Due diligence for a real estate investment typically involves spending a few weeks going through numbers and information before finding the right property and negotiating the best terms. While closing the deal and receiving the keys to a new rental property can be an exciting experience for a new real estate investor, a lot of work remains. As a real estate investor, owning a rental property is quite different from managing a rental property, and a lot of real estate investors can get caught off guard at the large number of operational elements they never even thought about during their due diligence. While many real estate investors do an adequate job of preparing for closing on a rental property, they are surprised by the complexities of rental ownership and management after the keys have been handed over. The problems caused by a single misspotted tenant, or a missed lease clause, or a late repair can easily gobble up a number of months of rental income. So, it is essential to know what to make a priority in order to successfully manage your rental property.

Maintenance Planning Is Not Optional

One of the most common surprises for new landlords is how quickly deferred or reactive maintenance compounds into larger expenses. A proactive maintenance plan is not just about preserving the property's condition. It directly protects net operating income. Investors should build a maintenance schedule before the first tenant moves in, covering:

• HVAC filter replacements and seasonal tune-ups
• Roof and gutter inspections each fall
• Plumbing checks, particularly in older properties
• Appliance servicing. If you are supplying appliances in your rental property, you will also want to service them for your tenant.
• Exterior upkeep including paint, fencing, and landscaping

The U.S. Department of Housing and Urban Development notes in its explanation of a tenant's rights and responsibilities as a renter that a landlord is responsible for keeping a rental unit in a habitable condition. The criteria for what constitutes a habitable rental property, however, varies from state to state. A landlord can cause harm to a rental property and create large expenses by neglecting to complete routine maintenance, for example. At the same time, the landlord can expose himself to liability for damages to a tenant or others should he fail to maintain the rental property in accordance with applicable law.

Tenant Screening Deserves a Documented Process

Many landlords understand in general terms that they need to screen applicants for tenancies, but they do not have a documented process for how they make their decisions. This can result in a number of problems for the landlord, including inconsistency in decisions and potential liability for fair housing complaints. When you begin to screen potential tenants it's essential that you establish a documentized process that includes credit checks, verification of their income, their prior rental experiences and their background check(s). Make sure that you conduct these types of screening in compliance with applicable federal and state laws and remember that the Consumer Financial Protection Bureau provides information on how credit reports and credit scores work which will better help you understand the numbers that are provided to you in the reports that are created for your review by various reporting agencies. Criteria for screening tenants should be outlined and always applied consistently. Screening based on protected characteristics as outlined by the Fair Housing Act is against the law, can result in damage to both the property and the landlord, and can result in discrimination complaints.

Lease Compliance Is an Ongoing Responsibility

The lease is not a document that is created and then filed away. Rather, the lease is the beginning of a relationship between the landlord and the tenant that must be managed on an on-going basis and in compliance with the terms of the lease as well as state and local landlord-tenant laws. Common compliance gaps include:

• Not giving proper notice of entry to rental property.
• State specific addenda such as lead paint disclosures, mold disclosures, and bedbug policies.
• Not updating lease terms when local landlord-tenant law changes.
• Not returning security deposits on time, including not returning any of them or deducting too much from them.

Lease templates for rental properties are typically created by online forms. These typically do not account for the many variations between states and local jurisdictions. That is why hiring a real estate attorney to create a lease or review a lease for a rental property is a wise and cost effective move.

Regular Inspections Protect Your Asset

Incorporating regular inspections of rental properties into an overall strategy to protect an investor's rental property assets is a smart long-term rental property investment decision. As investors, most of us wouldn't buy a car without taking it for a test drive; yet many real estate investors buy a property and then never step foot in the rental property for years at a time. The truth is that only by performing regular rental property inspections of rental properties can smart landlords of rental real estate discover potential problems with tenants and with maintenance of rental properties before those problems cause costly damage to real estate. The following is an example of a practical schedule of inspections that would apply for most long term rentals: Arrive at the property to conduct a thorough walkthrough with the new tenant to document the interior and exterior of the property including all furniture and appliances. Take photos of each room, and make written notes of anything that requires repair or improvement. Conduct a mid lease inspection around the six month mark of the lease, and hold a final inspection with the tenant at the end of the lease term. This should also be documented with photos and written notes. It is best to take these at the beginning of the tenancy, and at the end of the tenancy, in order to show the "before and after" of the tenant's occupancy. This will be critical should there be any dispute over security deposit deductions. Generally tenants have a right to advance notice of inspections. That amount of time is determined by state law. Clearly outlining the time frame for inspections in the terms and conditions of the lease can protect a landlord from conflicts with a tenant regarding inspections.

Vendor Coordination Takes More Time Than Expected

Investors may think they can self-manage their rental property but find out too late that Vendor Coordination takes up a lot of time. Finding the right people to complete repairs and maintenance, obtaining quotes, coordinating with tenants to complete work, verifying that work was completed as agreed and keeping track of expenses to name a few, can take up a lot of time and are typically considered post-closing activities that an investor can manage. Establish a pool of reliable vendors before they are needed. This is one of the best things you can do for yourself after closing on a property.

• A licensed plumber and electrician for urgent repairs
• A general handyman for routine work
• An HVAC technician for seasonal servicing
• A property cleaning service for turnovers
• A landscaping contractor if the lease places that responsibility on the owner.

You will find that even small portfolios of rental properties can suck up an incredible amount of time to coordinate repairs and maintenance between vendors. Many real estate investors find themselves part-time property managers in practice and turn to full-time property management as a way to increase their return on investment (ROI) from rental properties - a transition that companies like Concept 360 Property Management and Brady Realty Group approach by taking over vendor coordination, tenant communication, and maintenance oversight entirely.

Vacancy Management Requires a Strategy, Not a Reaction

Every day that a unit is vacant causes loss. For many property investors, dealing with vacancies is left to chance. The fact is that dealing with vacancies is something that can be managed provided that adequate planning has gone into a vacancy strategy before a rental listing is put up for a property. Key elements of effective vacancy management include:

• Find out the average days-on-market for comparable rentals in your area.
• Set rent competitively based on current information of the real estate market and not on the purchase price of the property.
• Get high quality photos of the rental unit(s) ready for listing.
• Make available for rent all suitable properties via as many channels as possible including property manager's own web site, as well as on-line rental portals and via local networks.
• Start the re-leasing process for a property before the current tenant's lease expires.

Also worth noting is the National Association of Realtors' publication of rental market data such as local vacancy rates that can help investors gauge whether or not they are obtaining healthy rental income and make determinations regarding the ultimate success of their investment on a long-term basis relative to comparable rental properties and communities.

The Long Game Requires More Than A Good Purchase

While finding a good property to invest in at a right price can create a great investment for rental income, its actual return on investment over time is very much determined by the way it's managed after the purchase has been made. The returns of a rental property in the long run can fluctuate wildly depending on maintenance choices, on quality of tenants, on how well an investor can negotiate to get the best lease possible and maintain control over it, and on vacancy rates. This is all stuff after acquisition that will greatly impact investors' bottom line and their ability to create wealth through real estate investment in the long term. All these aspects of a rental property must receive the same amount of thought and dedication as all other steps involved in acquiring a property.

Chris Highland eXp Realty Frederick, Maryland Cell: 301-401-5119 Broker: 888-860-7369

What's My Home Worth?

Search for Homes in Maryland

Need A Real Estate Agent in Your City? We Can Refer a Great Agent!