Their reasons for hiring a property management company are different for each property owner. In general, a property management company’s job is to keep your rental business trouble-free. That means they need to be knowledgeable about federal, state and local housing laws, how to best collect your rents, maintain your properties in proper working order, and ensure your tenants are keeping their end of the lease agreement.
Property management companies will also work to fill your vacancies, advertising the rental unit, interviewing and screening prospective tenants, and keeping up with all of the new tenant paperwork.
Property management companies are not free. And their fees and services can vary widely. Many landlords we know interview several companies to determine which is the best fit for their needs.
Here are some questions you might ask when interviewing property management firms:
- What does your standard service agreement include?
- What are your costs?
- How do you conduct repairs and maintenance? If the company has their own maintenance and landscaping staff, you can check out their quality before you sign anything. If they hire outsiders, inconsistencies could occur.
- What reporting can I expect? At minimum, a monthly report should be included. Some PM companies have online accounting systems that you can log into on your own to see what’s going on—just like online banking.
- What is your fee for filling a vacant unit? It’s usually either a flat fee or a percentage of the rent.
- How do you collect rent? You might prefer a company that does everything through electronic funds transfer—or you might need a service that can handle cash, money orders, or checks.
- When will I receive my money? Most PM companies will have your check or a direct deposit to you by the 10th of the month.
- Do you mark up subcontractors, materials, and supplies? You don’t want to be surprised by a bill that includes a $6.00 roll of paper towels—after you’ve already signed the contract.
- How do you handle emergencies? You might want an agreement that allows your PM company to spend up to $500 without needing your approval.
- How often will I hear from you? If you’re the type of landlord who only wants to hear from the property manager if the building is on fire, then you won’t want one who calls three times a week with questions and problems.
- What about evictions? Find out ahead of time if they offer eviction services and how much they charge.
Get a client list and call for references. Ask other landlords about unexpected expenses, unnecessary or unauthorized repair work performed, and mark ups on maintenance parts and services.
Meet the staff you’ll be dealing with to get a feel for communication styles and professional behavior.
Finally, check out the company’s insurance coverage and bonding status.
If you do hire a property management company, be absolutely sure before you sign any agreements–because you will probably be required to pay a few months of fees if you decide to cancel!
Mark O. is a landlord who just purchased a single family rental house on foreclosure. The neighbors have informed Mark that although the home has only 3 bedrooms and 1 bathroom, there are several cars parked at the house all the time, and seemingly a dozen adults living there.
Mark is concerned about the wear and tear on his property, with good reason. Here’s how he plans to handle this situation:
First, Mark is going to require a new lease agreement for the property. The lease will contain a clause about the number of people allowed to reside in the rental unit. His limit will be two adults per bedroom, or six adults total.
Next, Mark plans to require that each adult over the age of 18 who is living in the house complete his tenant application. Mark’s standard practice is to conduct background screening and credit checks on each potential tenant. Any potential tenant who does not meet Mark’s minimum requirements for income and credit worthiness will not be allowed to sign the lease—and will have to move out.
Mark knows that the Fair Housing Act prohibits discrimination against tenants based on family status (married, unmarried) or number of children. Therefore, he has no intention of not renting his new rental property to any adults with children who pass his application process. Mark is also familiar with his local zoning law on rental units, which says that no more than three unrelated persons may share a single dwelling unit.
Limiting your rental properties to properly screened tenants who have passed your application process is the best way to protect your investment and your liability. If non-tenant adults have moved in with your tenants, you are under no obligation to allow them to stay.
Pre-screen all tenants as part of your standard application process. Background and credit checks will help ensure you rent to qualified tenants. For more landlord resources, including forms and information on tenant screening, turn to E-Renter.com.
Depending on the state in which your property sits, you can probably collect back rent and damages from former tenants through wage garnishment.
Garnishment of wages is done through the courts, after a judgment is made against the debtor. The debtor’s employer is ordered to withhold a portion of his or her wages, and turn them over to the court, to be disbursed to the creditor.
The question most landlords ask is if the amount of money in question is worth the time, trouble and expense of the court proceedings required. The best way to determine this is to obtain an accounting of the fees involved: usually there are court costs, process server fees, filing fees, and attorney’s fees—unless no attorney is involved.
