If you own residential real estate that you‘re thinking of renting yourself, youcan do it. But youwill do it only if you have the discipline of a martinet, or the IQ of a post. Here’s why:
1 Personal Relationships: These are always good - if your relationship is with your brother-in-law who is well employed, and lives in a distant city. Also with some dogs, if they are small, or very old. But you do not want a personal relationship with your tenant. One month he will not get his income check on time and will need another week to pay rent. The first time will be O.K., but the first will lead to others, and you will feel used, and it will get personal. You will begin to forget exactly when the check came, and when you got only part of your rent. Also, the dog you were told he did not have will turn out to be an essential family pet that lives in your house. He told you he did not smoke, and that was partly true. What he really meant was that he does not smoke in public. Your newly-painted house will be the victim, and again it will be personal.
Your professional rental agent will be friendly, from 9 to 5. But he or she will not form a relationship that prevents him from saying “I’m sorry, but the Owner has to pay a mortgage payment, and my instructions are to evict anyone who does not pay rent by the 5th of the month. And by the way, the German Sheppard must go”. If you find that statement hard to deliver without getting your feelings involved, don’t try to rent your own property.
2 Marketing: You can do it, but don’t even try to equal the national exposure of the MLS, (Multiple Listing Service). You can’t do it. For a Realtor it’s a part of his stock in trade. For you, marketing is an expense, and subjects you to claims and complaints you never even dreamed of. It’s too much trouble and expense for you to advertise your own property, and you can’t do it well even if it were easy and free.
3 Record Keeping: You need pictures of your house before a new tenant moves in, and again when they get out. You need an exact record of the condition of the house before and after, and of what repairs the tenant told you he would make, and of those he actually did make, because one day he will expect a credit toward rent. Without question you will need to record exactly when you got a check, you must keep a copy, and you must record every payment of cash. The games you might play with IRS by pretending you didn’t receive rental income will be punished many times over if the tenant learns that you aren’t reporting income, and that all he would have to do to get even with his landlord is to report you. Your rental manager has a computer that will keep all records forever, and one day you will be grateful to have that record.
4 Deposit records: The law requires you to keep deposit money separate, and to report to the tenant the way and place it’s being kept. The money can’t be mixed with other rental income and expenses.
5 Repairs: You must either get up in the middle of the night to fix the pipe, or have someone on call to do that. Your professional manager has someone who does that every day, and can answer a middle-of-the-night call for service. But there’s an even bigger problem if you try to fix something and do it badly, or not according to code. If the object of your work is something that will cause injury to the house or to the tenants, your liability could be far greater than the reward if it’s not done according to code, or if it faults for any reason. Your Professional’s subs are licensed for that. If they screw up, you may still be liable, but at least the sub’s name will be first on the lawsuit.
6 The Landlord / Tenant Law: Please do not assume that because you have an idea of what’s fair, or of what Landlord/ Tenant law should be, that it is that, or that the penalty for a wrong assumption will be small. No lengthy and complex statute, as this one is, will be completely intuitive. You can’t guess what it says, or often even remember what it says, unless you refer to it daily. Even among those who use the Law daily, careful judges and lawyers often pull out the book and read the statute. The penalty for those who assume, or guess wrong, is to pay the attorney fees for the other side. If you are renting a house you own, paying taxes, insurance, and mortgage payments, you don’t need to add to all these expenses an unexpected demand to pay some delinquent tenant’s attorney fees because you were late giving a notice of deposit, or a notice to vacate.
The bottom line of all this is to get a licensed rental manager and understand the professional nature of the service he or she provides. Try not to be so highly leveraged in your real estate that you can’t handle an unexpected expense or vacancy, and create an entity to hold title so that a claim arising from one of your assets will not threaten them all.
Then pay down your mortgage and pray for a rising market. The first of these may happen only when you are very old. But, if you are one of those who bought highly leveraged property, the first may also allow you to hold the property long enough for the latter.