The property is primed and ready to go. Now you have to figure out the best way to manage your investment if you are holding it for long or short term rental purposes. Being a landlord encompasses numerous responsibilities and requires proper planning and attention to keep your investment strong and valuable. Let’s break down landlord responsibilities and your options for management.
Landlord Responsibilities: Owning real property comes with responsibilities and liabilities that carry both financial and emotional costs (we’ve all heard horror stories of late night tenant calls before). Like they say, there’s no such thing as free money.
1) Maintain the Property: Ensuring that the property meets municipal codes falls on the owner. The owner must also ensure that the property is maintained and in good order for the tenant, as well as being used according to legal guidelines (abides to the local, state, and federal laws). Be sure to consult with a local attorney and real estate professional to assure that you are well informed of these matters.
2) Tenant Relations: The main deterrent for most people to becoming a landlord is tenant relations. However, there are ways to minimize risk and maximize your investment if the proper precautions and steps are taken before leasing to a tenant.
a) Finding tenants. The ability to find a “good” tenant is key in making sure your investment remains strong. First step is to properly market and advertise the home. Landlords can no w utilize the internet in advertising to gain wide exposure at minimal cost. The next step in the process is screening. Be sure that you screen fairly and without any prejudice to protect yourself legally. You can also enlist the services of a real estate professional or management company to properly market and screen for tenants of the property.
b) Draft and execute a strong lease with the tenant. Be sure to protect yourself legally in all aspects of the lease and consult with a trusted attorney if necessary. Again, you can enlist the services of a real estate professional or management company to properly aid in executing a lease as well.
c) Ledger accounts and keep records properly. You’ll need to keep accurate books and legal documents to protect yourself financially and legally. Know the laws in your area and have proper legal representation in case the “worst case” scenario ever arises.
3) Protect Your Investment: It is in your best interest as a landlord to fully protect your investment. Some ideas are to consider incorporating your property for legal and confidentiality reasons. Also, require renter’s insurance for tenants to protect their personal possessions. Take before and after photos of the property before leasing to a tenant. Consider purchasing warranties for the property to reduce long term costs. And lastly, conduct periodic inspections of the property. This will allow you to catch issues before they grow too large, as well as establish a presence with the tenants.
Management Companies and their Role: Whether or not a management company will be right for your situation depends on various factors which include: size of property and number of units, number of properties, location and proximity of properties to each other and you, availability of personal time, and ability to deal with tenants. In any case, management companies can carry out an important role for you if needed. The company can collect rent, pay expenses and fill vacancies in a timely manner, ledger records, execute or hire others to perform maintenance and repairs, and be your professional representative. The typical cost of a management company is approximately 10% of the gross income for the rental units being managed. If you have more than 25 units, the scale would most likely decrease.
Tips and Alternative Ideas for Landlords: As with everything else in real estate, be sure to consult with a legal professional and an experience real estate professional before diving head first into a landlord situation. Prepare a good lease and have proper documentation to fully protect yourself. Prepare ahead of time with routine maintenance and warranty plans that protect your investment. Also, consider using tenant incentives to keep tenants happy, paying rent, and keeping the property in good order.
In the end, the value of the property will ultimately fall on how well it is maintained and managed by the owner. Get informed, protect your interests, and don’t miss out on the great investment opportunities available in today’s market!
Know the Seller: Understanding the seller’s situation will help you secure the property of your choice. Many investment properties in today’s market fall into the distressed home category. If you are dealing with a bank owned (aka REO) property, there are certain processes and timelines that you must follow or you will risk losing the deal. For short sales (pre-foreclosures), it’s important to know where the property is in regards to its processing with the lender. If the property has been approved, you have a much higher chance of closing than on a property that is still in limbo. In both cases, you’ll also need to be prepared to move quickly and be flexible with the seller. Further, expect to buy the home in “as is” condition with the responsibility of obtaining permits on the buyer.
**Note:
Now that you’ve found the perfect candidate property, how should you go about making sure that this is a good investment for you? Whether you plan to rent the property or flip it, the cost of repairs is vital in determining if the home is a good investment or not. After you determine the repair costs, you’ll be able to see how much the property is costing you in real dollars before you are able to rent or sell the home. Let’s break this down into 3 phases:
The more detailed your inspection and estimates, the better. Experience in knowing some rough costs will help here, but there are also materials out there to help on the web (
Financial Metrics: The following metrics will help you determine if the “numbers” make sense.
Valuating Properties: There are different approaches to valuating properties, and depending on your end goal with the property, some will be more effective than others.
So, now that you’ve decided that investing in real estate is worth a look, how do you know what real estate to invest in? By definition, real estate is simply “properties in building and land” from Miriam Webster’s dictionary. But what building and/or land is worth your time, money and efforts?
Rental and Vacancy Rates: Check into the rental rates of the area and get an idea of how much income you will make from the property. You want to be sure that rental rates show a stable history and that there are no strict rent control laws. Be aware of the number of units that are competing on the market. If there are too many homes on the market, that might be a sign of potential vacancy rate issues. You want to avoid high turnover areas (with the exception of a college town).
Before making any investment decision, you need to know your limits. More importantly, you need to know what you are getting yourself into. With that in mind, here are some things to consider when thinking about real estate investment:
The first step in developing your investment game plan is to determine what kind of investor you want to be. Do you want to be in the commercial or residential sector? Do you want to be a landlord or hire a property management company? Do you want to hold properties long term, or do you want to buy low, fix up and sell for profit?

