Anyone own rentals?

[Speedling]

I am about to jump into the rental game!
we decided to do it after several people came by offering to rent the house after looking at the neighbors house that is for sale. The amount we can get for rent is crazy!
We meet with the most promising couple tonight. All goes well we will be moving out and finding a place to stay!
a little scary honestly but the house should get paid off pretty quick if they accept our terms.

Any tips for a noob?
If they like the house we talk numbers tonight as well. My part time boss at the fireworks store was a realtor for over 40 years so she is helping me sort it all out.
Rent would be 1800 a month 2 year lease agreement with safety and 1st month down. Family with kids just into high school so I doubt they would leave before kids are done.

 

[4x15mph]

I know experiences will vary by state and the laws (i.e. eviction rules). My only tip would be to know your rules around getting out of a contract and it will be worthwhile to have some legal advice to start off.

 

[justason]

When I lived in NH We had 2 building, 2 units each for rentals. When we moved to NC we kept our house in NH and rented it out for another 10 years before selling it.
It was probably one of the best moves we made financially. We do not own one currently but we are always looking.

We never used a management company to manage the property, We did use them twice to find a tenant for us (being 900 miles away) at a cost of 1 months rent. I'd have to re-think doing that again.

Not sure what kind of tips you are looking for. Some states are pro-landlord (like NH), some are Pro-tenant. The difference here is how the courts handle an eviction if req'd.
Pro-tenant it can be hard to evict, specially in winter or pregnancy or similar, Not the case for pro-landlord.
I was a member also of a landlords association : example: http://www.landlordconnection.com/ http://www.landlordconnection.com/workshop.html
it can give you leads on resources and tips, usually a nominal fee.

Taxes and accountability are done on Schedule E http://www.irs.gov/file_source/pub/irs-pdf/f1040se.pdf document everything of course, a great deal is now a business expense. Talk to a pro about depreciation AND UNDERSTAND IT...it can bite you in the a$$ when you sell the place.....

I have leases and applications I am looking for on my computer. If you want a copy PM me your email and I'll send you them.

application: this can be tricky if not managed well on the basis of discrimination. We had made a XLS application, not visible on the printed document but stored on the electronic copy was the criteria that had to be met or stipulations per question. This was a simple way to equalize the applicants on interview/application.
................I had one guy apply with a parent in a wheelchair, his main goal was for me to make a statement about NOT building him a ramp or not making the house wheelchair assessable, he tried very very hard.

for references don't bother too much with the current landlord, if he wants them out of his place he will give them high praise...call 2-3 landlords back in history !! run a credit check and use the free websites like familywatchdog.us

personally, best tenants I ever had was divorced moms with kids. They usually have an income from the father or the state to help meet bills, and of course their main goal is a home/roof over the children's heads.

My rent was always below market value. The tenants knew this and respected the property and wanted to stay. If something went wrong and it took me longer than expected to respond we never had an incident.

what else you want?

 

[BoaterGuy]

You will also need to change your homeowners insurance to a landlord policy. One of the issues with that is the fact that your valuables will no longer be covered since it is not your primary dwelling.

My landlord policy is double what my homeowners was.

Also make sure you have stipulations in the lease that allow you inspect the place a couple times a year. I would also make sure you have an umbrella policy in place.

 

[Zarrella]

I have done it in the past and for myself I have no desire to be a landlord again. But I hope all goes well for you. It can be a very profitable proposition.

 

[Speedling]

Should I make a separate entity for this one rental or start something when I have more?
how do you negotiate terms?
how do you make sure he doesn't trash it?

I have been in his current place and it looks well kept. He says they are going to jack up rent $300 for a cat he got. I don't care about one cat as we have a dog in the house right now but don't want a zoo!
my realtor says going rates for my hoise would be 1740-$1920 a month. I am going to shoot for 1800 and a 2 year contract. I think I woul be willing to do 1700 as long as I get the 2 years. Realtor says I want the two year to aid in getting a loan for myself.

 

[GiddYupJoe]

Keep in mind that one cat could trash all your carpets... worst case, it needs to be considered. Assuming no other damage occurs, the deposit and one month rent may not cover the expense of new floors throughout.

