I thought this post would be helpful for anyone who is thinking of turning their home into rental property. The information here is just from my own personal experiences with my property in a LCOL area.
After 6 months of unsuccessfully trying to sell my house, I decided to put it up for rent. My parents owned rental property when I was younger so the concept was not unfamiliar to me. But I know it can be intimidating to become a landlord!
Here is the step by step process we went through…
Decide Whether to Rent Yourself or Use a Property Manager:
This was not a difficult decision for me because I moved out of state and had no one to rely on to help me make sure the house was taken care of. It would have been a burden to try to deal with renters myself from so far away. After weighing options and considering expenses, I knew I wanted to use a property manager to rent and manage the property. Unfortunately this post probably will not be too helpful for people who are going the DIY route. That is a lot more involved.
I asked two realtors we knew for recommendations and got the names of 5-6 companies from them. I also looked in the newspaper and on craigslist to see who was advertising on there. I did not know anyone else who was currently renting a property but if I did, I would have asked them for a recommendation as well.
After I had selected some companies, I called them and asked them some questions to get a feel for their management style.
Questions to ask a property management company:
- How do they advertise the property? What fees will you be responsible for in respect to advertising?
- What do they charge for their services? (ex: monthly rental percentage, fee once a lease is signed, etc.)
- How many properties do they currently manage? Can they provide references?
- How long does it typically take for them to find a tenant?
- Do they show the property themselves or do they allow prospective tenants to “check out” a key and come view the property alone?
- What income criteria do they use to consider an application approved?
- Do they conduct a rental history? If so, how involved is it?
- How do they go about handling repairs?
- Do they have their own maintenance employees or do they call a commercial company?
- Will they consult you first before making a repair or will they just notify you of the repair and the cost?
- Do they require you to keep a certain amount in an account with them to cover repairs beforehand?
- Can you specify a certain “max” amount that you approve beforehand so that they do not call you for every small repair?
- How will you receive your rental payments?
- Do they inspect the property during the lease term? If so, what do they look for?
- What is their policy regarding pets?
- How will lawn care be handled?
- Do they require tenants to have renter’s insurance?
- In the event that the tenant wants to purchase the property (and this is something you are interested in), how is that handled? What do they charge as commission?
- Will you have final say over accepting the tenant?
- How do they go about renewing a lease or turning over the property for a new tenant?
- Ask them for a copy of the lease any any paperwork they give the tenant
- Review the landlord/tenant laws in your state and make sure the company’s policy coincides with them
I found that most property managers have several different options when it comes to managing your property…
- Minimal Service: This service option was for people who wanted to use a PM to find a tenant. The PM would basically just advertise and show your property and then help you with getting a lease signed. Most said they would advertise on craigslist and/or in the newspaper but you were responsible for the costs newspaper ad. Many companies said craigslist was the best bet for finding a renter. The costs for this ranged from a set fee to 1 month’s rent.
- Partial Service Option: This option is for people who want help finding a tenant, getting a lease signed and keeping a PM company somewhat involved but do not want them to have control over every single aspect. For example, maybe you would want a PM to collect the rent but you want to handle repairs yourself- or vice versa. Fees for his varied by company and the specific services.
- Full Service: The property manager would basically handle everything that has to do with renting your property. They do everything from advertising, showing the property, conducting background/credit check, getting the lease signed, collecting rent and scheduling maintenance/repair issues. We found most companies charged for the newspaper ad and anywhere from 8% to 15% of the rent each month. Some companies had additional fees as well, like charging a 25% fee the first month.
I picked our PM Company based on the following criteria:
- I did not consider any company that did not call us back within a reasonable amount of time. If they couldn’t return a phone call then I had doubts about their communication with prospective tenants and with me when I were living in another state
- I put the house up for rent while I was still living there so I only wanted to use a company that would physically come to our house to show it. We did not want anyone letting themselves in to look at the house.
- I opted for the full-service option since I was moving at the time
- I wanted the flexibility to make some of the decisions. With the PM company I went with, I have final say on the tenant, I was allowed to pick the lease terms (I offered a lease-to-own option and would only accept a min. 12-month lease) and I was also allowed to select the financial limits with repairs- if a repair is under $200 then they have my permission to fix it without notifying me. If the repair will cost more than that then I approve it first.
- Stage your home just like you would if it was for sale. Move furniture around to make rooms look the biggest, remove personal pictures and make sure your paint colors are neutral.
- Make sure major repairs are done and things look decent but DO NOT worry about making sure the house is in tip top shape. You do not need brand new stainless steel appliances and granite counter tops when you’re trying to find a tenant. Renters will not take care of the property in the same way that you did when you lived there so some things may get damaged.
- Consider allowing pets, especially if you have a fenced-in backyard. This is a tough one because pets can do so much damage to the house. But you will eliminate a large portion of prospective tenants if you don’t allow them. I had hesitations about allowing pets but would consider it, so our listing said “will consider pets on a case-by-case basis”.
- Leave as many appliances as you can. This did not necessarily benefit me but in general this will make your property more appealing.
- Be prepared for last-minute showings. There will inevitably be a time when you are in the middle of dinner and your property manager calls you because someone wants to look at your property right then. It is inconvenient but the more you make your property available, the quicker it will rent!