Calendar icon June 21, 2024

Accidental Landlord? Why You Should Hire a Property Manager (and How)

In the ever-evolving real estate market, the term "accidental landlord" refers to individuals who find themselves managing rental properties unexpectedly. This can happen for various reasons – perhaps you’ve inherited a family home, moved for a job, or decided to rent out your property instead of selling it in a slow housing market. 

Certainly, today’s interest rate trends are contributing to the rise of the accidental landlord phenomenon by making it less attractive for homeowners to sell their properties. As interest rates increase, prospective buyers face higher borrowing costs, reducing their purchasing power and dampening demand.

This often leads homeowners, who might have otherwise sold their property, to rent it out instead, especially if they’ve locked in lower mortgage rates from previous years. Consequently, many individuals find themselves in the role of landlords unintentionally, seeking rental income as a viable alternative to selling in a sluggish market.

Regardless of how you got here, stepping into the role of a first-time landlord can be both overwhelming and time-consuming.

In this article, we’ll highlight the importance of professional property management for accidental landlords. Effective property management can alleviate many of the stresses associated with being a landlord, allowing you to reap the benefits of rental income without sacrificing your personal or professional life. 

We’ll also explain how homeowners can avoid headaches by locking in high-quality long-term tenants with a property manager powered by Second Nature's resident benefits package (RBP)

Note that even though we here at Second Nature prefer the term "resident" over "tenant" in order to foster the human element, the word "tenant" may still be used occasionally due to its long-standing legal and real estate context.

 

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The Challenges Faced by Accidental Landlords

Stepping into the landlord role comes with countless challenges. Understanding these obstacles is crucial in recognizing the value of professional property management.

Time management issues

One of the primary challenges accidental landlords face is time management. Balancing a full-time job with the responsibilities of managing a rental property can be daunting. 

From advertising vacancies and showing the property to potential renters to handling day-to-day administrative tasks and responding to maintenance requests, the demands on your time can quickly become overwhelming. This often leads to burnout, which can negatively impact both your professional life and the quality of your property management.

Legal complexities

Navigating the legal complexities of being a landlord is another significant challenge. Understanding tenant laws, lease agreements, and your legal obligations can be intricate and ever-changing.

Landlords must stay updated with local, state, and federal regulations to avoid potential legal issues. This includes everything from fair housing laws to health and safety regulations. Without proper legal knowledge, you risk costly fines and legal disputes.

Maintenance responsibilities

Maintaining a rental property involves regular upkeep and emergency repairs, which can be both time-consuming and costly. From routine maintenance tasks like lawn care and HVAC servicing to unexpected emergencies like plumbing leaks or electrical issues, ensuring your property is well-maintained is crucial to keeping your residents happy and protecting your investment.

Tenant management

Managing residents is another area where accidental landlords often struggle. Effective tenant management includes everything from screening prospective tenants and handling lease agreements to addressing disputes, ensuring timely rent collection, and dealing with evictions. Poor tenant management can lead to high turnover rates, property damage, and lost rental income.

Financial considerations

In the current real estate market, navigating financial considerations can be particularly challenging for accidental landlords. Many find themselves dealing with buy-to-let (BTL) mortgages and managing mortgage payments on their primary residence and rental property. By law, landlords must also adhere to specific regulations, including securing landlord insurance and managing security deposits correctly. 

Additionally, fluctuating mortgage interest rates have prompted many homeowners, especially in states like California, to rent out their current homes rather than sell them. This strategy not only helps cover mortgage payments but also provides an opportunity for generating passive income, turning a potentially burdensome situation into a profitable venture.

Benefits of Hiring a Property Manager

Hiring a manager for your investment property can alleviate many of the challenges above, providing expertise, efficiency, and peace of mind.

Expertise and experience

Property management services bring valuable market knowledge and experience to the table. They understand local rental markets, enabling them to set competitive rental prices that maximize your income while attracting high-quality residents. 

Their expertise in marketing and leasing also helps minimize vacancies and ensure your property is always occupied.

Legal protection and compliance

Staying updated with the ever-changing landscape of local, state, and federal laws can be overwhelming for any landlord. Property managers have the knowledge and resources to ensure your property complies with all legal requirements, reducing the risk of costly legal disputes. They handle everything from drafting lease agreements to ensuring fair housing practices are followed.

Efficient tenant management

Effective tenant management is crucial for a successful rental property. Property managers can help with screening tenants, and handling lease agreements, rent collection, and dispute resolution – ensuring your property is well-managed and your residents are satisfied. 

Their experience in dealing with tenants can help prevent issues before they arise, saving you time and stress.

