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**Landlords/ multiple home owners- ?s for you:
H and I live below our means, we're just not terribly comfortable spending $$$ and don't have expensive tastes. We're considering purchasing a second home (we're going to outgrow our tiny starter sooner than later) but we're having trouble pulling the trigger. We could sell our current home and break even but I don't really want to break even, I'm seriously considering renting this out for... however long it takes to be able to make a profit. (5yrs, 10yrs, doesn't matter. We aren't hurting for cash so it's not a necessity)
How did you decide what was an acceptable amount to owe each month (in mortgages, etc) Did you go with a certain % of your income or just what you felt comfortable with? Can you afford both (or all if you have more than 2 homes) of your mortgages without renters? Is renting worth the headache to you? Do you have a PM or do you do it yourself?
If you do it yourself, are you a DIYer? Or do you hire people when your renters have issues? Any tips/ advice to get started renting our home out would be hugely appreciated!!
Re: **Landlords/ multiple home owners- ?s for you:
Our decision process was nothing like yours lol. Ours wasn't a "let's buy another house" thing; it was a "crap, we have to move for work and we've just bought this place and the market's tanked" thing.
Because it wasn't intentional, our thought process wasn't along these lines.
We have separate finances because when we got married, we each had our own debts we wanted to pay off ourselves, and we've stuck with the system because it works for us. I say that to say that when we buy a house, it's in one name only. House 1 [sold years ago] was in my name only, House 2 is in my name only, Houses 3 and 4 are in DH's name only. When we go to the bank for a house or a car, our DTIs look better.
If we had to pay for all of our houses and DH's work apartment (remember I'm in school and he lives elsewhere for work), it'd be 80% of his take-home pay. Don't do that. [Laughing like a sad, crazy lady.] We can, and have, paid for 2 houses and DH's apartment at one time, but it's brutal. Like "don't breathe because air costs money" brutal.
House 2 is $70k under water. House 3 is $35k under water. So yes, it's worth it for us...for now. The second the market improves, we'll sell.
House 2 has a great PM. He's built a name for himself managing ~40 houses in one part of town. He actually gives a damn and cares about his reputation in town and wants repeat business. Example: we drove by the house at 8pm on the Friday night of Thanksgiving and the garage door was open and nobody was home. Thinking the renters were OOT and might get robbed, we called him and he went out to check on the house.
House 3 had the PM from hell. Remember my posts from Nov/Dec about the tenants with the special needs teenager and him coloring on every single wall, painting the white carpet turquoise, eating the window sills, and tackling the upstairs toilet off its base? And the PM saying that was "normal wear and tear?" Yeahh, I had interviewed literally every single PM company in town and picked the best of the bunch.
My advice is to really trust google reviews for this. If you google House 2's PM, it's glowing 5 star reviews. If you google House 3's PM, it page after page after page of 1 star complaints. (Many of those complaints have been added since we signed the contract in 2010.) I think BBB ratings are often misleading - they give an A rating until they've had enough complaints to warrant lowering them, so if no one's filed with the BBB, an awful company can have a good rating.
Ask me if you have more PM selection questions. Though there wasn't a better choice for House 3 - everyone sucked - there were some warning signs.
I now manage House 3 myself. I can do it now because we've had so much experience in the arena; I don't know that I could have done it myself in the beginning.
Houses 2 and 3 are 4 hours from where I live now and 12 hours away from DH. There's no way we could DIY repairs.
I got a rec for a general contractor from a friend and he does everything for the house. He made all the repairs from the damage, is on call for the current tenants, and did a 90-day inspection of the current tenants for me.
I use TransUnion's SmartMove to screen tenants. Be sure to tell your tenants that their references have to return your call within X hours or their application is rejected. When references don't call you back, you have no way of knowing if it's because they're a flake or if it's because they wouldn't rent to the applicants and don't want to tell you/hurt their feelings.
For marketing, I used this company to get an MLS listing (the only way rentals are listed in House 3's area - Craigslist is a ghost town). Scanning & emailing 1,892 pages of paperwork is a PITA, but we rented in 11 days on the MLS, so it was worth it for our market. I also bought a lockbox from them for showings.
Lemme know if you have more questions. Overall, we've lost tens of thousands of dollars on our rentals, even House 2, so I wouldn't recommend rental property to anyone. If you can break even now, I'd do it.
