Property Management

Most people, when they buy their first investment property, manage it themselves - they collect the rent, tend to any maintenance issues, and find a new tenant when existing tenants move on.

There is nothing wrong with self-managing your first few real estate investments. You get to learn first hand what is involved in property management. You also find out that there is a spectrum of integrity levels among tradesmen and tenants alike, and you learn how to handle situations that inevitably arise.

The only problem with managing your own properties is that it may become a habit rather than a strategic decision. Many investors, when they continue to acquire properties, also continue to manage their investments because they have always done so.

However, as your portfolio grows, so does the time required to manage the ever growing number of houses and other real estate. Given that there are only 24 hours in a day, then you will reach a number of properties where you will spend all your waking hours managing them.

In other words, managing your own properties inhibits your ability to find more great investment real estate.

Conversely, by having property managers look after your real estate, your time is completely freed up to focus on looking for more real estate bargains. Even though a property manager may charge you anything from 5 percent to 15 percent of the rent collected, that is a small price to pay to enable you to find deals that may double your income every year.

The time you spent managing your first few properties has not gone to waste, however. What you learnt will help you to choose a great property manager. You will know what sorts of questions to ask, such as how do they look for new tenants, how do they handle evictions, and how frequently do they inspect the property.

Without property managers, you have to manage past acquisitions. With property managers, you can focus on expanding your passive income even further.

Real Estate Management System

Should you initially decide to manage your properties yourself, then my Real Estate Management System (REMS) will be useful.

REMS streamlines the task of record keeping, makes filing your tax returns easy and keeps tabs on which tenants are behind in their rent. The need for such software may not be obvious when you only have one investment property, but when you have multiple tenancies it is easy to not notice missed rent repayments unless you are well organised.

Hot Tip

While it is up to your tenants to take out their own contents insurance, you will need to have building insurance. You may also want to consider liability insurance to protect yourself in case your tenants damage the property or themselves.

Standard building insurance offers some protection for landlords, but often contains clauses excluding malicious damage by a tenant, accidental damage, legal liability and cover for the loss of income. These are the exact areas in which you want to be covered.

Before signing up for 'landlord insurance', check that it covers the following risk factors:

• Malicious damage by a tenant - this includes everything from holes punched in walls to intentional to carpets and floors.
• Accidental damage - This covers unintentional damage to a property. Accidental damage also covers the actions of small children, but excludes gradual wear and tear.
• Legal liability - includes expenses incurred for any lawsuit that arises as a result of a tenant suffering bodily injury or property damage or loss.
• Loss of rental income - In instances where malicious damage has been caused to a property, a loss of rental income may result while the property is repaired or cleaned. Loss of rental income also can result from absconding tenants, defaulting payments, death of a sole tenant, failure to give vacant possession or a court awarding a tenant a release from lease obligations due to hardship.