Now that you’ve bought a rental unit, it’s time to make an important decision that will make or break your bottom line: should you hire a property manager or manage the rental unit yourself?
Investors should understand that passive income from rental properties is a spectrum and a set, predictable formula cannot define it. Managing a property is more complicated than it sounds on paper. For starters, looking for a qualified tenant requires a good understanding of marketing dynamics, and chasing after rental payments is its own challenge.
Then there are overhead costs that most investors don’t consider, such as maintenance expenses, property tax, and interest.
Let's take a look at the day in the life of a landlord.
Managing the Tenant
According to these Jacksonville property managers this is your bread and butter. It’s in your best interests to handle the tenant’s reasonable tenants and demands with diplomacy. At the same time, you have to toe the line when it comes to late rental payments. You want to professionally communicate to the tenant that late rental payments will be liable for a penalty.
You also have to become familiar with the Fair Housing Act - because ignorance of the law is not an excuse for breaking it. This means knowing how much notice is required before asking the tenant to vacate the premises, handling late payments, and initiating the eviction process when push comes to shove. Breaking the law could result in lawsuits and serious fines that can take your business.
You also have to find a tenant if you don’t already have one. This means marketing your rental unit and using tenant screening services - which can be complicated for DIY landlords to figure out.
If you’re not ready to learn the ins and outs of the Fair Housing Act, then it’s best to enlist the services of a property manager who is familiar with the law.
Looking after the Property
It is in your best interests to look after the property. More importantly, you are required, by law, to keep the property in a safe and habitable condition for the tenant. This means staying on top of maintenance issues and conducting regular house inspections to take care of small issues before they turn into extensive, costly repairs. For example, seasonal maintenance of the HVAC can help you avoid thousands of dollars in repairs.
Is the old tenant leaving? It is strongly suggested to complete a move-out checklist when self-managing your rental unit. This will provide you with concrete evidence about the condition of the rental unit to calculate the cost of damage (if any) done by the tenant. It is worth noting that regular wear and tear does not constitute abnormal damage.
Most states allow you to retain part or all of the security deposit to compensate for the damage caused by the tenant. How much you hold back is not an exact science and could be disputed in court.
Managing the Finances
This is where the rubber meets the road. The rental income is why you’re renting out the unit in the first place. Ideally, your goal is to make a profit every month. You also have to charge an appropriate rental amount - which is easier said than done. A high rental price will discourage qualified tenants, while a below-market rent price can harm your potential profits.
But there’s more to your finances than collecting your monthly rental payments. For example, you should keep track of all the overhead costs and expenses associated with repairs. You should also calculate your mortgage and property taxes from the rent.
Documenting any late fees, rental payments, and security deposits will help you keep track of your finances. The same is true for keeping track of repairs and maintenance, property taxes, utilities, and insurance that are to be paid by you.
But wait, there’s more. You could be at risk of underreporting or over-reporting your earnings on the rental unit. This could be a problem if you are ever subjected to an audit and a discrepancy is discovered, which could result in you being charged with penalties, interest, and fees, even for making seemingly innocent errors.
Remember, the tax code is constantly evolving - and ignorance of local laws in your area does not excuse you.
This is why many investors use property managers to look after their property, track expenses, find new tenants, and build a network of reliable contractors.
Hiring an experienced property manager to take care of your property - and everything it entails - such as maintenance, repairs, tenant marketing, and tenant communication, is worth the expenses. This is especially true if you are too preoccupied with your day job and have other obligations.
Ready to hire a local property manager? Get in touch with us to learn more.