My name is Allan Madan, your trusted accountant. I am also a real estate investor in the United States, Canada, and India, and I would like to share my experiences on the best practices for property management tips with you. This article is called ‘Property Management Tips for Real Estate Investors’.
Perform Due Diligence:
The first of these property management tips for real estate investors is to perform proper due diligence before purchasing the property. While this sounds like common sense, a lot of things can be missed if you don’t plan for it properly. Some common items that you should look for when performing due diligence on a property are:
• Inspect the roof
• The condition of the electrical system
• The plumbing
• The sewer lines
I recommend that you hire a specialist in each of those areas to give you a proper and fair assessment rather than hiring a general inspector who is jack of all trades. In addition to performing a physical due diligence make sure that you also perform a financial due diligence. This entails asking the seller for:
• Financial statements
• Rent roll
• Physically examining the lease agreements
• Looking at the bank statements
Often sellers will be afraid to show you the bank statements, and if they are, stay ten feet away from that property, literally.
Rental Management Software:
The second of these property management tips for real estate investors is to purchase appropriate rental management software. For apartment buildings and larger properties I recommend ‘Rent Manager’. Rent Manager is great to produce the financial matrix that you need to effectively manage your property. Rent Manager can also provide you with an inventory listing for all of the parts and materials on hand to avoid spoilage and theft. Finally, Rent Manager is great in producing income statements so you can produce monthly or quarterly statements to analyze the profitability of your property.
For a smaller property like a four-plex or a condo, a simple spreadsheet will suffice, or you could up it a notch and use something like Quick Books which is an accounting software package for small business.
Evict Non Paying Tenants:
The next of these property management tips for real estate investors is to evict tenants who do not pay rent. Every non paying tenant has an excuse, I have heard them all, but make sure that you are tough and you stick to your rules.
If after three days they have not paid the rent put an eviction letter on their door. This is known as the three day letter and it usually scares tenants so they end up paying. If they don’t pay, it’s appropriate that you follow up with a court order immediately because there are laws on how long it takes before you can legally ask a bailiff to physically remove a tenant from your property.
Screen your Tenants:
A little work ahead of time will save you a lot of headache and financial hardship down the road by making sure that you have the right tenants in place. Some of the factors that you should look for when choosing a tenant are:
• Verify employment income. Look at the employment letter, call the employer to make sure that he or she exists, and examine pay-stubs for the amount of pay they are receiving,
• Perform a credit check. A score 700 or higher is excellent but credit scores vary depending upon the neighborhood where your property is located.
• Performing a criminal background check. You obviously don’t want criminals living on your property.
• Ask for a landlord reference letter. If the previous landlord doesn’t give a favorable reference then you know something is wrong with this tenant.
• Interview tenants to see how they are.
Think About Security:
The fourth of these property management tips for real estate investors is to invest in security to make sure that your property is a safe place to live. Consider purchasing an inexpensive security camera system. Use parking passes or think about using controlled access cards so only tenants have access to the common areas of your property.
Work with a Budget:
Tip number five is to prepare a monthly budget and stick to it. When preparing the monthly budget, make sure you compare the actual results to the budget. If expenses are higher than expected or revenues are lower than expected investigate the reason for the difference and take appropriate action.
Choosing Tax Structures:
The next of these property management tips for real estate investors is to choose the right tax structure before you purchase the property. It’s sometimes too late to change afterwards. You could choose a corporation, a partnership, or operate as a sole proprietor.
I hope you found this article about property management tips for real estate investors. For more tips and tricks please visit my website, and get access to your free report, ‘20 Tax Secrets on How to Beat the Tax Man’.
The information provided on this page is intended to provide general information. The information does not take into account your personal situation and is not intended to be used without consultation from accounting and financial professionals. Allan Madan and Madan Chartered Accountant will not be held liable for any problems that arise from the usage of the information provided on this page.