Maintenance and repairs

Property managers have access to a reliable network of contractors and service providers, ensuring timely and cost-effective maintenance and repairs. They conduct regular property inspections and coordinate routine maintenance tasks, keeping your property in top condition and preventing costly emergencies.

Financial management

Property managers provide detailed financial reporting, helping you keep track of your rental income and expenses. They can also assist with tax benefits, ensuring you take advantage of all available deductions. 

This level of financial oversight can help you maximize your rental income and make informed decisions about your property. Moreover, effective financial management involves navigating complex notions around capital gains, depreciation, and income tax. 

Property managers can thus help optimize your financial strategy by leveraging depreciation to reduce taxable income, advising on capital gains implications when selling the property, and ensuring compliance with income tax regulations. This comprehensive financial approach not only enhances profitability, but also secures long-term investment growth.

Expenses and Other Financial Considerations

When considering whether to hire a property manager, it's important to weigh the costs against the potential benefits.

Cost vs. benefits analysis

Property management fees typically range from 8% to 12% of your monthly rental income. While this may seem like a significant expense, the potential savings in time, stress, and legal issues can far outweigh the cost. 

Additionally, property managers often help optimize rental prices and reduce vacancies, increasing your overall rental income.

Impact on rental income

A professional property manager can help reduce vacancy rates by effectively marketing your property and setting competitive rental prices. They can also help ensure timely rent collection and minimize rent arrears, providing a steady stream of rental income. Over time, these benefits can offset the cost of property management fees.

Tax deductions

Property management fees are considered a deductible expense, reducing your taxable rental income. This can result in significant tax savings, making professional property management even more cost-effective.

How to Choose the Right Property Manager

Choosing the right property manager is crucial to ensuring your property is well-managed and your residents are satisfied. 

As a general note, when choosing a property manager, consider their experience with both short-term and long-term rental strategies. A good property manager will have a solid understanding of real estate investing, including knowledge of high vs. low interest rate environments and the implications for homebuyers and investors alike. 

For instance, they can provide valuable insights into leveraging buy-to-let mortgages to maximize rental income while ensuring compliance with all relevant laws and regulations. Partnering with reputable realtors and lenders, they can also offer guidance on the best financial practices for managing your rental property, ultimately helping you achieve a balanced and profitable real estate portfolio.

Here are some best practices for choosing a property manager: 

Research and referrals

Start by seeking referrals from friends, family, and real estate agents. Online reviews and professional associations can also provide valuable insights into the reputation and performance of potential property managers.

Be sure to look for a property manager that offers a resident benefits package (RBP), which can enhance the living experience for your residents and increase retention rates.

Interviewing potential managers

When interviewing potential property managers, ask key questions about their experience, services offered, and fee structure. Understanding their approach to tenant screening, maintenance, and financial reporting can help you determine if they’re the right fit for your property.

Checking credentials and references

Ensure the property manager is licensed and certified by relevant professional associations. Request client testimonials and references to gauge their performance and reliability.

Understanding the contract

Carefully review the property management contract, paying attention to the services provided, fee structure, and termination clauses. 

What to Expect From a Property Manager

Hiring a property manager comes with certain expectations. Understanding these can help you maintain a positive and productive relationship.

Regular updates and communication

Expect regular updates on your property, including monthly financial reports and maintenance updates. Clear and consistent communication is key to ensuring your property is managed well. 

Transparency and accountability

A good property manager will operate with transparency and accountability, providing detailed financial reporting and being responsive to your concerns. An open-book policy and effective conflict resolution strategies are essential.

Proactive management

Proactive property management includes preventive maintenance and staying ahead of market trends. A property manager who regularly inspects your property and makes recommendations for improvements can help maintain its value and appeal.

Case Study: JWB Real Estate Capital

Consider the case of JWB Real Estate Capital, which demonstrates the benefits of long-term leases and proactive property management. 

By focusing on high-quality residents and providing exceptional service, JWB has achieved a "Triple Win" for owners, residents, and the company. Their approach emphasizes the importance of professional property management in maximizing rental income and minimizing vacancies.

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The Triple Win concept revolves around creating a mutually beneficial environment where everyone involved sees positive outcomes. For owners, this means consistent rental income and well-maintained properties. Residents benefit from high-quality living conditions and responsive management, while the property management company sees increased retention rates and positive reputation growth. 

This holistic approach ensures long-term success and satisfaction for all parties involved.

Taking the Next Step

Hiring a property manager can help accidental landlords avoid the headaches of property management, ensuring that real estate investors are well-protected and their residents are satisfied.

