What Every Rental Property Owner Should Know to successfully own rental property and avoid a Negative Impact on their investment.
A real estate investment is not something to enter into lightly. Just as there are good residents and bad residents, there are also good rental property owners and, well, not-so-good rental property owners. The key is to educate yourself. Better yet, educate yourself and also enlist the help of an experienced, responsible property management consultant who knows how to do things the right way, the first time.
Tips to Course Correct Where New Rental Property Owners Go Wrong (or More Specifically, Uneducated Rental Property Owners)
1. Invest in and Rent Quality Units.
There is nothing that can get a rental property owner in trouble faster than renting a unit that is in disrepair to begin with. Rental units that are not well-maintained; in good, clean condition; are un-permitted; and/or have other problems that are not fully addressed and rectified will also attract the wrong kind of residents and invite potential lawsuits. When you demonstrate your high standards, it’s more likely you will attract residents who will appreciate and adhere to those standards (and pay fair market rent for them).
Set your standards high, stick with them, and make sure your units are white glove clean and move-in ready!
2. Advertise Your Rentals Appropriately.
You need to make sure that the right potential residents show up after your unit is ready to rent. That of course means complying with all fair housing laws. Potential renters should be made aware of any required deposits, including pet deposits, acceptable credit scores, rent to income ratios, whether or not you will accept a guarantor. I post my rental standards in all my advertising and hand a copy to all prospective residents when they visit the property.
When you are clear about expectations with your rental standards up front, it will help you weed out unqualified residents and the potentially really horrible people and avoid wasting your time and their time.
3. Conduct a Market Rent Survey.
A market rent survey enables you to be fully aware of prevailing market rates for rentals in your area. You’ll be able to compare rent per month and rent per square feet for your size of unit and number of bedrooms. Ask for premiums if they are justified, such as location, view, and/or on-property amenities. You’ll also be able to see how rent is impacted by which utility bills are included in the rent; any special incentives that might be going on in your market; and how additional facilities and amenities are accounted for in the cost of rent. Don’t be afraid to play a potential resident and go look at your competitors units available for rent. There are always new trends in the industry and you don’t want to be offering the old and stodgy looking apartment.
When you advertise your rental and 100 people show up, you can bet your bottom dollar that the rent you’re asking is not enough. A market rent survey provides a reliable benchmark to price your rental correctly.
4. Screen Your Tenants!
You must screen your potential residents using objective and lawful standards. If you don’t, it could very well come back to bite you. A thorough screening process should include pulling credit reports, verifying income, checking references, checking on any unlawful detainer actions; and doing all of this BEFORE a new resident signs the rental agreement and moves into one of your units.
Everyone needs to be qualified, verified and bona-fide. A winning personality or a sad story doesn’t count! It’s like dating: the first time you meet them they are on their best behavior.
Side note: One of the best movies to watch about not screening your tenants properly is the 1990 Pacific Heights movie. It is based on a real event. I know the attorney that evicted the character played by Michael Keaton. You should watch it.
5. Use a Proper Rental Agreement
A solid, legal rental agreement will not only protect you, it will protect your residents, as well. If you are a member of a local rental housing association, they will be able to provide you with rental agreements that are legitimately binding (as opposed to one you might pull from the internet to save time). Trying to recreate these forms with an attorney will cost you thousands of dollars. Make sure all of your requirements and limitations, such as sub-letting, who pays for utilities and what’s included such as parking, storage and access to the yard are clearly spelled out in your rental agreement. When disputes arise, your rental agreement will be the first document that is reviewed. Laws change frequently, don’t copy your friend’s ten year old one-page agreement. Having current and up-to-date forms is critical to running your rental business and helps you be compliant with the law. It pays not to be cheap here.
6. Have a Maintenance Log Process in Place
Whether you have a residents’ portal or a clearly delineated email process for maintenance requests in place, document, document, document! As noted above, a building that is not well-maintained is much more likely to attract residents that don’t maintain their own unit well. Be sure to communicate to all residents from the get go that you appreciate and expect to hear of any maintenance issues just as soon as they are aware of them. Word-of-mouth maintenance requests alone do not cut it! Everything needs to be in writing. Usually, the party that has the best documentation, tends to win the lawsuit.
7. Regularly Increase Rents as You Are Able.
Most residents – certainly the type of qualified residents we’ve discussed here – are able to absorb legally allowable rent increases annually. What many residents cannot easily tolerate is a rental property owner who hasn’t increased rent in several years and all at once asks for a large increase to catch up to fair market value. Sometimes this happens because a rental property owner is absent and just doesn’t think about it. When or if it comes time to sell the property, however, that same rental property owner may be looking at a scenario in which he or she is unable to sell the property at a market value due under market rents.
Don’t let this happen to you. Raise rents regularly, within the legal limits! We can help you with Capital Improvement Pass-throughs. They tend to be laborious and time consuming, but have to be accurate.
At Edrington & Associates, We Know Where New Rental Property Owners Go Wrong, and We Set Them Right.
We are a property management consulting firm that specializes in solving challenges for rental property owners helping them thrive. Our comprehensive expertise in avoiding problems, finance, appraisals, brokerage, construction, legal conversions of condos and accessory dwelling units (ADUs). We understand the challenges of property management – particularly in conflict situations – and we help ensure that you’re doing things the right way. Every time.