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The 3 Things New Landlords Need to Manage

by Marcus Maloney on August 6, 2014 · 6 comments

  
Post image for The 3 Things New Landlords Need to Manage

Acquiring rental property for passive income is a great way to long term wealth, but there is more work required than it appears on the surface.

Aspiring landlords are misinformed about how much work is required to build a successful stream of passive income. It’s more than hiring the right property management company, and making the right acquisitions.

In a recent conversation with an aspiring landlord I was reminded of how misleading mainstream media portray the ins and outs of real estate investing.

The conversation started by discussing the returns that can be made a month from a small rental portfolio. I began to introduce some of the numbers and concepts such as cash on cash return, NOI, vacancy rates, and cap rate to name a few. All of which he had limited knowledge on.

The biggest misconception that was presented is as long as you have a good property management company then you will have minimal problems. I provided him with some information and resources such as Bigger Pockets to learn from. I figured if he was misinformed about the management of rental property then there are others.

Here are 3 Things New Landlord Need to Manage:

The following are the 3 reasons new investors need to manage their own properties. It teaches you so much valuable information that you really shouldn’t miss the opportunity!

1) Financial Responsibilities

Understanding the financial responsibilities of a rental property is extremely important.

It is great to have an accountant on your team but in the beginning this may not be feasible. I suggest becoming familiar with monthly financial reconciliation.

You don’t have to have an advanced degree in finance, but by using quick-books anyone can set up an account and reconcile the monthly income and expenditures for each rental property. Any investment should go through rigorous financial analysis prior to the acquisition but afterwards, monthly report reconciliation will present a clear picture of how the unit is actually performing.

Related: How to Automate Your Real Estate Bookkeeping

2) Trade/Repair Management

Trade management is equally important.

Some investors leave this duty to the property management company, but it is great to have your own resources in the event the property management company may be limited in a certain area. If you have a great property manager you will not have to be as concerned or may not utilize your resources as much but its good to have trades in your tool chest when needed.

It is important to have an independent plumber, electrician, or carpenter on hand. Not to criticize property managers, but in this profession it is always good to have a back up trades. The reason for this is because you may have relationships where you can be billed for services performed after hours or paying invoices at net 30 or 60 versus immediately, this is depending upon your liquidity of course.

3) Tenant Screening/Rapport Building

Tenant rapport building is great when you are starting out.

Again, this is for a smaller portfolio of units or maybe 1 unit. Learning the tendencies of tenants will teach a new landlord what makes a good tenant and what are some characteristics of a terrible tenant. By understanding these tendencies will assist you in ensuring you have the right tenant in your property.

Related: Tenant Screening: The Ultimate Guide

Conclusion

Having a great property manager is critical to expand your business when you are ready, but when starting out these 3 things are best learned through hands-on experience.

Do not leave these 3 simple but important pieces to a property manager when starting out as a landlord.  I would recommend managing your own property for a couple of years to learn the nuances of being a landlord before hiring a property manager.

If you know of any other areas a new landlord should manage in the beginning please share your thoughts!

Be sure to leave your comments below!

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{ 6 comments… read them below or add one }

scott stevens August 6, 2014 at 11:56 am

This is a helpful post. I’m not sure if it’s just the Savannah, Georgia area that seems to be lacking what I’d consider a great property manager, but during turnover, if there locally, I would advise a landlord to go into the properties and look for things a PM could miss. These management companies may employ people who don’t have handyman experience or are not thorough in walking through and looking at everything.

Not only should they be checking the cleanliness of the property (thoroughly), but this is the time to check caulking around the shower area, windows, doors, sink drainage ability, anything out of ordinary with the toilets, A/C system, checking in the attic for any roof leaks, checking things with screws for sturdiness and function, do the windows open properly, were the window screens damaged, etc. There are just alot of things that could get overlooked, so hopefully they have a checklist or you create one and have them follow it.

I haven’t had a walkthrough on a property of mine yet, but if I’m in the area, I will want to walk through with the company. If not, I will specify these things and want a video. When you see some of the pictures that some companies take, their lack of attention to detail definitely makes you question if they do the things I mentioned above or not.

Reply

Marcus Maloney August 7, 2014 at 2:19 pm

Scott,

You are absolutely right you can not rely on others to manage your investment without managing them. I have seen this too often where the PM does just enough to say they checked on the property. I know of some cases where PM do not conduct a drive by during the summer months to see what activity there is at the property.

There are resources available on the web, I steer new landlords to and there are tons on BP which you I’m sure you are aware of. These resources do help in taking the majority of the guess-work from being a landlord. One quick tip when you do conduct your walk-through talk to the neighbors and see if they know your tenant. This will let you know how cordial they are and if so you may have a long term tenant. I learned the more open the tenant is to the neighbors the greater the likelihood they will stay longer. However this is not in all cases.

“Enjoying the Journey”

Reply

Timothy Trewin August 7, 2014 at 10:49 am

Marcus,

Great article. I think it drives home the point of doing your homework when it comes to rentals. It seems that so many want to just trust a property manager outright and that can be dangerous. Much like trusting a financial adviser to manage your money without you being hands on with it. The good ones can make you money while the bad ones can drain it and make your life miserable. By knowing what you are doing you can, in a sense, keep your honest property manager honest.

Reply

Marcus Maloney August 7, 2014 at 2:23 pm

Timothy,

Thanks for the feedback, I hate lazy landlords, being efficient is one thing but allowing a company to handle everything and you don’t have 30+ units is ludicrous to me. I am an out of state landlord and I make it a habit to meet with my PM and visit the properties at least semiannually. This maybe the just me but my tenants love it and the PM is always responsive.

“Enjoying the Journey”

Reply

Eric August 8, 2014 at 6:06 am

BY far the most important is tenant management. Getting better tenants up front will go a long way towards a self managed rental…

Reply

Marcus August 8, 2014 at 10:50 pm

Eric,

You are absolutely right; a cash flowing self-managed rental with minimal repairs is golden.

“Enjoying the Journey”

Reply

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