That’s because a property manager provides expertise, legal protection, efficient tenancy management, reliable maintenance, and detailed financial reporting. These benefits can help maximize your rental income and reduce the stress of being a landlord.

To avoid the headaches, lock in high-quality long-term tenants with a property manager powered by Second Nature's RBP. Visit Second Nature's Solutions for Property Owners for more information.

Embracing professional property management can transform the experience of being an accidental landlord from a burdensome task into a rewarding venture.

Property managers, if you’re reading this, here's how to attract accidental landlords: Second Nature's Solutions for Property Managers.

Keep learning

Chambers Theory Endorses Second Nature’s Resident Benefits Package

Chambers Theory is a world-renowned property management team with clients in more than 30 countries worldwide. They specialize in serving the U.S. military, State Department, and Foreign Services families. Their motto “Real Estate With Intelligence” is more than just a saying. It’s on full display through the introductory videos for landlords and residents on their website in seven languages (Spanish, Portuguese, Italian, Vietnamese, French, Croatian, and English) - all spoken fluently by their own property management (PM) team. Since its founding in 2018, Chambers Theory has been achieving extraordinary performance benchmarks. They’ve led the marketplace in delivering the “Golden Triangle of Success” to their clients, which means the lowest vacancy, the highest average rents, and the highest quality of tenants of any property management firm in its same service area. They’ve also donated over $100,000 to local charities and community organizations, while also leading the way in promoting sustainability practices in real estate and property management services. Their outstanding team attributes their success to their ability to develop and utilize their emotional intelligence skills to capacity to care with all their interactions with both landlords and residents. That’s why they fully endorse the Resident Benefits Package at Second Nature! Find out more about what a Resident Benefits Package is, its benefits, and how it can help create a Triple Win for you, as well as your residents and investors. Related: The State of Resident Experience Report

Calendar icon July 18, 2024

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Investor Experience Platform™️ IXP™️

