Buying an apartment or a house in a place where you want to spend time in retirement and vacationing there until you retire can be a great retirement planning strategy. Even better is when the property you buy can be rented out when you’re not using it, generating cash flow to cover the associated carrying costs and maybe even contributing to your retirement nest egg.
However, owning a rental in another country isn’t without challenges. The difference between a rewarding and revenue generating experience and a big headache that results in disappointing yields is the management. A rental property overseas requires two levels of management: rental management and property management. These services can be provided by the same person or organization, but sometimes require two different resources.
A rental manager is responsible for keeping your property occupied. The rental manager markets your property, finds you renters, does any required screening or vetting of potential renters and supervises check-in and check-out. A property manager takes care of the property. This typically includes things like paying the utility bills, paying the taxes, overseeing any required repairs or maintenance and verifying damage or theft after a tenant checks out.
Many rental management companies offer both services, typically charging differently and separately for each. Avoid management companies that bundle both rental and property management and charge one all-inclusive fee. Working this way means you don’t have the option of finding renters yourself (and not paying any associated rental management fee) or of taking care of the property yourself (and paying a fee only when the agency maintains the property).
The rental manager is critical to the success of any overseas rental property experience, so you want to take care choosing one. Start by asking for recommendations. Try to make contact with other owners who have rentals in the same area, and seek out their advice. Find out who’s happy with their rental and property management and who’s not.
Next, try an online search to find out which rental management agencies come up highest in the listings. Those that list first for you are likely the ones your prospective tenants are going to find first, too. Remember to search in the language of your would-be renters. For example, if you’re targeting the English-speaking expat market in Cuenca, Ecuador, try searching “furnished apartment Cuenca Ecuador” to find the top English sites. If you’re targeting the local or Spanish-speaking markets, try “departamentos amoblados Cuenca Ecuador” to identify the top Spanish rental sites.
Step three is to interview the possible rental management resources you have identified. Ask each to detail their services for you and to answer questions about the market. This will give you an idea of how knowledgeable they are as well as a more personal impression. You want to engage a group that is effective, of course, but you also want to find someone you will be comfortable working with.
Take a good look at each group’s proposed contract to make sure the management is taking responsibility for the important tasks you need them for, including collecting the initial security deposit and the rent each month and making sure the Internet and cable bills are paid on time. Also, your rental manager should be responsible for taking inventory before and after a rental and collecting compensation for any missing or damaged items after a check-out.
Verify that the rental manager’s fees are reasonable and competitive by checking with others in the area. Also ask each potential rental manager if he has a particular type of tenant he specializes in. Does this match the kind of tenant you’d like to have? Finally, confirm that any potential rental manager is willing and able to adhere to any restrictions you want to impose such as no smoking, no parties or no pets.
The best time to find your rental manager is before you buy your rental property. Rental managers are the best source of information on the type of property that rents best, the locations that are most sought-after and the type of tenant you should target. A rental manager can also be a good source of recommendations for tradesmen if you intend to do any renovations or improvements to the property before making it available for rent.
Here are eight things your rental and property management team should handle for you:
1. Income and expense statements. You want a rental manager who provides monthly statements showing the income and expenses for your property in a timely way.
2. Records. The rental manager should have receipts available for any maintenance performed, items replaced and bills and taxes paid.
3. Payment processing. Review the rental manager’s methods for processing payments from tenants as well as how he will forward the money to you. Confirm any fees that will be charged and when and at what rates currencies will be exchanged if you’re not renting in dollars
4. Ongoing assistance. Make sure the rental manager is easily available and will be responsive in case your tenant has a problem or emergency. Make sure that each tenant will be provided with the manager’s contact information.
5. Meet and greet. A friend rented an apartment in Medellin, Colombia, for a one-week stay. He was dropped off in the dark in front of the building and left on his own to talk his way past a doorman who wasn’t expecting him and only spoke Spanish. If you care about repeat business, make sure your rental manager will have someone meet your tenants personally and show them into the property, no matter what time they arrive.
6. Bill paying, including taxes. The easiest way to handle local bills including utilities, phone, cable and Internet services is via direct debit, which is available in more places around the world than ever before. If direct debit isn’t an option or if you don’t have a local bank account, then your rental manager should take care of local bill paying for you, forwarding the statements to you in real time.
7. Maintenance. Your rental manager should do periodic checks for maintenance and repairs and should follow through with qualified personnel to fix anything that requires fixing. Brief inspections should be performed between tenants and at regular intervals when long-term tenants are in residence.
8. Cleaning. Unless you have your own maid, the best way to take care of cleaning the property, both while tenants are in residence and between tenants, is through your rental manager. Many rental management groups have trusted maids on staff who not only clean but also serve as another pair of eyes and ears looking after the property.
Kathleen Peddicord is the publisher of Live and Invest Overseas, offering retirement and overseas living advice in her free daily Overseas Opportunity Letter and the monthly Overseas Retirement Letter. Her preceding essay originally appeared on U.S. News & World Report.