How to Easily Manage Rental Properties From Out-of-State
For most investors, managing rental properties from out-of-state seems daunting. However, with some orginization and a capable team it’s actually a very fulfilling role. I currently own several rental properties in Florida while living in New York. I purchased these properties sight unseen, but that’s a story for another time. Many newbie investors see that we manage our properties from out-of-state and want to know how that’s possible. The truth is there’s not much of a difference from managing properties that are in your area or further away. Just last week the toilet in one of our properties was overflowing when the tenant took a shower. Our handyman had to unclog the pipes that were outside the property. Would I have done that myself or even want to spend the time doing that? No. Unless you’re a very handy person that enjoys and knows how to fix everything from plumbing to electrical and have the time as well, you’re going to hire people to fix things for you. There are a few things that I could do myself to save some money like change the locks on the property, paint, and clean, but for most issues I would still hire someone to fix them. The most important factor of managing properties succesfully from out-of-state is building a great team that you can trust and communicating with them to get things done properly. Let’s now walk through the process of how we place a new tenant in a property, set up the rental payment process, ensure the tenants will maintain the property to high standards and how we go about renewing a lease.
1. Place a qualified tenant in the property
The easiest way to have a tenant placed in a property when managing out-of-state is to have a property manager list the home and find a qualified tenant. Once the property is occupied, we take over the managing responsibilities. We could try and place our own tenants to avoid paying a placement fee (usually one month’s rent), but the property would not get the exposure it needs to be filled quickly. A listing agent will post the property on the MLS, so any agent that has a client looking to rent a property could propose your property and both agents (our listing agent and the tenant’s agent) will receive a split commission. Now we have multiple agents working to fill our property. If we would have posted the property on a free site like Craigslist the property would have limited exposure because real estate agents are not looking on those sites since they won’t receive a commission when their client signs the lease.
A listing agent is well worth the one month’s rent charge and will perform the followings tasks:
• Take pictures to market the property
• List the property on the MLS, offering other agents a chance to earn commission if their clients enter into a lease agreement
• Answer calls and show the property to interested parties
• Receive applications and run background and credit checks on the applicants; i.e., vet the applicants
• Suggest the most qualified applicant to occupy the home
• Have the lease signed by the new tenants (It’s best to use your own lease for all of your properties for consistency and your lease can be used for renewals as well)
• Receive the security deposit and first month’s rent from the tenant
• Perform the move-in inspection with the new tenant
• When the tenant moves out perform the move-out inspection
We started building our out-of-state team first with our real estate agent. One of my sister’s best friends happened to be a real estate agent in Jacksonville. She introduced us to many of the people who are now on our team including our listing agent. We let the listing agent do the hard work of finding and placing a tenant and we take over once the new tenant is in place. Don’t get discouraged if you don’t know anyone in the business. After a year, our agent changed businesses and we had to hire a new agent. We looked on LinkedIn and after interviewing several agents we found a local brokerage that has been in business for over 30 years. They referred their top property manager and he’s been an amazing sales and new listing agent for us!
2. Communicate with the newly placed tenant upon move-in
Once we have a new tenant in place, we send them a welcome letter. This is a simple letter giving the tenant a warm welcome to their new home, provides our contact information, and rent payment instructions. I’m happy to share this letter with you. Just send me a message if you’d like to see it.
In our case, we have our tenants take care of the lawn maintenance but we take care of any pest control issues and provide air filters. We have learned that some people are perfectly fine living with roaches and we don’t want to jeopardize our assets by letting them run them down with pests. When tenants have pests and they don’t have to pay to get rid of them, they are more willing to call you to get it handled. We also provide air filters for the same reason. Tenants aren’t going to spend money to maintain your asset. If you send them air filters and ask them to replace them monthly to ensure the air quality in the home is high, they are likely to stay on top of this. It’s a cheap way to keep your HVAC system running smoothly.
We also include in the letter instructions on how to communicate with us. For non-emergencies, we ask them to email us and they will receive a reply from us within 24 hours. For emergencies where they need help right away because of an injury or are in immediate danger the tenants are instructed to call 911. Otherwise, they have our phone number for emergencies for any maintenance issues that need to be resolved within the same day. Google offers free phone numbers so we picked one with the area code that our properties are located in. This way the tenants won’t have my personal cell phone number.
3. Set up your rental payment system
When we acquired our first property, I was set on accepting paper checks because it would be cool to get a check in the mail. It was a physical reminder that we were landlords and receiving passive income! Our very first rent check actually got lost in the mail. It finally made it to us a few weeks later in a large envelope with a message from USPS with an apology for the delay. So we decided to have our tenants pay rent via Cozy.co. It’s a free online platform designed for landlords to manage their properties and collect rent payments. Tenants can make online payments with their bank account with no transaction fee. If they pay via a debit or credit card, there is a small transaction fee. Cozy also has a section to record any maintenance issues and track the resolution process. Cozy has many other features as well, such as allowing you to upload the signed lease and your tenants to share their renter’s insurance. If you don’t like Cozy, there are many other free options out there. We also allow our tenants to pay via Zelle if they don’t want to sign up to Cozy. We still enter in payments in Cozy even if they don’t use it to pay, but to record the transaction. The point is to make it as easy as possible for your tenants to pay you, without dealing with the hassle of lost checks.
