You have closed on your first rental property and life could not be better. Your outlook on life is nothing but positive and the dollar signs are flashing before your eyes. You’ve done it. Give yourself a pat on the back. You are a real estate investor. But what happens now? If you do not proceed carefully, you could land yourself in hot water. Common landlord mistakes are easy to make, but are just as easy to avoid. If real estate investors stay educated and updated on laws, practice good ethics, and treat a real estate investment property as a business, which it is, things will work out just fine. It is the landlord or an inexperienced property management company in Orlando that becomes lax or thinks “it will never happen to me” that find themself in trouble down the road. Follow these tips to make certain that you avoid costly mistakes.
Run the Numbers
Owning a rental property is a business, not a hobby. When looking to purchase a rental property, one of the best things a prospective investor can do is to run the numbers and treat it like they would a business. There are many different goals that investors seek when looking to purchase a rental property including cash flow, appreciation, retirement, or vacation. No matter the purpose or end goal, investors should crunch the numbers to meet specific financial goals so that they will know if a property can deliver what they are seeking. Let’s be honest, doing math is never fun, but it will pay off in the future. Investors should account for the following expenses when managing a rental property:
- Mortgage payment
- Property Insurance
- Vacancy and turnover
- HOA fees
- Maintenance costs
- Property Management fees
It is imperative for a property management company in Orlando to conduct market research and determine what rental price the property could achieve. When running the numbers on an investment property, run them conservatively. Factor in vacancy loss because every property has downtime. Do not assume that you are an exception to this rule. Budget for maintenance and consider the age of the property. Older homes generally cost more in maintenance than new homes. Purchase the correct type of property insurance. There are different rates for owner-occupied versus renter-occupied properties and the insurance covers different liabilities. Rental property insurance allows for vacancy loss insurance so that if there is damage to a property and there is a loss in rent due to the damage, the insurance company will reimburse property owners for the loss. Liability insurance is also wise to attain as a rental property owner. Should a tenant slip and fall and try to sue a property owner for the damage, it can be helpful to have up to one million dollars of liability insurance to protect yourself in the lawsuit.
The best property management company in Orlando will tell you that it is better to have a property vacant than to have it occupied with an unqualified tenant. Too often landlords will try desperately to fill a vacancy by lowering tenant qualification standards just so they can collect monthly rent and get a tenant into the property. Do not fall victim to this. Keep tenant screening standards high. Establish the criteria for tenant screening and do not waver, even when your property has sat vacant for longer than you expected. As a general rule of thumb, aim for an income to rent ratio of three to one. This means that if rent is $1,700 monthly, you will need an applicant to have a monthly gross household income of at least three times this amount, or $5,100. Require that all applicants who are 18 years and older fill out and sign an Application to Rent, just like a professional property management company in Orlando would have them do. Applications to Rent can provide landlords and property managers with valuable information including rental history, employment, personal references, and other financial obligations. Landlords should require that applicants also submit income proof. Acceptable income proof can be the two most recent pay stubs, tax return forms, offer letters, bank statements, or Social Security disbursement documentation. Run a credit check and background check on applicants. Credit checks will give landlords insight into how responsible a tenant will be with paying bills. Do not accept an applicant who owes an outstanding balance to a previous landlord or property management company, as well as a utility company. It is acceptable to give an applicant a Conditional Acceptance if they do have a small balance that they owe to a utility company, as long as they pay the balance and bring proof of payment prior to an official acceptance of the application. Treat all of your applicants the same and base your decision only off of tenant screening qualifications. Be careful not to discriminate.
Compliance with Laws
As a landlord, it is important to know and comply with all housing laws. A property management company in Orlando educates its leasing staff and continues to follow up on new laws and amendments in the housing industry. Simply staying up to date on housing laws can keep landlords out of a lot of trouble.
- Fair Housing Act: Investopedia defines the Fair Housing Act as a law that protects classes of people based on their race, national origin, sex, familial status, religion, and disability. Landlords cannot discriminate against these protected classes of people when it comes to showing a property or accepting an application. In addition, once the property is rented, they cannot discriminate against these protected classes by denying them maintenance or general habitability.
- Habitability Laws: Nolo states that Florida has an “implied warranty of livability” law that states that landlords must provide an acceptable living space for tenants. This includes taking care of important repairs to heating and cooling systems, plumbing, safety hazards, electrical repairs, appliance repairs, roofs that do not leak, sturdy flooring, and secure walls. Otherwise, a tenant does have the right to withhold rent under Florida Law from a landlord or a property management company in Orlando.
- Tenant/Landlord Laws: Know your responsibilities as a landlord. Know the responsibilities of your tenants. Be clear in your communication with tenants about what is expected of them and when. Landlords should educate themselves regarding what questions they can legally ask a tenant or applicant and how to avoid discrimination in marketing.
Be Efficient and Effective
When a maintenance request is received, respond quickly or within a reasonable time frame. Doing so will benefit a landlord in multiple ways. It will alert the tenant that you care about them and your rental property. It will cut down on the cost of the maintenance repair because data shows that ignored maintenance issues often cost landlords more in damages, than if they were to respond and make the repair quickly. Tenants will likely take better care of the property and report maintenance as soon as it happens because you have a proven track record that you care about the well-being of your tenants and your property. Hire licensed and insured repair technicians to ensure that the job is done properly. As a good rule of thumb, a responsible property management company in Orlando will respond to maintenance requests within 24 hours or sooner. If it is a maintenance emergency, make time to respond immediately. When a property becomes vacant after a tenant moves out, walk the property within 24 hours of receiving keys and evaluate the extent of the turnover process. Contact vendors and schedule them to enter the property back-to-back to cut down on vacancy days. Hire professional cleaners, take updated property photos, run a comparative market analysis, and market the property aggressively. Online marketing and virtual tours of properties are proving to be the most effective ways to rent out a property quickly.
Document, Document, Document
Get it in writing and create a paper trail. Though it may seem insignificant, document conversations that you have with tenants, important and casual. Mark this documentation with a date and time stamp so that you can see the chronological order. The best property management company in Orlando keeps records of maintenance requests, when you responded to the maintenance request, what was the action taken to make the repair, and if the tenants were satisfied with the repair. Documentation can hold up in court whether it is a handwritten note, email, text message, saved voicemail, lease agreement, or financial records. Protect yourself as a landlord and do all that you can do to record how you have upheld your end of the lease agreement with every interaction that you have had with your tenants. Make sure that your lease agreement is tailored to your individual rental property. Printing out and signing a general lease agreement is sloppy paperwork that will fail to protect you and your property in the event of a lawsuit.
How Property Owners Can Protect Themselves with the Best Property Management Company in Orlando
If you own an investment property and fear you might make a costly mistake, feel free to give us a call at Specialized Property Management Orlando. With more than 30 years of experience, your asset is bound to be protected by our experienced team and professional leasing staff. Avoid costly mistakes and keep the cash in your wallet flowing in each month. Call (407) 682-3355 today.