How involved should I be in my real estate investment property management?

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My Real Estate Involvement didn’t stop at the purchase

When I first started my real estate journey, I basically had no idea what I was doing. That is likely true of many people who entered it by accident. I purchased my first condo as a place to live because real estate was going crazy in southern California. As part of the purchase process, I was provided with copies of the most recent financial statements and CCC&R’s for the Home Owners Association (HOA). Honestly, they were not that good, low reserves, high rent to own ratio, etc. This raised red flags for the lenders, which caused a bit of heartburn. I was eventually able to close though. In the year after I closed, there was a special assessment put in place to cover some repairs. There was also talk of another one being necessary.
These factors, along with the fact that it was difficult to get more information about what was happening, led me to join the HOA board of directors. For the first few years, it was as an advisory member, with no voting rights, etc. As time has gone on, I have gotten more involved on the board, in part because no one else volunteered, but also because there were financial issues that put the HOA, and thus, every owner’s investment, at risk, and had to be addressed.

You have to make a choice

As you can see, I made a conscious choice to become more involved with the HOA than simply being an owner. I was willing to put the time toward being a board member because I saw it as a way of protecting my investment.
This same choice is repeated every time someone purchases an investment property. Some people want to be very hands on, and manage the property themselves. In the case of a condo, it is possible to take that to the next level and get involved with the management of the HOA. Other people are either not interested in, or not able to have this level of involvement in their property. This could be due to other work obligations, being an out of town investor, the number of properties they own, or simply a desire to focus on their strengths, which don’t include property management.
Let’s take a moment to look at the different levels of involvement, starting from most involved to least. I mentioned two above, but there is room in the middle for a third. With each level, I’ll talk a little about what they might entail, and why you may want to choose each one.

You manage your property, and then some

If you purchase real estate, and the thought of having someone else be involved with managing it seems foreign, then you probably fall in this category. There is an expectation of higher levels of effort required on your part. You will be finding tenants, coordinating repairs and rehabilitation, and potentially helping out on neighborhood boards or HOA boards where your property is located.
This level of involvement will expand or contract to utilize the resources you have available. It will also be constrained based upon the location of your properties. If they are close, you will be able to manage more of them like this. The more spread out they are, the more likely you will need help.
More properties and larger distances may still allow for high involvement if you either put together and manage, or are part of a team. In that case, you may be heavily involved in some properties, while your team handles others with you having close oversight.
The benefits of this style of management are the intimate knowledge you will have regarding your properties and the connections you gain in doing so. This will also give you a breadth of experience in the different areas of real estate property management. That experience will serve you in the future should you adopt a lesser degree of involvement by knowing what to look for with property management companies.

You bought it, they run it and you check in regularly

This will probably be the 2nd most common group that real estate investors fall into. In this situation, you may do the legwork to find a property and make the purchase, with the understanding that you will have a property manager handling the day to day operations. There is still a range in the amount of interaction that you can have, and this depends on your comfort level. If you are confident in the property manager you have found, it may be possible to simply check in once a month when you receive their financial statements, and either acknowledge a deposit or make a transfer if money is owed for expenses. On the other hand, you may choose to handle some functions, like paying bills, or coordinating repairs while leaving tenant management and rent collection, to the property manager. This and other configurations will break along the lines of standard themes: proximity to property, number of units owned, other businesses, family responsibilities, etc.
The benefits arise in the time that you have to put toward other endeavors, which could be another business or relaxing on the beach with a fruity beverage. The point is, that you have a choice. If you only hand off part of the responsibility, you have the choice to offload those items that are either not you favorite, or are ones that keep you from focusing on higher management functions of your business.
Either way, this choice is predicated on the quality of the management team you have put together. The more in sync they are with your needs and concerns, and with good property management principles, the more responsibility you will be able to give them.
This style may be an outgrowth of the more involved first style. As you become more comfortable with your property management team, you may be more willing to increase their level of responsibility.

Real Estate is part of my investment portfolio

This stage is essentially the set it and forget it model of real estate investing.
You may either choose this stage or it may choose you. If you have a number of different businesses, of which real estate is just one, then you might have a dedicated team that handles it with a lot of autonomy. You may be playing to your strengths here, knowing that the management of real estate is not your strong suit, but you want to have it in your portfolio.
Some real estate investments may put you in this category by their nature. Examples of these are Real Estate Investment Trusts (REIT), or if you are involved in the financing side of the transactions. In both of these cases, you are essentially providing funding for another entity to purchase and manage real estate.
The obvious benefit of this is that you have essentially no management responsibility. Real estate is simply an investment you keep like stocks or bonds or an ownership in another business.
The downside is that if something goes wrong, your investment may be at risk. You have very little latitude to step in and take over. In the event you did have the ability to step in, you may not have enough warning to be able to intervene in time to make a difference.

How to decide, and where do I stand?

