The key to long-term success and wealth-building through real estate ownership lies in the foundation you acquire as a hands-on property manager. Some people start by managing rental properties owned by someone else and gain a great deal of experience that they can use for their portfolio. Other people learn from trial and error — but that can be expensive.
There are many positive reasons for becoming a rental property owner or manager and just as many ways of doing so. Perhaps you’ve saved up the down payment to purchase your first small rental unit and hope to see your investment grow over the years as a nice retirement nest egg or a supplement to your current income. Maybe you want to invest in a medium-size apartment building and build some equity as well as rental income to supplement or replace your current income. Perhaps you’ve inherited Aunt Gertrude’s run-down cottage and need to find a good tenant who’ll care for it and pay the rent on time. Maybe you recently closed on your new primary residence, only to find that selling your existing home isn’t as easy as the real estate agent promised. Or perhaps you’ve had to move across the country to find a suitable job but want to return to your home in the future to avoid getting priced out of that market years later when you return.
Whether you plan to become a full- or part-time property manager, you need to know what you’re doing — practically, legally, and financially. This chapter serves as a jumping-off point into the rental property world. Here, you can find useful info, tips, and checklists suitable for novice or seasoned rental property managers. So get ready for some pragmatic and realistic sage advice from the tenant trenches to help you handle situations when they arise!
Understanding Property Management
Rental property owners provide consumers a product known as shelter. Property managers, who either work for themselves or as the agents for an unrelated third-party owner, handle the day-to-day aspects of making sure that the provided shelter meets their customers’ needs. Put another way, as either a property manager or property owner, your obligation is to provide your customers a decent place to live in exchange for the payment of rent. Although property management doesn’t seem very complex, you can avoid the many mistakes unprepared property managers make by knowing what you’re getting into.
The following sections give you a quick overview of the pros and cons of property management. Chapter 2 provides more in-depth analysis of these advantages and disadvantages for a residential rental property owner to help you determine whether self-management of your rental property is the right choice for you.
Considering the benefits
Property management can be a rewarding and enjoyable venture. I can’t imagine my life without some aspect of property management in it. (Why else would I have written this book, right?) Following are some of the reasons why I get such a kick out of this business:
Experience with real estate investment: As you manage residential rental property, you have the opportunity to observe and begin to understand investing cycles, which is an essential skill for becoming a successful real estate investor. Some real estate investors succeed without ever being hands-on property managers, of course, because they hire others to handle the task for them. But I believe residential rental property owners should gain that real estate investment expertise by actively working as property managers for several years, either for themselves or others.
Interaction with different people: If you’re a people person, you’ll find that property management is a great opportunity to meet all types of people. Not everyone you’ll encounter is someone you’ll want to make your close friend, but you’ll certainly have the chance to work with a smorgasbord of personalities. I could write a book just about the people I have met over the past 40 years!
Skill development: Property management requires diverse skills because you must handle so many different tasks (such as marketing, advertising, leasing, screening, and maintenance). But it also allows you to grow those skills beyond the basics through patience and passion. You might begin by advertising your rental unit in a basic way with an onsite sign and move to developing a technologically advanced online promotional campaign with 3D property tours available worldwide. Pay attention to how unrelated products are presented for sale, and apply those concepts to residential rental housing. Most of the best marketing ideas are already out there; you just need to adapt them to your rental property.
Variety: Personally, I enjoy the variety of tasks and challenges in property management. Sure, some aspects are repetitious. Rent is due every month, and all properties require ongoing care and maintenance. And some days can be exhausting. But for the most part, every day in property management is something new.
Confronting the icky parts
You can’t expect all aspects of property management to be fun. As in your primary job, some days run smoothly, and others are filled with problems. Here are a few of the most challenging aspects of the property manager gig:
Difficult tenants (and others): Despite the great people you meet, property management has its fill of difficult and challenging personalities, including people who’re downright mean and unpleasant. You have to be prepared for adversarial and confrontational relationships. Collecting the rent from a delinquent tenant, listening to questionable excuses, or demanding that a contractor come back and do the job properly requires patience, persistence, and a fair but firm approach.
Long hours: Because you’re dealing with housing, you don’t know when you’re going to be needed — at 3 p.m. or 3 a.m. Like me, you can expect to be constantly on call — even when you’re on vacation, at the movies, or in the middle of a family holiday dinner — to deal with issues that only the rental owner or property manager can handle. Fortunately, you can minimize these inconveniences by planning carefully and hiring competent, reliable employees and vendors who can prevent many unexpected emergencies through good management and maintenance. Also, technology has improved significantly and can make remote handling of many issues more manageable. You can now receive and review photos and even repair proposals on your smartphone, for example. But owning and managing rental property remains a 24/7, year-round commitment.
Need for emergency capital: One of my favorite sayings and goals in life is “No surprises,” but owning residential rental properties can lead to situations in which unanticipated expenses arise at any time. Tenants might suddenly stop paying rent at the same time the roof leaks and the water heater goes out in the middle of the night! Having a nice nest egg, a rainy-day fund, or at least a decent unsecured credit line at reasonable rates can be very helpful, as most rental property owners experience a squeeze on their cash flow at times.
Potential liability: After more than 40 years in property management, I believe that most tenants are good people who are just looking for a decent, quiet place to call home. But some “professional tenants” look for any mistakes you make or even set traps for you to fall into that can lead to claims for free rent or even litigation. You need to stay on top of all the legal requirements for landlords in your area and make sure that you always comply with all laws and disclosures. If you’re not willing or able to keep up with ever-changing legal requirements and health and safety issues, or if you’re sloppy with your record-keeping, you may learn some expensive lessons!
RENTERS DRIVE RENTAL PROPERTY MANAGEMENT