When 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.
- Screen well and don’t discriminate
- Make rent payments easy and automatic
- Have a rock-solid lease and stick to it
- Inspect the property once a quarter
- Be fair, honest, and make timely repairs
- Know how and when to use “notices”
- 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.
- The Landlord’s Guide to Tenant Screening
- Know What is Considered Illegal Discrimination
- Top 5 Questions that Every Renter Should Ask
- Beware of the Top 10 Fair Housing Mistakes
- Treat All Applicants Fair and Equal
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:
- Require it in the lease!
Most states allow this, except for California which requires you to allow one other method of payment (any method)
- 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.
- Getting Started with Online Rent Payments
- Ask Lucas 008: How Do Online Rent Payments Work?
- Free Property Management Software: Cozy
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.
- 2 Basic Renters’ Rights Included in Every Lease
- 7 Extraordinary Lease Clauses That I Can’t Live Without
- A Lease Must Be Fair and Reasonable
- Lease vs. Rental Agreement: Which to Choose?
- Find a Rock-Solid Rental Lease and Stick To It
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.
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.
- How to Be a Successful Landlord in 20 Easy Steps
- Tip #55: A Lease Must Be Fair and Reasonable
- How to Build Amazing Tenant Relationships
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.
- The 10 Types of Notices for Every Landlord
- Ask Lucas 003: How Much Notice Do I Have to Give Before Entering a Rental?
- The 5 Legal Reasons to Evict a Tenant
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.
- 7 Tips for Preventing Security Deposit Disputes
- How to Handle Security Deposits Properly
- Don’t Use the Deposit for Last Month’s Rent
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!