Owning investment property is an exciting and scary prospect. The success or failure of an investment will depend on the effectiveness of property management. There are many books on this subject but here are five golden rules that I discovered after personally managing 75 rental units at one time.
Rule#1- Organization is a virtue
I love Adobe PDF writer! This program allows me to use my scanner and create an electronic copy in my computer. I scanned all my bills and any important documents in this format. Since I owned property in two states, this allowed me access to a “virtual” file cabinet with my laptop. I can quickly send eviction or late notices from wherever my location. One example was during an eviction the lawyer processing the case needed copies of the lease, the late notices and breakdown of expenses owed to me. Since I scanned every document and use QuickBooks to organize my accounting, I was able to quickly send a package to my Lawyer and he was able to file with no delay. We filed with the court and I was able to gain a judgment against the tenant. But more importantly, I got possession of my property in an expeditious manner. You can purchase Adobe PDF at http://www.adobe.com or download free simple Adobe writer called CutePDF.
Rule#2- Treat every tenant like they have a law degree
I assume that all my tenants know as much about property law as an attorney would know. As a result, all notices are in writing and on the standard forms provided by the non-profit organization the California Association of Realtors. There is an excellent program provided by the California Association of Realtors called WINForms (www.winforms.com). This program has all the property and lease forms provided by the association. This includes lease agreements, lead disclosure, check-in, and even a rental application. If you are a Realtor, the program is included as part of your annual dues. Otherwise the program is only available to attorneys or real estate licensees for a hefty annual price of $499.00. Lastly, any verbal discussions that may have some legal consequences are written down and sent to the tenant. If the subject is too small for a written letter, I then enter a log in my ACT contact program with a date and time stamp of the event.
Rule#3- Take the time to become informed on rental laws
If you follow Rule#2, then it is critical you become knowledgeable on the current rental laws. An example was a recent change to month-to-month termination notification. California law requires the Landlord to give a tenant 60 days notice of termination of month-to-month lease, regardless of the 30 day notice agreed upon in the original lease. Fortunately for the tenant, they still can give the Landlord 30 days notice. This major change became effective the beginning of this year. Sources to keep up to date with rental laws are apartment associations and the web site of the Department of Real Estate or like kind governing board.
Rule#4- Include automatic rental increases
This rule I learned the hard way. I noticed that it was a difficult process to increase rent on my tenants. The tenants didn’t like the increases and depending on the timing of the notice or size they may get upset and leave to find another place to rent. So the effort to increase rent a few dollars would potentially cost me thousands of dollars to update and advertise a vacant unit. What I discovered is that you can include an automatic increase in rent at the beginning of the tenancy. This way the tenant is aware of the increase and can budget accordingly. You as a Landlord still have to provide 30 day written notice of the increase, but at least the tenant is expecting the notice.
Rule#5- Be fair and direct
After dealing with 75 rental units a pattern started to appear regarding payment of rent. Some tenants were excellent and would pay before or on the first of the month. Others would wait for the last hour of the final day before a late charge could be added. And the remaining tenants would always be late and pay the late fee every month. Unforeseen events in a tenant’s life would happen and I would get that call or letter asking for extra time to pay the rent. My response would be a respectful inquiry regarding when payment would be rendered and to remind the tenant that a late fee would be added as described in the lease agreement. I also informed the tenant that unless payment is sent to my office by the 12th, then a 3 day pay rent or quit notice would be served. Honestly if a tenant in late three consecutive months, I would serve a lease termination notice. I never try to sympathize with the tenant about my need to pay the mortgage and all the bills, because most tenants don’t care. They see me as a rich Landlord that has endless pockets of wealth… HA! Of course there are other rules, but that will have to come another day. I enjoy sharing my experiences so if you have a question or story you want to share send me an email at Anthony@InvestBig.com.