Being your own landlord and joining the ranks is as “easy” as owning a property that you lease out to a tenant, however, if you want to remain a landlord, you have quite a challenge ahead! With proper education and plans in place, being your own landlord and doing a great job at it is a learnable skill just like any other business skill.
By now, you have probably heard us talk a little about property managers. Simply put, a property manager is an individual or business entity who takes care of the day to day management of an owner’s rental property. There is a nominal fee for the service, as low as 6% and as high as 12% of your gross rent, but a lot of people find the peace of mind worth the cost. The rates sometimes depend on the number of houses you have them manage, as well as the location.
You may have reasons of your own as to why a property manager would not be a good fit for your situation. If this is the case, this post is for you! Using a property manager isn’t for everyone, especially if you have an investment that is struggling to cash flow properly. You might just enjoy property management and get fulfillment from being hands-on and engaged with your property. You may also be very handy with tools and home maintenance, so you’d rather save the money and tackle it yourself.
You’ve weighed the options and decided you’d like to try the landlord thing on your own. If that’s the case, you will want to stick around and read our 5 Killer Tactics for Being Your Own Landlord. The video at the top of the page was created for your convenience in case you’d rather watch, listen, or both. Make sure to check that out as well!
1) Collect Rent Electronically
In this day and age, people are used to paying online for everything. Your mortgage, electric bill, phone bill, Christmas presents, and maybe even your groceries are purchased online. With online bill payment services at most banks, nearly any bill can be paid online and automatically. Take advantage of this new technology by accepting rent electronically!
Note: NEVER accept cash as a rent payment! First of all, you have no paper trail. Secondly, you really have no idea where the tenant got the cash from and you don’t want dirty money on your hands!
Ready to accept electronic payments? If you want something a little more sophisticated for your tenants than telling them to use their bank’s bill payment, check out the following services below:
RentMonitor – https://www.rentmonitor.com/
RentMerchant – https://www.rentmerchant.com/
Rentific – https://rentific.com/
Rentalutions – https://www.rentalutions.com/collect-and-pay-rent-online
PayYourRent – http://www.payyourrent.com/
eRentPayment – https://www.erentpayment.com/
2) Protect Yourself from Liability
Have you thought about asset protection? Now that you are a landlord, you can do either two things: legally separate yourself from the property or get an umbrella insurance policy. Yes, now that you are operating a real estate business, you want to either separate your personal and business assets or buy an umbrella policy, perhaps even both. There are accounting benefits of keeping your personal and business finances separate, but the legal benefits are even more important. Did you know that a tenant could sue you and the court could go after all of your personal assets, including your primary residence? That would certainly be quite a nightmare!
Limited Liability Company (LLC):
Avoid the scenario above by protecting your investment property. If you paid cash for your rental property investment under your own name, you can do a quitclaim deed and transfer it to an LLC with no issues. If you took out a loan (or want to finance an investment property in the future) you may have some problems. Very few lenders will loan money to an LLC for an investment property. If they do, it will likely be an adjustable rate mortgage (ARM) instead of a conventional loan.
If you have a conventional loan on an investment property under your own name, you may find out the bank won’t allow you to transfer your property to an LLC. There is likely a due-on-sale clause that will invoke if you transfer it. To the bank, a transfer is the same as “selling” the property.
If you’re really wanting to pursue an LLC transfer anyway, you may check out this article called Beat the Due on Sale Clause, written by an attorney. I am not an attorney and I don’t play one on the Internet, so I will let you read that article and make your own decision!
An umbrella policy is an insurance policy that provides liability coverage beyond your typical homeowners policies. If your standard coverage isn’t able to cover a lawsuit or damages, the umbrella policy kicks in and protects you further.
An umbrella policy for all of your properties is a great way to reduce your risk and cover lawsuits, especially if your properties are under your own name. “We’d always recommend an umbrella. That is an absolute,” said Shayna Fridinger, a risk consultant with Millhiser Smith Insurance Agency. “Unfortunately, we are in a society right now where people are filing suits all the time, and as a new investor, you may not be well versed in what potential liability suits could be coming at you.”
If you’d like to learn more, check out this article from Mark J. Kohler who discusses the 6 Ways to Protect Your Home from a Lawsuit.
3) Screen Tenants Very Closely
It may originally sound obvious at first, but it’s extremely important to screen your tenants. This alone will save you an enormous amount of time. Imagine the time it takes to have to Prepare for Evicting a Tenant and to Actually Take Tenants to Court and Evict Them if you get ahold of bad tenants.
