How To Self Manage Your Rental Properties To Reduce Costs
Property managers are becoming more popular, but they’re also becoming more expensive. Typical fees range from 8 to 10% of rent collected. If you own and manage 10 units each that bring in $1,000 per month in rent, that’s $800 to $1,000 a month in property management charges. Sure, that includes handling minor maintenance, filling your units, and communicating with tenants, but it’s still a steep price to pay.
For some investors, remaining as passive as possible is not merely the result of inattention to their rental units, but the actual goal of investing in the first place. And to those people, property managers are a perfect fit. But if you’re looking to reduce costs and maximize the profitability of your investment, an easy way to start is to manage your properties yourself.
How to Get Started
To many, the idea alone of getting started is fear inducing: What if you can’t find a renter? What if you find a bad one? What if you don’t know how to change an air filter? Simply understanding what responsibilities you’re actually taking on when you manage your own rental units can help allay any fears you have. And keep in mind, many of the below responsibilities can be off-loaded to professionals without hiring a full-blown property manager, still reducing cost but ensuring quality work.
Marketing Your Rentals
Before you can start managing your rentals, you need to fill them. Responsibilities include:
- Staging your units and taking pictures
- Posting your listings to websites and other relevant marketing channels relevant to your community
- Communicating with potential renters
- Leading showings and selling your unit
None of these tasks are particularly challenging. In the past, we would have recommended using a professional photographer, and there’s still value in such an investment, however, these days, with the quality of modern smartphone cameras, you can really handle it yourself. Just make sure the space is clean and there is plenty of lighting.
Screening Tenants
Once you’ve found an interested tenant, you need to ensure they’d be a quality renter. This is a critical step in the process so do not overlook its importance. A bad tenant will make you wish you had a property manager and a good one will keep your job a breeze. Responsibilities include:
- Establishing your acceptance criteria
- Creating an application form
- Running a screening report collecting their credit, criminal, and eviction history
- Evaluating the quality of a potential renter
These are also tasks that you can easily manage yourself. Just be sure to write it down your acceptance criteria and stick to it to avoid fair housing violations. We also strongly recommend you don’t skip out on reaching out to references, employers, past landlords, to help you in your evaluation process.
Collecting Rent
Rent collection is where you make your money, but it’s nothing to be scared of. Responsibilities include:
- Offering as many payment methods as possible
- Reminding tenants of upcoming invoices
- Depositing payments into your bank account
- Appropriately managing security deposits
- Enforcing late fees
You want to make paying rent as easy as possible. Give your tenants as few excuses to miss a rental payment as you can. Also, be sure to consult your local laws in regard to security deposits. It’s never a bad idea to create a separate bank account to hold the deposits. And when it comes to late fees, be firm and don’t skip them. Give them a credit on a future rental invoice if you’re feeling generous.
Handling Maintenance
Maintenance is one of the more challenging aspects of managing your rentals. It’s not quite as easy as some of the other management tasks to simply pick up and start handling yourself. Responsibilities include:
- Creating a system to receive and organize maintenance requests
- Responding to tenants
- Assigning work if others help you with maintenance
- Completing the maintenance task
Minor maintenance issues like updating air filters, painting rentals, and changing light bulbs is easy – you can definitely take care of this yourself. But when it comes to bigger tasks that a property manager’s dedicated maintenance personnel might normally handle, it may be risky for you to do it yourself. You can always hire a handyman for a single job or, if you have enough units, hire a full-time maintenance person yourself. This will eliminate the vast majority of the work you’re paying a property manager for.
Dealing with Bad Tenants
If you screened properly, you hopefully will never have to deal with this. But sometimes a bad tenant is inevitable. When it does happen, your responsibilities include:
Enforcing late fees comes up again because it’s important. Allowing tenants to skip out on late fees creates a bad precedence that many tenants will unfortunately take advantage of. Evicting tenants is not fun, but if you have to go through with it, the legal fees would likely be additional to what you’re already paying your property manager. So taking on the responsibility is not much of a danger. Just make sure you’re doing things by the book.
Pros and Cons of Self-Managing
Now that you understand the responsibilities, let’s talk reasons for managing yourself and those against.
Pros
There are a handful of powerful reasons to manage your properties yourself:
- Make More Money — Need we say more? You invested in property to make money, after all, and managing your units yourself helps maximize your profitability.
- Keep a Pulse of Your Business — If you’re managing your properties yourself, you’ll have a better feel for your renters, for your properties, and for your market as a whole. This can be a great benefit as you look to expand your portfolio or perfectly time a sale to maximize your return. The more closely you manage your properties, the better you’ll find your business is run and, as a result, the more successful you’ll be as a real estate investor.
Cons
Managing your properties yourself is not without risk. Like anything, there are drawbacks that you should be aware of before you get started:
- Large Time Commitment — Managing your properties can take up a lot of your time. If you have long-term, high quality renters, this risk is minimized, but if you’re constantly turning over units or dealing with headache inducing tenants, you may find yourself overburdened.
