Anyone Have Rental Properties?

[KyCatFan]

My wife has been wanting to get a bigger house for a little while now, but I hate the thought of trying to sell one house while buying another. So I have been thinking about renting out our current house as a possibility. Anyone Have any tips for starting out if that is the direction we go?

 

[Wildcat Willy]

Have somebody trustworthy hold the ladder.

 

[Lord_Crow]

Just open up a bed and breakfast. Need more of those out in the middle of nowhere.

 

[funKYcat75]

My advice is: tell her to appreciate the things she already has. It's time to put a stop to her materialism.

 

[Lord_Crow]

Exactly. If she has enough room in the kitchen then she should just keep her mouth shut and bring you another beer.

 

[elwood_blue]

Several states have incredibly generous rights for renters who are evicted. You may end up with renters you want to get rid of but it could take months before they are forced out, all the while destroying the property of the homeowner who is evicting them.

 

[UKGrad93]

I was an apartment managert once. It was an awful job. I can't imagine how insane it would make you knowing that you actually own the property that these low lifes are trashing. You and your wife should watch Pacific Heights this weekend.

 

[From-the-stands]

I have a couple of rental houses and I recommend you try it. Do your due diligence when you are going through the possible tenants. Get references - talk to employers and former landlords. That's the most important decision you have to make.

Renting a little below market value will increase your pool of applicants, and also make your tenant more appreciative of where they live -- this is a strong motivation for them to stay on your good side by paying the rent on time, and not bugging you much about little repairs.

I've never had a problem with a bad tenant so my experience has been great. Money in my mailbox every month.

 

[blueboy08]

Update your insurance, hire a lawyer to write the lease, and do a credit, background, and prior landlord reference check.

The cheaper your rent is, the worse they will probably treat the property, but there is an exception to every rule. I've had tenants in wheelchairs totally trash the place, 23 year old guys who partied a lot keep the place absolutely immaculate, and poor and wealthy families treat homes and apartments at all ends of the spectrum. Generally though, the higher your rent the higher quality tenant you have.

And never let anybody spend more than 35% of their income on rent - higher likelihood of them breaking the lease or defaulting when you rent to income ratio goes higher.

 

[LineSkiCat]

Hopefully will be grabbing a 2-family in 6 months. Live in one half, rent out the other.

As far as I'm concerned you have to be good at three things:
1. Your personal finances and the tax system. Saving the rent you collect for repairs and knowing how to get tax breaks for repairs and such.
2. Home repair and handy work, at least to an intermediate level. If not, having a contact who can do most work for a good rate.
3. The ability to feel no remorse collecting money and even evicting people. (I have spoken to several people who deal with rental property, and this is make or break for most).

One of the things I place more emphasis on than most others is location. If you lived in this house with a family, is this an area where people actually rent, or is it more home owners? Is it in a good area? Near a college or a hospital? Is it an upcoming neighborhood, or an area where it might turn bad in the coming years?

Ideally, you want to be in a district that has some high population facility nearby for a steady rent stream. Something like a giant corporation, a hospital, or a college work. You don't want to be in the ghetto, obviously, but you also don't want to be in that middle area. Some people think "Oh the ghetto is 10 blocks thataway, this is a real nice area that's well priced", well, that can change pretty quick. I've seen it happen in several areas. If your house meets the above, you might be able to have a steady passive income from renting. Not a bad way to go.

 

[Bill Cosby]

Live in one half, rent out the other.

For a young adult male, that's absolutely the way to go about doing it.

 

[WettCat]

I work about 14 rental properties for my father. Strongly suggest using a rental management company to do most of the work, otherwise you'll be taking calls at all hours of the day and night, trying to chase people down for money, all the background checks/legal work as others have said, etc.. They may seem expensive, but certainly worth the money otherwise you can spend 1/2 your free time dealing with a bunch of senseless issues.

 

[PTI (pti)]

so you dont want the stress of selling a house, but DO want the stress of being a landlord??

interesting.

 

[LineSkiCat]

Yeah, I was fortunate to have many older family members who brought it up as an idea. Already have enough for an FHA 3.5% loan, but want to get a few more grand stocked away for closing cots, etc.

In the Albany, NY area, there are some great neighborhoods with duplexes and two-family flats. The rent from one unit will come very close to covering mortgage+taxes, but in some scenarios you might MAKE money from the rent. So essentially you are building equity and your living expenses are null. The key though is to throw all that money into some savings account. Keep it on hand for any repairs like the hot water heater or roofing issues.

I plan on having a a friend (or two) grab the other bedrooms with tenants in the other unit. That could net me $600-$700 a month AFTER mortgage+taxes.. Insane. Glad I have the opportunity and career for this.