As with eviction proceedings, many landlords hire a landlord/tenant law specialist to file garnishment papers the first time, and then decide whether or not they can handle the process themselves. And that’s a personal decision, just like deciding what dollar amount makes the court action “worth it.” Every landlord is different in this respect. Once you determine the out-of-pocket costs, you can then make your decision.
Obtaining a judgment is one thing, but if the tenant has no means to pay it, you may never see the funds owed to you—and working hard to collect them could be a huge waste of your time. And it should go without saying that your former tenant needs to be employed in order for his or her wages to be garnished.
There are other factors to consider in making a decision to garnish a tenant’s wages:
- Do you have the tenant’s new address? If not, filing will be very difficult.
- Have they moved out of state? Again, filing becomes more complicated.
- Do they have other garnishments, such as for child support payments? Other garnishments must be satisfied first.
- Is the tenant’s income below the poverty line? If so, they are exempt.
If you decide to file for a Writ of Garnishment, you’ll need to gather all the tenant paperwork, including the lease application, the lease or rental agreement, proof of rent payment, proof of any notices to Pay or Quit, eviction papers, and notes from conversations and electronic communications.
The contents of this article are intended for general information purposes only, and should not be relied upon as a substitute for obtaining legal advice applicable to your situation.
Christopher is no newbie landlord. He has purchased and rehabbed several properties in his city, and is running his investment property business full time. His tenants are a mix of couples, families, and singles from every income tier and diverse backgrounds. He’s had his share of problem tenants, but the only real problems he’s had to face are late rent payments.
Until a few months ago. Christopher surprised a tenant—although completely unintentionally—and discovered signs of drug use in his property. Here’s what happened: while doing some routine maintenance at Apartment #1 of a duplex, he realized he needed to shut off the water main. Unfortunately, the main fed both living units. So Christopher knocked on the door of Apartment #2 to see if anyone was home, and to let them know the water would be off for a few minutes.
When his tenant opened the door, she appeared surprised at seeing Christopher; she quickly stepped out and closed the door behind her. While Christopher maintained his tenant’s privacy by not looking into the apartment, he couldn’t help but notice the odor wafting out the door and into his nostrils! It was definitely marijuana.
Christopher informed the tenant of the impending water shut off and left, feeling conflicted about how to handle the situation. But he soon made a decision.
If you were the landlord what would you do?
A. Nothing. Marijuana should be legal.
B. Nothing. If the tenant is not hurting anyone, it’s none of my business.
C. Have a talk with the tenant. Let her know that illegal drugs are not tolerated on my property and give her written warning that the next time it happens, I will start eviction proceedings.
D. Start eviction proceedings immediately. Illegal drug use harms all my tenants and the community and could make me liable for any related property damage or personal injury.
Christopher chose door D. Backed by a solid rental agreement that clearly states illegal drugs are not allowed on his property, Christopher did what he always did when it came to handling tenant issues: he enforced the terms of the lease, as agreed to by the tenant.
Christopher did not want to evict this tenant. He had no prior issues with her, and she paid her rent on time. But he strongly believes in treating all tenants equally and enforcing his lease and tenant rules fairly. He felt he had no choice other than to evict this lease-breaking tenant.
The outcome of this story? While evicting tenantsis never pleasant, Christopher discovered he did it just in time to prevent the occupants of Apartment #1 from moving away. Turns out they had noticed marijuana odors from the apartment next door for months and no longer wanted their kids subjected to it. When they discovered their neighbor had been evicted, they thanked Christopher for keeping of the duplex drug-free and enforcing the lease.
If you’re a seasoned landlord, you probably have done each of these no-nos at least once in your career. If you’re a newbie, consider yourself warned: these five errors are easy to make, and can cost you plenty.
1. Making decisions with your heart instead of your head. Yes, owning rental property is a people business—and when people are involved, some concern for their welfare is normal. Treating your tenants with respect is necessary—but allowing emotions to cloud good decisions is a mistake. Example: Christine’s new tenant had $1200 of the $1400 needed to move into her apartment. She told Christine she would pay her the rest as soon as she moved in, which Christine allowed her to do. Months later, Christine still hasn’t collected that $200, and has had difficulty collecting subsequent rents, too.
