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The Real Estate Network

The Accidental Landlord

Jul. 4, 2011
Tagged with: home, house, manager, property, realtor, rental

Homeowners come to the decision to rent out their property for many reasons. If you are considering this as an option, you also have some decisions about how you will accomplish this. You may be thinking about renting your home because you want to avoid selling for a loss, or you may want an alternative to facing foreclosure. You may have an imminent move or life change and not be sure about letting go of this house. There are certainly benefits to renting our your house; however being a landlord is a level of responsibility that requires a new outlook on home-ownership. Whatever is making you consider being a landlord, and especially if you are going to be outside of physical proximity to your house, take the time to learn about the process and build a plan.

As a homeowner, you may have had a certain approach to maintenance, repairs, and improvements. While your existing approach may serve you as a property owner, it may not serve you in the same way as a landlord. For example, how your tenants use the home may be different than you. The preventive maintenance that you considered sufficient for yourself may not be for the tenant. Improvements that would be designed for your comfort may not be useful or relevant to a tenant, yet they may be necessary for an eventual resale. And while you would perhaps not mind suffering through a significant improvement such as complete window replacement, your tenant may not enjoy that. Even if it reduces the tenant's utility bill, it may cause inconvenience and create unanticipated problems. As a landlord, you will need to consider both the timing and choice of repairs or replacements, while still keeping the property functional.

Long distance landlords often have the greatest challenges because the property is not in their line of focus any longer. It is easy to go to sleep on the property needs, such as seasonally servicing the heating and cooling equipment, and then get frustrated when the air conditioning suddenly doesn't work at the first 85 degree day. People often don't plan to be landlords and when they discover that a market rent for their property can come close to covering their mortgage, there is difficulty picturing the other costs and factors for successfully managing the property as a rental. There are advantages to planning for the "hidden costs" of being a landlord. By being prepared, you can handle the challenges while still meeting your goals.

Here are a few suggestions to factor into your decision-making:

Establish Your Ownership Philosophy
  • Make a list of how you maintain your property and would like to see it be maintained during the next two years.
  • Consider your long-term plans for the property in conjunction with an accountant to ascertain how long the rental option will be beneficial to you, for your income and taxes.
  • Know what kinds of improvements could need to occur in 1, 3, and 5 years.
  • Make a basic budget and consider the financial outcomes with various net income scenarios after budgeting mortgage, taxes, insurance, costs, and fees associated with the rental.
  • Be prepared to communicate this philosophy to several management companies to find a compatible partner in the care of your property.
Hire a Manager

When you rent your property to someone, your interests may be divided between protecting and caring for your property, ensuring that your obligations are met to the renter, and keeping the financial arrangement congruent with your plans. If you're good at switching hats, enjoy a certain amount of common sense problem-solving, and live near enough to respond promptly, your chances of success as a manager are high. For most people, there are significant benefits to hiring a manager. Good managers find and lease to qualified tenants, maintain operational accounting, provide easy access to financial reports and information about the property, consult with you on serious repairs and improvements, deliver rents to you as promptly as they're received, handle problems as they arise, and ensure their work for you and your property is aligned with your vision and goals.

How to Get Quality Management

There is a natural tension between property owners and property managers that can be healthy if not allowed to turn into discomfort. The manager is the owner's agent yet may be delicately caught in the middle of tenant and owner, attempting to keep both pleased. An ideal manager continually works to keep both parties, landlord and tenant, actively working as a team knowing that the health of the asset and its ownership depend on the tenant and the comfort and safety of the home depend on the owner. Often, being in the middle, Managers get targeted as the problem.

If you want to get the best out of your manager, know your role, be a communicator, create consistent contact for meaningful updates, and respond to issues promptly.

Face the Costs & Risks

A variety of costs present themselves to property managers regularly, yet often come as a surprise to a new landlord. No one would like to see their property incur expense in each of these categories; however, as property managers we encourage owners to be prepared for them. There are many instances where costs can be reduced through planning and collaboration between the manager and owner.
  • Management fees, leasing fees, make-ready costs
  • Empty property expense (e.g., utilities)
  • Maintenance, grounds, turnover, improvement expenses
  • Eviction, or non-payment, costs
  • Emergency repairs vs. home warranty coverage
  • Reserve fund
  • Licensing and permitting
  • Taxes, insurance, mortgage, association dues

In summary, if you find yourself to be an accidental landlord, consider bringing on a partner to ensure a successful outcome. A qualified management company will learn your needs through careful listening, assist in creating a budget and plan for your property, make timely recommendations that impact the income from and value of the property, find and keep appropriate tenants, maintain the property in good condition, and handle property finances and reporting. Through this partnership and collaboration, you will be feel good about your real estate investment and be empowered to give your attention to the new growth.

Seven Sisters Group

Rockville, Maryland

We are a stellar real estate team that is socially inclusive and designed to provide a full spectrum of real estate services for our clients, success for our team, and leadership for our community.


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