 

[LineSkiCat]

I work about 14 rental properties for my father. Strongly suggest using a rental management company to do most of the work, otherwise you'll be taking calls at all hours of the day and night, trying to chase people down for money, all the background checks/legal work as others have said, etc.. They may seem expensive, but certainly worth the money otherwise you can spend 1/2 your free time dealing with a bunch of senseless issues.

I think there's a magic number of properties for this to work. My uncle owned lots of various properties, from residential homes to complexes to some retail locations, said you should get about 10 residential properties before you hire someone, either a company or an assistant. For the OP, I can't imagine hiring a property management company is a worthwhile idea, but for 15 properties, absolutely.

 

[maverick1]

As far as I'm concerned you have to be good at three things:

3. The ability to feel no remorse collecting money and even evicting people. (I have spoken to several people who deal with rental property, and this is make or break for most).

Rack this times 10. Years ago I built a duplex and lived in half of it. Every single renter I had tried to beat me out of money on a regular basis. Of course, being the sap that I am I bought most of them.

If you do this remember these words from Goodfellas, "Business bad? Eff you, pay me. Oh you had a fire? Eff you, pay me. Your place got hit by lightning huh? Eff you, pay me."

 

[Bill Cosby]

Yeah, I was fortunate to have many older family members who brought it up as an idea. Already have enough for an FHA 3.5% loan, but want to get a few more grand stocked away for closing cots, etc.

In the Albany, NY area, there are some great neighborhoods with duplexes and two-family flats. The rent from one unit will come very close to covering mortgage+taxes, but in some scenarios you might MAKE money from the rent. So essentially you are building equity and your living expenses are null. The key though is to throw all that money into some savings account. Keep it on hand for any repairs like the hot water heater or roofing issues.

I plan on having a a friend (or two) grab the other bedrooms with tenants in the other unit. That could net me $600-$700 a month AFTER mortgage+taxes.. Insane. Glad I have the opportunity and career for this.

Just remember you aren't going to get the personal residency gain exclusion when you ultimately sell.

Also, basically if you're AGI is less than $100k and you're managing it yourself, you can push a nice little tax loss through. That may occur after depreciation even though the property is cash flowing. You will have to recapture that depreciation when you sell though.

You can also deduct half of all the common area expenses/landscaping/insurance that you would be doing anyway but couldn't deduct otherwise. You provide "free internet" since the other unit has your wifi password? Deduct half of your internet expenses.

 

[Bill Cosby]

Will be hiring a management company for my one property when I move out.

I'll take a hit to the income to not have to deal with renters. Building the equity up is fine with me. I'd probably end up with some sort of discrimination claim anyway if it was up to me to select the tenants. No poors, no pets, no children, etc.

 

[bluelifer]

Do you already hate the general public, or one day hope to? If so, you are well suited (or will be) to own a rental property.

 

[WettCat]

I think there's a magic number of properties for this to work. My uncle owned lots of various properties, from residential homes to complexes to some retail locations, said you should get about 10 residential properties before you hire someone, either a company or an assistant. For the OP, I can't imagine hiring a property management company is a worthwhile idea, but for 15 properties, absolutely.

My dad never used a management company because he felt he could handle it outside of his normal operations. But when I started working with him he only had 3 properties. Even back then when he and I split responsibilities on the properties it didn't seem to be worth my time to mess with that crap. So when we got our fourth I signed us up with a company and showed him how the 4th property alone almost paid for the cost of the management firm. He wasn't real pleased with that but we were locked in for 24 months. At the end of the term he forgot the deadline and it automatically rolled for another 12 months. (And I wasn't going to tell him--even if they were his properties.)

 

[bradyjames]

I manage about thirty rental properties. It is a great idea IF

1) you find a good tenant- ignore what they tell you and run a credit/criminal background on them. You aren't looking for a 700 credit score but if they pay their rent, utilities, car payment etc. In addition, a stable job is a huge plus so you can collect if/when you get a judgement.

2) hire a quality property manager or do it yourself

3) get a two year lease signed so you don't have to do carpet/paint after one

 

[KingOfBBN]

The only rental property you should invest in is storage units. Low overhead, steady income, and not as insane as managing apartments/houses.

My uncle rented his house and low and behold, these sacks of crap got evicted but were allowed to stay like 90 days by the courts. By the time they left, they took every lightbulb, shit and pissed everywhere, ripped up the house, etc. It is not worth it in the slightest, in my opinion. Just a huge nightmare unless you're lucky enough to get the perfect tenant.

 

[bluelifer]

For those of you that manage properties, or use a property mgmt. company, what are the generally expected rates for that service?

