What happens every month? Does a rent check just show up at my office? Do property managers deliver monthly reports? How do I know things are being taken care of?
Within a very few parameters (some states require you to have a written contract, for example, when you engage a property manager, and most require a licensed individual handling some aspects of the property manager agreement), you and the property manager can strike up nearly any agreement that suits the both of you.
Do you want a rent check to just show up at your office?
That shouldn’t be a problem – though lots of people today prefer the convenience and security of electronic transfers. I know I don’t like to have thousands of dollars dependent on me finding a specific envelope among the junk mail if I have an alternative!
Do you want a monthly report? That’s not unreasonable at all. Indeed, you should expect your property management firm to provide you a ready accounting of all the key metrics and all your bookkeeping data:
- Rent collected this month and year-to-date – both total and broken down by tenant.
- Rent delinquent and for how long, both total and broken down by tenant.
- Collection efforts made so far.
- Eviction status reports, if applicable, including fees paid and costs to evict.
- Current vacancies.
- Marketing plan.
- Projected lease expirations and renewals.
- Balance of funds in escrow or held on deposit against repairs and maintenance.
- An accounting of all funds spent by the property manager that you have on deposit with them – often called a deposit register.
- Income from laundry/vending machines.
- Insurance premiums paid on your behalf, if any.
- Current repairs or renovations underway, including amount spent so far, projected expenditures, amounts committed by contract and projected costs.
- Photos of any projects or issues, as applicable.
- Utility expenses paid on your behalf.
- Overtime expenses you may be responsible for under the terms of the contract.
- Taxes paid on your behalf or that must be passed on to you by law.
- Amounts paid to vendors such as landscapers, exterminators, etc..
- Recommended repairs or improvements.
- 12 month cash flow statement – frequently compared with previous 12 month period or year-ago period.
- Anything else you want that your manager agrees to provide you with.
- Fees due to the property manager. Most firms are really good at this line item!
You can find a number of templates available online from many different property managers. Some have a standard format they like to stick to, however, so there’s no guarantee that they’ll want to reinvent the wheel for you.
Remember that it does take time to prepare these reports. At some level, you have to compensate the company for paying someone to sit at a computer and generate the report for you. So it behooves you as a landlord to keep things simple and not to overload the manager with marginal or arbitrary reporting requirements. Stick to the basics, but insist on good record keeping that can create a solid audit trail so you can address any questions that arise.
Remember, you will need to keep track of every expenditure made in repairs so that you can deduct them against current year rental income, and every expenditure made in renovation or capital improvement so that you can have your accountant add the amount to your tax basis in the property and depreciate/amortize it accordingly. This prevents you from overpaying capital gains tax if you sell the property.
How do you know if things are being done? There’s a saying among soldiers: Soldiers will do well those things the commander checks.
Check in with your manager every month. Go over your statement and ask questions if something isn’t clear. You can and should respectfully hold them accountable for their actions and for the money you have entrusted with them. That’s a healthy dynamic to have, and good management firms expect it and even welcome it: It can give them a chance to show off the great job they’re doing!
You can also visit the property, both announced and unannounced, and visually inspect some things. Remember, if there’s a tenant, you can’t just walk in unannounced.
There are access laws in each state that require you to give notice to the tenant, so be familiar with them. But you can check some things from outside the home, just driving by, such as landscaping, lawn care, paint, roof tiles, tidiness and overall appearance, etc.
If you’re not local, you can also have a friend do a drive by or walk-by inspection and send you photographs of any obvious issues, or the status of specific repairs or projects visible from outside. It’s good to have more than one source of information to keep the property manager honest. But make sure your buddy with the camera understands the access rules, as well, or he or she could cause you a hefty fine if the tenant complains that his or her privacy rights have been violated.
Writing about personal finance and investments since 1999, Jason Van Steenwyk started as a reporter with Mutual Funds Magazine and served as editor of Investors’ Digest. He now publishes feature articles in many publications including Annuity Selling Guide, Bankrate.com, and more.