• Ongoing coronavirus / COVID-19 discussion: how is the pandemic affecting your community, workplace, and wellness? 🦠

    Working from home? So are we. Come join us! Cyburbia is a friendly big tent, where we share our experiences and thoughts about urban planning practice, planning adjacent topics, and whatever else comes to mind. No ads, no spam, no social distancing.

getting into residential rental ownership

mendelman

Unfrozen Caveman Planner
Staff member
Moderator
Messages
14,141
Points
58
I am seriously considering this right now and I would like some advise about it.

What are the things I need to have in mind when pursuing the purchase of a income rental property?

What are the usual pitfalls and/or benefits to owning rental property, especially residential?

Also, if anyone has personal stories about owning income properties, let's hear'em.
 

Repo Man

Cyburbian
Messages
2,549
Points
25
I am also seriously considering this. Some of the things that I am looking at include:

1. Is the rental property in a desirable area? If it is in an area that doesn't have a lot of demand for rental property you may have a hard time leasing it.

2. Are you handy? Do you want to be responsible for maintenence, upkeep, etc? Will the rental income be enough to cover surprise repairs or will you have to dig into your personal funds?

3. Will you rental income be enough to cover the mortgage?

4. Will your tenants be responsible for heat or include it in the rent?

5. If you are looking at a duplex where you plan on living is there enough parking? storage?

6. Do you have the personality to be able to deal with tenants? I often find myself wondering if I would have the courage to evict someone, or tell them to keep quiet.

I would also recommend that anyone wishing to purchase rental property should watch Pacific Heights
 

ludes98

Cyburbian
Messages
1,264
Points
22
mendelman said:
I am seriously considering this right now and I would like some advise about it.

What are the things I need to have in mind when pursuing the purchase of a income rental property?
Check for local taxes. My city levies a 1% tax on rents collected. Also consider maintenance of the property. Who will do it? You if you have time, but if you hire it out, those costs eat at your bottom line. How about yard maintenance? Don't count on your tenants keeping the property up to your standards unless it is in the rental contract. Consider getting an attorney to write a base contract you could use on different properties. Don't get emotional about your tenants, it's a business relationship. Sounds easy, but it isn't sometimes. Could you evict a pregnant mother, or a guy who just got divorced and lost his job?

What are the usual pitfalls and/or benefits to owning rental property, especially residential?
Tenants are unpredictable. Be prepared to have the house up for rent for a few months. Unless your market is hot, or you underprice the rent, it can take time to get tenants. You will have to bear the cost of improvements when tenants leave to make it attractive to new tenants again. Local laws sometimes protect bad tenants, so be aware. It sucks trying to evict someone for months and they trash your place while you can't do anything about it, except go after them in court.
Also, if anyone has personal stories about owning income properties, let's hear'em.
Try this one. The property didnt have a washer/dryer, so the tenant removed the toilet, put a washer in the bathroom and let it drain into the toilet's floor drain. :-\
 

Dan

Dear Leader
Staff member
Moderator
Messages
18,808
Points
69
I was thinking about becoming a slum ... I mean landlord once. I'll add a few.

* If you'll be absentee, try to get a duplex or triplex instead if a single family house. If a unit is vacant for a few months, it's better that it be only half the potential revenue stream from a property rather than all of it.

* In a market with high vacancies, consider renting to pet owners. Their choices are normally very limited.

* Remember, the payoff comes from cashing in on equity, not on the income from rent. Try to find property in up-and-coming areas.

* Washer-dryer hookups: a must.
 

Budgie

Cyburbian
Messages
5,270
Points
30
I own a house which I've rented out for 2.5 years and I've been very lucky with my tenants. They take better care of the property than I probably would. Quality reliable tenants are very important. I recently advertised the property for more rent than my current tenants are paying and I got around 20 calls. So the market is fairly strong, but keeping good tenants is sometimes worth any extra rent you might get from someone else.
 
Messages
7,649
Points
29
You might want to read the book "Buy and Hold" which is about doing rental property in a "cold" market where there really isn't the potential to have the price run up and then cash out quickly.

