Long term rental tips from a Property Manager

Matt Kelley, property manager at Remax Realty, joined my investor call this past week to discuss property management for long term rentals. This is a hot topic because of the growth we’ve seen in St Johns County and the severe lack of rentals. These are rentals that where tenants stay for more than 6 months, (generally 12 mo) and are generally provided unfurnished. Matt projects rents will continue to rise over the next year as the region struggles to keep up with people continuing to move here, and those that don’t want to buy in our current market.

But first, let’s talk about the advantages to buying long-term rentals

• Locking tenants into a long term lease. You’ll get paid the same amount each month.
• Can be truly passive if you have a management company
• Tax benefits, depreciation and expenses
• Build equity
• Hold wealth in a non-liquid asset
• Use real estate as hedge against inflation

MATT’S PROPERTY MANAGEMENT TIPS:

1. USE A REALTOR: Use a realtor that has experience with investment properties. Fees are generally paid on the listing side.
2. GO SMALL: Look for small properties. Matt recommends to stay under 1,500 sq ft. This means less flooring to replace, less painting, less things that can happen. Rent per sq ft will be higher than larger property. Buy small and buy many.
3. GO VACANT IF POSSIBLE: This is ideal but not always possible. If the property has tenants and existing leases, you must abide by it until it expires.
4. USE A GOOD INSPECTOR: Important to understand what you are buying. Check all appliances etc.
5. USE A PROPERTY MANAGER: Unless you have experience in real estate, use a property manager in your first year. You can learn a lot. Use a property manager that has been in business for a while. Ask them where the lease comes from. If they can name the attorney that’s a good thing.
6. HAVE AN ATTORNEY DRAW UP LEASES: Leases in Florida need to be drawn up by an attorney or you can get a fill in the blank lease. Speak to a property manager about the right attorneys or right lease to use. Have the property manager draw up the leases, or use an attorney familiar with tenant, real estate law and the Fair Housing Act. Tenants should be signing leases up to 12 mo.
7. ACT QUICKLY: The minute someone is late, you have to put a 3-day notice on the door. If you’re not familiar with it, use a property manager.
8. GET INCOME VERIFICATION: Ask for verification that they make 3 times the monthly rent. If they can’t afford to live in the area, they can’t afford to pay rent.
9. SET UP A NON INTEREST-BEARING ESCROW ACCOUNT: Not to ever be used for the last month’s rent.
10. AVOID PROVIDING WASHERS & DRYERS: These are notorious for breaking and creating water damage. If your W/D breaks and damages the tenant’s things you are responsible. Why take the chance? Most people don’t expect to see one these days.
11. CAREFULLY VET HOAs: Be careful buying rental properties in HOA communities. Make sure they are not going to be increase that HOA fee too quickly. Such as HOA fees at $400-$500 mo. Could make this purchase not worth it.
12. HAVE TENANTS PAY FOR ALL UTILITIES: If you have a duplex or multi family, the landlord should pay for the landscaping.

PROPERTY MANAGEMENT – SERVICES:

• Simply placement: Involves finding a tenant, marketing the property, pre-qual potential tenants, taking applications, running credit, criminal and background checks. Prepare the lease, sign the lease, collect security deposits, collect move in rents. will handle emergencies, move outs etc.
• Managed: All of the above then manage it. Handle emergencies, take rents, send landlord checks every month. Most of the work comes when they go to vacate. Use before and after photos to prove anything in court if required.

PROPERTY MANAGEMENT – COSTS:

• ReMax charges 50% first month’s rent for placement, then charge 12.5% per month. If there are multiple properties they will reduce the fee to 10% per month. If placement only, the cost is the first month’s rent.