The Independent Landlord

A Quick Guide to Getting Started on the Path of Property Management (For both the Reluctant Landlord and the Intentional Investor)

by  Karina Gafford
MilitaryByOwner staff writer
 
As a brand new Second Lieutenant, my dear husband (then fiancée) relayed the words of wisdom he had received earlier that day from a visiting General Officer over the course of our dinner. Much of the words sounded vaguely English—acronyms of schools, fields of specialty, rank, and the like—and they sailed far above my head and schema of the world at the time. The advice that did stick, however, centered on the general’s interest in real estate, a topic I did understand. "The only way to become rich in the military is to buy a house at every base," the general advised, "…and then rent it out." The officer, with a self-reported personal worth of several million dollars in real estate, provided this nugget of wisdom in 2006, just before the collapse of the housing market. It would be interesting to know what real estate advice he may provide to others starting their career in the military now.
 
 Given the vast changes in the market that have taken place over the past 5 years, many military families have found themselves in the position of landlord, whether reluctantly or otherwise. For the latter, those who found themselves in the fortunate position to invest in real estate while property values had dropped and interest rates remained low, likely entered the position of landlord as intentional investors. For the former, the title of landlord may have been bestowed on a more reluctant family, perhaps because it made more sense to rent than to sell at a loss, or perhaps because the property simply would not sell. Regardless of whether you have found yourself in the position of landlord by reluctant or intentional means, this article should provide you with a quick guide to a successful start on the path of property management. Further articles will cover the various aspects of managing a property in greater depth.
 
Unfortunately, as Copley Broer, the CEO of the online property management platform Landlord Station, explained in a recent interview with MilitarybyOwner, "There’s not really a step-by-step guide to becoming a Landlord," and that is particularly so for military families who move from state to state where the rules and regulations may vary significantly. "Rules of thumb rarely work in real estate. You might have two people who are doing almost identical things," Broer explains of the lack of similarity between the situation of two military families who may each rent a home in a different state, "…but the way that they have to do it is 180 degrees different." Rental real estate and property management functions differently in each state and local market, so prospective landlords have many things to consider before venturing into this long-term endeavor. The tax implications and considerations alone would require a separate article, but for the purpose of getting started in the decision making process, we will address the first-and-foremost issues of determining if a property manager is right for your situation, the Landlord-Tenant Laws, and the basics of rental paperwork.
 
The Big Decision: To DIY or Hire a Property Manager

For the purpose of this article, we will (reasonably) assume that you have listed your property on MBO and received several rental inquiries. Perhaps you even have a serious rental offer, meaning that an individual has seen your property and conveyed that he wishes to rent from you. Once you have returned from either doing your happy dance or cloud nine, you realize that you have some serious work ahead of you before you enter into a contractual relationship with this individual. Not knowing where to start is not the end of the world though. Will Curtis, an Army Veteran and now property manager, explained to MBO that the process can overwhelm any potential new landlord. "If a person has no clue [how to get started]," Curtis explains, "…using a Property Manager is a great place to start to figure out the ropes and [it] usually will not break the bank to get you started as well."
 
Not everyone agrees that a property manager is necessary though. New homeowner and independent landlord Ekho Powell of Buzz Media told MBO that she chose to not use a property manager. Powell, who purchased a home with a separate mother-in-law suite in Lakeland, Florida, chose instead to work with an attorney to prepare the paperwork required for renting out a home. Since Powell did not have a property management company, she had to list and show the property herself. As Powell literally lives next door to her rental property, showing the home does not prove much of an inconvenience, but this task may prove unfeasible for military families living out-of-state. Though some families may choose to visit their property between turnovers of the property, or others may request that current tenants show the property to prospects, many do not wish to have the large responsibility of ensuring from afar that the property is available to show. 

Showing the property and handling leasing paperwork are not the only responsibilities of the property manager though, as they also serve as the first point-of-contact for tenants in the event of maintenance and emergency issues that relate to the home. "While an owner may save money by doing management themselves," explained Bruce Ailion, a manager and member of the National Association of Residential Property Managers, "…they must spend the time and money the professional property manager would be spending." Ailion relayed to MBO the case of a new property management client who eventually determined that the responsibility of managing maintenance issues was both too financially and personally costly. The individual received a call regarding a massive water leak at 8:30 A.M. on a Saturday, but that particular day happened to be the opening of deer season, causing 75-percent of the contractors to be out of cell-phone range. "Tenants expect prompt if not immediate attention to plumbing, electric, heating and air issues. One lost tenant because you could not find a plumber Saturday morning," Ailion sums up, "…offsets that savings [by choosing to not use a property manager] for several years."
Property managers are neither free nor cheap though. The fees vary based on each individual company, but most have a lease signing fee as well as a monthly maintenance fee. Home Encounter Property Management, a large property management company that operates primarily near MacDill AFB in Tampa, Florida, charges a 75-percent new lease fee in addition to a 10-percent monthly property management fee.[1] Palmetto Property Management near Fort Jackson in Columbia, South Carolina, also charges a 50-percent new lease fee, but a reduced rate of 8-percent of rents collected for a monthly management fee. [2] Advantage Realty near Shaw AFB in Sumter, South Carolina, meanwhile, does not charge a fee for a new lease, but does charge a 10-percent monthly management fee. If a property rents for $2,000 per month, a new lease signing fee on $1,000 as well as $200 per month can quickly add up to a management fee of $3,400 in one year alone, making the investment in a property manager add up to a substantial amount of money. 
Though the fees may seem steep, Ailion explains that the monthly fees collected do not make the property management companies wealthy. "I can share [that] the property margins for leasing and property management are razor thin," Ailion explains, "We manage properties for clients with the hope that one day they decide to buy more or sell the property through our firm. That is where the profit lies."
 
