Anyone own a rental property?

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ESP47

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Any advice here would be really helpful..

I'm 28 and bought my first home when the market was right above it's lowest point about 4 years ago. I like the neighborhood but I don't like the house and there isn't enough room for my Mopar activities. I bought the house for $145k when I was only making $10/hr and I was able to afford it just barely. I have no kids and no debt other than the house. Since I bought the house I finally started my real career and am making over double what I originally made when I bought the place.

I was looking at homes online the other day and found my dream home. The house is 500sq ft bigger than my house, is redone on the inside, has a country style front porch and a huge 4 car garage so my projects can be garaged at all times. Absolutely perfect as far as my realistic dream home goes.

My problem is if I owned both homes and didn't have a renter in my current home, I'd only have about $600 to spare for bills, food and gas. Which just isn't enough to do on my own. On the plus side, my girlfriend would move in with me and take the load off most of the bills. Another problem is I would have to try for an FHA loan because I don't quite have enough for a 20% down payment.

I basically have two choices. Rent my current home or sell it. Investment wise I'm sure renting is the best choice. I could rent the home for at least $400 more than the mortgage/escrow fees. I would also most likely have to get a property management company to deal with it because I know nothing about doing that stuff on my own. Do property management companies really just take care of basically everything for you for a 10% a month fee? Like do they write out the lease contract and all that as well? I wouldn't mind paying the 10% to not have to deal with the headaches. Bad renter horror stories scare me and I absolutely hate dealing with drama. I just don't want to get myself into something I can't handle. The responsibility is kind of scary to me.

My other choice would be to sell the home. Prices look like they have gone up a bit from when I bought it. Homes around me are selling for 15% or so more than what they were at 4 years ago. I looked up a bunch of home value estimates on my home. Most estimate it to be worth between 10-20% more than what I paid for it. A couple estimated it to be worth about 5% less. Obviously those are just estimations and can't be relied on but at least things on looking on the plus side there. If I could sell it for 10% more, I should be able to pretty much break even on the place, right? At that point I could afford my new dream home with ease.

What do you guys think I should do?
 
Buy the other home and offer your other home for sale on a lease option. If you structure it correctly you will get someone serious & you will get top dollar for the home. If you need help with any of it or financing your new purchase, let me know. I have been doing this for 18 years.
 
If you don't have spare money, you can't afford to hire a property manager.
Not actively managing means you're limited to $3,500/year in losses (if you have expenses, etc.) It means giving up 10% of gross. It means paying someone to fix pretty much anything/everything.

I've been in the "can't afford my home mortgage and an empty rental mortgage" situation before, and it sucks...especially if you go 2-3 months between tenants.

On the plus side, money is cheap now (historically low interest), but...you're signing up for more debt, and if two things go wrong (e.g. vacancy and job loss, or mold discovery and your home needs a frog, or...) you'll be in a world of hurt.

I've made money in rentals, and I'm currently losing my butt in them...it's not easy money.
 
Having someone to pay your rental mortgage is great .......... if you can attain a good tenant. Hard to find one that pays consistantly every month.
The minute you let them get behind with a sad story is the beginning of a nightmare. Very few respect your property as you would. Dependant on your state laws it can take up to 90 days to get them evicted for nonpayment, meanwhile you are paying the mortgage and taxes, very possible this can happen twice in a year and put you in a bad spot. Each time a tenant moves expect to invest in a deep cleaning, flooring and paint of which equates to a mountain of your time and/or a couples months worth of rent.

In todays world its a crap shoot, unless your renting a slum property.

Personally I would sell the 1st home and enjoy your life, otherwise it will be another job for you to perform.
I have one rental and the only saving grace is that it is paid for, if it wasn't I would sell it..............
 
I owned 3 rental properties (total 6 units) for over 10 years. Some people are very successful at it, so it's not that it can't be a good thing, but I wouldn't do it again. I sold the last one 2 years ago. I lost money on that one, made money on the other 2, and even with the loss on the one, it was enough to pay the 20% down on our current (more expensive) house and to remodel a couple rooms. But even so, to me, it wasn't worth it. Way too much hassle. Everything 64BCODA said and more. Every situation is different though. One thing I learned from being a landlord is that most people are absolute scum. I hate to be cynical, but that's just reality. Lots of dirtbags in the world, you don't really realize it normally unless you interact with people on that type of level. And my properties weren't in slums or anything, pretty decent areas, used credit screening and everything else. Still scum. The last couple years on the last property I paid a property manager to take care of it, since I was out of state, and it was money well spent. Still a pain though. It's hard to find anyone who will care about a property that isn't theirs, and in many states, the laws are definitely in favor of the tenants in the sense of making it really hard for a landlord to re-coup losses. I still have a bench warrant out for a past tenant for several months rent owed -- I'll never see that money!

Anyway, it's definitely for some people. I have a relative who has been incredibly successful at it for the past 25 years. You sound more like me though, and like I said, you couldn't pay me to do it again. I'd rather just get a second job or spend my time doing something on my own for money if it's just about the that. It'd be the easier path to that end!

