Anyone here have rental property?

[Theoretica]

Ok so DH thinks that in this market, with homes being sooooo cheap, that once we get ourselves a nice savings built up that we should buy foreclosed homes and rent them out.

We are already definitely planning on renting out our home when we do full time RVing in a few years, but that will be with a property management company doing the dirty work since we'll be out of town owners.

I need some info on what it's like to manage property on your own, without a prop mgr handling it for you. Expense wise, etc? I just don't think this is a great 'easy money' plan but he seems to think it would be.

I could be wrong...but regardless I'd like to hear from anyone with experience in this area. Thanks!!!

Theoretica

[MCsMom]

Honestly, if you are having a property management doing the work, I don't see how you would make 'any' money doing this. It is really kind of hard work having rental property and IME, finding a good paying tennant is really pretty hard.

Doning it on your own, where you are 'in town' landlords, as long as you get good tennants, it can be great. This is where people 'think' they will make lots of easy money. But like anything else, it really is not that easy. And then what are you going to do with them when you go RV'ing, turn them over to the property management place?

[MCsMom]

I just wanted to add: if you could ge the rentals for cash, then yes, I would do it as an investment though.

[Caneel]

Originally Posted by Theoretica

I need some info on what it's like to manage property on your own, without a prop mgr handling it for you. Expense wise, etc? I just don't think this is a great 'easy money' plan but he seems to think it would be.

I could be wrong...but regardless I'd like to hear from anyone with experience in this area. Thanks!!!

Theoretica

I worked in real estate (not sales) for several years and specialized in income producing properties. I also had rental properties. A few things come to mind:

Most foreclosed properties will have maintenance issues. Solving these issues will take time during which you will go without rental income and about 5x the money you think it will cost.

When you have a good tenant, it can be great (as someone else said) but when the tenants are bad, it can be a living h*ll.

I could write pages on why it is very hard work. Some people willingly won't pay their rent. Some lose their jobs or motivation. We had one tenant let the trash pile up inside the house for weeks.

Back in my real estate days, the rule of thumb was the rent should cover all owner expenses, including replacement reserves of 2-3%, and any debt service by 120%.

[Theoretica]

Originally Posted by MCsMom

Honestly, if you are having a property management doing the work, I don't see how you would make 'any' money doing this. It is really kind of hard work having rental property and IME, finding a good paying tennant is really pretty hard.

Well the idea for when we rent out OUR house is that we'll have it paid off. I'm not sure what he's thinking as far as if we own any other houses? He's just tossing the idea around so I wanted to get info from all you knowledgeable mamas

Originally Posted by Caneel

I worked in real estate (not sales) for several years and specialized in income producing properties. I also had rental properties. A few things come to mind:

Most foreclosed properties will have maintenance issues. Solving these issues will take time during which you will go without rental income and about 5x the money you think it will cost.

When you have a good tenant, it can be great (as someone else said) but when the tenants are bad, it can be a living h*ll.

I could write pages on why it is very hard work. Some people willingly won't pay their rent. Some lose their jobs or motivation. We had one tenant let the trash pile up inside the house for weeks.

Back in my real estate days, the rule of thumb was the rent should cover all owner expenses, including replacement reserves of 2-3%, and any debt service by 120%.

That's really helpful too, thank you!

[ani'smommy]

We have a rental property, and I agree it is all about the tenants. We had one really horrible one -- seemed like a great person, single mom, working hard, steady job, etc. She was so thankful to get the house and she did take good care of it, but she totally took advantage of. Our own fault, really, but we were okay with late payments, as long as they were paid by the end of the month. Well, she would give us all the excuses: "check's in the mail" "the money will be in the mailbox" "i'll meet you at the house" she never showed up, or there would be like $20 in the mail. . . She said "well, I didn't want to borrow money from my parents, so. . . " We were like, "Uh, well, you can't borrow it from US!"

We ended up taking her to court and got our money back.

