When embarking upon purchasing your first investment property and preparing it for the rental market, you'll likely come across some words and phrases you aren't very familiar with. Like many other industries, the property management world can sometimes sound like it has its own language. While many of the commonly used words may be things you have heard before, these terms often mean something a little different when referring to investment properties and leasing. At Sweyer Property Management, we like to be sure that our clients understand everything they are hearing, reading and signing so that communication always remains clear and everyone is on the same page. Here are some of the terms you may hear when diving into the world of property management and investments.
- Lease - The lease is the legal document which all approved applicants will sign upon being approved to rent your property. This document contains all the terms of the agreement such as the beginning and end dates of the lease, the date by which the lease must be renewed or notice to vacate must be given, as well as very detailed explanations of all rules and regulations governing the tenants’ stay at the property. Leases are legally binding contracts and once signed by the tenants and property manager, must be abided by to the letter of the law.
- Lease Renewal - A few months prior to a lease's end, property managers will begin communicating with tenants in order to determine their plans regarding renewing the lease. If a tenant is in good standing and an owner wishes to continue leasing out their property, tenants may be offered a lease renewal. This is also a legal document and is considered an addendum to the original lease. Typically, a signed renewal agreement must be received by the property manager no less than 60 days prior to lease end. The lease renewal gives the property owner the opportunity to propose a rental increase, offer a longer or shorter renewal period or request that some additional terms be added to the next lease term. The renewal is something of a negotiation between tenant and owner, and the experienced property manager will be looking out for the owner's best interest and know if it is a good time to request a rental increase or change the terms of the agreement.
- Management Agreement - This is the contract that a property owner signs with a property management company. The management agreement spells out fees, duties of both parties, the length of the contract, renewal terms of the contract, what happens if the contract terminated early and much more. Management agreements aren't a standard document in NC and can vary widely between companies, so it is always important that property owners read over them carefully and understand the terms of the contract prior to signing.
- Move-out Inspection - Once tenants have vacated a property, turned in their keys and relinquished possession of the property to the management company, it is common for the property manager to conduct a move-out inspection. This inspection is extremely detailed and covers nearly every aspect of the property both inside and out. The main purpose of this inspection is to determine any damages the tenants are responsible for in order to make appropriate security deposit deductions. Move-out inspections also give the property manager an opportunity to make suggestions on other repairs and upgrades a property may need before the next set of tenants moves in.
- Notice to Vacate - Similar to the lease renewal, a notice to vacate must be given to tenants or received by the property manager typically no less than 60 days prior to lease end. In the instance of a notice to vacate, it can be given by either party - owner or tenant. If the tenant has made plans to move out, they must notify the property manager of such within the allotted time period. Conversely, if an owner no longer wants to rent the property to the current tenants or is removing the property from the rental market, they have a legal obligation to notify them of such at least 60 days prior to lease end (depending on the terms of the lease). Once this notice has been provided or received, tenants will then receive a detailed checklist of items they're responsible for prior to vacating the property.
- Owner Portal - This online feature, offered by most property management companies, provides owners with the opportunity to login to their account on the company website and view income and billing statements as well as other account information. Allowing 24/7 account access gives owners the freedom to view their statements, make payments if needed and send communication to the property management company at their convenience.
- Property Review - Property reviews are akin to inspections and are often conducted by the property management company throughout the term of the tenancy if a property owner agrees to such. Experienced reviewers will visit the property at prescheduled times to check the condition of the property, make sure it is being cared for and look out for items that may need repair. They are also trained to look for lease violations such as unauthorized pets and occupants. If there is suspicion of unauthorized or possible illegal activity going on at a property, such visits will not be scheduled well ahead of time as with regular property reviews. Rather, the reviewer will arrive at a property with the express purpose of finding out whether any lease violations are taking place. Property owners should be provided with detailed copies of these review reports in order to keep them in the loop regarding the condition of their investment homes.
- Rental Analysis - A rental analysis involves a professional property manager reviewing both current market conditions as well as the features of your property in order to set an appropriate rental rate. If a property is priced too high for current market conditions or much higher than comparable properties, it is much more likely to sit vacant for a longer period of time than its counterparts. Setting the rental rate at the correct price point will aid in minimizing vacancy time and thus result in more return on your investment.
- Security Deposit - This is money that the tenant puts down (in certified funds) prior to the start of the lease and is held in the property management company's trust account. This money belongs to the tenant, remains in the trust account for the duration of the tenancy, and is only to be used to cover damages when the tenant vacates. Whatever funds remain after damages are repaired are returned to the tenant - if the tenant leaves the property damage-free, then they receive their entire deposit back. Security deposits are typically equal to one month's rent, and in North Carolina, a security deposit can never be more than two month's rent.
- Tenant Portal - The tenant portal is the tenant's account on the property management company's website. Logging into this feature allows tenants to pay rent online, submit maintenance requests and much more. Allowing tenants to carry out these functions at their convenience often eliminates miscommunications as well as enables them to pay their rent wherever they are and at a time of day convenient to them.
- Tenant Screening - This is the process through which the management company determines whether an individual is qualified to rent your home based upon certain criteria. This process typically includes a credit check, verifying rental references, and reviewing applicants’ proof of income to ensure they can afford the rent at the property they've applied for. Tenants must meet all criteria in order to qualify for a property and if there are multiple persons applying for a property, they all must go through and pass this process to qualify.
- Turnover Period - Also referred to as the vacancy period, this is the time during which your property is between tenants and is being prepared for a new set of renters. During this time period, owners and property managers work together to determine what repairs and upgrades the property may need in order to look its best for new tenants. If any larger projects like painting or carpet replacement need to be carried out, this is usually the best time to do it. Having your investment property looking its best will result in happy tenants or finding new ones more quickly if it isn't already pre-leased. Also, major repairs can often be written off on your taxes if they're being conducted while it is being used as a rental property - but always be sure to consult a tax professional.
There are, of course, many more terms one will come across throughout his or her time in the world of investment property ownership. It is always important to understand the jargon whether you’re self-managing, using a property management company, a first-time investor or a seasoned veteran of the investment world. Having a good grasp of what you’re hearing and reading will make the process of renting out your home go much more smoothly. If you can, take some time to read up on some property management terms from a trusted source or, of course, call an experienced property manager.
Sweyer Property Management has exhibited continuous growth throughout the Wilmington, Leland and Hampstead areas while maintaining an excellent Google+ rating for customer service. To inquire about the company’s full-service management services or to take a tour of homes for rent in the area, visit them online at WilmingtonForRent.com.
Please Like and Follow the Sweyer Property Management Facebook, Instagram and LinkedIn Pages for property management tips and to see properties available for rent.