How to Win with Tenants and Property Management

How do You Win with Tenants and Property Management?

It seems to be an obvious question, but what I have found is there are many moving parts to this answer and the devil is always in the details. Why are tenants and property management such critical factors in rental real estate? They are critical factors as they play such an integral role in investment real estate, and in my experience not everything goes according to plan. That even goes for those strategies that may not include the idea of renting out a property.

So many TV shows feature short-term Fix and Flips (focused on capital appreciation), but there are very few shows that talk about the strategy of holding investment property for the long term (focused on cash flow plus appreciation). Why? Because a long-term, buy and hold for cash flow strategy doesn’t have the same drama as the Fix and Flip shows. Long term, buy and hold properties are usually held for a decade or more in order to realize the financial gains.

For investment real estate, they say you make money the day you buy. But what does that really mean? In my opinion, it means buying the right property, in the right place, at the right time, for the right price. This may well be true, but you need to be able to afford to hang on to the investment property to reap the financial rewards. This issue becomes more pronounced in a market that has down turned or when you’re pursuing a long-term strategy.

As we know flips really work well in markets where the conditions favour the seller. The challenge is if the market conditions change, then you may be required to change from the flip strategy to a buy and hold strategy for the property. Switching to this longer-term strategy can work well in a consistently tight rental market like a Vancouver. The property’s rental income may not completely cover the required cash flow, but it should cover most of the carrying costs for property. If the intended flip property is in a market that has a higher vacancy rate or has the probability of larger rental vacancy swings it can become problematic. So, even for a fix and flip property it is prudent to have a buy and hold back-up plan to be able to weather changes in the market and still be able to realize a return on the investment.

This leads me to my main topic which is the significance of having a good grasp on what I think are the two critical factors, beyond the property itself, for successfully maintaining your investment real estate property – managing tenants and property. Tenant and property management may be dealt with through either self-management or professional management.

One helpful philosophy I have learned and lived by over my 25 years of real estate investing is “Do what you do best and delegate the rest”. This leads me to how to deal with tenants and property management from a completely hands-on approach to a hands-off approach.

Managing Tenants

Tenants are your “Golden Geese” and they are critical to you having assured cash flow, which enables you to hold on to your property during a fluctuating market and to achieve a positive cash flow/return on investment in the long term. Ideally, you want to have happy Golden Geese (reliable, long term tenants) that are “laying” monthly golden eggs (paying rent). To achieve this, you need to have the right tenants for your investment property and for you:

• Know yourself well enough to recognize the tasks you are good at, or at least are willing to become proficient in when it comes to managing tenants.
• Determine what you’re motivated to do and what you’re not motivated to do.
  • Create a grid of your Strengths and Weaknesses with respect to managing tenants and owning an investment property
    • Overlap that grid with “what do you like to do and don’t like to do” when it comes to owning investment real estate.
  • This will help you clarify what you will do and what is best to delegate or hire someone else to do.

