The 7 Cardinal Rules of Property Management

Written on February 17, 2016 by , updated on December 9, 2016

The Cardinal Rules of Property ManagementWhen I first started managing properties, I made a few stressful mistakes.

Not only were they stressful for me, but for my wife, who was in fear of getting sued and/or losing the rental income that we relied on. I learned a few hard lessons, but through that fire, I saw the importance of quality customer service – even with rentals.

Allow me to share a true story of one of my more adventurous mistakes:

Years ago, the tenants at one of my properties, decided to sublet their rooms (and spare rooms) without permission, to anyone that would take them. They collected deposits from these subletters and then moved out.

The weird part was that they went to great lengths to hide it from me. In fact, when I needed to make a repair, they would insist that it was during the day when their subletters were at work. Then, they would let themselves in, and then hide the extra beds and belongings so the place did not seem like it was subleased.

When I finally noticed someone entering the house with a key who wasn’t on the lease, I realized what was going on. By that point, the lease was two weeks from ending, and it wasn’t worth terminating early. But the subletters did do some major damage, which I withheld 2/3rds of the deposit for. Worst of all, my original tenants had the nerves to sue me for the withheld deposit – claiming that “they” didn’t do it – while refusing to return the deposit to the subletters.

On the bright side, the Judge saw through their lies and dismissed the case, and I wiped my hands clean of it.

To my original point, being a property manager can be difficult at times. But I do believe that if you learn some basic best practices, you won’t fall into these traps.

The 7 Cardinal Rules of Property Management

The good news is there are really only seven “Cardinal Rules” for successful property management (in my opinion) and I believe that if you adhere to these best practices, it will put you above 99.9 percent of other managers, and help to ensure your success.

  1. Screen well and don’t discriminate
  2. Make rent payments easy and automatic
  3. Have a rock-solid lease and stick to it
  4. Inspect the property once a quarter
  5. Be fair, honest, and make timely repairs
  6. Know how and when to use “notices”
  7. Only withhold the deposit for actual, itemized damages

1. Screen well and don’t discriminate

I believe you can eliminate 90% of your potential issues by setting high standards and screening applicants thoroughly. But in order to accomplish this, you must have a structured screening process that doesn’t discriminate against any of the protected classes.

Related: 

2. Make rent payments easy and automatic

In my 10+ years managing properties, the action that has improved my business the most is offering (and requiring) tenants pay rent online.

In fact, having worked with hundreds of tenants in 10 years, I’ve only had 2 late payments after switching to online rent payments.

The key to successfully using online rent payments is:

  1. Require it in the lease!
    Most states allow this, except for California which requires you to allow one other method of payment (any method)
  2. Use a reputable online rent payment company.
    There are dozens of companies that will help you collect rent online, but most are complete rubbish. Depending on your portfolio size, I suggest sticking to Cozy or Appfolio.

Related:

3. Have a rock-solid lease and stick to it

If it’s not in writing, then it doesn’t count.

Your ability to be successful is highly dependent on the strength and fairness of your lease. If you don’t use a written lease, then I want to encourage you to change your ways. Even if you only want to do a month-to-month arrangement, it should still be in writing.

Eventually, a tenant will attempt to punch holes in your lease, and if you didn’t invest in a high-quality lease designed for your state, then probably won’t be able to defend yourself. If you don’t have one, check out our recommended state-specific lease providers.

Related: 

4. Inspect the property once a quarter

If you’re too busy to inspect a property at least once a quarter, then you are too busy to be a property manager.

Usually, there is some sort of repair or issue, or regular maintenance item once a quarter that needs my attention. Even if I hire a contractor, I still like to follow-up on the work, to ensure it was done properly. Doing so gives me an opportunity to inspect the entire premise.

Related: 

5. Be fair, honest, and make timely repairs.

Whether you operate a maid service, build homes, run a law firm, or make the best gluten-free bread on the planet – every successful business knows that quality and trust are the cornerstones of customer satisfaction.

As a property manager, if I am fair, honest, and make timely repairs, I will be able to retain residents for longer periods of time, and be able to command more rent for my rentals. It’s really that simple.

Related:

6. Know how and when to use “notices”

As certain are death and taxes in this life, so are the requirements for proper notice.

Proper use of notices, above all, is the most common pain point for landlords and managers. Every state has their own requirements, and quite frankly, it’s a hassle to give “proper notice” before visiting the property, or terminating a lease. But, as certain are death and taxes in this life, so are the requirements for proper notice. Don’t skip on it – you’ll regret it.

Related:

7. Only withhold the deposit for actual, itemized damages

Occasionally, something bad will happen. Perhaps it’s a tenant who fails to give proper notice of leaving, or maybe he abandons the lease completely, leaving you with 2 month’s of unpaid rent.

It’s so important that you only withhold the deposit for actual, itemized damages (material or financial). This can be rent, late fees, or the cost to make repairs to excessive damages.

You can’t withhold a deposit just because you are mad, or because the tenant found a loophole in your lease. You need to be able to prove the damages with receipts or a contract/lease.

You can’t “double dip” on the rent! Do the right thing!