Good luck whatever you choose. The good news is that it sounds like you're in a pretty good situation no matter which way you decide to go. That's worth a lot right there. Go for that dream house!
 
My sis has 13 rentals and she has been in the black for years, but she says she would not do it all over again. Generally people don't give a crap if it's not their stuff.
 
Rental property can be either a dream or a nightmare. I have two rental units, that I didn't even want. Previous tenents really messed up the places (before I got them). With the market in the area, and the condition of the places, not worth selling. The county still wants their taxes, so I have to rent out. There is absolutly no way I would be an absentee landlord. I did that with property I had in NJ, when I moved to Florida. Tenents distroyed the house. A friend has a mobile home park, and he does background checks, and credit checks. Does not allow kids or pets. Keeps the property in great shape (including the mobiles). He still gets an occasional bad tenent, and like was posted before, it can take months to get them out. If you decide to rent, make sure you get and read a copy of the landlord/tenent laws for your area. Believe me bad tennents know the law and will take advantage of it.
 
We've been renting my wife's house for the past 7 years.

Worst year, we lost about $3800 in unpaid rent, running 2 months without rent, and repairs.

Last year was the best year, we made about $3800 (ironic, eh).

Averaged over the entire term, we are $1500 ahead per year.
(plus still owning a second house that someone else is paying for)

Notice I'm not using the word "home" as you have to be able to divorce yourself from the property, emotionally.

I like to have enough cash to run two months empty, plus about 2K for emergency repairs, and that's probably pushing it.

There IS a "sweet spot" for renters who can afford a decent place and have a better chance of treating it well. In our area it's a 1200 SF +_ house for about $950/mo.

Any less house/rent and you get a "lower quality" tenant.
Anything above $1000/mo and you get nit pickers who want everything perfect, yesterday.
 
Would I do it again, absolutely, and we're currently looking for another property in the same neighborhood. Unfortunately we're losing the "market" to big dollar corporations.

Don't forget about insurance and taxes (we don't escrow), and the fact that you' can't legally claim homestead on a rental property.

Also self employment taxes on your rental income.

...and keep in mind that if your bank finds out it's not your primary residence anymore, they may force you to refinance at a higher rate (like 5-6%) and or/ shorter term (typically 15 years).
 
Having this kind of experience in property management (although somwhat limited) was a key factor in deciding to purchase my 23 unit mini-warehose/self storage complex.

My experience so far with the 7 years of residential and 1.5 years commercial has been extremely positive.

I'm good with finance, spreadsheets, taxes and "value" oriented investing and purchaes. Both my wife and I are good at light to medium renovation type repair.

Those things help immensely.

I would NEVER consider hiring a property management company.
 
Seems like the majority of people have had more negative than positive experiences with this. I asked on another forum and got about the same ratio of negative responses. Someone brought up a good point that with houses being so cheap right now, the majority of responsible people who can pay their bills on time are buying and not renting.

I have a question though. How am I supposed to buy another house before I sell this one? I did a calculator on google and it basically states that I can only afford a home that's about the same price as my current home as long as I still have that mortgage debt. If I do the calculator without the mortgage debt, I can afford the dream home that I found.

So how is that supposed to work? Do they expect you to sell first and then go searching for a home to buy? I know how I am with money and I know I could afford both homes for a year on my own if I had to wait for it to sell. But I know no bank would approve that.
 
You could rent your home and then (hopefully) wait until prices go up a bit more, maybe a few years and take advantage of that "2-out-of-the-last-5-years" rule on capital gains. I hope it hasn't changed. If you've lived in that house for 2 out of the past 5 years at the time of sale, you don't need to pay capital gains on it. If I'm wrong on this, someone tell me...

I had a small house that I rented to an old couple, in their late 60's/70 years old. They were good tenants.....for a few years, then they guy's Ebay gig got washed up and he could no longer pay the rent. Got a property management co. to boot them out. I learned a lot real quick. Point is, I was able to keep the property long enough for prices go up and then I sold it for a decent profit. The house was messed up a little bit and we had to work on it for 6 months to get it in shape to sell, so we had to eat that.

I'm in no rush to do it again, but I might......
 
You are still young, other dream homes will present themselves, seeing as you like your present location, maybe set yourself a goal of making hefty principle payments for the next 4 years and pay down the balance to a manageable amount to qualify for a second property. 4 years is only 208 paychecks,48 electric bills, 4 tax seasons and one failed marriage away.<sarcasm>

I'm not telling you to abandon your dream, just approach it with a plan and not a spur of the moment "want" vs a "need".

A lot of folks have gotten their tit in a wringer chasing the "want"
 
dustoff440 said:
Generally people don't give a crap if it's not their stuff.
Click to expand...

x2 (heck, x infinity!)

Oh, and, if you end up taking them to court (eviction, etc.), I've found the court views you as the 'rich' landlord who is taking advantage of the poor folk, and they will give them more time, not make them pay what they owe, etc. (Especially if your property manager goes instead of you going personally).