Tenant Management Tasks to Consider when Self-Managing

Advertising

• Attracting the right tenants in the first place is an art as well as a skill – if you don’t have the proper skill set, get help with this task as attracting the right tenants for you and your property is a key front-end investment.
  • What type of tenant do you want? Write an ad that caters to those characteristics.
    • Your rental ads need to be noticed and targeted to your preferred type of tenant.
  • People are emotional and, in most cases, visual. I find rental ads are most effective when I paint a picture in words − when I am descriptive and give potential tenants a positive feel for the property that appeals to their experience and senses.
    • Advertise where the tenants are looking, which for many it is online. Some of the more popular sites in Canada for rental searches are Kijiji.ca, Padmapper.com, rentboard.ca, rentfaster.ca and craigslist.org. Don’t forget a picture can paint a thousand words.
  • Meeting and screening tenants, what verification processes do you do?
    • Proper screening is critical to obtaining good tenants.
      • Ensure that you have the time and capacity to interview and screen potential tenants.
      • Ask questions about them, what they like don’t like, what they do on days off etc. Be interested, as they will be living in your home/property and you want to find a good fit.
      • It is always easier to avoid the wrong tenant before rather than after they move in.
    • Have a good application process/form in place that includes information you need to know and that works well with your tenant agreement.
      • If you don’t have a good tenant application form, there are resources online where you can purchase the various forms; many are province specific. Another resource is consulting your provincial or state residential Tenancy Office or Branch.
    • You need to know:
      • how to get a proper credit check done
      • how many people are going to occupy the property and whether they have pets
      • who is responsible for paying the rent
      • whether they have tenant insurance (You want them to have tenant insurance and you can make that part of your lease agreement)
      • how to check their references – employment and previous landlords (not just the immediate past landlord, but at least two to three previous landlords)
        • Call and verify ALL references – sometimes a reference can be someone other than who the potential tenant has indicated
      • If you feel you want to self-manage and that you would like a professional service to conduct these steps for you, there are services such as TVS in both Canada and the US.
    • A proper tenant lease agreement should be in place before you even begin to screen tenants. Be prepared, as this is a business not a hobby.
      • Ensure it has the clauses that you want in place to protect yourself and your property.
      • Be clear about what access you expect to have to the property; what will happen if the rent is not paid, or if there’s damage to the property.
      • Be clear as to when/how/who the tenant should contact with property issues or problems such as plumbing leaks or appliances that aren’t working.
      • Each province in Canada usually has access to a free basic lease agreement that you can use as the starting point and then add to it, or you can again purchase these usually provincial specific forms online.
    • Move in inspection and move out inspection
      • Establish a consistent, thorough process that should include:
        • photos that demonstrate the condition of the property and have tenants sign the photo pages as part of the move in process
      • Be clear about expectations on both sides, and if any exceptions are negotiated ensure that they are in the tenant agreement – don’t rely on a “boilerplate agreement”.
      • Conduct the inspections with the prospective tenant.
      • Get everything in writing.
    • Tenant Welcome Binder
      • Include neighbourhood/community amenities – particularly if the tenant is new to the area.
        • In a slow rental market, you might want to include an incentive such as a community centre pass, gift certificate for dinner, etc.
      • Include manuals and/or use instructions for HVAC systems, appliances or other features of your property – establish an expectation that the tenant will comply with the proper use of such items/systems.

Tenant Management Tasks to Consider when Hiring a Professional Property Management Firm

Just because you decide not to manage the property yourself for a multitude of reasons, the same issues apply in attracting the right tenant for your property. You definitely want to understand their processes, so it warrants you asking similar questions of the potential property management company or candidate about the following:

• Advertising: where, what, how, and when do they advertise
  • Get examples of current advertising
• Meeting and screening tenants. What verification processes do they use?
  • What are the processes at all stages of this step?
  • How do they conduct verification of reference checks?
  • What is actually involved in their move in and move out inspections?
  • If possible, get a copy of the forms they use so that you know what is there
• Lease agreements:
  • Does it include all the clauses or stipulations that you want; are you comfortable with the agreement?
• Tenant welcome package: Do they provide one and what’s included?

Managing your Investment Property

Property management can be the Achilles heel of holding properties for the long term, but establishing a thorough, routine process for property management whether you’re doing it yourself or working with a professional property management (PM) company can help you protect your long-term investment.

Property Management Tasks to Consider When Self-Managing

Managing a property is a component of owning investment property that can cause you to experience discomfort and/or pressure. It is vital to your success to know your own thresholds for dealing with a variety of management issues especially when they may not go according to you plans.

• Repairs and Maintenance: what are you capable of doing or want to do.
  • What is your turnaround time from receiving a tenant request to its resolution?
  • Have a list of qualified reliable trades people, ideally you want at least two for each discipline in case one is not available.
• Conduct regular inspections as outlined in your tenant agreement and ensure items are addressed promptly.
• Feedback from tenants: When you’re managing the property directly, have a method of obtaining direct feedback from your tenants at least once or twice a year.
• Monitor your property’s vacancy length (i.e., turnaround time for the property to be re-rented).
• Have an established routine for turning over the property between tenants. This is often the best time to do more invasive repairs and maintenance; remember to think beyond cleaning carpets and painting walls.
• What is your tenant retention service or program? Identify what things or services can you do to retain your tenants.