Most importantly, you can’t “double dip” on the rent. For example, if a tenant fails to give proper notice when vacating, you could hold them responsible for the rent until “proper notice” is fulfilled. But if you find a replacement tenant within a few days, then you can’t keep the new rent AND the former tenant’s deposit – simply because you can’t claim any actual damages (other than a few days of vacancy) since a new tenant started paying.

Related:

Summary

Obviously, property management is more complicated and involved than these seven rules, but following them will put you above 99.9 percent of other managers, and help to ensure your success.

Good luck to you, and please let me know of any other “Cardinal Rules” that you follow. Speak up in the comments below!

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19 CommentsLeave a Comment

  • George Curtin

    Great advise! Now, just have the will and determination to stick to these rules that Lucas has given you

  • cindy fetch

    As a brand new landlord of 3 properties, Landlordology has been a godsend! When attempting to verify the rental history of one of my applicants. I was asked if I had a rental verification form and also if I had written permission from my applicant for them to speak with me. This was something I found discussed on the site and thought I would share.

  • Belinda

    This is very helpful..I want to rent rooms in one of my rental..and I want to know if you have some helpful advice..I do have someone on the premise to keep order..and maintance..and collect rent

    • Lucas Hall

      Hi Belinda,

      Renting a room is similar to renting a whole house. The basic advice applies:
      1. Use a written state-specific lease
      2. Collect rent online (use http://www.cozy.co)
      3. Don’t discriminate against applicants

      If possible, consider NOT renting rooms separately. It’s more work than if you just rented the house as a whole, but to a group of roommates. That way, they figure out the room situations, and they pick their own roommates – but they are still under one lease. You’ll make just as much money doing it this way – with less drama.

      I talk about my experiences here in episode 63: http://rentalincomepodcast.com/

  • Ali

    Hi-

    Wanted to share the following article with the folks here as how the Tenant changed the lease without Landlord noticing anything. Stresses the fact that when you send the lease over to Tenant for review then don’t have them print the lease. Bring your own printed copy. If you are expecting tenant to sign electronically then make sure to protect your lease from any edits.

    https://www.yahoo.com/news/tenant-sneaks-very-important-clause-181109596.html

  • Kerry Jamieson

    Hi Lucas: PLEASE HELP! My tenant passed away unexpectedly six months into her one-year lease. She didn’t pay her April rent, so I applied her “last month’s rent” deposit towards April. Her son is currently moving all her property out. I want to help out her son (who is also her executor) by breaking the lease and getting the place re-rented. BUT WHO PAYS THE REALTOR’S FEES TO MAKE THIS HAPPEN? Nobody anywhere online has addressed this question. I don’t feel I should have to pay the $1,650 to get it listed with a realtor when I just paid that amount six months ago. Should I just bill it to her estate (in this case her son)? I know he isn’t personally responsible for the debt but her estate is. We live in Florida…
    Thanks,
    Kerry J.

    • Lucas Hall

      Hi Kerry,

      Who says you need to use a realtor to lease your place. A realtor is quite possibly the MOST EXPENSIVE way to get a place rented. With a little training and a good tool, you can list your property yourself and collect applications.

      I suggest using Cozy (https://cozy.co) for listings and applications (it’s free), and checking out some of the old webinars we’ve hosted: https://www.youtube.com/channel/UCf4mou7WSI8vMciJO9Uh9vQ

      At the end of the day, you can likely hold the tenant’s estate responsible for any financial damages, but I strongly urge to talk to a lawyer re: the best way to approach it.

  • Sandra

    I think that the most important thing about being a property manager is keeping your residency clean and proper. If you let damages go un-repaired or you don’t take care of the property, not only will you lose your original tenants, but also others that might want to move in. Be aware and be on the ball with repairs. Thank you for letting me read.

  • Justin Knox

    Thank you for the list. I am trying to help my father find a property manager and am learning more about what to look for. I like the idea of checking the property every quarter, as you mentioned. Do you think that most property management services would check in that often?

  • Jac

    I know as a tenant of a rented property, I think it’s important to get timely repairs done. There was a time that I went weeks in the middle of the summer with a broken air conditioner. It was a terrible experience. Thank you for sharing!

  • Mark David

    Thank you for sharing details. Whenever the property or room is given on rent to anyone, we should should do few thing.
    1. Ask his/her details information
    2. Take their ID proof.
    3. Make 11 months Agreement with them.
    4. If he or she is student and going to stay alone then take their parents number and call them to take more detail information.

    This will help for everyone before giving room on rent.

  • Braden Bills

    It makes sense that you would want to keep these rules if you are managing a property. It’s important to inspect a property every once in a while! It would be bad if you didn’t, and it ended up having irreparable damage.

  • Portiqo

    There are many risks and worries that come with renting out a property , These are some really useful tips to on how to deal with any problems and how to prevent any issues in the first place. Very well written , will help a lot when putting a property up for rent.

  • Pam Lassila

    One of the biggest things to having an effective and good company is to make sure you are hiring dependable employees! They are the business so if you have good workers, you have a good business. Your property manager should be in charge or at least helping with that.

  • Portiqo

    These tips are quite helpful as you have personally experienced the mistakes one probably does when it comes to renting a property. All your pointers are relevant and will be very useful for all property managers/ owners. We at (https://www.portiqo.com/) make sure that these things are taken care at every level.

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