- Lack of Knowledge — One of the great advantages of using a property manager is that they’re a professional. If you found a good one (which isn’t always easy), they should know your market and know their craft. Going it alone means you’ll need to quickly catch up. Networking, reading, and engaging in online communities can be a great way to close this gap.
- Risk of Messing Up — This con usually goes hand-in-hand with the one above. If you don’t know what you’re doing, you might make a big mistake. Mistakes in real estate can result in big financial losses and sometimes lawsuits, so they can be particularly painful. But as long as you do your due diligence, you should be able to avoid any major mistakes.
Choose the Right Property Management Software
Managing your properties yourself is a smart business move, but it can become overwhelming. Fortunately, modern property management software automates many of the responsibilities and tasks we listed above. What’s more, many systems, like Innago, provide these tools at absolutely no cost to you. If you go the route of self-managing, the property management software you choose will become an essential partner in your business.
Below are some of the most notable ways software can help.
Collect Rent Online
Property management software should offer tenants multiple payment methods, including bank-to-bank transfers (like ACH) and credit / debit card transactions. Providing your tenants a convenient way to pay rent will add a layer of professionalism to your business and help increase collection rates.
What’s more, your property management software should automate late fees for you. As we mentioned before, enforcing late fees is critical to keeping your tenants on the straight and narrow. Good property management software makes this easy by automatically charging late fees and forcing tenants to pay them before paying any future rent.
Online payments are also quick and go directly to your bank, so you don’t have to worry about taking time to go to your PO Box or running to the bank with a stack of checks and cash.
Automate Notifications
Effective communication is the back-bone of a healthy tenant-landlord relationship. You probably noticed throughout the responsibilities listed above, nearly all aspects of property management revolve around a dialogue with your tenants, from courting potential renters to managing maintenance.
Property management software can help with all of this. A good software package will send reminders to tenants when a payment is due, notify them when a document needs to be signed, send late fee notifications and reminders of an expiring lease. It’s all handled automatically without any effort on your part.
If you do need to send a message to your tenants, your property management software likely includes messaging features that make it easy to do so. All notifications are tracked, making it easy to handle a dispute or, in a worst-case scenario, an eviction.
Automate Bookkeeping
You’ll notice automation is a bit of a theme with property management software. Finding ways to take work off your plate frees you up to focus on growing your business or enjoying your free time. And one of the most menial tasks you have to perform again and again as a landlord is bookkeeping: tracking rent, recording expenses, generating your income report.
These are all easily automated by good software. If a tenant pays online, it’s recorded. If you’re out buying some supplies at Lowes’s, you can take a quick picture of your receipt and record it in your software. Some property management software will even allow you to connect your bank account directly so that expenses are recorded just as easily as income. Come tax season, your CPA will find you more organized than ever.
Find Better Renters
Bad renters are a nightmare. They waste your time and cost you money. It’s incredibly important to find good tenants from the start and property management software can help. Most property management software comes with tools to easily advertise your properties to a wide variety of listing platforms (like Zillow, Apartments.com, and Craigslist). This ensures you receive inquiries from the most high-quality applicants possible.
What’s more, these property management software platforms usually also contain screening services. If you’re not already screening your tenants, you absolutely should be. A credit, criminal, and eviction report can tell you a great deal about a candidate for your property and help you steer clear of those that will only bring headaches. Listing, screening, and renting from a single platform makes the entire leasing process that much easier and results in better tenants.
Track Maintenance More Easily
Maintenance can be a huge hassle. No one wants to give their personal phone number to their tenants, but if you’re not diligent in checking your email inbox, you are more prone to miss requests when they come in. And if you manage maintenance personnel, sharing maintenance tickets with them can be a huge nuisance. Property management software solves both these problems as it almost always includes some form of a maintenance portal.
Tenants can usually submit descriptions, pictures, videos, and any other required information to share their maintenance problem. This info is stored in your software for you to review whenever needed. You’ll receive a notification through email, or directly to your phone from the software rather than the tenant – no need to share your personal info. You can also often forward these tickets to your maintenance team or even add them as sub-users in whatever rental software you’re using. This will give them direct access and the ability to setup notifications of their own.
Cloud Storage
Cloud storage and the ability to access your information and documents from anywhere is incredibly powerful. If you’ve been in the rental property management business for long enough, you’ve surely heard horror stories of landlords whose hard-drives crashed, resulting in a total loss of years of rental and business history. This is an absolute nightmare, particularly if you receive a dreaded piece of mail from the IRS (we barely dare to say the word “audit”).
Property management software completely eliminates this risk. Even beyond storing your information safely, good software gives you access from anywhere. If you’re out on the job and a tenant asks you what they owe, you don’t have to go home to check it, just pull out your phone, pull up your property management software account, and find the answer right then and there.
Streamline Your Property Management
Running your business successfully means finding ways to reduce costs and increase revenue. With the right planning, effort, and tools, self-managing your rentals can be an excellent way to do both. You’ll save yourself the 8-12% you would have to pay a professional property manager while also getting a better understanding of your business. This added knowledge will help you maximize rent and other revenue and manage your properties more effectively.
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