What to Consider when Working with a PM Company

Consider what services you desire from a PM company and whether you’d like a large company or a smaller more personalized service. Be clear about your expectations as you may not be ideal for them and it is better to establish a good working relationship right from the start. Ideally, and in my experience hiring a company that has only or mainly operates in the community in which you own is best, because they have a reputation and stake in that community.

If you decide to work with a professional PM company, then do your due diligence, just as you would for tenants:

• Interview a number of companies (ask friends or fellow investors for recommendations),
• Check references, if possible check with owners and/or tenants in properties managed by a particular PM company,
• Ask about their systems and procedures for collecting rent, paying you, for routine maintenance, etc.
• Understand how they will communicate with you routinely and in emergency situations,
• Ensure they have a schedule for routine inspections of your property and that they provide a written report, review the inspection report to see if meets your expectations
• Understand what you’re responsible for and what they’re responsible for,
• Have a contract in place and understand what’s in it; know what you’re paying for,
  • What are their fees for rent up, rental management, repairs and maintenance, evictions and file processing, arbitration etc.
  • What are the termination clauses and conditions?
• Check with the Better Business Bureau and search online resources that may provide PM reviews such as Yelp.

In addition to the items discuss above with respect to selecting a PM company you should also consider:

• Inspections by the PM company: regular routine inspections with reports back to you, including action taken to address identified issues
• Tenant management: PM companies will typically offer tenant management as well as physical property management, but ultimately, it’s up to you to ensure that they are delivering on this service and meeting your expectations
  • A key indicator is tenant turnover – if this is high then you’ll likely be paying additional fees – checking with a departing tenant can provide valuable insight re your PM company
    • Low tenant turnover is a positive indicator of a well-managed property –even when you use a PM company, routinely checking in directly with your tenant is the smart thing to do
  • Understand what tenant services they provide – regular newsletter, web portal, social events, etc.
  • Ensure that your regular reports from the PM company include information on your property’s vacancy length (the turnaround time for a property to be re-rented).
  • Ensure that you’re clear about how the PM company handles a “bad tenant” situation and how they will consult with you during such a situation.
  • Ask for their portfolio occupancy rate.
  • Feedback from tenants – especially if you’re using a PM company – have a method of obtaining direct feedback from your tenants at least once a year.
• If your property includes a resident manager for property management, then you should follow the same due diligence as for a PM company.
• What is or what does their tenant retention service or program involve?
• Reporting to the owner:
  • Repair issues – obtaining a few quotes ahead of time
    • Financial reporting – what information is included or missing and how frequently Obtain a sample copy and review it.

Some Last Thoughts

Ultimately, the key to having a successful long-term investment property is managing the physical property and its tenants well. Whether you do this yourself or hire a PM company for all or some of the services, you are responsible for that property and your investment.

Routinely assess your property, its physical state and its return on investment. If you have a PM company, beyond the items discussed above, you should routinely look at whether they are achieving what you need them to in order to support your property, consider these questions:

• Is the PM company reducing your expenses?
• Is routine and emergency maintenance completed in a timely manner and to the standard you expect?
• Are your tenants happy? Do you have Golden Geese?
• Are you achieving appropriate revenue growth?
• How is your property performing in relation to the rental market in the area?
• Do you have effective communication with your PM company and/or with your tenants?

Whether you’re purposefully pursuing a long-term hold strategy for your investment property or you’ve activated “plan B” for a flip property – taking the time to ensure that your property and your tenants are well managed will serve you well. It will help protect your investment and should support a solid return on your investment – delivering golden eggs from your happy Golden Geese!