 

[BlueBallz]

I was in the same situation, I'm lucky, I have GREAT tenants, they keep the house better than I did. They've been in it 5 yrs and just renewed for a 6th. If they moved out, I'd probably hire a management company and raise the rent. I know I could raise the rent now, but the tenants are so good I want to keep them happy. Typical management fees around here are 8-10%. I wouldn't have any problem renting, Toyota is moving their HQ 3 miles down the road and the area is booming. I'm lucky I held on to it. I didn't go the way of a lawyer, I just downloaded the rental agreements off uslegalforms.com. I believe legalzoom has them as well. When I decided my rent, I looked at my mortgage, insurance and taxes, then added about $200 for expenses. That seems to work.

 

[bradyjames]

For those of you that manage properties, or use a property mgmt. company, what are the generally expected rates for that service?

Ten percent of all rent collected.

 

[AustinTXCat]

Honestly, I should really enlist a property manager for the real estate we own in SEKY. However, I'm winging it for the time being. I love my homeland. What can I say?

 

[LineSkiCat]

Just remember you aren't going to get the personal residency gain exclusion when you ultimately sell.

Also, basically if you're AGI is less than $100k and you're managing it yourself, you can push a nice little tax loss through. That may occur after depreciation even though the property is cash flowing. You will have to recapture that depreciation when you sell though.

You can also deduct half of all the common area expenses/landscaping/insurance that you would be doing anyway but couldn't deduct otherwise. You provide "free internet" since the other unit has your wifi password? Deduct half of your internet expenses.

Interesting. I may have to pick your brain more on this. I still haven't purchased, but really want to get into the finance side of this. Funny enough, I posted a topic on this about 3 years ago asking for tips. Work and life got in the way of buying since then. But hopefully soon. Either way, I'm still a total novice at this stuff once it gets down to it.

Providing free WIFI, as an IT guy, is quite easy if you have your own equipment. Not a bad idea.

 

[LineSkiCat]

Rack this times 10. Years ago I built a duplex and lived in half of it. Every single renter I had tried to beat me out of money on a regular basis. Of course, being the sap that I am I bought most of them.

If you do this remember these words from Goodfellas, "Business bad? Eff you, pay me. Oh you had a fire? Eff you, pay me. Your place got hit by lightning huh? Eff you, pay me."

I hear that's the hardest part: owning rental property means you have to be a cold hearted bastard or it's coming out of your wallet. I think that's the one aspect I'm strongest in. I've had to collect money through a few jobs when I was younger, not to mention my own college parties where I was the only one who would make rounds hitting everyone up. Doesn't bother me at all. Money isn't personal. And I hate poors, like most here.

Like Jay-Z said: Got a new motto this year, "Don't F*** With My Ones"

Also, can we please start a "Favorite movie quote about business, greed, or money" thread? Paddock has been lacking some quality knowledge recently, and what better way to enlighten members with some great film quotes!

 

[AustinTXCat]

Just remember you aren't going to get the personal residency gain exclusion when you ultimately sell.

Also, basically if you're AGI is less than $100k and you're managing it yourself, you can push a nice little tax loss through. That may occur after depreciation even though the property is cash flowing. You will have to recapture that depreciation when you sell though.

You can also deduct half of all the common area expenses/landscaping/insurance that you would be doing anyway but couldn't deduct otherwise. You provide "free internet" since the other unit has your wifi password? Deduct half of your internet expenses.

Hey Bill, this is great info that my wife and I had not previously considered. Many thanks. Aside from the houses in SE KY (Middlesboro) and here in Austin, we are considering purchasing a second 2 BR/2 BA condo, also here in Austin, and renting it out. In fact, we will view the place at 2 PM CST today. The unit is currently occupied by tenants who are bound by a lease until 06/2016. There is a monthly homeowners association fee of $261/mo. Unit currently rents for $975/mo.

 

[krazykats]

Try to get approved for section8, or charge a deposit of 1 month rent and make your rent price 750 per 100K value of home. At that rate each month they should be paying more than your mortgage and by doing so adding to the 1000 deposit that is only refunded IF the house is in acceptable conditions when the tenants lease is up.

A management company is also well worth it because they typically only charge 10% of rent to manage. The downside there is they fix everything without warning that is under a certain dollar amount and also deduct out of rent, so you may not even know about damages being fixed and receive no rent 1 month because the company fixed things not approved.

Ups and downs of renting.

 

[BankerCat12]

I bought my first one last July and so far so good. Have not heard from my tenants since September and my checks show up typically 3-5 days before it's due. I drove by a few days ago and grass was cut. Just hope the inside is still in the shape I bought it. Besides what everyone else has mentioned like background checks, etc, you also just need to go w/ your gut. If it doesn't feel right, move onto the next one. In banking now, but previously I was in personal finance, so I got fed all the BS and learned quick. I had to collect on my delinquency. Learned so much from that job that I would recommend it to anyone.

I plan to only buy in the St Matthews area. Allows me to get top rent and be as picky as I want to be w/ who I choose to go with. Amazing the interest I got off this house. Got calls weeks after it was rented.