One in particular 'we couldn't possibly make this family with 3 children move out before Thanksgiving - they can stay until after the first of December before they have to move out.', costing yet another months rent...added to the 3 they were behind, and before the damage they did to 'get even' with the evil landlord who had the gall to try to make them pay their rent.

You know what, watch that show on cable "World's Worst Tenants" for a while.

http://www.spike.com/shows/worlds-worst-tenants
 
YY1 said:
Would I do it again, absolutely, and we're currently looking for another property in the same neighborhood. Unfortunately we're losing the "market" to big dollar corporations.

Don't forget about insurance and taxes (we don't escrow), and the fact that you' can't legally claim homestead on a rental property.

Also self employment taxes on your rental income.

...and keep in mind that if your bank finds out it's not your primary residence anymore, they may force you to refinance at a higher rate (like 5-6%) and or/ shorter term (typically 15 years).
Click to expand...

This is not true. Life changes and houses are part of that equation. Example: You are single get married and have 2 kids in those 4 years. House is too small now so you can buy another one that better suits your family's needs. FHA will even allow you to have 2 Financed Properties in this scenario even in the same City!
So in a nutshell, they can not force you to refinance that is against the law. He can prove that it was his primary residence for 4 years and that is more than enough.

Remember this property is in California.... It will rent out as fast as In & Out is flipping burgers!
 
ESP47 said:
Seems like the majority of people have had more negative than positive experiences with this. I asked on another forum and got about the same ratio of negative responses. Someone brought up a good point that with houses being so cheap right now, the majority of responsible people who can pay their bills on time are buying and not renting.

I have a question though. How am I supposed to buy another house before I sell this one? I did a calculator on google and it basically states that I can only afford a home that's about the same price as my current home as long as I still have that mortgage debt. If I do the calculator without the mortgage debt, I can afford the dream home that I found.

So how is that supposed to work? Do they expect you to sell first and then go searching for a home to buy? I know how I am with money and I know I could afford both homes for a year on my own if I had to wait for it to sell. But I know no bank would approve that.
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Make your offer on the second house contingent on the sale of your existing house. This happens all the time. Most people are not in a position to be able to do it any other way.

I don't feel you are in a position to be able to keep your existing house. And the rental business is a crap shoot. I have owned as many as 5 houses at the same time (including the one I live in), but only rented one out. Learned my lesson on that one. No offense intended to anyone, but renters generally have a strange, selfish attitude, and treat your property like crap and they dont give a rip about it.
 
Hey man if you can't pay cash for the rental property don't do it the risk is just not worth it. I have had two properties and would do it again only with paid for property and build up slowly only buy with cash and snowball them by the time you retire you should have over 15-20 paid for properties. Then your kids can fight over them. Lol.
 
bighammer said:
Make your offer on the second house contingent on the sale of your existing house. This happens all the time. Most people are not in a position to be able to do it any other way.

I don't feel you are in a position to be able to keep your existing house. And the rental business is a crap shoot. I have owned as many as 5 houses at the same time (including the one I live in), but only rented one out. Learned my lesson on that one. No offense intended to anyone, but renters generally have a strange, selfish attitude, and treat your property like crap and they dont give a rip about it.
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Sorry man. In California Contingent offers get put in the shredder. If you are talking an 800K or up purchase you might get someone to wait while you sell your current home, otherwise you are pissing in the wind.......
In California there are MULTIPLE offers on homes in hours of them hitting the market.
 
First thing I'd do is find out what the average rent is for similar properties near yours.

Then factor all your expenses versus the potential income.

It's important to be very thorough with this.

You may find that it's just not gonna work.
 
I bought another home and rented my old one. I found that a bad renter with good references can cost you thousands even after a year of renting and paying on time. You will have court costs unpaid rent for months and thousands in damage after they are thrown out. I have had a good renter for the last few months but that dont make up for the loses incured from the last tenent. If yoy have a mortgage and are not down to the last few years it can be a nightmare. Remember if the furnace goes out you will need to fix it fast and have the funding just in case it goes bad at some point.
 
chryslerfat said:
Keep in mind references from employers, family/friends and ex land lords amount to nothing.

Employer - Wants the employee to get their head back into the game and not worry about housing.

Family/friends - Family will lie for family

Ex landlord - just wants them out and be some else's problem.
Click to expand...
 
When my cousin sold his apartment building, his blood pressure dropped 30 points. It's just not worth it unless you can go full-slumlord.
 
my parents have a rental property run by a property management company. the prior tenant was a great renter for many years. paid 2900 on time every month with postal money orders. one day they get a call from the neighbor at 4:00 am telling them that the house is on fire... the short of it, the tenant decided to turn the property into a marijuana grow house.

the current tenants have already put the "new" house through the ringer. it will cost them thousands to get the house ready to be sold which is hopefully gonna happen in the near future.

they have made a lot of money on it, but with way to much headache involved.

on the other hand... my uncle has a duplex in culver city that has been what he refers to as the "golden goose". same great tenants for 20 plus years. ya never know.

good luck
 
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