An Investor Experience Platform™️ (IXP) in property management is a suite of products, services, and benefits offered by property management companies to property investors. Just like a resident benefits package is a way to drive value for residents, investors, and property managers, the IBP™️ is an innovative approach to property management that focuses on driving value for an investor's assets and turning that value into profit for the property management company. In this article, we’ll dig into the different features that an Investor Experience Platform™️ can include, and how those benefit not just investors, but property managers and residents, too. What Is an Investor Experience Platform™️ (IXP)? As stated above, an Investor Experience Platform™️ (IXP™️) is a comprehensive suite of services that offer property investors higher quality property management, stability, and profit. An IBP™️ typically includes concierge-level services beyond basic property management – such as property insurance policies, eviction guarantees, rent guarantees, maintenance plans, asset performance reports, etc. These services are aimed at maximizing the investor’s assets, stability and convenience, profitability, and peace of mind in managing their properties. They're commonly managed through an investor experience platform to securely manage and monitor the performance of these assets online, which we'll discuss later. The first step to outlining an IBP™️ is to define what your basic management fee means and covers. If the answer is, it’s collecting rent, handling maintenance, and general communication – does that include maintenance coordination or is that a separate fee? Does it include asset reporting or is that an additional service? In your management agreement, define what the management fee is, what it covers, and how much it is. An IBP™️ can be an effective tool for articulating the new and differentiated things that an investor wouldn’t be able to do on their own and that you are offering beyond basic property management. Articulate your unique and differentiated services (IBP™️) and use that as a tool for positioning and charging for what it’s worth. What’s Included in An Investor Experience Platform™️? An Investor Experience Platform™️ should include a range of solutions to help deliver consistency, insight, and asset protection to a property owner’s portfolio. After all, professional property managers don’t have to be functional managers of a home – they can be strategic partners in the management of financial assets. You might hear services similar to the IBP™️ called an “owner benefit package,” but at Second Nature, we believe that the “investor” term is useful in encouraging a longer-term mindset, and emphasizes the economic value professional property management can bring. According to Eric Wetherington, VP of Strategic Initiatives at PURE Property Management: “As property managers, we need to think more like asset managers. This client made an investment, and we should be guiding that client through managing that investment, not just collecting rent.” To build and manage a winning IBP™️, property managers need an Investor Experience Platform that unlocks scalable product and service customization, digitized onboarding, accounting policy automation, and more. In addition, Investor Experience Platforms provide transparency and convenience for your investors. Here are some of the most valuable services that property managers can offer through an innovative Investor Experience Platform™️. Property insurance program Similar to offering a renters insurance program through an RBP in the lease agreement, property management companies can offer an insurance plan to investors to cut costs and ensure the safety of their assets. Most management agreements will include the requirement that the investor carries insurance on the property and that the property manager is additionally insured. But what if you as the property manager could help manage that for the investor – at scale? Property Insurance for investors should have dynamic pricing based on individual investors’s property portfolio and needs. The benefit beyond flexibility is the savings they’ll see on their premiums while also getting insurance that’s tailored to the needs of their specific property class. At Second Nature, we work primarily with single-family rental properties and small multi-family residences. Property Insurance Programs can bring scale that will drive economic value for the investor over what they could get retail on their own. They’d still have the option to go get their own insurance that meets requirements, but they can pay you a small fee to manage it for them. Rent guarantee An IBP™️ can include a number of financial guarantees to protect property investors and drive ancillary revenue for PMCs. A rent guarantee, or rent protection, ensures a consistent rental income to investors by protecting them against resident defaults or non-payment of rent. If a resident fails to pay rent, the property management company covers the unpaid amount and takes necessary steps for eviction or collection, providing financial security and minimizing the risk for property owners. Rent guarantees work for professional property management companies that have enough properties to balance the loss of rent if a resident doesn’t pay. The risk is low and the additional profit from fees for this guarantee can have a very high ROI, while driving satisfaction and stability for the investor. Plus, if you’re using services in an RBP to help incentivize on-time rent payments, you’ll rarely find yourself out in the cold. Eviction protection guarantee An eviction protection guarantee also goes beyond the normal scope of property management services and can be used as a secondary source of revenue. Eviction Protection is a service provided by property management companies to property investors that offers additional security and financial protection in the event of an eviction. Under this guarantee, the property management company assumes the costs associated with the eviction process, including legal fees and court expenses. It helps alleviate the financial burden on property investors and provides peace of mind by ensuring that they are safeguarded against potential losses resulting from resident evictions. The eviction guarantee helps protect property owners from the complexities and potential costs associated with evictions, ensuring a smooth and efficient resolution to tenant-related issues. Pet guarantees & other guarantees A pet guarantee is a service offered by property management companies to property investors that aims to address any potential issues related to allowing pets in rental properties. It typically involves implementing policies and procedures to ensure responsible pet ownership, such as thorough pet screening, pet agreements, and collecting additional pet deposits or fees. The pet guarantee may also include services like pet damage insurance or assistance with pet-related issues during the lease term. It provides property investors with a framework to accommodate residents with pets while minimizing risks and maintaining the condition of the property. For many residents, finding a pet-friendly apartment increases retention and profitability. They’re willing to stay longer and pay more for a pet-friendly place. And–get this–pet damage is less likely to happen than damage from kids! It’s not a huge risk to the asset, but can provide a big benefit in terms of satisfied, longer-term residents. Maintenance plan Home warranties are a four-letter word for property managers. They’re a massive headache to deal with, and yet there’s high demand for them among property investors. Because of that, most property managers charge a fee for home warranties, for each they have to file. Imagine if there was a world where home warranties weren’t needed. Here’s the thing: Professional property managers already have the vendor network and the know-how to coordinate maintenance jobs. What they don’t usually have is a product that’s priced to give the investor the experience they want. Let’s say right now an investor is paying $50 a