Are you planning on purchasing or renting after you move out?

Have you had a chance to look at sample contracts and the types of T&C's that are in them? This will help you in planning for/determining different worst case scenarios.

Someone else can chime in, but from a liability and tax standpoint it is pretty easy to create an LLC and will help protect you. I just don't know how that works with turning the house that is in your name and moving it to the LLC.
It has been a while since I have rented but from what I remember, the tenant really does not have much leverage in negotiating terms. If the house will rent as easily as you think it will then there should be a qualified renter out there that will accept your terms, assuming they are not outrageous.

 

[Julian]

I've considered buying rental properties....this is an awesome discussion. I'd definitely find someone in your state that can let you know the pitfalls for your state.

Pets would be a real risk. Cats (male) can destroy not just the carpets, but the walls too!

 

[Zarrella]

The biggest negative is if you move out and start paying rent or a new mortgage somewhere, how long can you afford for it to sit empty? It can be quite costly to pay 2 mortgages. Also at the end of a lease you may find yourself in the same situation. You may have it sitting empty between tenants and may also have expenditures on repairs and maintanence. My thought is it is very hard to make a profit with only one property when you consider taxes, insurance,upkeep, and advertising. Another to consider is the requirements you will have to meet if you live in a Homeowners Association. And finally, as far as your question ......
"How do you make sure he doesn't trash it?" that's easy......you cant!!

 

[JC6275]

I agree with @Zarrella , it is hard to turn a profit on 1 unit, unless it is a duplex. The problem is after the lease is up and your tenant moves out you WILL have some repairs IE: painting cleaning floors and such, if there are no major repairs needed it will be sitting idle for 2 to 4 weeks at least. With taxes , insurance, and repair costs that will most likely eat up any profit you will have made. If for some reason it sits empty for any length of time it will start costing you money instead of at the very least paying for itself. With a duplex or multi unit you have a better chance of part of the unit being occupied and paying for the expenses and not eating into any profit it has earned for you.

 

[JC6275]

I would also caution you about the pet, you said in your post " they" were going to up his rent by $300 because of the cat. While that sounds a bit high, I would charge a premium for pets. You can give the option for a certain amount without a pet and one with a pet. Cats can be extremely costly to a house, like @Julian said, not only to carpet but also walls, and trim even wood or laminit floors can also be damaged by a spraying cat.

 

[jetboater4life]

I own three condo rentals and do all the interviewing myself. I get to know my tenants. I even offer to help them move in and move out, which occasionally they take me up on. I believe that building a relationship with your tenants makes it less likely that they will trash your place, something you can't control. My lease is for a condo but I can send it to you if pm me your email. My city requires that all landlords take an 8 hour class that covers crime detection, state laws, the eviction process, not discriminating, and all sorts of other things. An umbrella policy is a must. I don't have an LLC setup but it is something I'm considering. I always do a 1 year minimum lease and study the going rental rate and price slightly below it so my tenants aren't looking to bolt after the lease is up. I've been renting for 10+ years and have been very lucky. Not one of my units has been trashed, and I've only had a unit sit empty for 1.5 months.

My condo association does not allow pets thank goodness and I don't allow smoking in my units.

 

[justason]

Should I make a separate entity for this one rental or start something when I have more?
how do you negotiate terms?
how do you make sure he doesn't trash it?
.

negotiation are yours to control based on the math that works for you, Don't panic about missing out on a tenant, there's usually another one behind them. research your area, or call a realtor and tell then you're considering renting, what is the typical time for an empty house, tenant search, etc..etc..etc some realtors that work with rentals will have the info posted on thier web page for availability, watch how long they are posted before being closed out..

pets are hard, cats suck...you can add to the security deposit, usually a 2x multiplier, but asking someone to come up with $5400 to get in the door is tough stuff....

risk of trashing is all yours, even if the house gets trashed out of spite, proving it is near impossible. Set up the lease for "safety" checks, and changing the smoke alarm batteries 2x a year, that's 4 easy entrances to the place.

I welcomed a month empty between tenants in the house. It gives you the opportunity to clean it up, address issues, pace yourself for interviews.. If its empty for too long and the insurance companies find out will skyrocket your rates....

