Quote from @Jason Strauss:
I am moving out of my primary residence of 5 years, and transitioning it to a rental property. I've already hired a full-service management team who will provide turn-key management. I've begun keeping receipts on upgrades, fees, etc... to be prepared for tax time. They will be filing my 1099 for me to the IRS.
In general, what tips and recommendations do you have that I should keep in mind in my first year of renting, and for a first time, hands-off landlord?
Congrats Jason! I made the same transition myself. A couple of things I would add / recommend.
1) We created an email address specifically for the rental, which helps my wife and I keep track of the expenses because of 2. You don't necessarily need to, but we found it helped us keep things organized for end of the year taxes.
2) Consider paying for preventative maintenance. We pay for a biannual inspection for $250 a year. A company comes out twice a year and inspects the AC and replaces the filter (very important if in a high temperature area), inspects the plumbing and electrical, and provides feedback regarding any potential issues. I send a 6 pack of AC filters twice a year. We also provide pest control and chemical lawn service. I would not say those things are necessary, per say, but we make enough cash flow that it's worth the expense imo to make sure it gets handled.
3) Make sure your PM does a good job documenting the property (with pictures) on Move-In inspections. This is very important on the back end if you have to impose claims against the security deposit (at least in Florida).
4) Read your management agreement thoroughly and know the cancelation policy. I have a client currently dealing with an awful MA with his now former PM company. His tenants had to move out for him to terminate with them, OR, he had to continue paying management fees while those tenants were in place. Long story short, great tenants had to move out because of the PM. (Yes, he's been dealing with an attorney regarding the situation)
5) Have a good CPA who knows the ins / outs of real estate investing so you can lower your tax liability.
6) A good tenant is the most valuable thing IMO - take care of them. Good tenants typically take care of the property and stay longer. If you look at Zillow's Consumer Housing Report, most tenants stay 3-5 years in a property. In my experience, when we have tenants move out after 1 year, it is almost always the properties with the owners who fight every time there is a maintenance issue or something that needs to be addressed. My tenants have actually saved me money resolving issues for me.
7) Know / learn the costs of things. For example, if you know how much painting should cost (price per square foot) then when it's time to pay for repairs you are ensuring you do not get overcharged.
8) Plan for vacancy and unit turn and have a reserve (unless you make enough money that you don't need it). Depending on your PM's unit turn process, property will likely be vacant 1-2 months before you get the next tenants. Average unit turn cost is $2,200 in our area. If you have 2-3 mortgage payments + $2,000-$4,000, you would not likely have to come out of pocket during unit turn. Then take the next tenant's cash flow, replenish the reserves, and keep moving forward.
If you ever have an PM related questions, feel free to DM me!