Now, though, we have a great great great renter. She takes great care of the house, only calls for actual problems, always pays on time, etc. She is also Section 8, so we get half of her check from the state, which is nice. Even though she pays on time, we know that we will be getting half of the total.

That said, the only reason we have the rental is because we moved out of it to live in a co-housing community and couldn't sell it. We figure we'd just hang onto it until things get better. Or else keep it forever and DD can have it when she grows up and live in it or sell it or whatever.

If you can find a house in really good shape, it might be worth it to buy a rental property, but I would not do it if it needs work, or you'll just have headache after headache.

[freespirited]

I wouldn't recommend it for several reasons. My father owns a rental, a triplex, and it produces very little income in proportion to the operating costs. He loathes dealing with it himself after years of evictions and other issues, so he turned it over to a property management company. These tend to fleece landlords, and this one is no exception. They have not had to replace a tenant for a good two years and with their pathetic lawn service (once a week mows, maybe a couple branches cut, we are talking a very tiny yard here), they charge him close to 4k a year for basically doing nothing. He is 62 years old and doesn't want to be bothered with anything. I've recently offered to take care of the property for half that rate but he never said yes, I think in part because he's traumatized by his past experiences with evictions and doesn't want me to deal with that, and he reckons evictions will go up as the economy worsens. Also, by law, you generally have to pay the gas. My father pays around 3k a year because the furnace is one unit, and the woman living there has no incentive to keep the temps low so it's a toasty 75 24-7. I know, because we are trying to sell it and I've shown it a few times and it's always very warm. Sure you could build the gas price into the rent, but good luck getting the rents you might want in this economy. Even if the economy improves, I don't see housing improving for a good 10 years or even 20 years possibly. Therefore, I don't see investing in distressed properties worth the hassle. RE values just don't look to be going up again anytime soon and when they do it will be much longer to achieve a great return. My father has owned his rental for 30 years and he is going to get a decent return but it took the crazy, irrational boom of the 2000s to get there, and of course, the place is worth about 20% less than a few years ago.

Right now I am trying to market it to people who might be interested in living in one or two of the units and renting out the other one or two. That's because as a rental property itself, it is not such a hot investment, and it's in the hippest neighborhood in town. As far as houses go, don't forget to factor in property taxes and insurance, the utilities you'll have to pay, maintenance costs and the work involved in being a landlord. I understand the appeal of today's housing prices but also think about the fact that interest rates may be kept low for a long time, allowing more people to stay in their present homes and reducing the need for renters. A lot of people are getting re-financed at rates cheaper than renting so the rental market may not be as robust as you might expect.

[papayapetunia]

My family rents out a few properties, and I have worked (as an attorney) for property management companies. I would say:

-Whether it would be profitable depends on where the properties are and what the mortgage is. Ours are in Hawaii. One house has the mortgage paid off and we rent it out for $2500 a month. Another has a $1000 monthly mortgage payment and we rent it out for $3000 a month. Those are normal rent prices for a moderately spacious 3br house in that area.

-I would absolutely never do it without a property manager. I have seen a lot of stuff happen. I've seen an eviction take over a year and that tenant left the house in squalor. We literally shoveled garbage out of the windows and into a truck bed. Same tenant took a Skil saw to the cabinets and let their dogs crap inside the house. They are totally insolvent so going after them for damages would have been a complete waste of time. A property manager has the skills to weed out people like this and if there's an eviction they can hire an attorney if need be and save you time and money. A lot of property managers have an agreement with their attorney that each eviction case costs a flat rate.

[ginger_rodgers]

Theoretica, this is not a game for you. This is a game for the well-heeled who don't mind seeing 7 figures come and go.

If you want to rent as a family-business thing, get well-managed condos in a good location, preferably nearby. The tenants will be better and more stable, and your maintenance issues will be simpler. Non-palatial condos will be a good bet for a while, since we'll have more renters for a while, and when they pull themselves back together and try buying again, more will aim low. It's important to do this in an area that's pretty mature and built-up already, though, because otherwise when the housing market picks up again, you'll be competing with lots of new condos nearby.