4. Put in place routine maintenance procedures
Aside from sending our tenants a year’s worth of AC filters to change on a monthly basis, we also have a company do a bi-annual cleaning. This costs about $100 a year. They inspect the unit, clean it, and report any issues. This makes sure your HVAC lasts as long as possible. We found our AC company by doing an online search and calling several to compare prices and services. We did the same with our pest control company. When a tenant reports any issues with pests, we call our pest control company and set up a quarterly maintenance to ameliorate the issue. It costs around $85 per quarter. If you decide to handle the lawn care, there is a great site called yourgreenpal.com, which allows you to get multiple bids from local lawn companies then schedule service, receive pictures of the work performed and make payments all through the site.
5. Take care of your tenants
You want your tenants to stay for years to come, right? So take care of them. It’s simple. Every tenant we have inherited has told us the same story about their previous landlords delaying handling maintenance issues and having to ask many times to have it resolved.
We take care of any issues immediately to show tenants that we care about them and our properties. When a tenant reports a maintenance issue we reply to them as soon as possible that we are on top of it and the issue will be handled. It’s important to have several good handymen in place to handle issues immediately since they tend to get busy. We met one of our handymen through our original real estate agent. A good way to build up a team is by asking the people who already work with you for referrals.
When a tenant emails about an issue it’s important to follow up with questions to get as much clarity as possible before sending your handyman out there. If the toilet is backed up ask, “when did it start and was anything flushed in the toilet that shouldn’t have been?” Then send the handyman out to the property to look into the issue and provide a quote for the repair. If the tenant reports things which don’t need to be fixed, still reply respectfully explaining why this issue does not need to be addressed. For example, our third property has an older wooden fence surrounding the backyard. The tenants wanted the entire fenced replaced. Instead we replaced the older broken panels extending the life of the fence. Replacing the entire fence was not an expense we felt we needed to take on at that time so we kindly replied that we would repair the broken panels and may look into replacing the entire fence at a future date.
Lastly, in order to keep our tenants happy and feeling valued we started sending holiday cards around the holiday season and thanking them for taking care of our home. We also included a $50 restaurant gift card. This went a long way with our tenants!
6. Create policies and stick to them
We have a policy that if a tenant pays on the 6th day of the month, they are charged a $100 late fee and a $5 per day late fee after that. We call or email them right away the day they are late. Even a great tenant can eventually pay late once or twice due to personal situations. As long as a tenant communicates with us we will work with them on payments, but this does not mean we will offer to waive the late fee. If a tenant did ask to waive the late fee and they were never late in the past we would do it once, but we would be strict saying it is a one-time exception. If a tenant says they will pay on a certain date and they do not pay or communicate with us about it, we go ahead and place a 3-Day Pay of Vacate Noticeon their door. Be sure to read up on the laws in your state on this or hire a lawyer to ensure you are following the law for this situation. Since I am out-of-state I hire someone on TaskRabbit to post the notice for me on the front door which typically costs about $25.
Stay strict on receiving late fees if your tenant pays late. This should eventually make them start paying on time. If you place a notice on their door and they don’t pay or vacate by the 3rd day then proceed with the eviction process. We used the closing attorney from our first property, who was a real estate attorney, to do our first eviction. He is extremely knowledgeable and helps us with any questions we have. I know it may seem like a difficult endevour to evict a tenant but trust me when I say it’s better to evict them and move on rather than deal with the headache of chasing the tenant every month for rent. If you have a tenant that continually pays late every month and you don’t want to deal with the hassle simply tell them prior to the end of their lease term that you will not be extending them a lease renewal. Let them know that they will receive their full security deposit back once they vacate the property on time and after the move-out inpsection has been conducted. Again, put policies in place and stick to them. This is a business, not a hobby, and you need to protect your assets.
7. Renew the lease
Put a reminder on your calendar for 60 days prior to the lease expiration date and contact the tenant asking whether they will be renewing their lease. Hopefully they have been great tenants that you want to keep and they want to stay! The reason I said to use your own lease was so that when you renew a tenant’s lease you don’t have to pay the listing agent to use their renewal lease again. I used the lease for my state from BiggerPockets. They provide leases written by attorneys for every state. I use EverSign to get the renewal lease signed online. EverSign is free for up to 5 documents per month. If your tenant does not want to renew, then start the process over again.
Being a landlord is not for everyone. Some investors want to be passive and not deal with potential headaches that come with being a landlord, and that’s perfectly okay. But if you do want to manage your own properties then I hope this article has helped you. You’ll learn your own managing methods along the way and what works best for your situation. New investors are scared of the stereotypical 3 AM call about a broken toilet, but once your team is in place the problem can quickly be resolved by making a phone call to one of your vendors. If you placed qualified tenants then receiving monthly payments on time should not be a problem either.
So there you have it. Start managing your properties and be sure to take care of your tenants as you would want to be taken care of yourself if you were a tenant. As always, feel free to reach out to me with any questions.
Happy rental property hunting to all, and thanks for reading! Feel free to ask any questions you have about rental property investing or real estate, I’ll try to answer as best as I can.