You are not residing in a hotel. You are staying short term. totally different deal.
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Advice on becoming a landlord
- Thread starter cyprant
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You are not residing in a hotel. You are staying short term. totally different deal.
Different set of statutes apply. Same sort of reason that rental units don't have to have the maximum room rate posted on the inside of the door.
I have 21 units. This is my money maker now that the W2 is gone. In my opinion it is like fish tanks. The bigger the tank, the easier to keep it up.
The more rentals you get the easier it is on you if one gets a dead beat in there. Factor in all the expenses, find out what the market for that specific property will bring and then add in some due diligence.
You must be ready to deal with bad times. Make sure that you have the funds for a complete rehab on hand. Don't take it personally when someone rips you off in the deal. It happens. It happens less as you learn a little more, but it still happens. This is a business. It doesn't make me loads of money. It does pay though.
Having said all that, I would still sell my personal residence instead of renting it out. That is just because I have a lot of equity built up in it and since I have lived in it long enough any money I make from the sell is tax free. Use that to make a down payment on a rental if you want, but don't leave yourself open.
The more rentals you get the easier it is on you if one gets a dead beat in there. Factor in all the expenses, find out what the market for that specific property will bring and then add in some due diligence.
You must be ready to deal with bad times. Make sure that you have the funds for a complete rehab on hand. Don't take it personally when someone rips you off in the deal. It happens. It happens less as you learn a little more, but it still happens. This is a business. It doesn't make me loads of money. It does pay though.
Having said all that, I would still sell my personal residence instead of renting it out. That is just because I have a lot of equity built up in it and since I have lived in it long enough any money I make from the sell is tax free. Use that to make a down payment on a rental if you want, but don't leave yourself open.
In my time I've had both SFH's and multi-units, and have quite a few friends that have rentals, including some that deal in commerical properties, others with properties as large as 300+ unit complexes, or others with well more than than 1100 separate properties. Have not bothered with rentals for some decades now, and only work rehabs and flippers (<---- if you don't already, instantaneously know what those mean, don't even THINK about renting out your property, LOL). More $$$, quicker turn-around, and MUCH less headache.
First bit of advice is: don't. Renting is a business, whether a single SFH or many units or locations, it's still a business. A job. If it's not something the person intends to be 'hands on' about, they're simply out of their realm and will usually just end up being frustrated and/or angry for doing so. As other posts here will verify.
Second, citing the first reason (it's a business), hiring a 'rental agent' can, likewise' be an exercise in futility. I made the statement once, to a very large group of Mortgage Brokers and Investors that 99+% of those in the real estate business (including Realtors, rental agents, appraisers, title reps, escrow reps, and so forth) have no concept of what they're doing. That statement, to date, has yet to be honestly refuted. While they may be full-time 'in the biz', that does NOT mean they're capable or competent. They're good at selling themselves and 'pie-in-the-sky' perceptions, inept at real estate transactions.
Therefore, if one ventures into the real estate business, one 'must' be personally hands on. So, why would that person even need a 'Rental Agent'? Are they going to look after YOUR property with the same concern YOU are? Obviously, not. And, if something does go wrong, you now have an even bigger mess because you've involved an additional party (and likely, another business entity).
IF you still choose to rent, the first bit of advice is: 'Evict the undesirables BEFORE you rent out the property'. Meaning, be very scrupulous to whom you rent. Check everything, NOT just some 'credit report'. You MUST check ratios, bank accounts, assets, etc. to gain a complete financial perspective. You're not renting a tent or a car, you're renting a property worth tens (or hundreds) of thousands of dollars, likely the most valuable physical asset you have (or one of many, as the case may be).
ONE bad tenant can end up costing you hundreds or thousands (or tens of thousands) of dollars to rectify that 'lapse in judgment' on your part. So, there goes ANY profit, and then some. Let that sink in a moment.
That 'iron-clad rental agreement' is baloney. 'Fuhget-about-it'. Contracts are ONLY useful for some lawyer-backed party to fight with some other lawyer-backed party in court, LOL. Makes the lawyers rich (know ANY successful 'poor' ones?), but not necessarily the clients (who ends up making the MOST money on class action suits? The individual parties, or the law teams? You guess it, the lawyers).
You can HAVE a 'no smoking' or 'no pets' clause, and that would give you 'grounds' for an eviction (aka, a nightmare), but that does NOT mean those tenants (or their guests or visitors) aren't going to smoke or have pets. Same with ANY other clause. You can HAVE a 'no re-building car engines in the dining room' clause (I'll BET ya hadn't even THOUGHT of that one, now did ya?) in the agreement, but that doesn't mean the tenant can't / won't do it. It ONLY means you have 'grounds' to evict them IF they do, IF you CAN.
