Being a real estate investor may be one thing but being a landlord can use another set of skills that not everyone masters. You may be able to find great investment opportunities however, managing tenants, maintenance repairs, accounting reports are also challenging tasks which can eat into your profits. In this article, I wanted to highlight 6 key points which are important to optimize your rental units and maximize your profits. Whether you are self-managing or not, the ultimate goal is to grow your wealth, not your stress.
Tenant Placement and Selection
This is perhaps one of the single most important steps, which sets the tone for the entire landlord-tenant relationship throughout the duration of the lease. Making sure only the right tenants are selected is key to preventing the “bad apple” effect. It’s amazing how quickly a single bad tenant can create a reverberating affect to sour the entire building or complex. Additionally a tenant eviction can have a lasting and downward effect on your bottom line. Consider the costs associated with an eviction, lost rent, lease up fees and unit turnover costs and you can quickly see why finding and placing good tenants should be given the highest priority and attention.
Finding the right tenant all starts with proper marketing & advertising of your vacant unit. Professional style photos walk through videos, and detailed unit descriptions are a must. Best practice is to ensure maximum exposure of your vacancy. A great start is to utilize as many of the internet listing sites as possible (Craigslist, HotPads, Zillow, Trulia, homes.com, realtor.com are just a few that prove beneficial) When the enquiries do start to come in, it is important to stay organized or you can quickly become overwhelmed and run the risk of losing a potentially good tenant. When you start scheduling showings, try to piggy back appointments so it’s less burdensome to keep going out and showing your unit.
After you have received some applications it is vital to make sure you collect as much information as possible. Key areas a full credit report, employment verification, income verification, work history, landlord history(current and past), debt to income information, eviction history, and criminal. This is absolutely a step which cannot be skipped over or compromised on. It must be stated as well that when running applications it is critical to adhere to all state and federal laws. Tenant selection is a vital part of owning an investment property and forms the foundation of a successful investment.
The lease agreement is the foundation on which the relationship between the landlord and the tenant is built. While many states have a standard lease agreement available these are often times very inadequate and do not do a sufficient job of protecting the property, your interests as a landlord, the rules and regulations of your property and other areas. A few areas to keep in mind for your lease agreement are: when to pay rent, how to pay (we urge you not to accept cash), what is included in the rent if anything, parking, pet policies, how to handle maintenance requests, and handling of trash, are just a few key points. You will want to make sure to use a lease agreement which adheres to all state and federal law but also has all the necessary provisions to protect your interests and set the expectations for a successful landlord-tenant relationship.
Most of all, be very confident in your selection. If you are not fully confident, wait and continue showing. The only thing worse than a vacant unitis a unit rented to a poor tenant.
Prompt maintenance is the best way to keep a good tenant happy and paying on time. Especially in New England, where most of the housing stock is close to 100 years old, things break. Make sure you have a solid list of trusted contractors (electricians, plumbers, carpenters, appliance repair techs, and landscapers that also clear snow).
It’s quite a challenge to provide great maintenance services for a price that won’t completely break the bank for the property owner.
Its not uncommon to see labor rates for the skilled trades breech 100$ per hour. Make sure you understand the capabilities and costs for any maintenance trades around the property. Rushing through the yellow pages when your tenant has no heat is certainly not the best route. If you even get a plumber to show up within a day, don’t be surprised to get a bill that’s double what you needed to pay. The key is to build your list of providers before you need them so the will be there when you need them.
Having the people in place is one key component of a successful maintenance solution for your property, putting a process in place is another. If a tenant has a maintenance request they need to know ahead of time how it is going to be handled. Do they call you directly, is there an email address, do they have a tenant portal, what if it is an emergency in the middle of the night? All of these are questions which need answers and should be communicated clearly to your tenants so they know what to do when there is a problem. You don’t want your property damaged or worse yet a tenant hurt because they did not know who to contact when critical maintenance help was needed.
“While we’ve only worked with Blackstone for a short while, the value is more than evident. From access to affordable and staffed contractors to tenant rent collection, the company allows you as an owner to focus on the more mission critical aspects of your investment.”
Accurate Financial Records
This is sort of a no brainer, but I am consistently shocked how many property owners don’t fully and properly account for all income and expenses. Don’t forget, great records is the key to maximizing write offs and depreciation schedules. Without that, the best financial pieces of owning rental property long term suddenly isn’t as powerful. Up to date financials is also critical for bank financing if acquiring additional property is a goal. We recommend that everyone spend the necessary time to properly track and account for every property investment.
“I partnered with Blackstone a year ago and it was the best move I’ve ever made for my investment portfolio. In less than 1 year together, I have raised my rent-roll over 25% and have seen the benefits of partnering with a professional team. They have endless amounts of contacts and knowledge which has saved me thousands on renovations and guided me through important decisions. They are a full service property management company and I would recommend them wholeheartedly to anyone who is serious about transforming their portfolio. “
Know All State & Federal Laws
It may seem insignificant, but there is a slew of federal and state laws pertaining to the landlord/tenant relationship. It is critical to understand the does and don’ts of the tenant screening process on a state level as protected classes can differ quite a bit. Operating in compliance with all the fair housing rules is essential to minimizing risk as the penalties can be quite costly. It’s important to also note the laws around construction permits, lead and asbestos mitigation, and general property condition.
Invest in the Right Properties
At a high level, this seems like a pretty simple complex and frankly quite obvious, but what exactly are the “right properties”? the answer to this question changes on a case by case basis, although the idea has a few simple rules to understand:
Understand how market capitalization (cap rates) work. Cap rate is the rate of return of net cash flows over cost basis. Understand that higher yielding investments tend to have a bit more risk associated with them. So its super important to know your risk tolerance as well as your expected rate of return. Often times buyers of investment property have expectations not in line with reality. Sometimes it’s a good strategy to stick with lower yielding, but more stable and risk averse investments.
Understand the various property types (condos, single family, multi family, mixed use, and commercial). Each one of these property types has its own unique challenges with regards to management etc. make sure you understand which assets, or portfolio of assets is right for your investment goals.
Understand the complexity of management for each type of property. Certain properties just have more needs than others which equates to costs.
Understand that your time isn’t free. By far the biggest reason investors choose to self-manage verse hire a professional is the perceived cost savings. Make sure you truly realize the amount of time and energy it takes to properly manage an investment property and put a dollar value on that time.
Partner with the Right People
We say partner because any professionals that you need to sustain your investment (realtors, management staff, maintenance, lenders, lawyers) is the key to your success. The moral of the story is that the real estate investment world is full of fairly competent people that offer all types of services.
We recommend you not be ok with competent, but strive to surround yourself with the top experts in each category. You wouldn’t hire a lawyer or financial planner with no experience, why would you try to self-manage, or hire a less experienced management company to handle your expensive property investments. Understand that paying a fair price for an expert to manage for you is actually far cheaper than attempting to do it yourself, no matter how simple it seems. We consistently see inefficiencies in our client’s portfolio that when corrected, more than pays for all the costs associated with professional management.
Blackstone Group Leasing and Management is a full-service property management company that was created in 2016 by 3 real estate investors. We have collectively bought and managed over 1000 doors in Rhode Island. We understand that the cost of ownership is key and want to share our expertise with you
Feel free to contact us to schedule a meeting and learn how we can manage your investment properties BETTER.