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The Googlesites Paint Bio
Thinking of doing cosmetic updates to a dated home? These were our costs.
We were landlords for a while, but it was out of necessity. I was commuting 1.5 hours each way to work, which was killing me after our son was born. I didn't want to lose money, so we rented it out.
It was important to me that we find a house to purchase that was inexpensive enough that we could cover both mortgages without renters if necessary. Financial stress is the worst, and I didn't want to struggle if we lost the renters and had a few months before finding new ones. It meant buying a house that needed a lot of updating and we were very limited as our house budget was about 60% of the average cost of a house in the area we moved to.
In general, we are DIYers, but we were spending all of our time and energy renovating the new house, so I had a property management company manage the rental. We paid them 10% of the monthly rent, and it was definitely worth it.
We did eventually decide to sell the house at a loss. With association fees, taxes, the property management company, and occasional repairs, we were losing a good bit of money each month. Plus, we were getting constant calls from our old neighbors complaining about the renters (apparently they would sit on the patio at night and be really loud, and these were townhomes). We would have to hold on the to place for many years for it to ever be able to sell it at a profit, so we decided to just bite the bullet and get rid of it.
In your situation, it's worth trying and seeing if you don't mind being a landlord. you can always sell if you change your mind.
We moved into a rental 2 miles from DH's office because he was commuting 3 hours a day, so our situation is different to yours. It costs us $300 a month to rent our condo, so it really doesn't make financial sense, but it's so worth it for the difference it makes to our lifestyle (we couldn't sell because we're upside down on the mortgage).
To answer your other questions...
No, we can't afford not to have renters, though we do have savings that would cover it for 6 months if necessary.
It's not really worth the headache - if we could, we'd sell in a heartbeat.
We don't have a PM and it's kinda annoying. I've had to drive up there (an hour away) with a toddler to fix simple stuff, and we've spent whole days there on weekends with DH repainting, etc. The only thing we've hired out so far was for a plumbing issue, but we might do that more often just to cut down on the hassle of going there and doing it ourselves.
We have a good renter - a single mom and her 5 year old daughter - she pays on time every month and is a really nice person, but even so, she's trashed the carpet and consistently leaves the humidifier too high so the furnace leaks, so it's going to cost us a fair bit to repair things when she moves out. She's also really messy and has no sense of style, so it'll be much harder to sell if/when we do with her stuff in there (whereas it was super easy to rent with our stuff).
Having said all that, if we had older kids or no kids and were making money on it, I'd be much happier with the whole thing. Further down the line, I'd consider buying a rental property or two if it made financial sense, so in your situation it might be worthwhile. My biggest piece of advice would be to take the time to screen your prospective tenants very carefully - we said no to five other sets before we found someone with good credit and a stable job who didn't want to move 6 people into a 2 bed condo, and even though she's not perfect, it could have been so much worse!
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We were in a similar situation -- wanted something now, but would only break even in our current place. Our current home mortgage is very low -- about 9% of our take home pay (and we contribute the maximum to both 401ks pretax). It's a small percentage of our budget it would be easy to deal with if we didn't have renters. Hopefully we will have them, though. We picked our new house price point on where we felt comfortable with respect to monthly payment.
Our new home isn't done yet, but we will be doing the property management ourselves. We may not DIY everything, but will coordinate people if needed. I spent some time talking with people who own rentals and received three good pieces of advice. One, price yourself slightly below the going rate. People will feel like they are getting a deal and stay put, which means less turnover for you. Two, send your tenants a small welcome and holiday gift as well as a birthday card. They will think you are really nice and bug you less. Third, if you price slightly low, you'll often have multiple applicants. Highest credit score wins, period, and don't take anyone with a credit score of less than 650. I'm not sure if we'll do all those but it makes sense.
We have 3 homes - current residence and 2 rentals.The rentals both started off as primary homes for my husband and I (one each, as singles).
How did you decide what was an acceptable amount to owe each month (in mortgages, etc) Did you go with a certain % of your income or just what you felt comfortable with? Can you afford both (or all if you have more than 2 homes) of your mortgages without renters? Monthly, we net a $50 - $100 loss on each rental. However, that loss is made up on our taxes, so it works out to be VERY mildly profit generating. It's also nice to be building equity in one, and working our way out from underneath the other. We could easily pay all 3 mortgages for a few months, but it would be a stretch to carry them indefinitely. I am betting on the likelihood that both will not sit empty at the same time and/or for more than a month. In order to get a mortgage on the new house, though, you do have to qualify to carry both mortgages at once. Once the house is a stable rental for 1-2 years, you can then use the income to offset the expenses (in regards to looking at current DTI).
