I have many Investor clients who either started investing in Real estate recently or doing it for years. Both these clients often talk to me about how managing a property and making reasonable ROI is an art compared to a cake walk. Being an Investor myself, I totally agree with them. Rental property management is not an easy thing but if you get it right one time and follow it through, it is not a rocket science.
The core objective in rental property investment is to reduce the tenant turn over rate which means retain a good tenant for longer term and avoid changing tenants frequently. By doing that, you will reduce the vacancy rate and renovation cost increasing cash flow and return on investment. In order to achieve this goal, there are few basic steps a landlord should follow hard and fast.
1. Don’t mix Business and Emotions
First and foremost, do not rent to a relative or don’t have any emotional attachment to your tenant. Rental property is an investment and should be considered as Business. Don’t involve any personal dealings with it. If you have personal things, do keep it separate from rental transaction. Always try to get your rent full and don’t give excuses if they don’t pay on time. Follow the 3 by 3 rule which first 3 days to pay rent if not next 3 days to vacate or file eviction.
2. Quality Tenant is the Key
Try to find tenants who can afford to pay the rent every month. It may sound obvious, but many landlords fail in this area. They find tenants who might have good credit score but not have enough income to pay your rent. Do a detail checking on tenant’s rental and employment history to make sure their income is at least 3 times your rent. Quality tenant will pay on time and keep your property in good shape. There are screening services like Tenant Verification Services help property owners and managers find good tenants that will be reliable. Also don’t forget to check tenants background and criminal records to make sure they are clean in last few years.
3. Fixing Right Rental Amount
It is very important to fix your rent as per the market rate which also allows you to pay your mortgage(if any), taxes, insurances and maintenance cost. Don’t ever have negative cash flow or buy a property which requires you to pay more than rental amount. That’s a big NO NO. Don’t think you can increase your rent later and able to make it up. In this tough employment market, people don’t like to pay more than market rate even though the property is really good.
4. Controlling Property Maintenance Cost
Another important aspect of renting is maintaining the property at same time keep a check on your maintenance cost. Don’t go overboard by spending more than expected on your rental property. Many landlords get attached to their rental property and try to do fancy things to their property. Don’t do it. Just fix properly and enough to keep the place in good condition and reduce your cost. Having a good tenant who takes care of the property well will surely come in handy.
Also property taxes and insurance goes up every year and could really cut your cash flow. You should take that into account and make adjustments to your plan accordingly. For example if needed, you might have to take high deductibles on your insurance coverage which will reduce your premium. Also check on market condition and appraisal of your home and protest your local property appraised value which bring down your property tax payment.
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