Summary: In this post, you will learn how to effectively manage your long-term rental properties, whether you have one or 100 units. The majority of real estate investors self-manage, bypassing formal property management and exposing themselves to increased liability and wasted time. Learn about how to build the right team around you, and set expectations with your tenants, to have peace of mind with your rentals.
72% of residential rental properties are self-managed. In other words, the owner of the investment property does not have a full-service property manager. As more real estate investors looking to purchase outside of their city or state, the question of managing remotely comes into play.
And, the trend will only continue. The best rental properties are often not in your backyard. You don’t limit your stock purchases to only companies that have office locations in your city. Think of real estate investments in a similar fashion. The best ones are most likely in a different state unless you’re incredibly lucky and hit the best market in the U.S.
As investors look to remotely manage their rentals, software like Hemlane facilitates in helping real estate investors set up their remote property management. Here are some key tips for real estate investors who are considering a remote rental property and looking to manage from a distance.
Rule #1: Be professional
You must treat your rental property (or portfolio) as a business. This starts with putting a layer between you and the owner of the property management. In other words, creating an LLC or some other protection that doesn’t put you at risk of someone coming after your personal assets. Another reason for setting up an entity is to make yourself the “manager” or better yet, “a managing member of the LLC” who owns the property.
Setting up a good entity structure makes sure tenants know you are professional. In fact, some tenants look for DIY landlords or out-of-state landlords to take advantage of the situation. You want to avoid this as you don’t want a professional tenant living in your property. When you run a very consistent and fair process, using objective criteria to make a decision on a tenant, any bad apple of a tenant will run the other direction.
Another reason to have this extra layer between you and the property is repair requests. Let’s say a tenant asks you to install curtains and you decide that is not best for the property. If the response comes from you personally, the tenant may be offended. But, if it comes from the LLC that is managing the rental, then it’s not as personal to the tenant. And if you need to charge back for tenant damage, again, a tenant will not take it so personally.
With your interactions, you want to make sure to set up a Google Voice (or some other not-so-expensive system) to take phone calls. Your tenants should not be calling your personal cell. A huge advantage of this is that you can have automated messages regarding hours of operation and the protocol for emergencies. You don’t want tenants thinking it’s ok to call you and chat at 7am on a Saturday morning.
Rule #2: Have a local team
Just because you are remotely managing doesn’t mean everything has to be over Facetime or Zoom. Remote doesn’t mean 100% virtual or using a robot to perform rental showings. Remember, this is a tenant’s house and it does not give a quality tenant very much assurance if no one is physically there. You should connect with a local leasing agent who can help qualify tenants, oversee the turnover repairs, and be your eyes on the ground. You can view this local database of leasing agents to find a good fit for your property.
In addition to a local team, you need to vet contractors. The most difficult contractor to find will be a handyman. Those are the ones that don’t come with licenses and it’s very rare to find one with appropriate insurance. But, you need to have folks you can trust, especially since you won’t be onsite at the property. Your leasing agent may have some good recommendations.
For all support that you use, remember that you need to be professional and use folks who are licensed and insured for their trades. And, it’s even better if they are bonded, which means their insurance covers any shoddy work. Excel will be your best friend in this case. You want to write down a list of all contractors and vet them based on reviews, service call rate, fees for weekends/emergencies, markup on parts, and other items. The best way to determine whether they will overcharge is to ask them “how much does it cost to replace a garbage disposal? Does that include the parts?” or whatever the trade is, ask a similar question to get good insight.
Rule #3: Be on top of operations
There are some people who are very organized and good at operations. There are others who are not. If you are not great with operations, then you need a full-service manager for property management. Otherwise, you can probably do remote management. The first step is to educate yourself. You’ve done that by coming to this blog, but you can also visit resources like The Academy to get access to guides, state laws, and rental lifecycle recommendations.
You should also formalize your process for every part of property management, from rent collection to repair coordination. For example, what do you consider an emergency? Here is a guideline but you will want to come up with what you think is reasonable.
And for rent collection, don’t use consumer products like Venmo, Paypal, or accepting cash. These are easy to dispute and cash has it’s security concerns. You will want to use an online property management system that is set up to avoid disputes, giving tenants your bank information, and automatic. There are plenty out there to select from, so do your research.
Set reminders on your next steps, everything from HVAC maintenance to lease renewals. When you communicate with tenants, such as for a lease renewal, make sure that you are giving options and setting reasonable expectations. For example, backup data for rent increases through comparable properties on the market. And don’t forget to document everything!
Rule #4: Align expectations
There are so many different people involved in property management. You have yourself, a leasing agent, repair vendors, and tenants. Everyone has different interests in mind, and you will need to make sure that you’re always considering the interests of the other party. Make sure not to nickel and dime your leasing agent or contractors on fees. When you do that, they are more likely to not have your back or go out of their way when they see something wrong.
With leasing agents, collaborate on the tenant selection process as a higher rental rate may not be as good as a qualified tenant at a lower rate. While the leasing agent gets compensated on the monthly rent (so higher is better), they may not get your business back if it ends in an eviction.
And as a remote landlord, tenants will love to help you out. For example, you could give a slight rent reduction if they do Facetime or Zoom inspections with you to avoid sending over a property manager every six to twelve months for inspections.
Rule #5: Love what you do
No matter what, having rental properties in various places and states should come with a great feeling. If you are feeling stressed or do not enjoy the process, then it’s time to get a full-service property manager. And, if you follow the first four rules and get the right systems in place to make remote management easier, then you will find it much more enjoyable.
Investing in rental properties has so many benefits, from tax advantages to passive income. But, too many real estate investors get it wrong by trying to do everything, not valuing their time, and feeling like they need to physically be there. Follow these simple steps to freedom with your rental portfolio (and your life).