Let’s talk about where I stand first. I fall between the full control management and the property manager with oversight. I personally manage the property close to me, as it is relatively low oversight and easy to handle. I also remain on the HOA board, so my involvement is high. For properties that are not close, I use a property manager. Even then, I continue to pay a number of bills and approve work to be done, so it is definitely not a hands-off management style.
Hopefully some of the downsides listed, aren’t too much negative to scare you. There is a long-standing rule that you should only invest in things you understand. You should also do your due diligence before making any investment.
In this context, due diligence is learning as much as you can about property management and real estate. This, in combination with your knowledge of other investments, will guide you to the level of involvement you need to have to be comfortable, and hopefully, ultimately successful with a real estate investment business.
In the comments, tell me what your involvement level is in your real estate investments.

Pets in Real Estate

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Pets are like family, but this is a business!

People who have pets think of them as part of their family. They want them to live with them, and don’t want to have to leave them behind for any reason.
When you become a real estate investor, you must ensure that you don’t transfer your feelings of how a pet should be treated onto your tenants. A pet should be treated as another tenant, and their potential impact on your property must be taken into account.
Ultimately, you will have to weigh the costs and benefits of whether to allow your tenants to have pets in your property.
This post will discuss the following:

  • The benefits of allowing pets

  • The downsides/costs of allowing pets

  • Protective actions to take if you do allow pets

  • When a pet stops being a pet

The benefits of allowing pets: Vote Yes for Pets

The case for allowing pets is pretty clear. If you put yourselves in the shoes of a tenant, their pet is part of their family. If someone is looking. For a place to live, they want to take their entire family to go with them. Many places have restrictions on allowing pets, thus there is a greater demand for units that do allow pets. That would tend to shift the supply vs demand needle more in your favor. How you choose to take advantage of that is your choice.
The other part of that equation to realize is that if you allow pets, you are essentially opening up the entire pool of people looking for housing as possible tenants, instead of limiting it to those who do not have pets.
You may find pet owners to be more responsible. Most pet owners understand that there is a potential for accidents to happen and make an attempt to mitigate problems before they occur.
Studies have shown that people who own pets tend to be more happy and content. Having happy, content tenants is something we all strive for, so if a pet may add to that, what is the harm?

Pets are great, from a Distance

The harm, as they say, is that no good deed goes unpunished. The negatives far outweigh the positives when it comes to allowing pets in your unit.
Let’s run down a list of the potential issues.

  • Excessive wear and tear, cleaning, repair costs: Pets by their nature create additional dirt and waste that must be dealt with. If the tenants are not responsible, this dirt and waste may become a significant and costly nuisance at move-out time. In some places, you may be able to charge a non-refundable pet deposit to cover this extra damage, but it is not always enough. This leaves you with attempting to recoup your costs through other means, either from the regular deposit or through legal means.
  • Conflict with neighbors: Unfortunately, not everyone is as happy to have pets around as their owners. When pets make noise, visit the neightbors unexpectedly and leave gifts in various places, the fallout may spread from the tenant to the owner. If this is allowed to continue, even in a situation where you are not aware of it and then handle it promptly, the perception may remain. It may, in fact, remain long after the tenants have departed. People have a long memory when they are inconvenienced, no matter how insignificant it may seem to you. The point is that the easiest way to avoid this is to remove the source of the inconvenience.
  • Liability Issues: Along with the wear and tear and repair costs, the liability that you take on by allowing pets is probably the biggest deterrent. Liability can come in many forms, but I think the largest area is in relation to pets attacking other pets or other people. Even though the pets are not yours, it is likely you will be named in a lawsuit because you rented the unit to the tenant when they were in possession of the pet, or allowed them to bring the pet into their home.
    This, unfortunately, is not limited to pets that have a bad reputation. Even the most docile dog or cat or bird or what have you, can be provoked on occasion, whether knowingly or not, and retaliate.
    If someone is hurt, seriously or not, it compounds the problem. Best, if possible, to avoid the situation altogether.

Proactive Measures to take if you are going to allow pets

Getting ahead of a problem is your best defense. If you are going to allow pets, then you need to make sure that you do everything you can to limit your potential liability.
A good first step is to think through the type of pets that are appropriate for the living space. A large open property is going to be different than a house or townhouse or condominium. Not allowing pets too large or too numerous for a space may help limit many hassles before they even start.
Ensure that you are complying with any regulations whether from the city, community, or Home Owner’s Association. Many of these agencies have given a lot of consideration to what is appropriate or not in your area. Don’t reinvent the wheel.
Determine what, if any, additional fees a tenant will need to pay if they have a pet. This may be in the form of an additional deposit, which is a one-time payment, or an additional amount of rent due every month. I think the best way to handle this is to characterize the charge as a non-refundable cleaning deposit. If this runs up against some local gov. definition of a deposit, then simply call it a cleaning fee. Be sure to remember that though you might call it a deposit, it is going to be recorded as income immediately due to it not being refundable.
As with many other items, being clear about your rules and regulations prior to a tenant moving in is critical. This starts when you are advertising your unit or property for rent. Make sure that the ad contains any limitations on type, size, number, etc. of pets that you will allow.
The next step is at the time of lease signing. Include any of your personal rules and regulations related to pets. Also include those rules and regulations imposed by any local governing body, whether county or city ordinance, neighborhood or community rules, down to Home Owner’s Association rules.
While it may seem like overkill, as long as they are current, providing this documentation ensures that your tenant is aware of and in possession of the text. This removes great potential for the "Oh, I didn’t know" argument to be raised. One great resource for standard forms, like leases, lead-paint certs, etc., if you are in California, is the California Apartments Association. Here is a link to the National Apartment Association as well, so you may find a local chapter with documents tailored more closely to the location of your property.
Lastly, and this somewhat repeats above, but it is worth it: Document Everything!!
Provide the tenants copies in the lease. Have them sign pet regulation sections of the lease. Have them initial important points within the regulations.
If you are going to allow pets, taking these steps may save you a lot of time, hassle, and potentially, money.