@jetboater4life makes an interesting point, and made me think of something. My city implemented a rule that made mandatory safety inspections of the buildings...what a suck that was!! I passed , but there are no negotiations with a government agency ...this was for my multiple units, they never knew about the private home...

 

[mattschepker]

I would never own rental property because my wife alsois a paralegal and she deals with rent and possession. sshe says she has to deal with it 40 hours a week and she doesn't want to have to be bothered on nights and weekends when something goes wrong. She has some horror stories. I have a side job which is being a process server. What I do is going around and serve summonses to people who can't pay their rent which then will lead to them breaking their lease and
skipping out or eviction. sometimes they will sign a consent judgment or come up with the money and make a payment. nothing against renters but I say 50 percent of the people I serve the apartments or homes are filthy and smells disgusting

 

[jetboater4life]

@jetboater4life makes an interesting point, and made me think of something. My city implemented a rule that made mandatory safety inspections of the buildings...what a suck that was!! I passed , but there are no negotiations with a government agency ...this was for my multiple units, they never knew about the private home...

@justason you made an assumption on something I forgot to mention. Your assumption was correct. In addtion to the 1 time landlord class I had to take after the law was passed, I have bi-anual inspections on all my units to make sure everything is correct as far as the rental code goes. Generally they are fairly lenient but there are always horror stories as @mattschepker mentions.

Renting a single family home is a little different from apartments/condos. One the one hand its a bigger property and more things to go wrong which costs $$$, on the other hand you don't have to deal with noise complaints from apartment living or other common areas issues. My opinion is, if you can be involved and stay involved in this endeavor and you are able to judge character and not discriminate while doing it then go for it.

 

[Speedling]

Good information here!
We are actually looking at a reo or bank owned home that is supposed to be cash only. We'll see how it goes.

If this renter falls through we may buy this other home and rent it instead.
I am surely scared of a two mortgage situation. My backup is to live with my in laws and rent our house. The options are there but right now it's a tossup between greed and being scared to pull the trigger

 

[Speedling]

Well the meeting went well. They of course said I was high. I know they pay $1900 and it's going up to 2200 due to pets. My $1800 should be no sweat. They said they would let me know by Sunday.

On a side note, maybe you guys would prefer a different plan of attack. We had come up with a very solid no risk plan. Sell our house, buy something smaller, but pay it off asap. From there we can rent it and use equity to build nice big house. Or, from owning it we can start BUILDING rentals. Or maybe both.

Tell me whatcha all think!

 

[JC6275]

Well the meeting went well. They of course said I was high. I know they pay $1900 and it's going up to 2200 due to pets. My $1800 should be no sweat. They said they would let me know by Sunday.

On a side note, maybe you guys would prefer a different plan of attack. We had come up with a very solid no risk plan. Sell our house, buy something smaller, but pay it off asap. From there we can rent it and use equity to build nice big house. Or, from owning it we can start BUILDING rentals. Or maybe both.

Tell me whatcha all think!

If the meeting you are referring to was with the potential renters, I would not be negotiating the monthly rent with them, if I understand correctly they are now paying $1900 and you are offering a monthly rent payment of $1800 and they say that's too high.. Not sure I understand that. Anyway you know what you need to pay for the place and what it will cost you on a monthly basis plus repairs. Not taking into account the pet seems to me that they will be saving $100 a month from what they are paying now..I would still urge you to add a premium for any pets allowed...JMO

 

[Julian]

No way I'd move out of my house to rent it to someone....I'd buy a house to rent it.

 

[Magic]

This post holds some interest for us. We are going to be renting out our house in 3 to 8 years or so when The Boy graduates high school and moves on to Yale, or Calligraphy school..... Current plans are to pick up a condo in Mexico and a sailboat, and have the rental home pay the mortgage on the condo.....
We currently have a rental home in the mountains rented to a great family that pays the mortgage plus a little....Once that is payed off we will turn that into a sailboat. Had horrible results with management companies, much better luck renting direct to clients we interview.

Learning a lot here as to what else to watch out for...Thanks guys!