A step-by-step guide through property management
A step-by-step guide through property management
In an ideal world, your rental properties should not cause you stress. Properties should provide you with a better lifestyle and greater opportunities. In reality, you will find this statement to be far from the truth.
We’re about to take you through a step-by-step process on how to minimize risk and maximize benefits through the rental lifecycle.
Part I: Leasing
Determine Monthly Rent
Use a combination of the below approaches to price your rental
- Market Approach
Review rental prices of comparable properties currently listed on the
- Growth Approach
For properties rented historically, use the initial rental rate and apply
your county's annual growth rate.
- Data-driven Approach
Online tools, such as the Rent Zestimate, use large amounts of data to
determine price. These tools are not always accurate, but they provide a
baseline to compare with the other two approaches.
Economics! If you have too many candidates, then you are pricing your property too low. If you have too few candidates, then you may be pricing your property too high (may because some people don’t properly advertise their property.)
Math! It's easier to list your property above market rate and reduce the price than it is to increase an underpriced unit.
Create Property Advertising
You want to create a legible advertisement that is simple-to-read yet comprehensive. All advertisements should have the following sections
- Professional photos (seriously, don’t skimp on the quality, it hurts your
- Overview of the property
- # of bedrooms
- # of bathrooms
- square footage
- pet policy
- Detailed description of the property
- Property details specific to this listing
- Price (rent and security deposit)
- Terms (month-by-month, 6 months, 12 months, flexible
- Minimum application requirements: credit score and income-to-rent ratio
- Showing dates
- Application process
Most importantly, tenants do not read. If you put details in a bullet point format, then they are much more likely to ask fewer questions.
Math! More information = fewer emailed questions from prospective tenants
Post to Listing Websites
The reality is, some websites drive more traffic and exposure than other
websites. Here are some of the top rental listing websites by traffic:
- The Zillow Group: their advertising goes to Zillow, Trulia, and Hotpads
- Craigslist: remains the top source for B class and below
Economics: It’s best to list your property through software that will advertise it on all of the top listing websites, such as Hemlane. It will help rule out the question "Am I posting it on the correct websites?" when you are not receiving leads.
Host Property Showing
Three options to show your property, and we have found the third option to be the most effective
- Open House:
- Tenant caters to you: if a tenant wants to rent your place, they will rearrange their schedule to make the open house
- Little upfront work: you list an open house time and have very few other responsibilities to confirm it
- More work during the open house: you have very little insight into demand and could wait around for two hours without a single attendee
- Individual Showing:
- Recommended for high-end rentals
- Caters to prospective tenants’ schedules
- Allows you to focus and sell the rental to a particular tenant
- Scheduled Showings:
- Unqualified leads don't show up: Require tenants to pre-qualify when you set up the time
- Impression of professionalism: Tenant sees that you have a process, which is a major selling point
- Multiple bookings at once: tenants see other tenants viewing the property which incentivizes them to apply sooner
Collect Applications and Perform Background Check
The most costly expense is a bad tenant. The screening process will help
mitigate the risk of selecting a bad tenant. Use an online application that is
secure, easily retainable, and accessible from any of your devices. It will also provide insights into your leads and their progress on the application.
Perform the following steps in the background check:
- Credit Report & Score
- Criminal Check
- Eviction Check
- Employment & Income Verification
- Rental History Verification
Part II: Tenant Selection & Move In
Select the Tenant
This is the most important step! Make sure you are abiding by Fair Housing and use objective information from the application and screening process. Some general recommendations, although it will change based on your location and rental.
- Monthly income should be roughly 3x the monthly rent
- Credit should be over 650
- No evictions - no exceptions
Math! 1 additional hour vetting tenants < 12+ months of tracking down rent and repairing damages
Complete Residential Rental Agreement
Avoid the free internet lease agreements, since laws vary by state. You want a
contract that foresees possible issues and is written to support you. Some key terms to have in your agreement:
- Daily late fees: Daily late fees incentivize tenants to pay on time and/or sooner than no late fees or one-time late fees.
- Credit Bureau reporting: If a tenant does not pay on time, then you have the authority to report it to the Credit Bureaus.
- Joint and Several Liability: Basically, all tenants are responsible for all of the rent and/or damages.
