How and Why Landlords Want to Create Standard Operating Procedures for Their Rental Property Business

posted on : May 10, 2022 0 Comment

Standard Operating Procedures, also known as an Operations Manual, are vital to ANY business, especially those requiring multi-level management. Essentially, it is a step-by-step “how-to” guide describing how you (or someone you hire) should be completing tasks associated with the business. This article will explain why standard operating procedures are essential and how landlords can implement them into their rental property business.

Did you know that 95% of franchise businesses succeed, leaving a failure rate of 5%? In comparison, 20% of non-franchise small businesses fail annually. What’s the difference? Franchisee’s purchase with all systems in place. They have been tried and tested and then taught to the new owner for them to step into a successful business model. Do you plan on DIYing your property management business forever? Can your rental property business run without you? I didn’t think so. So let’s look at why detailed standard operating procedures are essential for you as a landlord.

With Growth Comes More Responsibility

If you are on the path of growing your rental property business so you can supplement a 9-5 job or retirement, then your level of management will constantly be changing. Owning a couple of single-family homes is different from operating a few multi-family dwellings. Multi-family brings in more money, but it requires more time, energy, and know-how.

Sure, you can hand it all off to a property manager, but what if you haven’t budgeted for that expense? What if you cannot find a PM that will work as diligently as you do? Whether to a property manager, a family member, or an employee you decide to hire, you will eventually hand your business off. When you do, don’t you think it would be helpful to that person taking over to have a guide to follow?

Taking Time Off

Surely, you will take a vacation from time to time. Let’s hope it’s more often than not at all! Most of our vacations are to our mountain home, so we can still field phone calls. Do we want to? No, but we do because they are few and far between. When we take off to Hawaii or on a European vacation, we hand the operation over to our team. Each knows the tasks they are responsible for and how to handle most scenarios that can arise.

The Unfortunate Circumstance

If a landlord should prepare for anything, prepare for the worst case scenario. We have experienced car accidents, illness, and sudden deaths of loved ones. When unfortunate circumstances arise, having standard operating procedures defined allows you to hand it off to almost anyone to pick up the slack. Have someone to call forward your work phone to theirs and let work go so you can help, heal, or grieve.

Adding Value to Your Rental Property Sale

If you consider selling your rental property, do you think a newbie investor might find value because you have all of your systems spelled out, and someone can step in and take over? You don’t see this often, but it does add some value to your sales price.

Covering your Ass-ets in a Legal Battle

Operations manuals are not only critical to the operation of your business, but they are often critical in the resolution of any number of different types of legal disputes. They are often the focus of lawsuits and can contain evidence in several varieties of claims. These claims include personal injury and Fair Housing claims.

One of your attorney’s first questions is, “Do you have an operation manual?” or “Do you have your Standard Operating Procedures written and available to your staff?” If you have one and show that employees follow procedures carefully and use checklists to perform tasks, you will go a long way towards showing you have done nothing wrong or have done all you could to avoid the situation.

So those are a few examples of WHY you should have an operations manual stating all your standard procedures. Let us now discuss the WHAT and HOW behind it all.

Ideas of What to Include in Your Operations Manual

Marketing and advertising your unit

Where to advertise? How long? What information to include in the ad? Use their rental application or your own? How many photos to include? Where are the images located? Who takes your photos if no pictures are available? Do you have a video to post or share? For tips on taking photos of your unit, check out our blog: Tips for Taking Great Rental Property Photos
What are your criteria for acceptance?
How to certify your employees for Fair Housing Compliance
How to handle a potential applicant? Email? Text? Prescreening?
Scheduling Showings: In-person? Virtual? Unaccompanied? How to grant access to the unit?
What needs to be covered when doing a showing? Is there a welcome packet? Go over Fair Housing Laws here!
How to accept applications and fees?
Is there a lock box for realtors to view? Gate codes for entry?

Vetting Applicants

What’s your process for acceptance? First completed and qualified applicant? Collect all applications and evaluate?
Have you named the process for background checks? Whom do you contact? Are there specific forms to use for this process?
What are the variables for requiring a Guarantor?
Is there a special form to use when denying an applicant?
What is the response time?

Move-In Procedure

When and how does the tenant(s) sign the lease? In-person? Electronically?
How to access a blank lease? Include links and passwords.
Where to store completed leases? Who has access to them?
Do you do a move-in walk-through in person? Virtual? How do they get keys?
When do you collect the security deposit?
Do you provide a Welcome Basket? What do you include? Where do you buy supplies?
What are the items to be covered in the walk-through? Where does the tenant drop their trash? What day is garbage collected? Where is the mailbox located? Are there gate codes? Where are the utilities located? How to shut the gas off? Are there instruction on how to shut the water off at the main or in the unit? How to operate the thermostat? Where and how to change the batteries on the smoke/carbon detectors? Where and how to change the air filter for HVAC?
How long do they have to notify you of any issues found after moving in?

