How to be a Landlord
This probably goes without saying, but rental properties are by far our favorite investments. By investing in real estate and learning how to be a landlord over our rental properties we’ve been able to retire on less money invested into fewer properties. Ultimately, this means we were able to quit our jobs earlier which equals more happiness. Today, we are going to take you through our process and explain how we are landlords and how we manage our properties.
Responsibilities of Landlords
Deciding to be a landlord and manage your rental properties adds a larger level of complexity to real estate investing. After all, you can buy properties, pass the management onto another company, and just sit back and let that sweet cash-flow trickle in. The hardest parts of this process are finding the property and finding the management company.
On the other hand, when you are a landlord, here are a few of the tasks you’re taking on:
- Finding & buying the property
- Listing the property for rent (including getting photos, creating the appropriate description, and determining pricing)
- Finding the right tenants
- Getting the correct lease agreements
- Collecting rent
- Dealing with any maintenance issues
- Fielding all tenant complaints
- Managing late fees, & evictions if necessary
This list sounds like a lot to handle, but it really isn’t. If even reading the list is making you tremor with anxiety, maybe being a landlord isn’t for you. However, learning how to be a landlord and manage your rental properties will still be useful in case you find yourself between property managers, cash strapped and need to increase your income, or even to understand how to manage your property manager better.
Why Become a Landlord?
By deciding to be a landlord, you are taking on more responsibility. But, like Spider-Man’s uncle says: “With great power comes great responsibility.” and in this case, that ‘great power’ is more dolla dolla bills, y’all.
A few of the fees that you may see with a property manager are:
- A set-up fee up to $300 to acquire their services
- 10% of gross rent for management
- One month’s rent as a ‘finders fee’ for filling a vacancy
- Advertising fee for listing a vacant property
- Lease renewal fee
- Maintenance fee
This list isn’t exhaustive so be sure to know the terms of your property management before you sign or agree to anything. On the other hand, when you manage your rental properties by being a landlord, you don’t pay any of these fees and can use that money for future investments, renovations, or just living the life of your dreams.
If you are a landlord, you maintain much more control. This control comes at the cost of your time. However, with the right processes in place, you can minimize the time spent on managing your properties.
As the landlord of your own properties, you are the one who determines the qualifications of tenants. This gives you further control over the quality of tenants. Don’t think that this gives you the opportunity to handpick tenants, as this is probably grounds for a lawsuit.
Also, when you self manage your rental properties, you get to select all the contractors who work on your property. This includes:
Many of these services with a property manager are charged at a higher rate as the property management company may receive a commission or have a contractual obligation to the contractor or company.
By being able to select the contractors yourself, you get to receive multiple quotes, see more customer reviews, and see the quality of their work before you select them.
How to Landlord
Processes should be your best friend. Any process that is efficient and helps you cut down on your personal time spent in the business should be utilized. Test new processes, try to find inefficiencies and simplify the way you manage your properties. You should be able to spot some recurring processes that we have in our personal landlord and management strategy.
We aren’t going to cover the details of finding the right tenants because that could be a whole article itself, and it is. So, we are going to skip ahead a little bit and assume that you’ve already got the property, and a tenant placed. Now what?
How to Collect Rent
Collecting rent is the best part of rental properties, particularly for self-managing landlords, so be sure you enjoy this process. There are numerous ways you can collect rent all with varying levels of involvement & safety. In order from worst to best, these ways include:
- Venmo, CashApp, Paypal, etc.
- Direct Deposit
- 3rd party services like Cozy, Zillow, AppFolio, or Buildium
Cash is a bad idea as you have to physically receive it from the tenant. Also, there is no paper trail. It can quickly become a dispute over how much you received vs how much they’re saying they paid. You can create a receipt at the time of the exchange, but again that’s more involvement on your part. Also, carrying large amounts of cash is unsafe & can make you a target for attack.
Verdict: High Involvement | Unsafe – Don’t Recommend
Checks are incrementally better than cash, but still not good enough. Again, it’s a physical form of payment that you have to receive personally. Best case scenario: tenants mail you a check, and you have to deposit it. That may involve taking time out of your day to go to the bank. Or, if you’re in the 21st century, you can do a mobile deposit. Too much effort either way.
Verdict: High Involvement | Safe – Don’t Recommend
Money Exchange Apps
Finally, we are getting to an online method of receiving rent. Using apps & online payment methods like Venmo or CashApp are popular ways to collect rent. However, you could be breaking the terms of service that you agree to when you set-up an account.
For instance: Venmo & Paypal charge a 3% fee for business transactions. If you try to skirt the rules & make it a personal transaction, you could have your account closed & the money frozen there with no way to get it out.
Also, these money exchanging apps would let a tenant make a partial payment without you being able to deny it. This can cause issues if your tenants are late on rent & you are moving forward with an eviction.
Verdict: Low Involvement | Unsafe – Don’t Recommend
Again, we are getting incrementally better with each of these options. If you self-manage rental properties, receiving rent via direct deposit might be an attractive option. You have very little involvement from month to month.
All you have to do is give the tenants your bank account information. From there, they can either set up a scheduled monthly ACH transfer to you or manually do it each month.
This won’t be violating any terms and conditions, like the money exchange apps, but again you can’t deny partial payments. Also, throwing your bank account information out there isn’t prudent advice in this day and age of rampant fraudulent activity.
Verdict: Low Involvement | Unsafe – Don’t Recommend
Third-Party Landlord Software
Third-party management software is a lifesaver to the DIY landlord. As the software has been specifically developed for receiving rent, it has all of the benefits of the earlier mentioned options, with none of the drawbacks.
