new renter every year. These expenses include turnkey cleaning, painting, carpet cleaning, and not to mention, loss of rent during vacancy between rentals and realtor commissions.
Whether you own 1 or 4,000 rentals it is imperative to realize why a property management team with expertise and the infrastructure to maintain your investment and your renter to alleviate losses and unnecessary costs. Sometimes in thinking you can save the property management costs to allow a professional to do what they are trained to do, in the end, is more costly.
