Property Management 101
With the continual reports of a market recovery, investors are coming out of the woodwork. Many are first time real estate investors, so you’ll probably start to see lots of posts targeted toward those investors in particular. If you’re interested in this topic, make sure you stay tuned via my RSS feed HERE.
The first topic: Property Management 101
Do you need to hire a property management company to manage your properties? Well, maybe. The answer is not one size fits all. Here’s what a (good) property manager does:
1. Prepare the lease. This is critical, as you may have to take a tenant to court and sue based on the lease. You want an enforceable lease, one that is completed properly so as to keep all your landlord protections in place. And, depending on circumstances, you may or may not need to have a lease that falls under the “Tenant Landlord Act” of Virginia. Whoever prepares the lease needs to understand requirements for this.
2. Handle the move in. This means meeting the tenants in person, explaining the lease-especially tenant requirements, collecting funds, demonstrating the property & how to use systems, and conducting a walk through inspection with pictures to create a record of the condition of the property.
3. Handle funds. Collect and refund deposits as required by law, including maintaining them in a separate escrow account. Collect lease payments, make related expense payments (mortgage, hoa/coa, taxes, insurance, maintenance contracts, utilities, etc.), and create financial statements periodically.
4. Resident Relations. If your goal is to have quality, responsible tenants that stay long term, then someone needs to be in contact with the residents from time to time. Ask how things are, deal with any issues that may come up in conversation. These “issues” could be related to parking, HOA, pool passes, decline of amenities, unreported maintenance issues, or changes in the resident’s household status.
5. Conduct inspections. Someone needs to visit that property and make sure it’s being maintained. Inspections can be a mix of drive by, quick visits at the home for resident relation purposes and formal inspections where you walk through every room in the house. Determine a schedule and stick to it. Oh, and don’t forget – it’s not just the house, it’s the common areas. You want to protect your investment, right? Well, if the neighborhood pool is a mess, that impacts your investment. Then do whatever needs to be done as a result of these inspections.
6. Handle delinquencies. Ugh. What an awful word. Delinquencies. You know, when your tenant doesn’t pay. Bleh, Bleh, Bleh. Do you know what to do if they don’t pay? If you have to use legal recourse to get your money, what legal notices are required, and when and how do you send them? Like the lease, this is critical. One false move and you may lose your right to collect certain funds.
7. Handle problem residents. You will have to have a tolerance for people who think they live in a bubble and as the landlord it is your obligation to protect them from all bad in the world. This is the renter mentality. Don’t let their car get stolen or keyed. Don’t let their car get towed from parking in the wrong place. Don’t let the neighbor kids be loud. Don’t let them lose their job. Don’t let them have a fight with their boyfriend. Don’t need your rent when they want to go on vacation or have to pay for a car repair. Don’t let the fridge break. On top of that, your tenants may cause issues in the ‘hood. You could get complaints from neighbors about them leaving trash at their door, not mowing the lawn, parking in the wrong spots or making noise. Or you could go for your routine visit and find 18 pythons roaming the property. So, what do you do? Do you know?
8. Handle evictions. If dealing with a problem resident isn’t enough, the worst of the worst is handling evictions. Do you have what it takes to protect your investment? It might be harder than you think. Unless your goal is to prevent homelessness by allowing someone to live in your property regardless of their ability to uphold their end of the bargain, you will, eventually, have an eviction if you own enough properties. Can you do it? You may have a mentally ill resident. Maybe even someone who is handicapped. Very likely they will honestly not have the means to pay the rent or fulfill their tenant responsibilities. Back in the day when you had to physically move the tenant’s stuff to the street, I once had an eviction where I was carrying a toy box to the street, and the 6 year old was crying asking me why I was doing it. This is hard. There’s a back story to that one that ends well, but I didn’t know the rest of the story until years later, and I will never forget that day – it was the Wednesday before Thanksgiving in 1991.
9. Coordinate maintenance. Properties should get routine maintenance, like seasonal HVAC check ups, winterizing pipes and the like. While you may not be the one doing the work, can you juggle the schedule and coordinate things?
10. Handle turnover. This means conduct a move out inspection (No. 5 above), compare the move in and move out conditions (No. 1 above), disburse escrow funds or provide an invoice accordingly (No. 3 above), determine what maintenance items need to be done before the new tenant moves in & coordinate it (No. 9 above), and determine a marketing strategy to get a new tenant.
What property managers do not do:
- Only a licensed real estate sales person can handle marketing, leasing and negotiating lease terms on an owner’s behalf. A property manager may be able do this if they are a licensed agent as well, otherwise, they will need the owner to handle this himself or will employ a licensed agent to do so. It’s generally not included in the monthly management fee if the property manager handles this themselves. That’s largely because property management companies may be owned and run by licensed agents, but the broker must be involved for licensed activities like leasing and marketing.
- While a property manager CAN go to court for you, most won’t. You’ll still need an attorney for this.
- Conduct maintenance. Occasionally, you might find a property management team with a hands on manager or handyman on board who will replace a light bulb or a 9 volt battery or flip a switch that your tenant can’t seem to handle. But mostly you should expect them to hire a contractor for every little service call.
I hope you’ve found this helpful. If you’re now convinced you need a property manager, or at least more advice, I am here for you. Reach out to me directly for a referral to the resources you need…. 703.669.3142, and stay tuned to “Pssts from the Real Estate Whisperer” to learn more about what you don’t know about owning residential investment properties.