Is anybody here a landlord? (I'm thinking of becoming one)

[Badfish740]

My wife and I live in a 2 bedroom 1 bath ranch home with a full finished basement and 1 car attached garage in northwest New Jersey. This is our first home and not where we want to stay, but rather than sell this home in order to buy another one, we're thinking about eventually renting this one once we move. It's a pretty good location, quiet rural area with good schools, and its a 90 minute drive to NYC, and an hour to Newark (NJ's largest city and a major employment center)-we're also within walking distance of the train which goes to Newark and NYC. It's an 80 minute ride to the city now, but within a few years the service will be improved and the commute will be shorter. Anyway, I'm just trying to learn a little about what goes into being a landlord for a single family home. I've lived in various apartments when I was in college, but they were all in apartment buildings where all I was responsible for was electric, cable, and phone/internet. There was also no question of who was responsible for snow removal, landscaping, etc... In a single family home however, I'd be curious to hear about the customary arrangements.

 

[n3pro]

We rent townhouses (two story, two bedroom, 1 1/2 bath). There are many variables. How handy are you? How much are you willing to do? We (My dad, brother, and myself) do 90% of the work ourselves. It is hit or miss IMHO. You can find great tenants that stay a while and keep the place tip top shape, you get people who leave it like a dump. If you hire most of it to a property management, we have found from other people they're number one priority is them making money - not you.

I got a three albums here http://picasaweb.google.com/n3pro1

I have good stories, I have bad stories. So not much help in that aspect. If you get the right person it's great, if you get the wrong person - it sucks. We haven't found a magical formula as to what makes a good tenant.

Good luck what ever you decide.

 

[btuser]

I was a landlord for 10 years. I finally sold my last building because a flipper gave me an offer I couldn't pass up. For most of that time it was a little different because we only had a 2 family and we lived in one of the apts. When we moved and I rented both spots I made it perfectly clear what was expected and never had a problem-untill there was a problem. A call at 11pm because the shower was dripping happened once. One time I got a call at 9PM because there was no lightbulb in the common hallway and suddenly there were guests coming over. Little stuff. Tough when you come "home" and find someone parking their buddies car on the edge of the lawn, but it depends on what kind of bacon your cookin'.
My advice:

1.) Sign a lease with either one person or a married couple. You can have more than one person living there, but you don't want two people on the lease because suddenly one person is giving you 1/2 and the other person is gone. Don't rent to two guys or two girls simply because soon you have two guys AND two girls.
2.) Renter's are responsible for ALL SNOW REMOVAL, trash removal, maintaining a clean and neat exterior. Don't make a deal to knock off rent if they mow the lawn. They won't, or won't do it when YOU would which will just irratate you. Add the cost of the service to the rent or do it yourself. Don't count on them because it isn't fair. They're renting.
3.) If an appliance goes bad they have to buy their own. Don't play the game "this washer keeps ruining my clothes" or "the fridge doesn't get cold enough". Of course I would buy the thing anyway but don't make it expected and people take better care of things.
4.) Here's the important one: Capital gains. You must maintain a home as your primary residence for 2 out of 5 years to be able to claim the capital gains exemption on a house. Is it worth it to keep it?

Its all in the lease, but I never signed anything more than 1-month agreements with anyone. I had some really good renters, and others who moved in and thought it was a hotel. After a couple of conversations they understood why I was charging 10% under market value, and that I had 30-40 other people waiting for a chance to make me happy.

 

[benjamin]

Around here it is customary for a renter of a single family home to take care of everything that's not broken and the smaller broken things as well. And if you get into a rural area you can see some downright creepy arrangements.

It sounds like your place is attractive enough to be able to attract good renters who will be much less hassle to the landlord than you were in college. Of course no renter is going to take care of the place the way you have as a homeowner. There's a reason some people are homeowners and some people are renters. The most important part of being a landlord is being willing to let the place sit vacant until you find the right tenants.

It does make a big difference if you will be living nearby or far away, if you will be doing everything or getting help, and just how much you want to hold on to your investment vs how much it's going to hurt to see it trashed.

