It’s hard to resist looking through property listings without imagining which ones would provide you the best returns or finally provide you with passive income. Once you finally take the plunge and purchase a property what do you do? Here are some tips to make owning and managing your first property as painless as possible.
1. Don’t be scared to get an agent to find the right people, especially your first tenants
Finding the right tenants is one of the hardest and most important aspects to owning an income property. This is mainly due to the fact that good tenants typically take better care of the unit (lowering your maintenance costs), pay on time (lowering the amount of time you have to spend collecting), and will have a longer tenancy period (lowering your effective vacancy rate).
Finding these high quality tenants is a time-consuming process that you will eventually get good at – now is your time to learn. Don’t be afraid to enlist the services of a good agent who will spend the time finding, interviewing and performing background checks on potential tenants. For this service, the agent will typically take somewhere near one month’s rent or 10% of the lease value.
2. Be a good landlord, your goal should be to keep quality tenants as long as you can
As you will see in our upcoming post showing how your investment depends on vacancy rates, one of your main goals should be finding long term quality tenants. As shown in point 1, one way to decrease your vacancy rate is to pick good people with stable jobs,etc. Another way is to be a good landlord. There are plenty of terrible landlords out there – being reliable and keeping to your word will go a long way with your tenants, ultimately decreasing your vacancy rates. Part of this is also staying on top of a property’s maintenance. Nobody wants to live in a poorly maintained home, and early maintenance can go a long way to saving you headaches and pain down the road.
We should caveat, though, that in a strong rental market with large annual rent increases, short term tenants may not be such a bad thing. In this kind of environment, it’s important to weigh higher vacancy rates with the increases in rents a new tenant would provide.
3. Don’t be their friend. Be nice but keep a professional relationship
As an addition to point 2 above, be nice to your tenants, but not too nice. It’s imperative that you maintain a professional relationship with your tenants. A nice card and/or gift around the holidays can go a long way, but be careful about being too friendly. Someone may ultimately take advantage of your kindness. Maintaining a respectful, professional relationship will help you optimize your property’s occupancy rate and your returns.
4. Keep receipts for everything
We launched SpendTree because everyday investors didn’t have a good way to manage their investments and keep track of them on a day to day basis. Just the same, if you only chase rent checks and don’t track expenses you will only know half the story.
5. Always keep an emergency fund
No matter how good of a deal you think you’re getting or how perfect the property seems you WILL have to replace/fix/install something. Some surprise repairs can be alarmingly expensive, furnace – $5,000, roof – $12,000, etc. Recommendations on emergency funds range from 10-20% of the property’s value, but anything is better than nothing.
Do you have any tips for first time investment property buyers? Leave them in the comments section below!