And I'll bet I can think of at dozen other scenarios which HAVE happened that no one else here can even think of, all bad for the landlord. And another dozen clauses MOST landlords never even think to include, 'cause they just don't come to mind to homeowners-now-landlord wannabes.
Next, what's your ROI (<---- again, if you don't already know this term, pass on 'pretending' to be in the R.E. biz)? For MOST folks in MOST scenarios, it's going to be low due to existing mortgage(s) payment(s), property taxes, insurance, possible PMI (<--- another term that should already be known), maintenance (yes, YOU must still maintain the property). Factor such things in, and the profit from it tends to be small, especially if mortgage payments are factored in. Gonna 'invest' 40 - 60 hours a month of your time for $150 - $200 / month net profit? Would you take a part time job at that pay rate?
Last, what's your current Lender(s), if any, have to say about it? 'Cause if you (or even your lawyer) says they don't have any say-so, you haven't read those loan documents you signed. Weren't going to 'bother' informing the lender, eh? Might end up in foreclosure, and court, for breaching YOUR agreement(s) with the Lender(s). Really. At the very least, they may well-have the option of changing the rate and terms of your agreement of their own volition, increasing them to their benefit, of course. Good, little 'sneaky' action in that, to help reduce competition. LOL, it's a tough 'game'.
Okay, wrote an entire chapter, which is less than 1/100th of what ya really SHOULD know. But hey, ya asked. It's your property. Whatever choice you make, just remember YOU are 'stuck' living with it, NOT the tenant, NOT the Realtor / Rental Agent, NOT the Lender(s), and not even your 'sharp-as-a-marble' legal-eagle with the "Esquire" behind his name (those guys always seem to be a putz, LOL).
First bit of advice is: don't. Renting is a business, whether a single SFH or many units or locations, it's still a business. A job. If it's not something the person intends to be 'hands on' about, they're simply out of their realm and will usually just end up being frustrated and/or angry for doing so. As other posts here will verify.
Second, citing the first reason (it's a business), hiring a 'rental agent' can, likewise' be an exercise in futility. I made the statement once, to a very large group of Mortgage Brokers and Investors that 99+% of those in the real estate business (including Realtors, rental agents, appraisers, title reps, escrow reps, and so forth) have no concept of what they're doing. That statement, to date, has yet to be honestly refuted. While they may be full-time 'in the biz', that does NOT mean they're capable or competent. They're good at selling themselves and 'pie-in-the-sky' perceptions, inept at real estate transactions.
Therefore, if one ventures into the real estate business, one 'must' be personally hands on. So, why would that person even need a 'Rental Agent'? Are they going to look after YOUR property with the same concern YOU are? Obviously, not. And, if something does go wrong, you now have an even bigger mess because you've involved an additional party (and likely, another business entity).
IF you still choose to rent, the first bit of advice is: 'Evict the undesirables BEFORE you rent out the property'. Meaning, be very scrupulous to whom you rent. Check everything, NOT just some 'credit report'. You MUST check ratios, bank accounts, assets, etc. to gain a complete financial perspective. You're not renting a tent or a car, you're renting a property worth tens (or hundreds) of thousands of dollars, likely the most valuable physical asset you have (or one of many, as the case may be).
ONE bad tenant can end up costing you hundreds or thousands (or tens of thousands) of dollars to rectify that 'lapse in judgment' on your part. So, there goes ANY profit, and then some. Let that sink in a moment.
That 'iron-clad rental agreement' is baloney. 'Fuhget-about-it'. Contracts are ONLY useful for some lawyer-backed party to fight with some other lawyer-backed party in court, LOL. Makes the lawyers rich (know ANY successful 'poor' ones?), but not necessarily the clients (who ends up making the MOST money on class action suits? The individual parties, or the law teams? You guess it, the lawyers).
You can HAVE a 'no smoking' or 'no pets' clause, and that would give you 'grounds' for an eviction (aka, a nightmare), but that does NOT mean those tenants (or their guests or visitors) aren't going to smoke or have pets. Same with ANY other clause. You can HAVE a 'no re-building car engines in the dining room' clause (I'll BET ya hadn't even THOUGHT of that one, now did ya?) in the agreement, but that doesn't mean the tenant can't / won't do it. It ONLY means you have 'grounds' to evict them IF they do, IF you CAN.
And I'll bet I can think of at dozen other scenarios which HAVE happened that no one else here can even think of, all bad for the landlord. And another dozen clauses MOST landlords never even think to include, 'cause they just don't come to mind to homeowners-now-landlord wannabes.
Next, what's your ROI (<---- again, if you don't already know this term, pass on 'pretending' to be in the R.E. biz)? For MOST folks in MOST scenarios, it's going to be low due to existing mortgage(s) payment(s), property taxes, insurance, possible PMI (<--- another term that should already be known), maintenance (yes, YOU must still maintain the property). Factor such things in, and the profit from it tends to be small, especially if mortgage payments are factored in. Gonna 'invest' 40 - 60 hours a month of your time for $150 - $200 / month net profit? Would you take a part time job at that pay rate?