 

[Jaugust124]

Have owned the same single family home as a rental unit since 1995. The last three years have been absolutely great. We have a wonderful tenant who fixes the place up, keeps it nice and neat and is on time with the rent, but before that we had quite a few years of tenants coming and going, late or skipping payments, ruining our hard work, you name it.

Some things to consider:
We were lucky, we bought the house dirt cheap and put a little money in it to fix it up. Then the housing bubble expanded and the house was worth 4-5 times what we paid for it, so we mortgaged it to the eyeballs and made our money up front. Now the rent covers the mortgage on it and not much more. A dangerous game because now with the collapse we probably owe more than its worth. Possible to do, but you need great tenants. Remember that every time someone moves out, you will most likely lose at least 1 month of rent - needing time to clean up, paint, find new tenants, etc.

Also, it is tough to make money on a single family rental unless you have little or no mortgage. Additionally, when you do want to borrow the money to purchase your new home the bank only considers 80% of the rent as income. That could actually turn into a liability against you. The banks tend to see things differently than most normal people.

Oh, and don't forget about the Christmas Day or Easter Sunday or midnight phone calls from your tenant telling you there's no heat or hot water.

Also, as someone else mention earlier tenants don't tend to have the same regard for the property as owner/occupiers do. Its not always intentional, they just don't know how to for see future problems and correct them before they get out of hand: ex: potential pipes freezing up

I am certainly not trying to talk you out of it, it depends on many factors that only you can answer.

 

[benjamin]

I'll agree that the economic/housing downturn has brought a MUCH better grade of renters looking for a decent affordable place to live, often because they're still making payments on the house they haven't walked away from yet.

 

[jebatty]

When we were able to buy some nearby land 13 years ago, the land came with a house and garage we didn't really want. But that turned into a real asset, as we have continuously rented the house/garage, missing no more than 3 months rent in all this time. Always a written lease for a one year term; lease ends in summer to make sure I have a tenant over the winter to pay the heat bills; also easier to rent in summer than in winter. Most tenants have stayed for only a year, the longest was 3 years. I've also let tenants out of the lease early, why fight them, just make a deal and part in good company. I keep the rent very reasonable, with a security deposit; also because we own the surrounding land, I'm on the property regularly and keep an eye on things, which also is to the tenant's benefit, because if the tenant is gone for a vacation or whatever, the tenant feels comfortable with me watching the house.

I recommend a written lease, see if your local attorney bar association has a residential lease form. These usually are better for both landlords and tenants than office supply store lease forms; they also will cover local laws that must be in a lease.

I doubt you can make much money, if any, on a single rental unit. The rent needs to cover interest, insurance, taxes, and landlord maintenance, at least. You don't want to have to put cash into the property. Best if you own the property and don't have interest expense.

In the end I agree that some tenants are good and some are not. I treat them all with respect and even my "not so good" tenants have worked out OK.

 

[cncpro]

Rent the movie Pacific Heights to help you decide.

http://www.imdb.com/title/tt0100318/plotsummary

I thought about doing this for a while but I decided that the risk was too high for the potential income.

 

[Panhandler]

Rent the movie Pacific Heights to help you decide.

http://www.imdb.com/title/tt0100318/plotsummary

I thought about doing this for a while but I decided that the risk was too high for the potential income.

I had to show that movie to several friends that rent property. Scared the bejesus out of them.

 

[fossil]

Been a landlord for three different properties...2 condos & 1 SFH. The very first tenant I had turned out to be a total deadbeat, and I had to go through the entire eviction process, all the way into a California courtroom to finally get her butt out of my property and my life. It was a nightmare (except for the judge...he was terrific), but a hell of a learning experience. Second tenant in the same place was fine. Tenants in a San Diego condo were perfect...that place we had managed for us, because we'd moved to Virginia. Eventually sold the place to the tenants. Had tenants in our Oregon home for a year or so after we bought it but before we could move from Virginia. They were fine. I'd say that the farther away from the property you are, the more of a hassle it can be, and the more you need the services of a management outfit, painful as it might be to see them take their cut. It was interesting, but I'll never do it again. Rick

 

[webbie]

It is true that renting is the future - the "home ownership for every person" thing is past tense! I've been a landlord various times, and really grew to dislike it. My current opinion is this - first of all, you have to make really good money for it to be worthwhile! This is truer today than ever, because unlike in the past you cannot count on the property value going up to make your eventual profit. So you'd want a good positive cash flow from day one.