Also, do the credit, online court, and national background checks. I can't stress this enough. Lots of applicants look like perfectly nice people, have jobs, etc., but have bombed-out credit or trouble paying even modest credit-card loans. (And some have worse problems.) If you don't check out your tenants and they later do something criminal on the property, you may wind up with some liability.

Also also, cheap is not cheap. I agree with the pp who said foreclosed homes will generally have maintenance issues. Some of those homes will have structural issues, too, since "foreclosed" doesn't necessarily mean "borrowed $600K while drunk on credit". A lot of these homes are in poor neighborhoods and have 60 years' worth of deferred maintenance.

Finally, unless you're in an area with nice transients (like college towns) keep in mind that this home-rental thing will probably be a fairly short-lived phenomenon. Most people outside major cities still want to buy homes, because if they're not buying in bubbles, and they can swing the maintenance, you really do build up the equity. (I've owned since 2000 in a modest kind of market, rental and primary-residence, and even with all the economic problems I'm about $100K ahead of where I was then.) So when the pendulum swings back you'll find it harder to get good tenants into houses. Apartments, no problem, but houses -- not so much. You can always sell when the market picks up, but you'll have some substantial rehabbing to do. Rental properties take a real beating, even when nice tenants are in there.

I wouldn't do Section 8. The potential headaches, liability, and property damage are, to me, not worth the couple-few hundred a month. There are decent people on Sec 8, but not enough.

I've been very lucky, renting for the last 7 years. I've had grad students, professors, and postdocs, and on the whole they've kept the place beautifully. Even the bad boy was a Johnny Stecchino kind of fella, kept the place squeaky clean, paid on time, and emailed me promptly with any maintenance issues. But that's really a factor of location -- the property's a walkable mile from a major research university, on a pleasant-enough student-apartments strip. I've also had responsible condo managers. Even so, I had one leak that could've set me back tidily if the owner of the unit downstairs had been less kind, or if the tenant there hadn't also been a decent & cooperative guy. Am I making millions? No. After mortgage/taxes, assoc fees, and repairs are paid, I figure I clear about $50/mo plus some on taxes. Essentially the tenants are paying my mortgage; that's the payoff.

As another landlord said, landlording is a way to get rich slowly.

[Smithie]

We rented our house in WA after we moved and it didn't sell. We are clearing $1600/month after we play the mortgage, taxes, homeowners and give the property manager her cut.

We are freaks of nature. While I'm deeply grateful that being landlords has been so easy and profitable for us, I would NOT NOT NOT seek out that situation unless I had a nice, almost paid-off house that I could rent to superyuppies who deal strictly with the property manger. Even at that, I'd rather sell. Rental contracts end, and meanwhile the money you've put into the house is completely inaccessible to you in case of need. The vast majority of our family "wealth" is tied up in that house. It drives me nuts.

FIL bought rental houses as an investment, and it was hell on earth. You would not believe how horrible people can be until you have been a landlord of cheap housing. Filth, deliberate damage, etc etc etc.

[cappuccinosmom]

Well, we're not 7 figure wasting rich evil people.

But we are now renting 3 properties. Originally managed on our own but found a manager who has good rates and that makes it a little easier for us.

Dh has found all the houses, and done *all* the work except stuff like replacing electrical systems and plumbing. He worked for months, and in one case over a year to make the houses liveable, because they weren't in great shape. One of our houses was broken into and set fire over the winter 3 years ago. Luckily the acetylene torch used only burned a hole through a floor and did smoke damage to the entire place, rather than burning it down.

Anywhooo, because the houses were cheap to begin with, they don't bring in a whole lot of rent, but we are slowly building up to a liveable income. Although we were open to section 8, we ended up with all three renters not on it. And we really lucked out with our renters. Love 'em all!

We really do prefer the property manager. Gives a little space between us and the renters and the prop manager knows more than we do.

