Did you just buy your first rental property in the Orlando area? Congratulations! Feeling a little overwhelmed and not sure what to expect as a first-time landlord? Consider this your guide.
Trust the Process and the Experts
If this is your first venture into owning rental property, it helps to know who and where to turn to for advice. It also helps to remember that things won’t happen overnight.
Property Managers
We suggest you lean on the experts in the field, like those from your property management company. When you have questions or wonder if you should do something a different way, ask your property manager.
They’ve created a successful process that has helped other landlords like you get the best return on your investment. Instead of wasting time trying to recreate the wheel, use their experience and expertise to your advantage. That’s what they’re there for!
Many first-time real estate investors will consult their realtor, but a realtor may not be the best source of information. A realtor’s focus is on earning commissions from selling houses, not renting them.
Some realtors are experienced and knowledgeable when it comes to buying and owning rental properties, but many are not. Make sure you find out about your realtor’s experience before relying on their advice. Do they deal with investors? Do they own rental properties themselves? If so, do they focus on short-term or long-term rentals?
Whenever possible, we recommend you consult a property manager before buying a rental property. Property managers specialize in managing investment properties and are familiar with the rental market. Your property manager will be the one managing the property, so they have a vested interest in helping you find the best options.
Patience
When conducted correctly, processes can take time. They may take longer than you’d like or expect, but they exist for a reason. That means your property manager may not want to list your rental until you make certain repairs or upgrades. Or they may not accept the first tenant application they receive.
Property managers put these processes in place to protect the long-term success of your investment. After all, their jobs depend on it. So if you find yourself getting antsy, talk to them. They’ll explain why their recommendations will ultimately get you the best return on investment (ROI). Spending a little more time up front to prepare the property will likely lead to higher rental rates and a superior tenant.
The Importance of Planning
Part of owning rental properties means having to plan for a variety of situations. By budgeting for repairs – unexpected or otherwise – you don’t leave yourself in the lurch trying to figure out how to pay for them.
Conventional wisdom recommends saving 25-40% of your cash flow as a reserve for the property. Cash flow and overall portfolio are a couple factors to consider when determining your desired reserve amount. Depending on the age and condition of the property, it may be a good idea to save a larger percentage, if not all, of the cash flow to more expeditiously reach the target reserve amount. The goal should be to have the property be self-sustaining, requiring little, if any, out of pocket expenses.
Budget for Repairs
When you own a rental home, you’ll inevitably need to shell out money for things like replacing an aging roof or HVAC system. Initial inspections before you bought your rental property should’ve helped you build a list of expected repairs or planned upgrades. Consider conducting those small repairs prior to listing the property for rent and placing a tenant.
Expect Unexpected Costs
Other problems will crop up unexpectedly or your tenants will bail out early leaving you without rental income. So you need to be prepared with a contingency reserve when unexpected things happen. Because weird things can happen, like if a car drives straight through your rental property (true story!). Expecting hiccups or unforeseeable issues helps you better plan for them.
Plan for Vacancy Periods and Tenant Turnover
Vacancy periods are inevitable, so plan for them. If the property has a mortgage, it is a good idea to have at least three months worth of mortgage payments in reserves, plus an additional two to three thousand dollars. When there is tenant turnover, there are often costs required to return the property to “rent ready” condition. Make sure you create enough of a reserve to pay for any repairs during tenant turnover, as well as cover the mortgage and any repair costs during vacancy. Once the property is occupied again make sure to restore the reserves.
Use Facts not Feelings
When you stick to “just the facts, ma’am,” you take all the emotion out of decisions that can cloud your judgment.
Stick to the Numbers
Always treat your central Florida rental property like it’s a business. Take any personal issues out of the equation by just sticking to the numbers when it comes to your investment.
By treating the property as part of your retirement portfolio without all the gooey feelings, you make better business decisions. It doesn’t matter whether it was your grandmother’s house, your former residence, or a house in your favorite neighborhood.
That means setting rental rates based on comparable properties instead of what you think it’s worth. That also means making those upgrades to the old funky bathroom tile even though it reminds you of your childhood.
Tenant Stories
Potential renters will paint themselves in the best possible light on their applications. Don’t accept everything at face value. Never make assumptions or allow preconceived notions to color your decision on accepting a tenant. “Trust but verify” by always conducting a thorough background check and checking their rental history.
Interactions with Tenants
Speaking of tenants, always bear in mind that they’re not your friends (even if you’re renting to friends or family). By consistently having professional interactions with tenants, you set the tone that you mean business.
Limit Concessions
We recommend granting only one or two concessions that a tenant may request. Some will ask for things like paying the rent a few days late based on their pay schedule. Others will ask you to allow a pet or a larger pet or a larger number of pets than their lease allows.
One or two concessions, especially if they’re reasonable requests, can build rapport and motivate them to extend their lease. If you automatically say no to every request, regardless of how small, you pretty much guarantee they won’t renew. On the flip side, if you say yes to everything, many will take advantage of the situation and ask for increasingly outlandish things.
Stick to the Lease
Don’t allow multiple concessions to eat into your retirement income. As much as possible, stick to the lease language. Charge late fees. Use funds from their security deposit to cover damages they caused. You wouldn’t let a financial advisor randomly charge you extra fees for the same service. Don’t sacrifice your retirement income to tenant whims.
Go Through Your Property Manager
Most of the headaches that come with being a first-time landlord can be avoided by using a trusted property manager.
A great property manager will help you find the right rental properties and outline required repairs to get a house up to code. They can also suggest appropriate rent rates for your properties and which upgrades can help you earn more.
Property managers market your rental and screen potential tenants, saving you time and headaches. And they’ll play the bad guy for you when tenants ask for too much or balk at fees.
Actually, you never need to contact your tenants because everything flows through the property manager. In fact, we recommend against ever contacting them otherwise they’ll go around the property manager directly to you.
You don’t have to go it alone as a first-time landlord. The Realty Medics can help you every step of the way to make your new Central Florida investment property profitable. Give us a call today at 321-947-7653 or complete our online form to learn more.
