Acquiring a rental property is a great way to earn extra income if you are looking to grow your investment portfolio or simply considering leasing your current home as you move into a bigger home for you and your family. Orlando, Florida continues to grow at an incredible rate not only with more vacation attractions, but with the expansion of Universities and businesses. There is majority consensus that the demand for moderately priced rental homes in many areas of Orlando will continue to increase in the coming years.
Managing a property can be done by the homeowner themselves or through a property management company like American Dream Homes. If you’re thinking about managing your own property, here is a basic helpful guide that can save you from common mistakes.
Doing research and taking time to understand the business of property management is critical to finding good tenants and maintaining your extra income stream consistent overtime.
1. Understanding the business of property management
Have you inherited a property that you weren’t expecting? Are you thinking about making the home you’re moving out of into a rental property? If so, you’ve essentially started your own business. Many new property managers make the mistake of “figuring it out as they go” and move too quickly in leasing the property to the first person or family that shows interest.
It’s important to understand that effective property management is essential to your rental income business. You will need to track your profits, keep a record of expenses, pay taxes on earnings, have a marketing plan, implement a routine and schedule for maintenance, have a list of vendors to take care of property needs, and provide great customer service to keep good tenants in place.
There are laws and regulations that are in place at the federal and state level to protect both landlords and tenants, so it’s important to grasp at least a basic understanding when you are renting out your property.
Because the process of managing a property is much like a business, many landlords choose to hire a realty and property management company to handle the business for them. However, there are also those that want to manage their own property, which is a great option for those that have the time and capacity to do so. The rest of this rental management guide is designed to help you get familiar with steps and the basic process of renting out your property. Be sure to do additional research into your own state’s laws regarding rental properties and additional ways to make your investment a successful one.
2. Get the rental property in tip-top shape
Whether you bought the house, inherited it, or were living in it until recently, the first step to renting out any home is getting it into good condition. Patch walls, clean or replace carpet, tile, and hardwood floors, and repaint where necessary. Fix any nonworking light switches or receptacles, install working light bulbs in light fixtures, and make sure ceiling fans work. Have the major house systems (plumbing, air conditioning, heating, electricity) checked out and given the all clear.
By making sure the house is in tip-top shape before you rent it out, you ensure that you aren't confronted with major problems when a tenant moves in that can cause strained landlord-tenant relationships.
3. Screen potential tenants carefully
One of the most problematic parts of being a landlord is when you have tenants who destroy the home, don't pay their rent on time (or at all), bring in pets without permission, or force you to evict them. In order to avoid that, you should carefully screen people who show interest in your home.
Have an application that asks for specific information that will help you make an informed decision: name, current address, current and at least one previous landlord recommendation letters, current and previous employment, and an agreement to a background and credit check. This allows you to not only ensure that you get a qualified tenant that will pay their rent on time and take care of your home, but also that you get the same information from each prospective tenant so that you are able to make a fair decision based on facts, adhering to fair housing and discrimination laws. There are also Landlord Rent Guarantee Insurance programs available for peace of mind for the landlord.
Rental management companies almost always have an application for prospective tenants to complete. You can find free applications online that you can use.
4. Take tenants on a walk-through
Once you've chosen a tenant, take them on a walk-through of the home. Take photos of the property's condition before they move in, and write up an inventory of what you provided in the home (major appliances, any furnishings, etc.) and the condition it was in. There are many free move in and move out checklists available online that you can utilize. Both you and your tenant should sign this inventory. This ensures that if they cause any damage beyond the usual wear-and-tear, you'll have proof if needed.
5. Put it all in writing
Leases come in varying lengths, and you can create your own for any length that isn't standard. The most common and standard lease is 12 months. Even if you wish to rent on a month-to-month basis, a lease is still a good idea.
