Managing Your Income Property

Owning income property is having a small business that runs out of your home. It has products (rental units), inventory (vacant units) and expenses. You have customers, your tenants.

Owning income property is having a small business that runs out of your home. It has products (rental units), inventory (vacant units) and expenses. You have customers, your tenants.

The tenants are the most important part of this business. The key is getting good tenants, so let’s talk about what a good tenant is. Good tenants have the following qualities.

  1. They pay their rent on time.
  2. They call you when there is an emergency only (i.e. pipe burst, roof leaking, things are not working in the unit).
Bad tenants have the following qualities.
  1. They are late paying their rent.
  2. They call for every little thing that goes wrong. Here are a few calls I’ve taken from tenants.
    1. My carpet is stained
    2. My faucet leaks.
  3. There is something wrong with the unit every month that they want you to fix.
Here’s how to get good tenants…
  1. Make your rents a little lower than your competitors, so you get more applications and can pick your renter.
  2. Run a complete credit report for the applicant.
  3. Call their current landlord and ask the following…
    1. Do they pay their rent on time
    2. Do they ask for lots of maintenance on their unit?
    3. Over all did you like them as a tenant in you property?
  4. Call their current employer?
    1. How long have they been employed there?
    2. What is their current salary?
Providing they meet you have positive reviews from their current landlord and employer, this might be a good tenant.

What do you do if you get a bad tenant?

The Complainers

If they are paying their rent on time, deal with them in the following way. For the little things, ask them to create a list of them for all of the units and get a handyman out once a month to do all of them at once. After a couple of months, most of the little items will be fixed and you won’t have to deal with them.

For the big stuff, remodel my kitchen, paint my apartment, new carpeting, ask them if they would be willing to have their rent increased to pay for this expense. The equation for this is

Cost ($)/12 = rent increase

Most of the time, the tenant will tell you they would rather have it the way it is rather than have their rent increased.

The Late Payers

Late rents are a problem with every landlord and yes there is a solution. You should have a system in place to deal with these folks. You need the following…
  1. An attorney that deals with evictions.
  2. A set course of action which all of the tenants sign as part of their rental agreement.
1. Three day notice is delivered to the tenant on the 3rd day following the due date. If your rent is due on the 1st of the month, the three day notice is delivered on 3rd of the month. There is a $25.00 charge for late rent past the 3rd day.
2. If the rent has not been paid by the 3rd day after the Three Day Notice has been delivered, you immediately start the eviction process with your attorney. Typically, the attorney will charge you $250.00 for the eviction. Your tenant will be charged the $250.00 attorney fees for the eviction process. After the eviction process has started, the tenant pays the past due rent + $25.00 late charge + $250.00 Attorney fees.
If you do this once with one tenant, it will get around the property how you handle late payments. You will find very few late payers after that.

Tenants that are just bad tenants

Providing you do not have rent control, make the first 3 months of the rental agreement a test period. Make all your rental agreements month to month, if you sign a lease you’re stuck with them unless they don’t pay.
  1. Tenants the throw wild parties
  2. Tenants that complain about every little thing
  3. Tenants that you get complaints from the other tenants about.
Give them a written warning. If the problem persists, give the tenant a 60 day notice to vacate the property.

Get good tenants and work to make them happy. If you have good tenants the amount of time you will have to spend on managing the property is minimal.