Inventory is low and the market is hot – now might be a good time to invest in rental property. But before you buy, it’s important to understand everything involved in property management.
This guide will teach you the basics of what to do before, during, and after owning a rental property. Whether you’re an experienced investor or new to the game, read on for tips on getting started!
Responsibilities of investment property managers
An investment property manager is responsible for the overall operation of a rental property. This includes tasks such as marketing the property, screening and signing tenants, collecting rent, and handling repairs and maintenance. Investment property managers also need to be aware of local landlord-tenant laws and regulations, as well as any federal or state laws that apply to rental properties.
Here are 10 key responsibilities of investment property managers:
1. Marketing the property
Creating listings, advertising the property online and offline, and showing the unit to potential tenants.
2. Screening and signing tenants
The manager is responsible for running background checks, credit checks, and verifying employment information for all prospective tenants. They will also sign the lease agreement on behalf of the landlord.
3. Collecting rent
The manager is responsible for collecting rent from tenants each month and depositing it into the landlord’s account. They may also be responsible for chasing late payments and enforcing late fees.
4. Handling repairs and maintenance
The manager needs to handle all repair and maintenance requests from tenants. This includes arranging for repairs to be carried out, dealing with emergency repairs, and keeping track of routine maintenance tasks.
5. Being aware of local landlord-tenant laws
The manager needs to know the ins and outs of local landlord-tenant law, so that they can advise the landlord on their rights and responsibilities, and ensure that the property is being operated legally.
6. Being aware of federal and state laws
In addition to local laws, there are also a number of federal and state laws that apply to rental properties. The manager needs to be familiar with these laws, so that they can advise the landlord on their rights and responsibilities, and ensure that the property is being operated legally.
7. Keeping records
The manager needs to keep accurate records of all income and expenditure relating to the property, as well as all repair and maintenance work carried out. These records will be used for tax purposes, so it is important that they are kept up-to-date and accurate.
8. Arranging insurance
The manager needs to arrange appropriate insurance coverage for the property, in order to protect the landlord from any potential risks.
9. Paying bills
The manager is responsible for paying any bills relating to the property, such as utility bills, council tax, and mortgage or loan payments.
10. Dealing with difficult tenants
From time to time, the manager may have to deal with difficult tenants. This can involve anything from mediating disputes to evicting tenants who breach their tenancy agreement.
Different types of investment properties
Residential investment properties include single-family homes, multi-family homes (such as duplexes and triplexes), and apartment buildings. Commercial investment properties include office buildings, retail stores, warehouses, and industrial buildings.
Property management for each type of investment property differs in a few key ways. For example, marketing residential investment properties generally involves creating listings on real estate websites and working with buyers’ agents.
Marketing commercial investment properties, on the other hand, often involves working with leasing agents to find tenants for the property. And while collecting rent is typically handled by the property manager for both types of investment properties, commercial property managers may also be responsible for dealing with common area maintenance charges (CAMs) from tenants.
Challenges of investment property management
There are a variety of potential challenges that investment property managers face. Here are 5 of the most common obstacles to good property management and suggestions for overcoming them:
1. Dealing with difficult tenants
One of the biggest challenges investment property managers face is dealing with difficult tenants. This can involve anything from mediating disputes to evicting tenants who breach their tenancy agreement.
2. Handling repairs and maintenance
Another big challenge for investment property managers is dealing with repair and maintenance requests from tenants. This includes arranging for repairs to be carried out, dealing with emergency repairs, and keeping track of routine maintenance tasks.
3. Being aware of local landlord-tenant laws
It is important for investment property managers to be aware of local landlord-tenant law, so that they can advise the landlord on their rights and responsibilities, and ensure that the property is being operated legally.
4. Keeping accurate records
Investment property managers need to keep accurate records of all income and expenditure relating to the property, as well as all repair and maintenance work carried out. These records will be used for tax purposes, so it is important that they are kept up-to-date and accurate.
5. Arranging appropriate insurance coverage
It is also important for investment property managers to arrange appropriate insurance coverage for the property, in order to protect the landlord from any potential risks.
There are a number of ways to overcome these challenges, such as having clear policies and procedures in place, investing in good quality software to help with record keeping and maintenance scheduling, and building good relationships with local tradespeople.
