A rental home could be a pretty solid operation to outsiders. But when a missed rent payment results in a leaky pipe and a vacant month, the owner’s experience with their property has changed. At that point, you have an asset, but now you have many particular dates, documents, people, bills, and decisions. The less predictable your business is, the more dependent you are on memory or late-time actions.
We can’t get rid of all the shocks that come with owning a house. We can develop a better way to manage our houses. This is what we are working toward.
Know How Much Money Your Rentals Are Really Producing
The rent is not your return. It is the most obvious number. To understand if a rental property operates as it should, you have to see what comes in and what silently goes out. The cost of bonds, insurance premiums, lease rates, upkeep expenses, vacancies, inspections, and minor fixes adds up to the actual result. Every month, inspect the rental property. Keep a record of how much money was collected, non-received monies (if applicable), regular monthly expenditures, one-time expenditures, and monies put aside for possible future repair. Then, examine the bigger picture on a quarterly basis. Predictability develops when your numbers can be identified.
Establish Early Rules for Collecting Rent Before Issues Arise
Collecting rent becomes difficult when there are no established expectations. We wait for payment, send a polite message requesting payment, consider whether to request stricter adherence, and turn the rent collection process into a negotiation.
Better is to establish rules early. The lease should clearly outline when rent payments are expected (due date), how those payments can be made (bank draft or cash, etc.), what the ramifications will be if that rent is not paid on time, and whom the tenant should contact to make arrangements. Once you have established your rules, they must be followed consistently.
This doesn’t indicate you are a robot. Life has its unexpected events. Sometimes tenants run into an issue. Establishing clear processes helps both parties understand where each party stands. Processes reduce misunderstandings and facilitate communication.
Create Plans for Maintenance Before Emergency Repair Requests
There will always be repairs in property ownership. Many costly issues start as minor signs of distress. A dripping faucet is water damaged. Cracked tiles are a safety concern. Dampness from poor ventilation is damaging. There is nothing wrong with responding to emergencies. However, by creating plans for regular maintenance, you can control the property’s time and budget.
Develop a simple maintenance calendar that includes seasonal maintenance, plumbing inspections, roof and gutter inspections, appliance service, lawn maintenance, pest management, and safety-related items. The type of maintenance will vary by property; however, developing a maintenance schedule is paramount.
Regular maintenance also helps tenants show respect for the residence. When tenants see you take care of the house, they are more likely to identify concerns before they become major issues.
Store All Relevant Documents in One Reliable System
In order to use good records, they do not appear urgent until we need them right away. We would like to be able to find a lease agreement; a report from an inspection; an invoice; a receipt of payment; a note of deposit; the contractor’s name; the date; a description of what was done by the contractor; and a message from a tenant many months after we are able to locate our documents scattered throughout the areas where we work including our computers’ email; phone messages or apps that allow us to send messages through our phones and computers; and all the papers with information written down using pens in our offices. Each question we have regarding the files will delay getting the answer to each one.
We should store all of the documents pertinent to our rental property in a single, reliable method, so it is easier to locate them. Some owners use spreadsheet programs to track information. Owners use calendars to remind themselves of upcoming events or scheduled appointments. Landlord software exists that tracks rent payments made by tenants, creates documents and maintains records, sends communications to tenants and other parties involved in the rental transaction, and monitors maintenance performed on the property. At the same time, the tools used are not as important as using the correct tools to obtain accurate data for making informed decisions regarding our rentals.
Accurate data is helpful at tax time, during disputes over rent paid, and in determining whether a particular rental property continues to justify retaining possession.
Build A Safety Net For Those Months That Will Challenge You
A typical property business is flexible. Vacant units, necessary repairs, and required tenant turnover all occur naturally with this type of operation. If you just budget for full rent every month and low annual costs and do not build into your model for losses in monthly cash flow from time to time, it is possible that you will run out of money at times when there are no tenants paying rent. It would be good to save some of the money earned by renting out properties to have available to offset lost rental income from future repair or other needed maintenance on one of your rental properties. By establishing an exclusive checking account specifically for covering slow months or rent shortfalls, you can ensure that you don’t use these monies as profits.
Tenant Communication Reduces Uncertainty In Your Property Business
The uncertainty that arises from one tenant misunderstanding another tenant’s request for assistance (even if only slightly) leads to late rent payment(s), delayed repair(s), or increased tension. As soon as possible after moving in, establish guidelines for reporting maintenance issues. Set an expectation for how quickly landlords or property managers will address reported maintenance issues. Define clearly which things are ‘emergency’ problems. Remain as calm and professional as possible throughout all communication.
As tenants learn to anticipate what they can reasonably expect from their landlord or property manager, it becomes a reciprocal relationship (i.e., tenants will also follow the same guidelines). This establishes a much better-managed property where problems can become smaller, less complicated, and less emotionally driven.
A predictable property management company can develop by creating small systems, maintaining constant documentation, defining parameters for everything, and setting reasonable time frames.