Property management isn’t easy nor is it meant for the faint of heart. But it is critical for any buy and hold investor. You may make your money when you buy, but you don’t realize your income until you manage — and manage right. For those up for the challenge, here are my five most important keys to property management:
1. Screen, Screen and Then Screen Some More
This is what any good landlord will say and for a good reason. Who you let into your rentals is the most important decision you make as a landlord. It is better to keep a property vacant than to let someone in who will stop paying and force you to evict them, trash the unit or just be a never-ending pain in your side.
I mean, think about it. If you were going to lend out your car, would you lend it to just anyone? Or would you only let someone you can trust borrow it? Well, a rental house is usually worth a lot more than a car. So you should be extra careful of who you let in.
I would recommend not letting anyone in with an eviction unless it’s quite old (at least five years, preferably 10) and has been paid off. No violent felonies and no recent felonies. They should also get a good landlord and employment reference and make at least three times the rent in income. I would recommend letting a tenant screening company, such as Triple-A, do your screening. That way, you aren’t tempted to hear what you want to hear when you call landlords and employers for references. However, if you do call the references yourself, if you hear a landlord say something like, “Well, if you don’t mind X, he should be a good tenant,” run the other way.
2. Understand: Your Prospective Tenants Will Mirror Your Rental
If you are trying to rent a dumpy unit, you can guess what kind of tenants you are going to find. I’m not just referring to areas. Yes, it is harder to find good tenants with clean backgrounds in rough areas. However, we have several properties in rough areas, and we have found plenty of good tenants for them. You just have to screen more and probably say “no” more.
But if you try to rent a house with ripped vinyl, splattered paint, 1980s appliances, unkempt lawns and broken window screens, the only prospective tenants you are going to find are those who are desperate for a place and are willing to live pretty much anywhere.
And you can guess how they will treat your unit and whether they will consistently pay rent.
You pay for what you get, and that holds true for real estate. If you put a good product on the market, good tenants will want to rent from you. And trust me, you want good tenants.
In other words, don’t be a slumlord.
3. Be Fair, But Firm
There’s a hilarious scene in The Big Lebowski where The Dude’s landlord is trying to get him to pay rent:
Landlord: “Dude, tomorrow’s already the tenth.”
The Dude: “Far out.” [Look of dudish indifference]
[Landlord gestures pathetically]
The Dude: “Oh… Oh. Alright. OK.”
Landlord: “Just slip the rent under my door.” [Awkward fist pump, then turns around and meekly walks away.]
Don’t be that guy.
You need to have policies and procedures in place. For one, you should have policies for who you accept in general for two reasons: 1) It will hold you accountable to not let in a bad tenant if a property sits vacant and 2) It will keep you in compliance with fair housing.
But you should also have policies in place for after a tenant moves in. You should have these policies in the lease, and you should teach them to the tenant when you sign the lease. The lease signing should not be a short process; you should go over every rule you have with them in painstaking detail.
So what’s your policy for late rent? Well, ours is that rent is due on the 1st and late on the 5th. If they pay later than the 4th, they have to pay a late fee. We don’t waive this unless they prove that the rent was sent beforehand, but for some reason wasn’t received (say, lost in the mail). If they argue with you, just respond, “I’m sorry, but it’s our policy, as stated in the lease. If I made an exception for you, I would legally have to make an exception for everyone. Unfortunately, I have to charge the late fee.”
If it hasn’t been paid by the 12th, we file a 72 hour notice. Then we file for eviction on the 15th. If they contact us, we will set up a one-time payment plan, but if they don’t stay true to that plan, we file for eviction.
Don’t be the type of landlord who constantly falls for the endless stream of tenant sob stories. Just blame the policy. But of course, first you must make said policies.
4. Know That Maintenance is the Best Form of Tenant Retention
If you want to keep your tenants for the long term, do the maintenance right. Maintenance is the one thing that you will consistently provide your tenants during the course of the their stay. Otherwise, you’re just the person that they have to pay money to each month. Maintenance is how you make them want to stay.
Maintenance, however, is often an afterthought. Don’t let it be. Get to urgent issues immediately and get to the other ones timely. Make sure if you can’t afford to have a maintenance guy on staff that you have someone or a few someones at your call to do the work. Build a relationship with a plumber, electrician, HVAC technician and foundation specialist. And find at least one handyman willing to take late-night emergency calls. Most things aren’t emergencies (even if tenants think they are). Usually, every emergency involves water in some way, form or fashion. But you at least need to have someone who can go and stop the leak at midnight so there’s no more damage. Or if not, you need to be able to do it yourself.
Finally, this doesn’t mean you should bow to every tenant’s demands. It also doesn’t mean you shouldn’t charge tenants for damage they do. But you do need to provide good maintenance if you want your tenants to stay and pay.
5. Be on the Tenant’s Side
My brother is the master at tenant relations. (He once talked a tenant who wanted to sue us into wanting to rent from us again in one 15 minute conversation.) His approach is simple: he is always on the tenant’s side. He’s the good guy. Now, there is a bad guy too. It may be the lease, law, owner or policy. But my brother is never the bad guy.
Many tenants feel like the property manager is against them and will become hostile. In response, the property manager gets defensive and both sides dig in their heels. This natural approach is counterproductive and just makes everyone hate each other.
Instead, approach the problem as the tenant’s ally. Don’t lie, but explain the problem by framing it as you and the tenant versus the bad guy (whatever that may be). So let’s say they are late on their rent and can’t pay. They want another payment plan even though they failed on the rent. Well, make the “policy” the bad guy.
“Unfortunately, the company’s policy doesn’t allow me to offer another payment plan. Legally, I can’t break that policy for you unless I break it for everyone. However, I think we can come up with the best possible solution for your situation. It sounds like you would need at least another week to move out and a little money to do so. What I think I can do is give you one more week and $200 [cash for keys]if you leave the property clean and in good shape. Is that something you could do?”
Really, the possibilities are endless with this approach. (If you want to see more about how my brother takes on property management, you can see a presentation he gave on my BiggerPockets Member Blog here.)
Buy and hold is the ultimate way to get rich slowly, but it’s not easy. Property management is a key factor in achieving your investment goals with buy and hold, so you better learn how to do it. These 5 steps are, in my judgment, the most important pieces to help you on that path.
What would you add to my list? What practices have helped you succeed as a property manager?
Leave your comments and suggestions below!