On paper, managing a rental property seems like a brilliant financial idea. If your tenant pays you $2,000 per month in rent, and you’re only paying $1,200 on a mortgage, that’s a potential monthly profit of $800. That’s certainly not bad, considering you may go months without having to work on the property (or even talk to your tenant).
But the truth is, managing a rental property or several rental properties is more complex and challenging than most people initially realize. So what are the biggest challenges of rental property management, and what are the best ways to avoid them?
Solving the Challenges: Work With a Property Management Company
One of the easiest ways to solve (almost) all the challenges of managing rental property is to work with a . Your property management company will handle almost everything on your behalf, including marketing the property, screening tenants, collecting rent, handling tenant requests and repairs, and even managing evictions. If you’re looking to eliminate all the hassles and stresses of managing a property yourself, hiring a property manager is probably your best bet.
The Biggest Challenges of Rental Property Management
If you’re managing the property yourself, you’ll probably have to deal with these major challenges:
- Finding the right properties. Most seasoned property managers will tell you that the most important decisions you make in this field are related to acquiring new property. Property in excellent condition, for a good price, in a highly demanded area can yield an amazing return. But if any of these variables is off, it could compromise the value of your investment. Property inventory fluctuates, as do the competition, mortgage interest rates, and many other variables. Accordingly, it’s always difficult to scout for new acquisitions and finalize your investment decisions.
- Hiring the right people. It’s hard to manage a property completely by yourself. At some point, you’ll probably need to work with marketers, lawyers, and contractors to help you with tasks in which you have no expertise. Finding and working with the right people can be difficult if you don’t already have a strong network in place.
- Remaining compliant with the law. Property rental laws vary from one place to another, and they range from very loose to very restrictive. If you want to avoid legal trouble, you’ll need to comply with all laws that apply to you. But because these dynamics are so complicated, you’re usually best off working with a lawyer rather than trying to do the research yourself.
- Dealing with vacancies. A vacant property generates no money, and you’ll need to market it aggressively if you want to fill it quickly. Managing these low cash flow periods can take its toll on you, increasing your stress, decreasing your income, and forcing you to spend more time managing the property.
- Screening tenants effectively. As tempting as it is to fill a vacancy as quickly as you can, it’s usually better to thoroughly screen your tenants and only accept tenants that meet certain requirements. The screening process, as well as the tenant selection process, can be challenging.
- Covering unexpected costs. , storm damage, and other unexpected costs can quickly eat away at your potential profits. Having an emergency fund helps, but it doesn’t fully eliminate the sting of a massive expense.
- Managing time. As a landlord, you have many responsibilities to take care of. This isn’t a truly passive income source by default. How do you find the time for all the tasks you need to handle, especially if you’re also working a full-time job?
- Managing tenant complaints and requests. Tenants may go months without talking to you – or they may make requests and issue complaints constantly. At a certain point, it becomes difficult to keep up.
- Keeping records. For better accounting, tax compliance, and legal reasons, it’s important to keep thorough records. You should have everything documented, from your initial lease agreement to ongoing rent collection payments, but this can also be a massive headache.
- Increasing revenue/ROI. Your rental property is a measure of how much value your property is returning compared to what you’re investing in. Like any business owner, property managers are interested in consistently increasing revenue and ROI. But how do you do it without just adding more properties to your portfolio? There are certainly options, like offering storage space or supplementary services like coin-operated laundry machines, but each option presents new challenges.
Despite these challenges, buying and managing rental properties is still one of the best financial strategies you can employ. With enough experience and knowledge in the field, and working with industry experts like , you’ll be able to purchase enormously profitable properties, generating consistent monthly cash flow while keeping the potential issues to a minimum.