[suburbmom]

We have 2 properties that we rent out. We aren't rich but it's been a side job for me. I am a SAHM but I do it on the side. We started with one investment property (a one bedroom). I used craiglist to rent it out. You have to make sure that you get good tenants. Knock on wood, but I've been trying to be through with it. We also rent out a 4 bedroom house. We were nervous about renting it out b/c it was our home. We put a lot of renovations into the house and have found 4 guys to rent our townhouse. I was nervous about it but did a big credit check on them and background check. In addition b/c they were young (around 23 or 24 years old), one of their parents cosign the loan. In addition, I have also included a monthly cleaning of the bathrooms and kitchen. I figure it will help to maintain the house. They love the extra perk of free cleaning and I love knowing that the house is being maintained. In addition, my cleaners keep me in the loop about the condition of the house. So far they have said that they keep the property really neat. They also drop off the rent check at my house on the 1st of the month. If not, I usually call to schedule sometime.

I view being a landlord as a job and try to be as professional as possible. So if anything is broken, I will get someone to fix it asap. It's impt to be a good landlord also.

[Dreaming]

Originally Posted by suburbmom

We have 2 properties that we rent out. We aren't rich but it's been a side job for me. I am a SAHM but I do it on the side. We started with one investment property (a one bedroom). I used craiglist to rent it out. You have to make sure that you get good tenants. Knock on wood, but I've been trying to be through with it. We also rent out a 4 bedroom house. We were nervous about renting it out b/c it was our home. We put a lot of renovations into the house and have found 4 guys to rent our townhouse. I was nervous about it but did a big credit check on them and background check. In addition b/c they were young (around 23 or 24 years old), one of their parents cosign the loan. In addition, I have also included a monthly cleaning of the bathrooms and kitchen. I figure it will help to maintain the house. They love the extra perk of free cleaning and I love knowing that the house is being maintained. In addition, my cleaners keep me in the loop about the condition of the house. So far they have said that they keep the property really neat. They also drop off the rent check at my house on the 1st of the month. If not, I usually call to schedule sometime.

I view being a landlord as a job and try to be as professional as possible. So if anything is broken, I will get someone to fix it asap. It's impt to be a good landlord also.

I just wanted to tell you that your cleaning idea is GENIUS! We will be renting our townhome down the road and I am going to use this idea. Thanks for sharing.

[Pinoikoi]

Originally Posted by MCsMom

Honestly, if you are having a property management doing the work, I don't see how you would make 'any' money doing this. It is really kind of hard work having rental property and IME, finding a good paying tennant is really pretty hard.

Doning it on your own, where you are 'in town' landlords, as long as you get good tennants, it can be great. This is where people 'think' they will make lots of easy money. But like anything else, it really is not that easy. And then what are you going to do with them when you go RV'ing, turn them over to the property management place?

I don't have any rental properties myself, but my mother does.. it doesn't "make" her money month to month- she probably pulls a $100 profit most months which she saves up to pay for repairs on the place.. BUT

she DOES make money on the fact that- 1 her mortgage is getting paid off by someone else.. someday (soon!) the mortgage will be paid off entirely and then if she sells the house the selling price is all profit- and she already owns her other house, so it isn't like she needs it to live in or anything.. and this particular house is in the $250k range. 2- she saves all her receipts for the repairs on the house which she writes off as her business expenses.. so on paper she actually never turns a profit (which is fine with her- she needed some tax write offs!) so she ends up saving money in the fact that she owes less taxes by the end of the year..

but then, she's a good landlady to have.. she basically remodels the place before renting it out again..

[WNB]

I don't think jumping into rental properties now, as a means to earn investment income, is particularly promising. But, nothing looks particularly promising. So there might be something in your area that offers a good opportunity. It's not EASY money, no matter how you manage it. It's easier with a management firm, but they will eat up at least 10% of your gross, which might make it untenable, month to month for you.
If you can't cover ALL the monthly cost associated with the rental unit somehow (either from cash on hand or a line of credit), it is probably too much risk. (or it would be too much for me, anyway.) Buying a place under the assumption it will be rented 12 months of every year is a recipe for disaster.


