After closing the deal on a rental property, one of the biggest decisions an investor has to make is how to manage the property. While some owners choose to completely outsource property management, others opt to be do-it-yourself (DIY) landlords.
Although managing a home may seem overwhelming, it is possible to do it yourself. In this article, we’ll take a look at the main responsibilities of being a DIY landlord and the six steps to self-managing a rental property.
- The three main responsibilities of self-managing a rental property are tenant management, property management, and financial management.
- Six steps of DIY property management include setting the right rent, marketing and screening tenants, routinely inspecting the property, and enforcing terms and conditions of the lease agreement.
- Options for managing a rental property are being a DIY landlord, paying for à la carte property management services, or hiring a full-time property manager.
Responsibilities of a DIY landlord
Some landlords can – and do – manage their own rental property. Before choosing to go it alone, here are the three general areas of responsibility for do-it-yourself landlords to be aware of:
Successfully managing tenants requires a high level of people skills. Tenants naturally want to feel like they’re getting what they pay for.
Landlords should know how to diplomatically handle tenant complaints, while at the same time drawing the line when it comes to unreasonable demands (like paying the rent past the due date without a late fee). Sometimes it can feel like a balancing act between keeping tenant turnover low and cash flow strong.
Understanding how much notice is required before entering the property, knowing the state landlord-tenant laws, and following the Fair Housing Act are three legal areas that come with managing tenants. Breaking the law could result in significant fines or even a lawsuit from the tenant.
Landlords are required to keep the property in a safe and habitable condition for both the tenant and the neighborhood.
Proactively performing property inspections can be a good way to catch small issues before they turn into large, costly repairs. For example, seasonal service of the heating and cooling system and cleaning out gutters before the rain and snow begin may help to avoid thousands of dollars in repairs.
Completing a move-in and move-out checklist with the tenant is another responsibility of self-managing a rental property. Documenting the condition of the home before the tenant takes possession and when the rental lease comes to an end helps to separate normal wear and tear from abnormal damage.
Many states allow a landlord to hold back part of all of the tenant security deposit to pay for damage caused by the tenant.
Real estate investors purchase rental property to make a profit, ideally each and every month. A responsibility of a DIY landlord is managing the finances by keeping track of every penny received and spent.
Rent payments, late fees, and security deposits must be accurately recorded and credited to the correct line item on the chart of accounts. The same is true with operating expenses such as repairs and maintenance, insurance, property taxes, and utilities that are paid by the landlord.
Even with one rental property, it can be far too easy to under report income or overstate expenses. If there is ever an audit and an error is discovered, a landlord may be charged with fees, penalties, and interest even for an innocent mistake.
That’s why many real estate investors use Stessa to simplify rental property finances and automate income and expense tracking. After signing up for a free Stessa account, simply enter some basic property information, link business bank and mortgage accounts, and generate financial statements in a single click.
How to self-manage a rental property
Now let’s take a closer look at how landlords can manage their own rental property. After purchasing a home and getting it rent ready, here are six steps to follow to self-manage a rental:
1. Determine the fair market rent
Setting the right rent can seem like a mixture of art and science. A rent price that’s too high will discourage qualified tenants, while a below-market rent price can reduce potential returns.
Factors to consider when setting the rent include:
- Median household and per capita income for the area
- Prospective tenant demographics such as singles or families
- Median rent that the competition is charging
- Property amenities justifying a higher rent such as a large garage or community swimming pool
There are several online resources for finding rent comps for a home, like Stessa Rent Estimate. The service identifies opportunities to increase cash flow by determining a fair asking rent based on current listings, rent comparables, and market trends.
2. Market the vacant home for rent
Many investors and property managers use online rental listing and tenant screening services specifically designed for DIY landlords to find qualified tenants. Sites like Avail and Rentec Direct let landlords:
- Create a rental listing
- Automatically syndicate listings to the top online rental listing services
- Send leads from prospective tenants directly to the landlord
- Provide online tenant applications and screening services
- Request credit, criminal background, and evictions reports while charging the applicant for the service
- Create and sign a customized lease for the state the rental property is located in
After a tenant is selected and the lease is signed, the next step is to collect the security deposit and initial rent, and meet the tenant at the property to complete a move-in checklist.
3. Inspect and maintain the property
Landlord responsibilities are just getting started once the tenant moves in. Maintenance and repair issues will occur, and the sooner they are addressed the happier the tenant will be and the greater the chances of the tenant renewing the lease.