When I was a landlord, I lived 1600 miles away and it was managed by my real estate agent. We had homeowner association dues that also covered water. She told me to make the tenant pay them. Her words (not mine) were to this effect: "People are Stupid. If you charge them for the homeowner dues and explain that to them, they won't understand and will just see the rent as being higher. If you make them pay, it costs the same amount but the home sounds cheaper because the "rent" is less. Don't confuse them with the facts. Keep it simple because People are Stupid."

I had a 3 year contract with her and it all worked out satisfactorily. However, I was young and naive and when we wrote the contract, she put in a clause that gave her an "out" if she wanted to ditch me but there was no similar clause covering me. So anyone you hire, whether it is for maintenance or management or whatever, make sure you are covered and have a way out if the relationship is unsatisfactory.

I say that because I called a lawyer at one point to find out my options. Some tenants sued "me" in court and my real estate agent was my representation and she did not do a good job of keeping me informed. I kind of found out after the fact. I think she thought she would win and there was no reason to upset me. I no longer remember the details but it was pretty upsetting even to get The News the way I did and feel utterly helpless and side-swiped.

A low risk way to get into residential rental property is to buy a home for you to live in, put the sweat equity into it yourself, and then move out and rent it out. That was what I did. It wasn't really a Plan. We bought a house and, naturally, the army moved us a few years later. There are plenty of books on that subject.

A good rule of thumb for ANY residential real estate: look for a home in a good school district and it needs to be 3 bedrooms. Two bedroom homes do not sell as well or rent as well and can be prone to "slumification." :-D And go for a fairly basic home. High end homes also do not rent as well and, in a down market, they can be a nightmare to try to unload. My sister got burned really badly on that.

Also, look for a book called "the common sense mortgage". Mortgage rates are low right now and if I were in any position to do so, I would definitely buy real estate of some kind. Real estate is one of the most secure investments you can make.

I am sure I have a zillion other things I could say on the topic. I read quite a bit on it to prepare me for being a landlord. But, hey, I know my droning on puts everyone to sleep. :p
 
Messages
3,690
Points
27
Rob's parents have a house that they rent out, I think it falls under the category of "executive housing" - they've been pretty lucky with tenants, and we live it a pretty hot market, so we haven't have problems renting it out. Rob and his dad do all the maintenance and mowing, and between tenants they paint all the rooms and steam clean the carpets. So far it has worked out really well.
 

Cardinal

Cyburbian
Messages
10,080
Points
34
I have done it. Sometimes you will get good tenants, but they often don't stay very long because they tend to want to buy a house. (Which is probably why they are good tenants.) Most prople who rent are not bad. They won't beat up the place. On the other hand, they are not likely to do much work themselves. Whenever anything goes wrong, you will have to drop everything else you are doing to fix it yourself or to hire somebody to do it. It really can eat up a lot of time.

One thing to consider is who will be taking care of the yard. I was lucky to have people who understood they had to mow the lawn and shovel the snow, but many renters will not do that. The fines usually go to the landlord.

I did have to go through an eviction a few years ago. The tenants were eight months delinquent by the time the court ordered them out.

I partly agree with Dan on pets. Ever tried renting a place that, after having all of the carpet replaced and being aired out for four months, still smelled of cats? Definitely allow dogs, though.
 

Wulf9

Member
Messages
923
Points
22
Developers who do rental proformas say they put aside 25-35% for management, maintenance, and reserve for repairs. That's the probable cost to you in your own time and cash if you own a rental.
 

Cardinal

Cyburbian
Messages
10,080
Points
34
Wulf9 said:
Developers who do rental proformas say they put aside 25-35% for management, maintenance, and reserve for repairs. That's the probable cost to you in your own time and cash if you own a rental.

That's probably an accurate figure for developers, who have to hire people to manage their buildings. I usually calculate 10% for vacancy, about $1200-1500 annually per unit for maintenance, whatever insurance and taxes may cost, and then an estimate of common-area costs. You might figure in another $500-1000 for miscellaneous costs like advertising. Any of the maintenance funds that you don't spend should be put in a reserve account so you don't get caught short when something big goes.
 

Mastiff

Gunfighter
Messages
7,181
Points
30
1) Make sure you aren't moving far away. Trust me on this one...

2) Get a credit report for a prospective tenant... no exceptions. The cost is real small compared to what you might find out.

3) Single story. Unless you really like heights.
 
Top