- June 20, 2015
- Landlording, Starter Series
- No Comments
I learned the property management business by doing it myself, so, first and foremost, I think everyone should learn property management firsthand to start.
I’m even saying this as the owner of a property management company – knowing what the job requires means you’ll know it shouldn’t take six months to fill a vacancy and other details that you’d otherwise miss out on if you’ve never managed a property.
So, to get started you’ll need to have your team. The roster you’ll need for property management has another key player: a lawyer. You’ll need a lawyer to help you create and process rental applications. At this point it will help to have an accountant lined up to help with taxes, and of course you’ll also need to know some contractors in case any issues with your property come up that you’re unable to fix yourself.
The Hypothetical First Renter
Let’s begin with a hypothetical situation: You have everything set up at your rental property, you’ve advertised a vacancy (I only advertise vacancies online because it’s usually free and I can run multiple ads at once and adjust as needed), and you’ve just gotten a call from your first applicant who wants to see the place. I tend to follow my instincts. If applicants are very off-putting on the phone I probably won’t rent to them. That’s the first step of the process, but these hypothetical first tenants are absolute sweethearts on the phone.
We’ve just scheduled a showing so they can see the property. I, as a rule, confirm all my appointments by text or phone before I leave to meet them about an hour before I leave. If someone has a good reason to cancel it is understandable, but if someone can’t be on time to see your property or is a complete no-show then, in my experience, they’ll give you more problems later on if you rent to them.
Now you’re all at the property, they love it and they want to apply. Great, so now you pull out your rental application which you should have stored at the property already and have extra copies in your bag and/or in your car.
Mine is five pages long and mostly redundant; it asks for their name, social security number, references and so I can check their credit history, gives me permission to run a background check and contact their employer to verify their income.
With each application I charge a $40 cash fee which almost exactly covers my cost – I don’t see a need to try and make money on this process. The goal is to get the vacancy filled, and charging that small fee also helps filter potential tenants since those that can’t afford the fee almost always have issues paying rent.
My application asks for prior landlords, their car make and model and credit references all on the first page. My favorite kind of credit references are people’s family members. I’ve said before you have to be comfortable asking all types of people for money. I’ve called a tenant’s parents to ask for help contacting them when their rent was overdue; that tenant called me back and paid in full almost instantly. Those situations can and will happen, and it is legally your money so don’t feel guilty about using the means the tenant supplies you with to get it. Being afraid or timid to collect rent hurts your business and livelihood.
Once the filled-out application is returned I do all the checks. Everyone has concerns they look out for, but my rules are simple: I don’t take tenants with evictions, felonies or outstanding bills to utility companies. Beyond that things like traffic tickets, misdemeanors and especially medical bills, I don’t care about.
When you accept your tenant it’s good to have brushed up on landlord law and the fair housing act so you know what your responsibilities are. Almost all properties in St. Louis require an occupancy permit and you should have your lease and disclosures prepared before they’re needed.
Once the tenant has moved in, the job is pretty self-explanatory. You take care of the property and collect your rent. The knowledge you’ll gain from doing this process yourself is learning how to fix things, how long it should take and what it should cost. You’ll also learn about dealing with tenants, collecting rent, how long it should take to fill vacancies and so on. Having that firsthand experience about your property and your market is critical to have before you hand off the job to a company.
Choosing a Property Management Company
Once you know what’s involved in property management then feel free to seek out a property management company if you decide you want to or need to. Now your job becomes managing your relationship with the management company – here is some advice for finding a good management company.
Since you’re now spending money to offload some work, make sure that the fee schedule the property management company is straight-forward. For example my company’s lease fees are 100% of one month’s rent and the management fee is 10% of gross rents each month, so $60 if the rent is $600.
Next you’ll need to know if they do repairs in-house so they’re not calling professionals to fix minor things and running bills up. For example, my maintenance fee is $10 every 20 minutes, so $30 an hour for those rare times you need someone on-site. To compare that to normal professional rates, my construction company bills at a minimum of $60 an hour for similar repairs at properties I don’t manage. The more the management company can handle themselves, the better for your bottom line since the rates for repairs a management company can handle in-house are almost always much cheaper.
You should know what the company’s policies are when it comes to filling vacancies, tenant screening, collecting rent and how they handle evictions. On the business side, know if their rent statement is easy to read but still detailed and if you’ll get monthly statements and a yearly summary and tax breakdown. My clients receive a monthly emailed rent statement that includes a brief rundown of everything that’s going on with their property, which includes if there are upcoming vacancies, any issues or repairs that needed to be done.
Just remember: you’re hiring a company to manage your property so you can focus on other things, like making more money elsewhere, or just to have less stress. Your relationship starting out should include a lot of communication as your working relationship is established, but you don’t need to be contacted to change a light bulb. If their fees work for you and they’re competent at their job, hiring a management company can be one of the most stress-relieving decisions you’ll make as a landlord.