There are many red flags and warning signs which it comes to weeding out bad tenants, but these six criteria will give you a great start. Here are the questions you want to ask and the criteria that will help satisfy that question:
Is the tenant willing to pay the rent? (Credit Score)
Is the tenant able to pay the rent (Income Verification – should make at least 3x the rent you are charging)
If the tenant can pay the rent now, how likely are they able to pay the rent in the future? (Steady Employment)
Is the tenant respectful of the laws or are they going to cause problems in the neighborhood (Felonies/domestic disturbances)
Is there a chance you might have to evict this tenant? (Prior Evictions)
Is the tenant who they say they are? (Valid Credentials and ID Card)
Judy Stevens is a Realtor with 48 (yes, 48!) years of landlord experience. If you want to know other ways to screen your tenants, listen to the 12 ways she discusses, flashcards and all.
4) Set Office Hours
One of the best things about being a landlord is that you are your own boss. It can also, unfortunately, be one of the worst things because you are the chief cook and bottle washer of the business. This couldn’t be more true when it comes to answering phone calls and dealing with tenants.
In order to keep your sanity and avoid those proverbial “2am broken toilet calls,” is to set office hours. What do I mean by that? Well, when the tenant signs the lease, make it clear that you have certain hours where they can call you whenever they have any concerns with the property. After a certain time in the evening, you are not immediately available.
Note: Keep these options for standard issues that come up. If there is a true emergency with the property; i.e., hole in the roof, exploding water pipes, fire, etc. then you obviously want to be contacted at any hour of the day. Make it clear that calls on non-emergency issues should only be placed within your posted hours and you will be screening calls after that period and only responding to emergency situations.
Email: Email is a great way in general to have your tenant communicate with you. I just so happen to love email as a communication due to the ability to submit a question or concern and then go about my business until I hear back. No waiting on hold, leaving voicemails, and so forth. A lot of tenants, especially younger ones, will appreciate this type of communication. If you prefer this method, you’ll have to go about it two different ways:
1) Be very responsive whenever someone emails you during office hours, but keep your communication within your agreed upon times. Don’t succumb to the temptation to reply to emails after your office hours because you got behind. It’s better to wait until the beginning of your next business day, or else you give the impression you really don’t have office hours at all!
2) Set up an auto-responder that thanks the tenant for their email and communicates the times you respond. Ensure you check your email at that time and reply to all concerns. Of course, if it’s an emergency, they will be blowing up your cell phone anyway!
If you fail at either of those two options, the tenant will likely pass on the email option and call you directly since they know you are “pretty bad at emails.” Practice what you preach, or be a slave to the ever-ringing phone!
Using Google Voice: If you are your own landlord, you should set up a number separate from your personal line to take voice messages and phone calls. This is easy with Google Voice. You can set up an entirely separate number that converts voicemail to text, rings your cell phone, and allows you make and receive calls on that number. There is an iOS and Android app and you can even use your home computer to make and receive calls. As a side benefit, international calls are dirt cheap!
5) Use Good Property Management Software
If you decide to go at this landlord thing alone, it’s time to get organized. In the digital age, there’s no better way to get organized than to make your computer and smartphone work for you. Paper is great, and has it’s purpose, but when it comes to tracking finances, your computer is your best friend.
In the link above, we shared some ways you can use Quicken to manage finances, but when you manage properties yourself, you need to worry about a lot more than just finances. If you have one property, or even two, you might be able to limp along for a while. Set up a Google Drive or Dropbox account, scan copies of leases, and whip up a spreadsheet or database to store tenant data. If you’re not computer savvy, that all probably sounded like a nightmare! Even if you are a tech guru, it will get very tough to organize extra properties as you expand, especially if you go into multi-family properties. Ditch the manual spreadsheets! It’s time to step into the world of real estate property management software.
Property management software will help you get organized and store all of your data in a central location. You could either use a desktop application that is stored on your computer’s hard drive or a web-based solution that you can access online from anywhere. Online property management software solutions are growing in popularity due to the ability to access them from your home computer, laptop, tablet, or even your smartphone. Also, if your computer crashes or you forget to back up your files, everything is fine because the data is stored in the cloud! Upgrades come through automatically as well.
Check it out for yourself at this article we found at SoftwareAdvice.com. They size up a long list of property management software and rate them on a number of variables.
Source: This article was published with permission from AssetRover
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