Driving by the property every now and then without disturbing the tenant can be a good way to find exterior damage.
Conducting routine inspections of the interior and exterior of the property after giving the tenant required notice helps to catch small issues before they become big and expensive.
Finally, performing seasonal maintenance on the roof, heating and cooling system, water heater, and appliances can help extend their useful lives and keep capital expenses within budget.
To help streamline repairs and respond to tenant maintenance requests more quickly, many DIY landlords:
- Compile a list of items a landlord or inexpensive handyman can fix
- Develop a list of licensed and insured contractors to service the heating and cooling, plumbing, and electrical systems
- Ask local fellow landlords to refer trusted contractors and vendors
- Regularly contribute to an emergency fund or CapEx (capital expense) account to avoid having to go out of pocket for major repairs
4. Collect the rent and enforce the lease
Investors purchase rental property to make money, and turning a profit begins with collecting the rent in full and on time. Instead of waiting for the check in the mail, many DIY landlords use online rent payment systems like Cozy and TenantCloud for same-day rent payment collection with any processing fees paid by the tenant.
Another good reason landlords collect rent online is to boost rent collections. According to an analysis by GlobeSt.com, tenants prefer to pay rent online and are more likely to pay the rent.
However, if a tenant doesn’t pay on time, do-it-yourself landlords should be prepared to charge any late fee that is allowed in the lease.
Once a tenant gets in the habit of paying late without a penalty, it’s likely that they will do it again and again. A tenant that consistently pays late can create cash flow problems for a landlord, and may end up having to be evicted.
5. Evict tenants who don’t pay the rent
Even with the best tenant screening process in place, every now and then a landlord will have to evict.
A residential eviction can cost $3,500 or more and take four weeks or more from start to finish, depending on the circumstances and city and state the property is located in. During that time, a landlord has no rental money coming in and may have to fix major damage caused by the tenant after they finally leave.
Instead of putting good money after bad, some landlords take a pragmatic approach and offer a tenant cash in exchange for giving back the keys and vacating the property. While it may seem counterintuitive to pay a tenant to leave, cash for keys is a strategy used to avoid a costly eviction and get the rental property quickly cash flowing again.
6. Use a good rental property accounting system
The best accounting system for a rental property will provide a system for storing documents and receipts for a paper trail, and generate accurate financial reports like an income statement and net cash flow report.
Although some landlords use a basic spreadsheet or off-the-shelf software, more real estate investors are choosing Stessa to track real estate investments and automate income expense tracking.
After signing up for a free Stessa account, and entering property and banking information, DIY landlords can keep track of property performance, finances, and create a paper trail that all rental property owners need. With Stessa investors can:
- Track unlimited single-family, multifamily, and short-term rental properties
- Automate income and expense tracking
- Run reports and export tax-ready financials
- Monitor financial performance at the property and portfolio level
- Track expenses on the go with the iOS and Android app
- Organize and securely store real estate related documents
The goal at Stessa is to provide the investor community with powerful tools at the lowest possible cost, which is why Stessa offers its basic services 100% free. There are optional, premium services for a fee, such as market research, mortgage financing, and rent analysis.
Options for managing rental properties
Real estate investors always have options, and that’s especially true for managing a rental property. There are three property management strategies landlords have at their disposal:
DIY property management
Landlords with extra time on their hands often decide to manage a rental property on their own. DIY property management can be a good option for owners who are uncomfortable delegating.
However, management responsibilities can become overwhelming and violating landlord-tenant and Fair Housing laws can end up getting a landlord sued.
Pay for à la carte management services
Some property management companies allow landlords to pick and choose services to outsource. For example, many managers offer a “leasing only” plan to help a DIY landlord market and show a vacant property, screen the prospective tenant, and sign a lease.
While pay-as-you-go property management may work for some landlords, it can be difficult to manage a rental property if the owner has a full-time job or lives in another state.
Hire a full-time property manager
The third option is to not do it yourself. Hiring a good local property manager to take care of daily details such as tenant communication, maintenance and repairs, and legal issues may well be worth the monthly fee.
Property management companies generally charge a monthly fee of around 8 percent of the monthly rent. Many landlords find that’s a small price to pay to be free of the headaches of self-managing a property.
Being a DIY landlord may be a good way to save a little money and learn by doing. However, landlords always have choices, including DIY, paying for management services as you go, or hiring a full-time property manager.