When it comes time to rent a property, especially if an owner has never had a rental, they receive a crash course in what it is to own a small business. Add into this the sentimental attachment, if it was their primary residence, and you have a tender box waiting for a match that will almost certainly start a fire at some point. This is where an excellent property manager becomes an invaluable resource to an income property owner. Not only for their expertise in the industry, but for preparing an owner for the crazy things that can happen with a rental, and its occupants.
A property manager when screening an applicant can look at their income, credit, job history, and rental history, but must qualify the prospect using a strict set of guidelines set forth by local, state, and federal laws regarding Fair Housing. So, when that 4 bedroom house you raised your children in, and thing is nearly perfect is being applied for by a multi-generational family, which includes 5 children, the criteria that will be used is indifferent to your personal feeling about 9 individuals occupying your home. This is one of the first struggles PM’s will have with a new income property owner. When you decide to make your home a rental, you decided to own a small business, one that will be required to adhere to an ever-increasing amount of laws and restrictions. Simply put, it is no longer your home, it is a business.
Next big question that I ask, can you handle that? The answer is sometimes, no. This is where a person must make the decision to either sell, leave vacant, or drop their personal attachment.
How about maintenance and repairs. Well, what you lived with or repaired yourself, many renters will not. This can be another big pill for owners to swallow. Again, you now own a small business, which will have recurring and unexpected expenses… However, a confident and competent PM will educate you early on into the process about setting aside reserves for unexpected expenses so that they are not an unmanageable blow to your pocketbook. Good practice is to set aside 10% of the rent amount for turnover, and/or large repairs, such as a water heater, flooring, or furnace.
Think about it like this. You have a unit that has received $1500 per month for 5 years. The total revenue would be $90,000. The tenant vacates the property, and beyond what can be deducted for the deposit in accordance with the provisions set forth by the CA. Dept. of Consumer Affairs, the home needs new carpet, some new plumbing fixtures, and paint. The total cost for these items is $5000. If the recommended 10%, or $9000 had been set aside, this expense would not only be covered, but the owner would have a $4000 surplus to do with what they please. Maybe a trip to Maui?
As with most things in life, knowledge, understanding, and preparation goes a long way in making the experience of owning an income property, one that is both pleasant, and profitable as possible.