Skills required for investment property management
There are a number of skills that are important for investment property managers. Here are some of the most important ones:
- Communication: Investment property managers need to have good communication skills, so that they can effectively communicate with landlords, tenants, and other professionals. They need to be able to clearly explain things, and resolve any misunderstandings quickly.
- Organizational: Investment property managers need to be well-organized, so that they can keep track of all the different aspects of their job. This includes keeping accurate records, maintaining schedules, and coordinating repairs and maintenance.
- Interpersonal: It is also important for investment property managers to have good interpersonal skills, so that they can build good relationships with landlords, tenants, and other professionals. This will help to resolve any disputes quickly and efficiently.
- Problem-solving: Investment property managers need to be good at problem-solving, so that they can deal with any issues that arise. This could involve anything from mediating tenant disputes to arranging repairs and maintenance.
- Negotiation: Finally, investment property managers need to be good negotiators, so that they can get the best deals for their clients. This includes negotiating rent prices, repair and maintenance contracts, and insurance cover.
Stages of the investment property cycle
Write about the different stages of the investment property cycle and explain how property management will different depending on what cycle the property is in.
There are four main stages in the investment property cycle:
- Acquisition: This is the stage where the investor buys the property.
- Development: This is the stage where the investor carries out any necessary refurbishments or repairs.
- Leasing: This is the stage where the property is let out to tenants.
- Disposition: This is the stage where the investor sells the property.
The role of investment property manager will differ depending on which stage of the investment property cycle the property is in. For example, during the acquisition stage, the investment property manager will be responsible for helping to find and purchase a suitable investment property.
During the development stage, they will be responsible for coordinating any refurbishments or repairs. And during the leasing stage, they will be responsible for finding and vetting tenants, as well as managing the property on a day-to-day basis.
Tax implications of investment property
There are a number of tax implications to be aware of when owning investment property in the United States. These include:
- Capital gains tax: This is a tax on the profit that you make when you sell an investment property.
- Income tax: This is a tax on the rental income that you receive from your tenants.
- Property tax: This is a tax that you will have to pay on the value of your investment property.
There are also a number of tax benefits and advantages to owning investment property:
- Deductions: You can deduct a number of expenses from your taxable income, such as mortgage interest, property taxes, and repair and maintenance costs.
- Depreciation: You can claim depreciation on your investment property, which will reduce the amount of tax that you have to pay.
- 1031 exchange: This allows you to defer paying capital gains tax on the sale of an investment property by reinvesting the proceeds into another investment property.
To make sure that you are taking advantage of all the tax benefits that are available to you, it is important to keep good records of all your income and expenses. This will allow you to deduct all the eligible expenses from your taxable income. It is also a good idea to hire an accountant who specializes in investment property taxation.
Important tips for successful investment property management
Owning investment property can be a great way to generate income and build wealth. However, it is important to remember that investment property management is not without its challenges.
Here are 10 important tips for successful investment property management:
- Keep good records: It is important to keep accurate records of all your income and expenses. This will allow you to deduction eligible expenses from your taxable income.
- Hire an accountant: A good accountant can help you take advantage of all the tax benefits that are available to investment property owners.
- Choose the right property: Not all investment properties are created equal. It is important to do your research and choose a property that is in a good location and in good condition.
- Screen your tenants: It is important to carefully screen your tenants to make sure they will be responsible and respectful of your property.
- Set the right rent price: You need to charge enough rent to cover your expenses and make a profit, but not so much that your property sits vacant.
- Stay up to date on repairs and maintenance: Investment properties need regular repairs and maintenance in order to stay in good condition.
- Keep an eye on your finances: It is important to keep track of your income and expenses so that you know how profitable your investment property is.
- Be prepared for vacancies: vacancy rates are inevitable, so it is important to have enough cash reserves to cover your expenses during these times.
- Have a good relationship with your tenants: Good tenant relations will make your job as a property manager much easier.
- Hire a professional property management company: If you don’t have the time or expertise to manage your investment property yourself, it is worth hiring a professional property management company.
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Blog post written by J. Scott Digital freelance copywriting services.