Are you starting to understand the importance of standard operating procedures? Let’s continue.

Periodic Inspections

When do you/they perform them?
Are they notifying the tenant of the inspection by email, text, or notice on the door?
Are they offering to remedy any other issues tenants have or only perform an inspection?
Who is to be present when it’s performed? Contractor? Tradespeople for repairs?
Are they taking photos of issues?
Is there maintenance performed when doing inspections? For instance, do they change the air filter? Change smoke/carbon batteries? Change thermostat batteries?
What are you inspecting? Water lines? Appliances? Extreme clutter? Evidence of unauthorized roommate? Lighting works? No electrical plugs are overloaded? Are any exits blocked? No evidence of mold? Any lease violations to notate?
Post-inspection report: Who gets a copy? How do they notify the tenant of findings and required maintenance? Include photos on the report? Where to store the information? In the tenant file?

Check these out: Why Landlord Inspections Are Essential. Single Family Home Periodic Inspection Checklist

Preventative Maintenance

What to include in this? For example, how often to change air filters, water filters, batteries, and water supply lines?
When to service HVAC? Who to call?
Are you cleaning roof gutters once a year? Twice a year? Who does this? Where are the tools to use?
Gardening and landscaping? Who inspects the walkways and pathways? Are there trees to be trimmed? Are there tree roots to deal with? Planting flowers in gardening beds? How are they watered? Where are the controls? Who has access?
Pest control? Who does it, and how often? Are chemicals used in which you need to advise the tenants?
What tasks to perform during which season of the year?
Is there winter preparation? Outside water sources covered and insulated?
What are the serial numbers of all mechanical units and appliances?
Is there a maintenance log? Where is it kept, and who updates it? What do you include on the record?

Good Reads: Fall Season Maintenance For Your Rental Property. 5 Spring Maintenance Items Landlords Should Do

Handling Maintenance Requests

How is the tenant to notify you?
Who and how often do you check those notifications?
How quickly do you respond to the tenant?
Who are your repair persons? Where is their contact information? How much do they charge? How do you pay them, on account or upon completion of service?
What formula do you use to decide if one should repair or replace it?
Do you or a team member meet a repair person, or does the tenant?
Notification to the tenant of the repair and entry to their unit: How to notify them? How much notice is needed? Will they need to prepare for the repair (i.e., remove food from the refrigerator, clear items from under the sink).
How to handle a repair person no-show?
How to handle if the tenants have pets?
What to do and how to handle if the tenant caused the issue.
How to handle if the tenant is unhappy with the repair.
What notations are needed to show you have done ALL you can do to remedy the issue?

Tenant Renewals and Denials

How to track tenant renewal dates?
When to contact tenant of upcoming renewal or denial of renewal? 30/60/90 days before the end of the lease?
What verbiage to use for renewals? How to determine rent increase? Is there a form to use for notification? How to notify the tenant?
What form to use for denials?
What are the reasons for denial, and how to write in a Fair Housing appropriate manner?
Which lease to use for renewal? How to access it?
How to sign a lease renewal? In-person? Electronically?
Are there any new addendums to the lease? How to advise the tenant of these changes?

Tenant Move-Out

What to do if the tenant needs to break the lease?
How much notice does the tenant need to give you?
Do you offer a pre-move-out inspection to advise the tenant of issues potentially deducted from the security deposit if not remedied? When to schedule? How to handle problems found.
What items does the tenant need to clean, and what to charge if not cleaned?
Where does the tenant leave keys?
How to notify the tenant of deductions from the security deposit? Is it an estimate or a straight deduction?
When does the notification need to be received by the tenant? Does your state have a strict date?
What exactly needs to accompany the security deposit deduction? Invoices and receipts? Do the invoices need to be dated and have the unit # stated?

Flipping A Unit

Who does what? Cleaning, painting, maintenance, repairs; when to schedule workers? How to pay for the work performed?
Who has access? Is there a lockbox for entry?
How does one determine to replace versus repair?
Entry locks: who to call and re-key?
Are there partners who need to approve improvements? Up to how much spent before need approval?
Is there a schedule to follow to get back on the market within X days?
Have there been significant improvements? Do new photos/videos need to be taken? Who does this service?

Standard Operating Procedures for the Office:

Bookkeeping and Administrative

Where is the office?
Where do you receive mail?
Who has access to what files?
Are files held in hard copy? Electronic? Where are the files located? Are critical files locked up? Who has these keys?