Just bought a new house last week as my primary and going to list the one we are in now next month. Kinda scary if my tenants move out that I could have 3 mortgages due in July. Once I sell this house it will really allow me to get aggressive in buying 2-3 more. I have quite a bit of equity tied up my current house.

 

[dto UKBLUE]

Realiant Property Management in Lexington, www.realiantpm.com . We charge a 9% management fee for one property.

 

[dto UKBLUE]

Try to get approved for section8, or charge a deposit of 1 month rent and make your rent price 750 per 100K value of home. At that rate each month they should be paying more than your mortgage and by doing so adding to the 1000 deposit that is only refunded IF the house is in acceptable conditions when the tenants lease is up.

A management company is also well worth it because they typically only charge 10% of rent to manage. The downside there is they fix everything without warning that is under a certain dollar amount and also deduct out of rent, so you may not even know about damages being fixed and receive no rent 1 month because the company fixed things not approved.

Ups and downs of renting.

In our management agreement the owner can choose to be notified of every repair needed and must be approved. So if an owner wanted to know about every repair before it is completed that is their choice. We would notify the owner and wait for an approval before we do any repairs, they also have have an online account with us where they can see any work order that comes in from the tenants and also see their statements and ledges of any income and expenses anytime they log in.

 

[AustinTXCat]

We viewed the property earlier this afternoon. The condo requires some work on the inside, such as painting and carpet. We prefer installing tile flooring. HOA fees are $281/mo. It is located in a nice area very close to major bus lines (MetroRapid for those who know Austin) near good schools. We may make an offer next week.

This thread has proven really valuable and timely. We only began considering additional investment property a few days ago. Lots of great input. Keep the ideas and feedback coming. Again, many thanks.

 

[From-the-stands]

We viewed the property earlier this afternoon. The condo requires some work on the inside, such as painting and carpet. We prefer installing tile flooring. HOA fees are $281/mo. It is located in a nice area very close to major bus lines (MetroRapid for those who know Austin) near good schools. We may make an offer next week.

This thread has proven really valuable and timely. We only began considering additional investment property a few days ago. Lots of great input. Keep the ideas and feedback coming. Again, many thanks.

Do you mind telling the asking price?

 

[AustinTXCat]

Do you mind telling the asking price?

108k

 

[From-the-stands]

108k

That would bring pretty good ROI if it didn't require much fixing up.

 

[AustinTXCat]

That would bring pretty good ROI if it didn't require much fixing up.

Thanks. We thought the same. We hope to make an offer soon. We know the owner's purchase price and hope to go from there. One future option is to move in there after the current tenants move out next year and convert our current residence into a duplex. Duplexes around here are in short supply and crazy expensive when available.

Kentucky house: My mother technically still owns it, but we're working on taking it over because she is no longer able. Problem is the property values have declined so much since the financial crises in '08 and the declining coal industry. House was built in 1896; a near-exact twin house is located next door. It formerly housed tannery execs soon after construction. Lots of history there. We're still brainstorming ideas. LMU, located just 5 miles distant through the tunnel, expanded by adding Vet and Osteopathic grad school programs. Undergrads must live on campus unless married or have family in the area, but we believe we can market to others seeking cheap rooms. At this time, disposition for that residence is TBD.

 

[UKRob 73]

I own 86 units, in several different cities, started 17 years ago. I have everything from duplexes, to 28 unit apartments, from nice areas to the hood.
Lots of good info out there, but it sure as hell isn't on this thread. Lots of poor information given. I've tried property management, have two currently, one in lex one in Lou, I don't know how anybody really cash flows with property management.
Somebody mentioned charging $750 per $100k. With mortgage rates for investment property, repairs, vacancy rates etc, that's a losing dog, big time. No cash flow there. Most seasoned investors use the 2% rule as a GUIDE, which means you need to get $2,000 rent for every $100,000 spent. So the $750 suggested above isnt even 1%, much less 2%. Losing advice for sure.
Read some good books, get a mentor if possible, follow the website bigger pockets. They will teach you how to buy, manage, the 2% rule, how to screen, collect, evict etc.

I've taught 3 different people the business, just helped a newbie take over an existing 60 unit book of business. Getting a mentor is key.

 

[From-the-stands]

Somebody mentioned charging $750 per $100k. With mortgage rates for investment property, repairs, vacancy rates etc, that's a losing dog, big time. No cash flow there. Most seasoned investors use the 2% rule as a GUIDE, which means you need to get $2,000 rent for every $100,000 spent. So the $750 suggested above isnt even 1%, much less 2%. Losing advice for sure.

If the 2% rule (20%ROI) was a reasonable expectation no one would invest in anything but real estate. Deals like that are few and far between. I could see it working in a slum house where you might buy a piece of crap for 20k and maybe the local rent bottom is 400. But most people don't want to deal with that type of tenant. But I will check out the Web site. Thanks for the advice.