When a pet stops being a pet

This may seem an odd title, but it is exactly what could happen in a couple of situations. It is important because of who considers the pet to no longer be a pet, but instead, something more than. That classification unfortunately mens that you will be forced to modify rules that you have in place already, in accommodation.
In this case, I’m referring to times when you may not be able to apply your pet regulations. These situations are covered by the following regulations:

  • Department of Justice – Americans with Disabilities Act (ADA): Service Animal regulations – The only animals covered are dogs. In cases where this regulation applies, however, there are very strong restrictions about what you may ask. You may ask essentially if a dog is a service dog, and what task they are providing assistance with. That is all. Aside from that, they must be allowed into any areas where you would normally allow the public.
  • Department of House and Urban Development (HUD) – Fair Housing Act: Service Animals and Assistance Animals for People with Disabilities – This is a much broader regulation and is much more likely where you as a property owner may be affected.
    The main points are that you must make a reasonable accommodation for an animal that works, provides assistance, or performs tasks for the benefit of a person with a disability, or provides emotional support that alleviates one or more identified symptoms or effects of a person’s disability.
    A key difference between the ADA and HUD regulations are the ADA is specific to Service Animals defined as dogs, and the HUD regulations encompass those but also include Assistance Animals in a broader context. This means that it is much more likely for a situation to arise where you may have to accommodate an assistance animal.

It is important to note that while the HUD regulations are broader, in those situations, you are permitted to ask for documentation stating what the disability is, and what benefit or service the animal is providing. If those are provided, then you must make an accommodation.
You may run up against this regulation at two different times: When you are attempting to rent the property, or when you have an existing tenant who wants to bring in a pet that they claim is an assistance animal.
When an applicant discloses that they have an assistance animal, as listed above, you have two choices:

  1. You may choose them as the new tenants. If you do this, you are not able to charge them a specific "Pet" deposit, because the animal is not considered a pet. It is considered part of the family, and so the tenant is only liable for any damage not considered wear and tear.
  2. You may choose to pass on the applicant. If you do this, it needs to be extremely clear that the decision had nothing to do with the applicant’s possession of an assistance animal.

If the tenant is already in possession of the unit, you may request documentation of the disability, and the animal’s role in mitigating effects. In this situation, I would definitely have an attorney on hand for review, etc. It is going to be necessary to review the supporting documents provided and ensure that they state an actual disability and role for the pet. If there is a valid disability and role, then you will have to provide accommodation.

Wrapping it up

Well, we’ve covered a lot of topics here. Let’s walk back through everything we went over. The decision to allow pets needs to be a business decision. That doesn’t mean it is easy, as you have to take your personal feelings and emotions out of it.
If you allow pets, you are going to increase your potential tenant pool. The rental unit may be able to command a premium on rent and fees due to the more limited number of places that allow pets.
The reasons not to allow pets are largely due to avoidance of things that could happen were they to be allowed. You may face increased wear and tear, and possibly damage in addition to normal use. This may or may not be covered by the tenant security and/or pet deposit. Long-term hard feelings with neighbors may arise if a situation persists and they perceive that you let it carry on. You may face unexpected liability due to the type of pet you allow, or simply because pets can be unpredictable.
If you do decide to allow pets, first think about the types of pets that are appropriate for a particular rental unit. Next, determine what, if any, additional fees or deposits you will charge a tenant who wants to have a pet. Finally, make sure that you clearly document the rules and regulations from city/county/state, down to community, home owner’s association, and then your personal limitations on pets. Ensure that the tenant has copies of all relevant rules, and that these are signed and initialed as part of the lease.
Lastly, remember that what looks like a pet, is not always a pet. Both the DOJ using the Americans with Disabilities Act (ADA), and the Department of Housing and Urban Development (HUD) have regulations on what constitutes a service animal or assistance animal. In the case of the HUD regulations, you have the right to ensure that a person has a real disability, and the animal is assisting with or mitigating some symptom of that disability. If these conditions are met, then you will need to make reasonable accommodation either when the tenant moves in, or when they want to bring this animal into their household.
Deciding whether or not to allow pets is never an easy decision, especially if you are an animal lover. Real estate investing is a business, and while personal beliefs will always influence how you run a business, you must also be willing to look at the issue from a pure business perspective. In this case, that means considering how allowing pets may affect your potential profitability and liability.