By Paul Branton, Director of Investor Services for Home Rental Services
What is the most critical part of making rental investments work? OCCUPANCY.
Tenants (well qualified tenants) are the key to making rental investments work.
It may seem like an obvious answer because without the tenants, who is paying all the bills? That being said, I have often witnessed property owners not really considering all the costs of vacancy, turnover or poor quality tenant placement.
So now you’re probably asking, “How do I place a quality tenant and limit my vacancy/turn costs?” Well, it should come as no surprise that I would highly recommend hiring a well-qualified property manager.
We’ve all heard the key to buying real estate is: location, location, location. I would suggest that the key to a successful rental property is: property management, occupancy, occupancy.
Hire the best property manager and let them handle the rest.
What do I mean when I say let them handle the rest? If you are currently managing your own rental property (or properties), ask yourself if you’re successfully handling these five things:
(This is not even close to an exhaustive list.)
1) Improve the Property to Attract Market Rate Tenants
If the property is under market and looks like it is not cared for, it’s quite likely that tenants will either not want to live there (vacancy) or if they do, they will not take care of it. (turn costs)
2) Set the Appropriate Rental Rate
If you incorrectly price the property, you either lose money by leaving some on the table with it leasing too quickly or by way of it sitting vacant and not leasing quickly enough. It’s a delicate balance.
3) Screen and Qualify the Tenants
This is incredibly important. It’s not as simple as reviewing an application, credit check and paystubs. Think about how many scam calls you get a week. While you can easily block or decline those calls, its not that simple with applications from scammers. Fair housing laws require each applicant be treated equally, so you must have a procedure to follow and be diligent in following this process.
4) Be Reasonable with Rental Rate Increases
As with setting the appropriate rental rate I mentioned above, it’s a balance. If you push for too much of an increase, you risk the tenant moving out. That may cost you more than if you’d renewed, even at the same rate. However, if you don’t seek an increased rate at renewal, or too little of an increase, you’re probably lessening your return on investment due to the increased costs related to taxes, insurance etc.
5) Respond Quickly and Courteously to Maintenance Issues
This is huge. If you think you can get away with a cheap fix, getting three quotes or taking weeks before correcting a problem, you shouldn’t be surprised when a tenant doesn’t want to renew.
Outside of having the best property management team on your side, your success hinges on the difference between occupancy and vacancy. This can make or break your bottom line.
If you implement the above approach, you will have a better rental investing experience! If you don’t have a property management company currently, we would love the chance to guide you and help you. Please give us a call!