Is renting worth the headache to you? Yes, and ours have not been a headache at all.
Do you have a PM or do you do it yourself? I started the process by getting advice from my uncle, who has owned rentals for 30+ years. His first piece of advice was: "Avoid a PM, if you can." He said that in 30 years, the only bad renters they've had were chosen by a PM. We've had both rentals for several years now, and it has been really easy to manage independently.
If you do it yourself, are you a DIYer? Or do you hire people when your renters have issues? We DIY when we can, and have, for little things. Fortunately, we haven't had any major issues since the properties became rentals. We also have a clause in our leases stating that renters are responsible for any repairs under $25. This has saved me a lot of trouble having to follow up with replacement light bulbs, batteries, etc.
Ditto PP with the advice about pricing. We've always priced ours slightly lower than the going rate and ended up with great response, so we had our choice of tenants. I'd rather "lose" $50/month in rent and have my pick of renters, than take whoever is willing to pay more. We also send gift cards at Christmas and lease renewal. So far, we have very little turnover and rarely hear anything from our renters. I think it works out well for everyone.
DH had a townhouse when we met that we rent out and we've since bought a couple more investment properties. We can afford the mortgages right now, but I wouldn't want to all the time
. I would definitely not base it off a % since I generally don't agree that everyone across the board can pay the same % on housing. If you make 500K a year you need a relatively smaller percentage of your income to live (food, utilities, cars, etc) than someone who makes 50K a year. Those necessities take up a much larger portion of the 50K.
I'd write up a budget and see what you're comfortable with knowing that you might have to cover the mortgage if it goes unrented. We live in a really good rental market, so the properties are almost never not occupied. DH handles "renter relations" as I call it
. He likes doing it and handles all the calls, showing the places, and scheduling work to be done on the homes. I'm the handy one, so any DIY work I do, but I only do quick things like changing out a light fixture, hanging blinds, that sort of thing. Anything major we hire out because we just don't have the time to do it. It's worth it to us, but only because DH doesn't mind doing it. I probably wouldn't do it if it wasn't for him. I handle almost all of the DIY on our own home and he handles most of the rental property stuff. It works out well and we help each other out when needed.
As far as tips, make sure your HOA (if you have one) doesn't have any restrictions on renting out. Do a lot of research on taxes and write offs before you begin so you know what kinds of repairs can be written off and so that you are ready come tax time. If you sell a rental property, you pay capital gains taxes on it unless you immediately roll it into another investment. If you sell a primary residence, you don't. I'm not sure how it works if you lived in it first then rented it out, but just another thing to keep in mind that will eat into your profits from selling if it is an investment property.
It's been profitable for us and worth the money for the amount of time we spend on it, but all of the properties were bought with the intent of renting them out. We only bought ones where we thought the profits from the rent would make it worthwhile. It's hard to say if it would be worth it for you, but try and figure out what you could rent it for vs. what your mortgage is, and keep in mind that the tax write offs help defer the costs somewhat.
After 31 cycles and two losses, we've been blessed with a healthy baby girl!
Congrats to both of my amazing TTC Buddies, tdmd09 and sb2006!!
Life of Amberley
Woah, so much information! Thank you so much ladies!
Your responses are definitely helping me lean toward renting, the homes we're interested in looking at are only a few miles away and our current home is in excellent shape with all of the mechanicals (roof/ windows/ plumbing/ appliances/ etc). Our current mortgage payments are very low, and I specifically chose this city (as opposed to the slightly more desirable city next door with much smaller yards but a downtown area) because the taxes are crazy cheap so it kind of feels like we're in the perfect position to at least give it a try.... (notice me talking myself into this? LOL)
Thanks again for all of your excellent responses, I hugely appreciate the info and your time!
Planned Executed
Our current mortgage is private, in my name only. Next home will probably be in his name only. Our DTI will still be tiny. The mortgage stuff I have quite a bit of knowledge on, it's the rental stuff that I'm acquainting myself with. Thanks though
Planned Executed