2. Allowing desperation, the economy, the rental market, and even the weather prevent you from following your established procedures. There is no doubt that unemployment remains high and most parts of the U.S. are experiencing renters’ markets. In certain areas, it’s cold and snowing—and a bad time to be attempting to fill vacancies. Experienced landlords will tell you to stick it out. This business is cyclical, and now is no time to shed proven procedures like screening tenants and calling previous landlords before signing a lease with a new tenant. Desperation is not a position of strength.
3. Confusing appearance with tenant credit worthiness. A nice car, good clothes and expensive-looking jewelry have fooled many landlords into assuming a tenant applicant has solid credit and a great job. Conversely, a carless, sloppy dresser on a bike could be the best tenant you’ve ever had. The old adage applies: Do not judge a book by its cover.
4. Failing to review the lease thoroughly. It may seem like overkill, but taking the time to review every lease with every tenant—line by line—and obtaining initials on each page is just a smart way to do business. Example: Barry hands his lease to his tenants, asks them to review it and bring it back signed and dated. He often finds himself reiterating his rules and expectations over and over, and wonders why his tenants don’t get it.
5. Not charging enough rent. There is a fine line between what the market will bear and what you need to bring in to make a profit. Before you purchase rental property is the time to figure out the numbers, taking into consideration the principle, interest, taxes, insurance, and expenses from landscape service to lawyers’ fees you’ll be paying out. What is the range of rent that will support the expenses, P&I and allow for a profit? Is the range within the market rent for the property? If you start low and the rental market falls, you could be in a losing situation. Renting property is a business and no one can go in the hole month after month.
While most landlords appropriately treat their rental property businesses like a business, there are always ways to improve practices and in turn, cash flow. If you’re making any of these common legal mistakes, you could be putting your business and finances at risk.
Lackluster leases and rental agreements: The most important legal document in a landlord’s toolbox is the lease. You must be sure yours stay within the limits of new federal and local laws. If your lease has paragraphs scratched out and rewritten lines, do yourself a favor and revamp it. Then have a landlord/tenant attorney take a look at it—it’s worth it to be sure you’re in compliance.
2. Not having a lawyer: Sure, legal guidance can be expensive. But acting as your own attorney, or relying on friends or the Internet for your legal advice can end up costing much more than sound, professional advice from a licensed attorney. For routine procedures, like evictions, hire an attorney for your first one and then you can possibly file subsequent paperwork yourself.
3. Ignorance of Rental Laws: Landlords are expected to familiarize themselves with federal, state, and local laws. The Fair Credit Reporting Act outlines proper credit check procedures. The Fair Housing Act prohibits discrimination against potential tenants on the basis of race, color, religion, sex, family status, or national origin. The Americans with Disabilities Act prohibits discrimination against persons with disabilities, and can require landlords to modify their leases (such as no-pet rules) or their properties to accommodate them.
4. Ignorance of Employee Laws: Landlords need to know how employees are defined by state and federal government. Whether you consider someone an employee or a contractor might not match the government’s definition—which determines whether or not you must pay taxes and offer any mandated employee insurance coverage. Be careful when paying independent service people, like handymen or lawn care people—don’t pay in cash, and establish contractor status by recording their EIN or Social Security Numbers so you can issue 1099s at the end of the year, if needed. Of course, ask your lawyer for specifics.
5. Insufficient Record Keeping: Ideally, you asked your tax professional or CPA how to set up your records before you purchased your first rental property. Keeping track of mileage, rental income, security deposits, expenses and other deductions is not the most enjoyable part of being a landlord. But it’s the most important part of running your business. Careful records and receipts for all of your expenses are vital to the health of your rental business.
Keeping legal matters tidy is one way to ease the stress of being a landlord.
In this challenging rental market, a rental property owner needs effective marketing tools. A website can be a great way to advertise your properties and reach more potential tenants than the competition.
Your website can be free. Using a blogging platform like WordPress is the most popular way to get started with your own custom website—at no charge. Take a look around WordPress’s site. You’ll find step-by-step instructions and tutorials that make creating a website easy for everyone.
If you are not technically inclined, be prepared to invest some money in your website. Contact several local web designers for bids. Make your choice based on the deliverables you’ll get for the price. A good designer will ask the right questions and narrow down your needs, which may be just a few pages.