We personally use Cozy and highly recommend it. Landlords can create a monthly invoice and the tenants pay it. Tenants can choose to schedule automatic payments or manually do it. Paying with either a bank account or a credit card is an option for the tenants as well. Once the rent is paid, it takes a few days to process. Next thing you know, you’ve got money in the bank account that you’ve connected to the account.
Landlords can also create other charges like pet fees, security deposits, any maintenance that the tenant covers, etc. The best part is that the software can add an automatic late fee. Additionally, if a landlord has started the eviction process, they can choose to cut off rent collection from that specific tenant.
Cozy is free for landlords & tenants, there’s recurring involvement from the landlord, easy for tenants to use and understand, and safe for everyone. Hard to beat that.
Verdict: Low Involvement | Safe – Recommend
This is the part of self-management that most landlords don’t like. However, fielding maintenance requests from tenants doesn’t have to be a gut-punch or a constant barrage of texts and calls from tenants and to contractors.
If you aren’t using property management software, then the tenants are likely calling or texting you whenever an issue arises. We don’t recommend that at all.
I’m going to share a short anecdote with you. This is a real interaction between a fellow landlord and one of their tenants that we will creatively name ‘Landlord’ and ‘Tenant’. Tenant calls Landlord. Landlord ignores the call and texts Tenant letting them know that they were driving. Tenant asked Landlord to pull over and call as there was an ’emergency’. Landlord pulls over and calls Tenant. Tenant informs Landlord that the cat they were pet-sitting has escaped the house and wanted to know where cats like to hide.
Our tenants understand that the only time they contact us directly is in case of an emergency. We also have guidelines for emergencies. If it doesn’t involve blood, fire, or flood then it isn’t an emergency.
Instead, we recommend that landlords have their tenants submit maintenance requests via third-party software. If you aren’t going to use software then at a minimum request that all maintenance issues be submitted via email. This will create space between the landlord and tenant and maintain a level of professionalism. Also, it makes it incredibly easy for the landlord to forward the maintenance request to any contractors that they may use to resolve the issue.
Selecting the right person to fix a maintenance request can be difficult as a landlord. We’ve tried to simplify this responsibility as much as possible. When a tenant submits a maintenance request we go through a step by step process.
First, we reply to the tenant and thank them for letting us know of the issue and that we will have it taken care of. Clear communication and updates are always appreciated, especially between tenants & landlords.
Next, we check a spreadsheet of contractors that we’ve compiled and contact the appropriate one. The contractors are listed in the order that they should be contacted, so the third-best plumber would be our third call.
When starting your spreadsheet, you may not have preferred contractors for every aspect of property maintenance, that’s okay. In that scenario, we go to our local real estate investors’ Facebook group and search for the type of contractor we need. If there isn’t one there, we ask for personal recommendations. Finally, if we can’t get a recommendation, we will look for one online.
To be added to our spreadsheet, the contractor has to be on time and fairly priced.
We’ve taken this a step further and have shared the spreadsheet with our local ChooseFI group so everyone can access timely & cost-effective contractors. Members of the group can also add contractors that they have experience with that might not be on the list yet.
It might take months, or even years, to get your spreadsheet built out. But, having a list of preferred contractors can make the process of fixing maintenance issues much easier.
Managing Late Fees & Evictions
Tacking on late fees & evicting people isn’t fun. However, it’s something that you sign up for when you buy an investment property. If you’re running a charity and aren’t looking to make money off of your investments, then you can skip this section. Otherwise, own your shit and deal with it.
It’s prudent advice to run your investments like a business. Costco doesn’t negotiate on the price of their TV’s. Costco also doesn’t let you walk out with a TV and come back 10 days later to pay for it. Be like Costco, don’t negotiate, and don’t falter when it comes to stealing.
If you explain the rules upfront, are clear with the explanation, and firm with the execution of these rules you likely won’t have many issues. We go over the lease in detail with our tenants and explain our late payment policy clearly. Each state’s eviction process is different, so take the following information with a grain of salt. The information isn’t the important part, the clarity that it’s explained is the big takeaway.
As a Landlord, it’s your job to make sure your tenants understand the lease.
Our tenants know that on the 6th day of the month, an automatic late fee is tacked on, and that won’t be waived. Our tenants also know that if the payment isn’t made by the 10th day there will be a notice on the door.
We explain to the tenants that this notice is part of the eviction process and if they pay their rent with the late fee within the timeline posted on the door, there will be nothing further. If not, we will move forward with the eviction.
We’ve only had one eviction, and that was my fault. I was eager to have our house rented and I accepted a lower quality tenant than I should have. Outside of that, we’ve had excellent tenants, which we attribute to our selection process, clear guidelines, and unwavering rules.
Do you want to be a Landlord?
If managing properties & tenants doesn’t appeal to you, then don’t sign up to be a landlord. You can still invest in real estate in many other ways without having to be a landlord. Emily will flat out tell you that if I wasn’t the landlord, she would outsource the property management. Some people just don’t enjoy it, and that’s okay.
Knowing how to be a landlord will help if you ever find yourself managing your own property. We’ve had a property manager once, and the process was easy. However, our property manager sold their company to another group and we weren’t as thrilled about their policies & management style. Luckily, we had already been the landlord for our other properties & could take on the task of managing one more.
You never know what the future holds, and learning how to be a landlord might help you retire earlier, like us.