month for a cheap home warranty. The warranty only covers 40% of issues and it creates all these extra people and friction in the middle. For anything moderately significant that goes wrong with a property, PMCs generally must contact the investor for permission to get work done. It’s all a massive hassle and loses time in maintenance requests that leave residents frustrated. What if there was a product that costs, say, $150 to $200 a month but it actually covered everything? Instead of having sudden expenses and emergencies, this maintenance plan smooths out the experience and makes it more predictable for the investor. For PMs, it means taking the initiative on fixes without waiting for approval. Imagine a world where you didn’t have to get owner approvals for 95% of maintenance issues – because they’re already budgeted for and already paid for. For residents, it means better maintenance, and faster. Another Triple Win! Asset performance reports Another piece focuses on property managers as asset managers. Think about any investment app, like Robinhood, Acorns, etc. You can log in to these apps any time, 24/7, and see how your stock and investments are performing. In most investment classes, you can see in real time how your assets are performing. Why shouldn’t property investors have that as well? An IBP™️ can include exactly that: a dashboard or online portal that shows investors regular reports on how their property is doing. They could get updates on the value of their home over time, the home price appreciation, rent price over time, and project rent growth, typically maintenance costs and how they’re doing against that, and more. Resident Benefits Package Another piece to include in your IBP™️ is to highlight the benefits of your resident benefits package to your investors. Explain how features like a filter delivery program protect their assets and reduce HVAC repair costs. Show how a renters insurance program can ensure coverage and protection. Give numbers on how credit reporting incentivizes on-time rental payments and helps ensure financially stable renters. Explain how a movie-in concierge saves both time, headache, and money. Each of the pillars of an RBP is critical to encouraging better resident behavior, increasing renter retention and lease renewal rates, reducing vacancies, and more – all primary goals for a property investor. A note about Rent Advance Programs There’s been due buzz about “Rent Advance” offerings, though many advise caution when approaching this financial product. It works in some ways like cash advance programs, which can satisfy urgent needs, but not be more valuable for anyone long term. The way it works is PMs offer to send a year of rent upfront to the investor in a big chunk, and collect monthly from the resident. The investor typically pays a 5-10% premium on the advance, which can be their entire expected return. So the question becomes, where do they put that cash to get a better return instead? Another thing to think about is who would actually use this product. Investors who don’t have enough cash on hand? How does that benefit anyone in the long run? What happens when there’s a big maintenance bill later? Does this encourage better decisions and practices by the investor? To date, there’s been pretty low adoption of this program, which is another sign it may not be hugely beneficial to everyone involved. But plenty of innovations start that way, evolve, and find traction. One case where it might be a value generator is if an investor is looking to take a cash advance and put it toward a down payment for another house. That would benefit the property manager as well, promising more business, and the PM could offer a lower rate for getting more properties to make the financing more attractive than hard money loans or other alternatives. The jury is still out here, it’s an interesting one to track. How Can Investors and Property Managers Benefit From an Investor Experience Platform™️? Investors and property managers can benefit from an Investor Experience Platform™️ in several ways. They’re also great for residents in the sense they build more stability and quality into the renting process. Here are just some of the benefits of an IBP™️. Enhanced investor attraction An Investor Experience Platform™️ provides incentives and advantages that can attract more investors. Financial guarantees and protections against the risks associated with evictions or late payments can increase stability, while services like a maintenance plan can ensure premium care of their property assets without increasing their workload. By offering attractive perks, property managers can differentiate their offerings and generate greater investor interest. Increased investor retention Both IBP™️s and RBPs help build loyalty with residents and investors. By fostering a strong relationship and demonstrating ongoing value, property managers can build trust and loyalty among investors, and retain them over the long term. IBP™️s help establish the stability, transparency, and asset growth for a real estate investment that an investor hopes to achieve. Improved property performance An Investor Experience Platform™️ can also contribute to improved property performance. For example, by offering discounted property management fees or access to professional services at reduced rates, property managers can help investors optimize their returns and reduce costs. Additionally, incentives such as rent guarantees or eviction protection can mitigate risk for investors and attract more capital to the property. Streamlined communication and transparency A well-designed Investor Experience Platform™️ facilitates effective communication and promotes transparency between property managers and investors. This can involve regular reporting on financial performance, property updates, and the sharing of relevant market insights. Transparent and consistent communication builds trust and confidence among investors, fostering a positive and long-lasting relationship. Competitive advantage A comprehensive Investor Experience Platform™️ can give property managers a competitive edge in the market. When investors have access to exclusive benefits and advantages, they are more likely to choose a property managed by a company that offers a compelling package – and to recommend it to others. Say hello to increased investment inflow and a stronger market position for your PMC. Should You Make an Investor Experience Platform™️ Mandatory? The first thing most property managers ask us when we’re talking about an RBP or an IBP™️ is: Should I make this mandatory for all investors or do I make it a flexible opt-in/opt-out program? Unlike RBPs, where best practices are more proven and established, different PMs are taking different approaches with their IBP™️s. Some have a mandatory level of service set at a flat price. Others may say they’re fine offering a base level of service without these differentiated products, giving investors the choice to simply pay a baseline management fee and opt out of the IBP™️ premium service. Some may offer a baseline to all investors and then give them the chance to opt in for premium IBP™️ services. There are a lot of ways to do it. With the RBP, we’ve found that making it mandatory does not generate nearly as much pushback as people expect – and can be a strong value add overall. Final Thoughts About an Investor Experience Platform™️ The Investor Experience Platform™️ is an innovative way to generate ancillary income and create more value for investors and residents. Similar to Second Nature’s premier Resident Benefits Package, the IBP™️ can deliver high-quality service for investor experience – and help create a triple win for investors, residents, and property management companies. The IBP™️ reinforces the value of a professional property management company for investors and helps differentiate you from the crowd. Stay tuned to learn more about the latest in the IBP™️ space, or learn more about how a resident benefits package can launch a whole new level of value for your PMC.

Calendar icon July 17, 2024

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