Be sure you can add, change, and delete content yourself. Most web designers work with Content Management Systems (CMS), where the end user has access to a database and easy-to-use tools to keep content fresh and updated. There is nothing worse than a website you cannot update yourself, so make sure your designers offer CMS sites.
What should your website include?
- Photos of your available rentals. Take several indoor shots, especially of the kitchen and bathroom. For outdoor shots, try to choose a bright, sunshiny day—grey, overcast photos are depressing.
- Addresses and Google® maps of available rentals.
- Neighborhood information, including parks, schools, transit, and walkability.
- The Equal Housing Opportunity logo (easily downloaded from the web).
- Well-written descriptions of available rentals. Since you’re not paying by the word, like in a classified ad, be creative. Describe the apartment or home thoroughly, including number of baths and bedrooms, any appliances included, square footage, proximity to schools, grocery stores, restaurants, or shopping, amenities like new carpet, hardwood floors, or lots of windows, the size and type of yard, fitness facilities, or patios, and whether pets are allowed.
- Contact information, with a link to your email address.
Screening tenants on your website: it’s fine to inform potential tenants of your prescreening policy, including that all applicants are required to undergo background and credit checks. If you charge an application fee, say so. You won’t scare off anyone except tenants who are not a good fit for you.
What not to say: Do not use language that can be interpreted as discriminatory. For example, if your property is near a church, don’t mention it in your description because you could be seen as accepting only a certain religious group. It’s also not a good idea to specify that your property is “great for” any group of people—parents, single moms, small families, or active adults—because that can be interpreted as if you’re telling everyone else (big families, the disabled, child-free, etc) that they are not welcome to apply.
Finally, keep your website updated. As soon as a vacancy is filled, remove it from your website. If you refuse an applicant because you’ve already rented your property, but it’s still showing vacant on your site, they could claim discrimination.
Websites are easier than ever to maintain, and a great way to showcase and advertise your rental properties!
Landlords have many options for collecting rent from tenants—some more secure than others. Take a look at our readers’ tips and decide which is best for you.
1. In person:
A dicey choice, for sure, and one of the more old-fashioned methods for rent collecting. Some landlords physically visit tenants and pick up rent, or tenants drop it by their office.
Pros: You see your tenants every month and can check in with them. If you’re personally picking up the rent, you can check on your property. You’ll have the rent in your hand—no “check’s in the mail.”
Cons: If you’re collecting in cash, it’s dangerous. Depending on your schedule and number of rental units, it could be inconvenient and time-consuming (especially if tenants are away or don’t have the rent ready for you when you arrive).
2. By mail: A time-proven method.
Pros: Landlords don’t need to leave the comfort of your home or office. It’s convenient for tenants to write and mail rent checks on their own schedules.
Cons: You’ll often experience a time lag between the day rent is due and when it is received. Who makes the trips to the post office to collect envelopes? How often will all rent checks arrive at the same time? What if your bank charges per deposited item? And everyone’s favorite: How often will you hear that a check is in the mail, got lost in the mail, or was rerouted to Peru on its way to your PO Box?
3. With an online pay system:
Property owners can set up an online payment system account (such as Pay Pal) so tenants can pay online either with a credit card of through a bank account. Or, landlords have several options with online rent payment portals that are easy to set up and use.
Pros: no checks to deposit—rent funds are deposited directly to your bank account of choice. No waiting for checks to arrive in the mail. A much more secure system to receive payments—no cash involved. Some rent collection packages offer reports and other valuable information to help run your business more efficiently.
Cons: there are usually transaction fees involved—so if the rent is $1000, you could actually receive 2% to 3% less. Transfers can take a few days. If tenants pay by credit card, there is always the possibility they will dispute a charge and cause a chargeback, which ties up the funds until the dispute is settled. Not all tenants have Internet access.
4. Direct deposit/Electronics Fund Transfer (EFT):
Pros: More tenants are paying their bills online. Automatic transfer of rent is one less hassle for them. Funds are automatically deducted every month from tenant’s account and deposited to yours. Safe, secure, and no checks to wait for and then deposit.
Cons: There is the possibility that tenants will not have the funds available when rent is due. Plus, there is the small detail of another form to fill out, explain to tenants, and obtain their authorization.
Whether you collect cash, checks, money orders, or just review your bank statements online and watch your funds transfer in, the best method of rent collecting is an ongoing debate with landlords and property managers.