Also, property taxes have risen so high that a large percentage of your income ends up paying them!

In short, things are different today. My dad made a lot of money over the years in real estate by buying run down properties - back then you could make a big positive cash flow from day one - and then selling them (often to the tenants...some were mixed commercial...like old houses with two storefronts) and taking back the mortgages at high rates (12%).

All those bets are now off.

So as a general rule, I'd stay away. There are exceptions, of course, but even if Real Estate corrects 50% (which it has in some areas), the prices are still too high to support big time positive cash flow.

 

[vvvv]

current lead laws ? = tough act for landlord

 

[cottonwoodsteve]

Do a credit check. Have the tenant fill out a form to authorise this.
Get ID,s and pictures so the people you rent to are the people that occupy the house.
Trust no one. The last landloard will give you a good report just to get rid of his dead beats.
All pets if allowed must be approved.
Have pre set limits on visitors staying there. Both amount of time per year and amount of people.
Limit home bases businesses to non impact. Child care will have great water and applience use. A contractor will make noise coming and going with trucks and employees.
Don't believe anyone that has a story why they have no "history" of job or renting.
A management company is usually well worth it. Prospective tenants know they can't fool them. Also management companys can prevent whiney tenants. The type that call you to change the light bulb.
Trust no one.
Did I mention do not trust anyone.

 

[hilly]

Instead of buying a house and renting it out, I have chosen to invest in stocks that pay a dividend. One of the ones I picked was Royal Bank of Canada because it is very stable (the Canadian banks are known to be among the safest in the world because of the regulations here) and it pays a reasonable dividend ($0.50 per share per quarter). If I invested $200K into RBC stock (the price of a very cheap house here), it would pay about $550 or $600 per month in dividends. That may not be as much as renting, but I don't have to worry about renters, land tax, upkeep etc. As well, the stock itself, like the rental property, keeps appreciating.

During the recession, which hit the US banks very hard, the Canadian banks were still as profitable as they were before the recession and their dividends continued on uninterrupted. I missed a great opportunity though, because the share price fell to about half of what it is today and the dividend was about 8% at that point. I should have borrowed a bunch of money and had the dividend cover the payment until the stock price recovered, which was about six months.

 

[dave11]

I've been the landlord of multiple residential and commercial properties, and the best advice I can give you is to either:

1. Learn every aspect of landlording before you decide to do it--especially the legal ramifications (HUD laws, avoiding discriminative practices, etc.), and learn how to do a pro forma cash flow and ROI (return on investment) analysis.

Or

2. Turn it over to a GOOD management company. Yes, it takes a big chunk of your income, but all the worry and liability goes to them.

If you go the first route, there are some good books out there. Read them all, cover to cover. And remember that you CAN get yourself into legal trouble, if all you follow is common sense.

 

[Exmasonite]

My one modest piece of advice (my wife and I have 2 rentals in another state- each owned a house when we met in grad school and have since moved out of state. Real estate is a nightmare in Michigan and it's a college town so we're renting them out. Also, have a good friend locally who's handling property management for a SONG)

So, here's the advice:

Pay for trash removal yourself.

Got this advice from a friend who managed 10-15 houses for a landlord. That way, no matter what happens to the tenants' financial situation, trash will hopefully still go out. Sure, every once in a while you get burned by somebody who fills the garage/basement/back room/house with garbage but if it's paid for and they are a "decent" person, it's just common sense to put out garbage. Just factor that $20-50/month into the rent.