Read: Keeping Rental Property Documents Organized

Where are the Master keys located? Who has backup keys?
Do you do Fair Housing training? How often?
Who handles the bookkeeping, banking, administrative, and maintenance duties? What is their contact information?
What are the utilities you have connected to each property? Notate phone and account numbers.
Where do you bank? How many accounts do you have? What is the minimum check amount for one signature? Who else signs for over the minimum check amount?
Where are account payable and receivable files kept?
How do you accept rent payments? Do you allow personal checks? If so, do you photocopy the checks? Do you black out the account number? Do you save the envelopes stating the postal date? Where do you file these?
How do rent payments get into your bank account?
What bookkeeping software do you use? Who has access to it? Do you account for each property separately or together using different ID codes?
What rental property apps do you use? What is the link, and where to find passwords?
Where is the master contact list of tenants?
Where is the master contact list of the office personnel, repairpersons, contractors, pest control, landscapers, realtors, attorney, CPA, and team members?
Do you do a rent roll?
How to account for depreciation?
Do you analyze the properties to ensure they are earning the return you want?
How do you account for reserves? Do you hold funds for vacancies? Repairs? Capital improvements? What bank account are they held in, and how do you account for them?

Read: Cash Reserves for Rental Properties, How Much is Enough?

Where do you hold security deposits? Who has access to this account? What is the process for transferring back to the tenant after move-out?
Do you have a list of improvements you want to perform? Do they add value to the property? How? How does one implement them?
What are your goals? How long do you plan to hold each property before selling or exchanging it for another?

Other Items

How do you process evictions? What parameters lead to the removal of a tenant? For example, do you try cash for keys first? Who is your real estate attorney? Who serves the tenant? What are the dates you must abide by process the eviction properly? Is there specific paperwork do you need to provide? What funds to use to pay for the eviction?
How do you handle damages to a unit? How are they documented? What does the lease state? Does it clarify who is responsible for what?
How to handle emergencies? Where to send tenants in the event they cannot stay in their unit? Who is your insurance carrier? Is the contact person named? What is the policy number? Where is a copy of the policy located?
What to do if you need to tent the unit due to termites or bug infestation?

Read: Termites, Tenting, and Tenants, OH MY!, How to Deal With a Termite Infestation at Your Rental Property

How to handle if a tenant locks themselves out of the unit?
What to do if a tenant passes away? Who do you grant access to collect their belongings?
How to handle if a tenant passes away IN the unit?
How to handle if someone is injured on your property?
Do you have security cameras? Where are they located? How are they run? What app? Internet?
Who sets the criteria for accepting tenants? Are pets allowed? What documentation is needed to show ESA? Do you allow smokers? How to process section 8 or voucher holders?
Where are these criteria noted? Online with the advertising? On your website? Is it included when sending an application to a prospective tenant?

WHEW! Well, that was a lot of information! As you can see, creating standard operating procedures is no small feat. It will take time and diligence. So, let’s talk a little bit about HOW to complete an operation manual.

Creating the Manual

The process depends on what level of technology falls within your comfort level. Some suggest starting with a hard copy first. A paper form will help with the visualization of how the manual layout. Many sections may contain duplicate information, but this would be helpful when an unfamiliar eye is searching for the one thing they need. For instance, you may have details about your set criteria in both Marketing/Advertising and Vetting the Tenant.

Start with a large binder and use good old-fashioned tabs to divide the sections. As you work along, submit information behind each related tab. When the binder is complete, you have a hard copy you can keep in your office (locked cabinet) in case of an unfortunate event. You can scan it in as a PDF, or if you have written it out over several files, you can combine them all to create one significant (Word or Google) doc to be saved on your computer or shared with others.

We recommend that at least one other person has a copy in their possession if you cannot share it personally. Consider whoever might take over in case of an emergency, like an adult child, spouse, or another rental property owner. They should have a copy as well as your attorney. If you store it as a Word or Google doc, everyone will have an updated document when you make changes. Whoever it is, make sure it is someone you trust entirely as you are sharing very personal information regarding access to accounts, key locations, tenant files, etc.

A Few Words of Advice

Our best advice is to start small. Begin with what you know and build your standard operating procedures from there. Having your criteria stated is of utmost importance. How you train for Fair Housing laws is equally important. Use our guidelines above, create an outline of what you want to include, and go from there. It’s a huge undertaking, but it’s one task you will not regret. Think of it as creating a Will and Trust for your rental property business. It’s no fun and not something you ever hope to utilize, but it will bring security and relief to you and your loved ones if needed.

Please leave us a comment letting us know what you think of our blogs! Questions? Contact us at Stacie@YourLandlordResource.com OR Kevin@YourLandlordResource.com.

Check out our other blogs to guide you on your self-management journey as a landlord:

Beyond the FICO Score, How to Read an Applicants Credit Report

Our Top 10 Rental Property Repairs

How to Cope With Inherited Tenants

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