A lease should spell out more than just how long the tenant will live there. It should also include details such as: when rent is due, how much the rent is, late fees, security deposit, when and how you can enter the property, pet restrictions, who lives in the rental and at what point a guest becomes a tenant, procedure for reporting needed repairs and what to do if it's an emergency (broken water pipe, etc.). It should also spell out any other important facts as determined by you and/or your tenants.
Both you and the tenant should keep a copy of the lease. If the least is for a term other than month-to-month, you should check in at least a couple of months before it expires to determine if your tenant plans to renew and discuss rent increases, if any. Be sure to check your lease descriptions and stipulations against your state’s laws regarding rental properties and Landlord-Tenant laws.
6. Plan a work schedule
If the house was in good shape before you rented it out, and your tenants fulfill their obligations in keeping their rental in good shape, you shouldn't have to do much in terms of repairs and physical work on the house beyond regular maintenance.
Always plan out a maintenance schedule for routine upkeep of all your major appliances and both the interior and exterior of the home. There are also other administrative tasks to be done on a regular basis to stay on top of the business of property management, such as tracking expenses and maintaining a reliable vendor list in case unexpected repairs are needed.
7. Handle the money properly
As a landlord, you are responsible financially for repairs to the property, and security deposits are to be returned when the tenant moves out unless they've damaged the property. Security deposits should be placed in a separate bank account and left untouched until you either return it to the tenant or use it to repair damages the tenant caused. There are specific laws to interest-bearing security deposit accounts and non-interest bearing accounts. Always consult the Florida-Tenant Laws or a professional to ensure you are complying with the law.
Monthly rent may be profit, but first, you should ensure that any mortgage on the property is paid and that you have enough money set aside to be able to quickly and easily pay for major repairs that might need to be done to the house. To calculate how much profit you’ll actually receive is to add up all of your expenses related to the property (mortgage, property taxes, insurance, maintenance costs, tenant screening, accounting fees, etc) and subtract that from the rent you receive. For example if you collect $1650 in rent and your total expenses each month is approximately $1200, you’ll profit $450 every month before taxes and other business expenses.
Usually rental properties are a long-term investment where you’ll see the greatest gain over time with the mortgage being paid down each year, and specifically when you sell the home in the future at or above its original purchase price.
8. If you hire a property manager, make sure you oversee them
Hiring a property management company is a great way to free up your time. First time rental property owners tend to always start out by managing their own property. The initial calculation of money saved by doing it themselves is easily outweighed when they realize how much time is actually required to maintain the property and manage tenant relations. The money spent on hiring an experienced property management company easily ends up being worth every dollar.
Rental property owners in Central Florida from out of town also leave the work of management to a local company that can take care of the entire management process and represent them locally. Rental management companies can take the burden from your shoulders, but ultimately, you're the one that will be responsible for your own property. That’s why being able to have oversight over your Central Florida property management company is just as important as finding the right property management company. At American Dream Homes, we use a state of the art online platform that allows landlords to have full access to all financial transactions and repairs done on the home.
Get to know your Orlando property managers and the team that is overseeing your property, so that you can rest easy that they're doing a good job on your behalf.
9. Make sure you follow the law at the end of the lease
Every state’s Landlord-Tenant laws may vary regarding the return of security deposits, so it’s important to check your state’s official laws. In Florida, from the day your tenant moves out, you have 15 days to return their security deposit if you do not intend to impose a claim on it for damages. This means that you need to inspect the property as soon as possible after they've vacated to see if there are any repairs that need to be made that will come from the security deposit.
Remember that normal wear-and-tear cannot be taken from the security deposit, and if you do find damage, you must notify the tenant in advance that you intend to keep part or all of the security deposit to take care of the repair. According to Florida law, you have 30 days to notify the tenant in writing by certified mail to the tenant’s last known mailing address if you intend to impose a claim for damages. Further details of security deposit laws should be researched or seek a professional’s help.
Managing a rental property isn't difficult, as long as you follow state laws and find good tenants. If you would feel more comfortable with someone else handling the day-to-day management duties, submit your info or call one of our Central Florida property managers to get started today!
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