Ignorance is No Excuse for the Law: Understand the Landlord-Tenant Act and the Fair Housing Act

A good property manager will also provide a homeowner with the requisite information on registering as a business as per the local laws. Even more importantly, however, the property manager will be aware of both the Uniform Residential Landlord and Tenancy Act and the Fair Housing Act in addition to any state and local laws that may apply to your property.[3] Brandon Turner, senior editor at BiggerPockets and a young landlord with 40 properties, disagrees that landlords should essentially pay for this education by hiring a property manager. He tells MBO that new independent landlords should self-advocate for education and "Seek to connect with experienced investors and landlords who can teach you the ropes –which many will do for a cup of coffee."[4]   
 
For those who lack either the time or interest to devote to understanding the laws, know that you may be placing your family at significant financial risk. Just because your tenant has not remitted rent on time, does not mean that you can shut off the water service to the property to help motivate a faster payment turnaround time! "Ignorance of the law is not a defense," explains Ailion. In his state of Georgia, for example, he tells that a failure to comply with the security deposit requirements of the law can result in high legal fees. "Say you have an $1,800 deposit and a claim of $500 for damages," he explains, "If you fail to provide an account and return the deposit within 30 days, your tenant can sue and if successful… [earn] triple damages and attorney’s fees, which can range from $2,000 to $10,000." 

The Landlord Tenant Act outlines all of the responsibilities of each party, but as Ailion’s example shows, it is important to also know the aspects of individual state laws, too. One state may permit eviction within three days; whereas, another state may not permit eviction proceedings to initiate for three months. Each state also has specific requirements for how to address smoke detector maintenance, inspections, and air conditioning or heating requirements. Using the US Legal Forms services available through MBO will help begin to address some of these legal requirements. You may also wish to read the particular code that pertains to the state within which your property is located
 
While the Landlord Tenant Act covers responsibilities of each party, the Fair Housing Act focuses on prohibiting discrimination.[5] For those intending to list a property for rent, know that many terms such as "safe neighborhood," "Christian home," "suitable for married families with children," or "historically Hispanic neighborhood," can neither occur within an advertisement for the property nor can the listing agent convey these discriminatory terms to any prospects without incurring the possibility of hefty penalties. Knowing the law can help independent landlords save thousands on legal fees and prepare easy answers in advance for prospects, such as "I’m sorry, but I cannot legally disclose the crime rate in the neighborhood, but I can refer you to look at the local crime maps available through the county police department."
 
Get the Paperwork Ready: Applications, Background Checks, Credit Checks, a Lease Agreement, and So Much More

Once you have a strong candidate for tenancy, the next step is taking care of the paperwork. In most cases, a property manager will conveniently handle everything, requiring only final approval from the homeowner. For those without a property manager, an attorney can draw up the paperwork, or many resources exist online to help landlords organize the process.  
 
Despite choosing to have an attorney draw up the leasing agreement paperwork, Powell chose to take care of additional paperwork such as an application, credit and background check herself. US Legal Forms provides an additional inexpensive alternative to hiring an attorney to ensure that tenants receive all required documents upon move-in. Many states now, for example, require landlords to provide prospective tenants with bed bug and mold awareness documents in addition to fire safety information. Further legal requirements exist for older homes, including lead paint and asbestos disclosures; failure to disclose any of these items may result in costly fines. As of October 2013, an instant downloadable leasing agreement through US Legal Forms costs only $18.95, while the Lead Paint Disclosure costs a mere $14.95, insignificant costs for security and peace-of-mind for both the landlord and tenant. Tenant screening through SmartMove, a partner with MBO, costs between $20-25, depending on the package selected. Tenant screening, though not required, is encouraged, and will be discussed in an upcoming article.   
 
                  Though the legal requirements for new landlords may seem overwhelming, simply devoting several hours to reviewing the federal, state, and local laws will help mitigate significant stress, time, and prospective financial losses. Owning and renting a property can truly be rewarding. Armed with the legal knowledge to know that you are providing a good, safe home for another family, you will also know that you are protecting your own family while making the investment to prepare for the future of your own family through rental ownership, too.