To keep your actual cash flow positive month to month you need the rent to cover ALL of the following, and if it takes some months to get the place rented, the total can really be a big chunk of your normal income.
1) monthly debt service (interest expense)
2) principal payment
3) insurance, prorated (fire policy including liability coverage)
4) property tax, prorated
5) management fees if any (10% of gross rent is what I pay for the two mgmt firms we engage)
6) local tax due on the rent, if any
7) annual business license fees, prorated, if any
8) normal maintenance expenses

Rental inventory is way up in my city, which means rents will be falling. My partner and I own a home here which has recently become vacant. It needs a good deal of updating to be "competitive" with all the homes-that-have-been-spiffed-up-for-sale-but-not-sold now being added to rental inventory. Even though we own it free and clear, we just don't see any way we can recover the cost of the updating in a reasonable timeframe given the likely rents earned, even under the rosiest of assumptions about occupancy. We're sort of stuck: I guess we'll either sell it as is or do a major remodel and move back into it. I think renting it just isn't very likely, unless we cut the rent way down. We might do that, but we still haven't quite decided.

Anyway - this is a long way of saying be very careful. Don't jeopardize your own living situation by an investment which puts inordinate stress on your monthly cash flow.

[operamommy]

Hmm. I will tell you whether I think being a landlord is a positive experience once I've had a week or two to process. Our tenants of 4 years (never had any trouble, etc.) just moved out in the middle of the night on us. They've damaged our house and will not return calls.

[p.s]

i've been a landlord for >10y. This is what worked for me and what I rec., so take whatever you want from it.

1. read and memorize this book:
http://www.amazon.com/Landlording-Ha...6781869&sr=8-1
This is your guidebook. Do not bend the rules for anyone.

2. buy in the most expensive neighborhood or city in your area. Fo me this worked b/c I was near universities, research institutions, etc. Every one of my tenants was a professional. Salaried = regular paycheck. Professional in expensive D.C. suburb = work all the time = no party = no damage to property.

3. Do not return the deposit until you inspect.

4. Fix up the property the best you can afford before renting it out. The tenant will appreciate it and tx it more like their home. Any problems are fixed immediately. The tenant is very clear his/ her job is to pay on time and maintain property. The tenant is also very clear that I highly value the property and keep it highly up to snuff.

Landlording is alot of work. The difference from a regular ole job is you need money to start, and you pay yourself. But it's not like some high dividend yielding stock. You have to work.

[Phantaja]

***

[cappuccinosmom]

What about people having trouble paying credit card bills? Have you considered that maybe it's because they paid their RENT FIRST? Thankfully, I've been able to pay my cards down, but guess what? When it came down to paying MasterCard or paying my rent, I kept a roof over our heads first.

It's good that you do that.

But if a landlord is depending on steady rents for their own income, then someone who has had trouble meeting their financial obligations is not a good risk, sadly. Especially small time landlords. People like us cannot afford a lot of risk taking.

We did take one tenant with bad credit. She was otherwise a good pick for the house, and she had a reference from the person who had been helping her manage her budget better and who vouched for her ability to pay rent and her character.

[StarJune]

Originally Posted by suburbmom

In addition, I have also included a monthly cleaning of the bathrooms and kitchen. I figure it will help to maintain the house. They love the extra perk of free cleaning and I love knowing that the house is being maintained. In addition, my cleaners keep me in the loop about the condition of the house. So far they have said that they keep the property really neat. They also drop off the rent check at my house on the 1st of the month. If not, I usually call to schedule sometime.

I view being a landlord as a job and try to be as professional as possible. So if anything is broken, I will get someone to fix it asap. It's impt to be a good landlord also.

This is a fab idea! I have been thinking about getting an investment property in the next couple of years if the interest rates stay this low and the housing prices remain stable. Of course, maintenance of the property is significant and this is a great way to protect your investment.

And I second the people who do extensive checks on the potential renters. I live in a VERY "pro-renter" province (which is good) but landlords really need to choose wisely or end up in financially/emotionally devastating situations.