1. Maintain a steady financial cushion
A rental property may start as a pet project or a hobby, but it’s also a capital intensive business. Think about the consequences of needing to invest in an unexpected repair.
As a landlord, you’re legally obligated to maintain a high standard of living for your tenants. That means you need to create a clear line of separation between your personal finance and business finance goals. At a minimum, you’ll need:
- A separate bank account
- Access to legal resources
- Access to lines of credit, especially in the event of an unexpected repair
- A schedule to make sure that you’re treating your home like a business and keeping up with scheduled repairs
“The most important step is to make sure that you have three to six months in financial reserves for your rental property,” explains Jerome Myers, founder at Myers Development Group, a real estate consultancy.
“When you can’t make the appropriate investments in the property because you don’t have the capital, you are starting a dangerous cycle that you might not be able to escape.”
As your business grows—perhaps from acquiring and generating rental income from multiple properties—you might be eligible for additional types of loans and funding to make improvements to your home.
“Landlords need a far deeper cash cushion than most people,” elaborates Davis. “They face large expenses that pop up at unexpected times. It’s not enough to merely include expenses like vacancy rate and repairs in your cash flow calculations. You have to actually set aside that money, month in and month out. When those expenses hit, you need the cash ready.”
It’s not just a nice-to-have to be able to guarantee your tenants’ repair requests. It’s the law: as a landlord, you are obligated to maintain habitable, healthy and comfortable living conditions.
2. Consider working with a property management company
You likely have a range of obligations, especially if you own an investment property as real estate.
Perhaps, you have a vacation home or second property that you inherited, purchased several decades ago or bought for the purpose of renting.
One of the challenges that you’ll run into is time. Regardless of whether you’re a full-time real estate investor or a property owner looking to earn some extra income, you need to make sure that you’re paying close attention to what’s happening on the ground.
That’s why you may want to consider working with a property manager. The right consultant or management company can help you with the following:
- Screening tenants
- Collecting rent
- Managing your books
- Maintaining contracts
- Coordinating repairs
- Figuring out the right amount to collect for a security deposit
A property management company can also step in as an intermediary party if you’re facing disputes. Let’s say, for instance, that a tenant causes damage to your home. A neutral third-party can help de-escalate and provide support.
Typically, landlords pay property managers a percentage of monthly rent. This fee is particularly worthwhile for investment property owners who have full-time jobs or busy schedules with multiple ventures. Because the expense is predictable, it will be a part of your cash flow.
“Have a sound structure in place, and get advice and help from experts, when needed,” says Ramya Menon, editor at Bayut, which specializes in real estate listings in the UAE.
“Working hard doesn’t always mean working smart”
Rayma suggests “reaching out to professionals to help with areas that you are not skilled in can save you time and money.”
Read More:Pro tips for managing your rental income finances