Note: You will want to check your State's laws to confirm on local tenant and landlord laws.
Initial Payments are Received
Confirm first month's rent and the security deposit have entered your bank
- Taking down the marketing (advertising) of your rental
- Notifying other prospective tenants and leads that the property is no longer available
- Handing over the keys to the property
When you hand over the rental unit keys, validate the tenants’ identities by
verifying through their government issued ID. For efficiency purposes, it makes sense to perform the move-in inspection simultaneously.
If you don't have a move in checklist, you can access our checklist here. A couple of approaches to perform the initial inspection:
- Tenant inspects: This process can take longer, especially if the tenant is “nit-picky,” but it allows the tenant to confirm the condition of the property. It can lead to fewer arguments and questions related to the return of the security deposit.
- Owner/agent inspect: You (or one of our agents) inspect the property
and confirm the condition. Anything that may be slightly damaged is noted on the inspection document.
- Owner and tenant inspect: A combination of the above approaches.
Tip! Have timestamped photos of the rental unit to compare against move-out photos.
Part III: Tenancy
A well-kept rental will minimize future hassles, both with emergency and
move-out repairs. You will be able to turn over the property faster if you continue to maintain its condition. Remember to always assess whether you or the tenant is responsible for repairs. Occasionally, damage is caused by the tenant and needs to be charged back to them.
A note on scheduling appointments: We recommend asking the tenant to schedule the repair appointment. Many service professionals have a "no show" fee, and you want to make sure the tenant is responsible for that fee if they make an appointment and fail to show up.
From lawn to roof gutters, a manicured rental benefits both you and your tenants. If its a single family home, then we recommend holding the tenant responsible for a lot of these tasks. Incorporate into the lease that the tenant is responsible for upkeep and payment of certain recurring maintenance.
Monthly Rent Payments
Have you heard of any drawbacks with online ACH payments? If so, then we’d love to hear them. We haven’t found one.
You want to make the process as simple and secure as possible.
- Automatic: Easy to set-up, automated to avoid late payments, smart enough to notify you when a payment is late or missed. And, late fees should be automatic and required to be paid before the outstanding rent amount.
- Secure: You never want to give your bank information to the tenant and
you want the ability to control when and how much money is sent
Why? Because, if you want to evict a tenant but they continue to pay rent (and you give them the ability to do so), then it will be more difficult to get rid of the tenant).
- Safe: There are too many systems without bank level encryption. Your property management system should have the most secure architecture in place.
Track property income and expenses for tax reporting purposes. You should track property financials on a per property basis, rather than commingling the income and expense. It will be easier to assess your properties’ performances and file taxes if you have a separate bank account or entity for each property.
You can discuss with your tax consultant, but most expenses can net against your income when you report your income on your tax reports.
Roughly 60 days before the annual lease renewal, understand the updated value of your property and assess new rental rates. Keep in mind that turnover costs can be high and you will want to factor that into the updated price offered to the current tenants. Typically, you offer the current tenants slightly below the market rate to incentivize them to stay in the unit, thus eliminating turnover costs.
Part IV: Move-out
Initial Move-out Inspection
You should provide the tenants a written notification of their right to request an initial move-out inspection (required in CA, but you can check your State’s laws). Either you or one of our agents will perform the inspection. It is an opportunity to provide the tenant with an itemized statement of repairs or cleaning required on order to avoid deductions from the security deposit.
Properties within an HOA should check notifications and requirements for a
move-out, especially with large furniture.
The tenant will need to provide you or your agents with the keys upon move out. Confirm the same number is returned as initially provided. This includes garage door openers, mailbox keys, etc.
Bring in the same inspection sheet from the move in process. Perform the inspection with an itemized deduction and photos. These photos will help avoid confusion and mitigate complaints from tenants on the security deposit deductions. The tenants will need to leave the property in the same condition as move in, with the exception of normal wear and tear. If you require a cleaning service and/or maintenance crew, then you may be able to deduct it from the security deposit.
By following this process on both the move in and move out, it will make sure everyone is aligned on why a certain amount was deducted from the security deposit.
Tip! Timestamped photos of the rental unit to document deductions
Security Deposit Return
You need to return the security deposit within your state's specified time period.