Buying a rental property is only the first step in the process of turning a home into a stable income-yielding asset. The next step is to manage the property efficiently. Proficient management is the key that unlocks the potentials of an investment property. A well-looked-after property attracts tenants, it earns income steadily, its quality is protected, and its value appreciates over time. Conversely, a poorly managed home undermines the two main reasons why people invest in properties: rental income and value appreciation. This is why, for first-time residential property investors, property management is critical. How you manage your assets will determine how many properties you eventually own and the quality of those assets. It can also put an abrupt end to your real estate investment journey.
What are the issues in managing a residential investment property, and how should you approach them?
There are countless small, time-consuming tasks to be done in a rental. Every part of the home – from roofing to foundation to sanitary, electrical, and HVAC systems – must be kept in reasonable condition at all times. Landlords must tackle emergencies promptly to make sure tenants are happy.
Finding the right tenants
Homeowners have to wade through a mass of unsuitable candidates to find the best tenants. Landlords must implement a systematic tenant-screening process to unearth prospective tenants’ criminal records, financial past, and rental history. Tenants who pay the rent on time and respect the terms of a lease are the bedrock of a rental’s success.
One of the worst parts of residential investment properties is dealing with people because people can be difficult. Landlords must know how to collect rents on time, or they will fall behind with taxes and other expenses. Tenants will make excuses, pay late, or use bad checks, and landlords who permit this behavior will find themselves losing money on their investment.
Enforcing the lease
Enforcing the terms of the lease is not always pleasant, but it’s an essential duty. Even the best tenants will break the lease terms if they are allowed to. Issues like unauthorized persons or pets in a home, holes in walls, or making slight modifications to the apartment must be dealt with, or they will cost the owner.
Respecting landlord-tenant law
There several laws that guide the landlord-tenant relationship, and they vary by state and municipality. These regulations cover everything from property codes to security deposits, rent-collection, pets, eviction processes, and responsibility for repairing the damage. Landlords must learn the relevant laws in their area to avoid making costly mistakes.
Keeping tenant turnover low is as much about marketing the home as it is about maintaining it. If tenants are not happy with how a home is managed, they will leave. On the other hand, speeding up the process of making a vacant unit tenant-ready, marketing it, and screening tenants will shorten the vacancy period and protect the owner’s rental income.
Managing taxes
Tax management is critical to rental property success, but rental property tax can be confusing. Taxes can wipe out an investor’s profits and push them into debt. Unless you know how to use deductions to reduce your tax burden, you will pay too much in taxes. Managing taxes requires a good grasp of the relevant tax deductions and knowing how to organize your records during tax season.
Managing your first residential investment property
A property manager has the right tools, expertise, and experience to help you deal with the highlighted problems. A good property manager will do the following for you:
- Help you define what kind of property investor you want to be. Since your time and energy are finite resources, self-managing your properties place a ceiling over how many rentals you can effectively own and manage.
- Sometimes the best real estate investment opportunities are found in locations far away from your area. You can choose to limit your investment to less-profitable properties that are nearby, or you can hire a manager to manage your properties wherever they are.
- Newbie investors often get into real estate investing, believing it is passive; they soon realize it is not. Managing a property is time-consuming, and you often have to supervise employees too. Hiring a property manager gives you time, freedom, and turns a semi-passive investment into a passive one. It affords you the flexibility to dedicate time to building a proper investment property business.
- Using a property manager saves you money. Even though you pay for the services of the property manager, that cost is an investment. That’s because of how much the property manager saves you in taxes, maintenance costs, and tenant turnover. Using a property manager helps you put your best foot forward as a first-time property investor.