How to bank 10% without raising rents. (& make happy tenants in the process)
How is this possible? Simple. Drop your property management company. It is easier than you think. Here’s how to do it successfully.
About two months before your lease renewal, notify your current property management company that you would like to manage the property solo.
fear is not a good thing
Brace yourself: The property manager has a vested interest in keeping you fearful about: ‘unspoken’ hassles of dealing with tenants, property upkeep, and needing to be ‘geographically close’ in the event of an emergency. The reality is that, except for tenant-turnover, property management is quite similar to Tesla’s autopilot feature. The majority of the time the rent check comes in, and no action is required. The 10% monthly premium you pay your management company is nearly always 100% profit.
Scenario 1 – your tenant’s renew and the property is in relatively good shape.
- Generic leases (and renewals) pdf files can be located online, at no cost. Download, edit, digitally sign and send this to your tenant’s email.
- Edit your lease so that your tenants pay directly through Zelle, PayPal or Venmo. All three are free, provide privacy to your bank account, notify you immediately upon payment, and some direct deposit into your account within seconds. Do not accept cash. Tenants without credit can convert cash into PayPal at local 7-11s.
- Purchase an annual home warranty for about 300-500 dollars, depending upon what appliances you wish to cover (Baron strongly recommends the higher options for HVAC and septic systems.) Set it up so the tenants call the home warranty company for all repairs, first. Many companies also cover key locks, initial roof inspections, and plumbing issues. Give the tenant a copy of the warranty. Let them make claims. You may need to pay a deductible or copay for each claim, but this is only after the issue is resolved.
Over the years, Baron received tens of thousands of dollars of new appliances, HVACs (including roof installation costs) and new plumbing. This cost is tax-deductible. You’ve also eliminated numerous tenant complaints through a warranty while simultaneously increasing their satisfaction. If you have long-term rentals, home warranties provide you with a prompt response and ‘fair’ estimate for items that are not covered—saving you the hassle of locating a repairperson and getting estimates.
Once, after numerous years and numerous property experiences, a warranty company non-renewed a property This resulted after many frivolous claims during a year. I visited the property and, can verify they were unnecessary. An example tenant was not happy with the temperature of the refrigerator. They wanted everything ice-cold in the non-freezer section so that it frosted inside. Even after the company repaired the issue 3x, and verified the base-cooling unit, the tenant’s persistence ultimately succeeded in annoying the warranty company enough to non-renew. The good news is that there are many warranty companies with boilerplate policies. I also subsequently non-renewed the tenant, encouraging them to leave before the term date (without penalty to hasten their departure).
Have tenants text you instead of calling. The most common text message Baron receives is that the tenant will be late on the rent.
Should you desire anonymity, purchase a $15/for 6-month Skype phone number for this purpose. If they call and leave a voice mail, it is saved on their servers until you retrieve it. Tenants feel empowered if they are able reach out to you, the decision-maker, quickly.
Most property managers have a side-deal with late-paying tenants. As a landlord, you will not see this money. When tenants are late, they may need to pay the extra money, unseen directly to the property manager. You will never know about this. When the property manager pays you on the 15th or 20th, the secret transaction has already taken place between the two parties, but you receive only your normal 90% cut of the base rent. Property managers will often say they need this 15 – 20 days to ‘process personal checks’. – Sometimes property managers also charge you to direct deposit into your account, profiting from these small-dollar transactions as well. (link)
Next month – Scenario 2 – Your tenant’s departure is expected, and you need to inspect & re-tenant.