We have many clients who own rental property. The ones who are successful usually share similar personality traits or habits in managing their rentals. Although having a profitable property starting on the day you purchase it is one of the foundational keys to successful ownership, what comes after the initial purchase is often just as important.
Here are 10 things that, in our experience, you should do to maintain your real estate investment:
- Maintain a slush fund, and use it for emergency and regular repairs or maintenance. Having one to two months’ rent as cash set aside should keep you from having to dip into your personal savings. Do not overlook this aspect of renting properties. Ongoing maintenance can keep you out of legal trouble, as well as provide a steady stream of rent from happy tenants.
- Don’t be friends with your tenants. Landlords who befriend their tenants often end up getting rental income that’s far below the market rates. Why? We constantly hear the refrain “I want to treat my tenants with respect because they’re so nice and they keep the place in great shape.” We think that’s a good reason to keep them happy, but it does not necessarily make you responsible for cost increases over time.
- Make modest updates to your rental over time, and do annual inspections and maintenance. Owners sometimes think that high-end appliances, flooring, window coverings, paint, etc., will generate higher rents. Although they may do so in a small way, rental income will never be high enough to justify fancy upgrades. Do update your rental units to avoid having them become tired relics. A well-maintained, reasonably updated unit will get you the biggest profit (notice I didn’t say “biggest rent”). It should show well but not be fancy unless you’re in the luxury rental market.
- Get acquainted with handy-people and home repair services that you trust. This is self-explanatory as to why, but you want reliable professionals saved in your phone’s directory to quickly make that emergency call from time to time. Also, know yourself when it comes to repairing a rental. You don’t want to do something incorrectly that will create legal liability.
- Make regular rent increases. Do not be afraid to increase rents annually (within reason, of course)! Keeping up with rent in your area is key to long-term profitability. Be reasonable, but use local rents for similar units that are professionally managed to determine if you’re in the ballpark. Not raising rents not only exposes you to substantially less income over time, but should your city or locale adopt rent-control laws, you could be stuck with low rents for a long time if your tenant remains there for a long time as well.
- Maintain adequate insurance policies. This is an extremely important aspect that owners regularly give little attention to, or under-insure, to save on costs. Make sure you have appropriate coverage specifically for a rented unit, not a regular homeowner’s policy. They’re different. Only deal with insurance brokers that have experience with insuring rental units.
- Ask tenants to maintain a renter’s insurance policy. Just by recommending this, you may do your tenants a favor as well as reduce your legal exposure. Losses that are covered by a tenant’s policy less frequently end up on your shoulders.
- Know your local or state tenant-landlord laws. Seek professional advice if you’re unsure about a situation or need to evict, or join a landlord’s association in the locale where your property is located to get educated. Having a competent property manager or attorney who can efficiently evict a tenant is recommended. Do not be afraid to serve a tenant a notice to move out or evict a tenant if they are causing a nuisance, are habitually late with rent, or are damaging the property. Ask that tenants pay extra for pets, require a larger deposit, and generally don’t allow large animals unless you want to make tenants pay accordingly. If you allow larger pets, expect to repair the property upon move out since they destroy rentals like an attractive chew toy in a kennel. Lastly, know what you can and cannot ask for or demand from a tenant.
- Maintain accurate records. The ability to show maintenance performed, tenant communications, and financial transactions is important. Having a well-documented ledger of income and expenses helps save time and lowers taxes.
- Make sure you know what you’re doing when it comes to preparing your taxes! I’ve seen many an owner leave money on the table by not knowing what to enter, and when, on their annual tax returns. The errors are so frequent and egregious that I would go so far as to recommend hiring a tax professional (an EA or CPA) to prepare your taxes if you own even one rental property.
Although there are more aspects to successfully owning and renting property, I’ve found that these are the top drivers of profitability and longevity when it comes to being a landlord.