Last, what's your current Lender(s), if any, have to say about it? 'Cause if you (or even your lawyer) says they don't have any say-so, you haven't read those loan documents you signed. Weren't going to 'bother' informing the lender, eh? Might end up in foreclosure, and court, for breaching YOUR agreement(s) with the Lender(s). Really. At the very least, they may well-have the option of changing the rate and terms of your agreement of their own volition, increasing them to their benefit, of course. Good, little 'sneaky' action in that, to help reduce competition. LOL, it's a tough 'game'.
Okay, wrote an entire chapter, which is less than 1/100th of what ya really SHOULD know. But hey, ya asked. It's your property. Whatever choice you make, just remember YOU are 'stuck' living with it, NOT the tenant, NOT the Realtor / Rental Agent, NOT the Lender(s), and not even your 'sharp-as-a-marble' legal-eagle with the "Esquire" behind his name (those guys always seem to be a putz, LOL).
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Great write up there... obviously you have been in the biz. I was running these while still working. Hired out the little stuff or worked the weekends to get a place rehabbed.
Now that I don't have a W2 I still have the rentals but I also have places to rehab and retail. Hate using the term flip as it is almost a cuss word now.
I do agree that rehab/retail is more money and faster but it is also a different taxation. I have yet to find a mortgager nowadays that has a DOS clause because you are renting the place out. Used to be that way, but at least with the few I use they want paid and the place insured.
Again, in the OP's situation I would just sell the house and reap the bennies from that. That is my plan, if I ever get the time and energy to work on my own house that is.
Getting tougher. You can require rental insurance -- a place I lived in in Martinsville required it (I would have had it anyway). Specify maximum number of tenants. I had one lease that had something with drugs in it -- drug conviction of any type and you were immediately evicted.
I also see people skipping out in the middle of the night. What a PITA. Get a good renter and you will be happy. Get a bad one and you will hate your life.
I also see people skipping out in the middle of the night. What a PITA. Get a good renter and you will be happy. Get a bad one and you will hate your life.
IndyGunworks
Grandmaster
Does it change the advice for someone who is upside down in the mortgage... thinking maybe the OP wont make any money on selling, and might loose some which is why he is considering renting it out.
I just sold our home in Indy. We still have our home in NC that we have been renting out for the last 16 years. I just lost my best renter, who was there for about seven years. She paid the rent every month, on the first and was never late or made partial payments. She just moved out to a bigger home after having five children since she moved in.
Last year she replaced all the window treatments and carpet throughout the house. I will really miss her. My newest renter moved in two months ago and I received partial rent on the 10th and the remaining on the 18th. Oh well, it goes with the territory.
Last year she replaced all the window treatments and carpet throughout the house. I will really miss her. My newest renter moved in two months ago and I received partial rent on the 10th and the remaining on the 18th. Oh well, it goes with the territory.
Least ways you got it.
Scary-- I'll give some more details on my situation .
We bought in 2008 (top of the bubble) with a 30 year fixed mortgage. We refinanced into a 15 year a couple years ago and put down $10k and saved about $20 a month and are paying down the principal much faster now (about $500 per month goes to principal now vs about $120 before the refinance...
So my thinking is if we sell now with our Realtors advice and realistic price we would get for our house we would walk away with about $5k after fees and such...
My thinking is keep the house and rent it out for 10 years or so and we will be close to paying it off... Sell the house and use the $ that it sells for to pay off our new house effictivily turning out new mortgage into a 10 year mortgage and being debt free in 10 years...
We only have about 20% equity in our house now...tell me if I'm wrong, but its seems stupid to sell now to take 5k out vs renting for say even 5 years and being able to take out about $30k or finishing the mortgage and either keeping it for cash flow or selling for $125k + to pay off our new mortgage...
We bought in 2008 (top of the bubble) with a 30 year fixed mortgage. We refinanced into a 15 year a couple years ago and put down $10k and saved about $20 a month and are paying down the principal much faster now (about $500 per month goes to principal now vs about $120 before the refinance...
So my thinking is if we sell now with our Realtors advice and realistic price we would get for our house we would walk away with about $5k after fees and such...
My thinking is keep the house and rent it out for 10 years or so and we will be close to paying it off... Sell the house and use the $ that it sells for to pay off our new house effictivily turning out new mortgage into a 10 year mortgage and being debt free in 10 years...
We only have about 20% equity in our house now...tell me if I'm wrong, but its seems stupid to sell now to take 5k out vs renting for say even 5 years and being able to take out about $30k or finishing the mortgage and either keeping it for cash flow or selling for $125k + to pay off our new mortgage...
It depends where your home is located. My rental property is in Fayetteville, NC (Fort Bragg). The homes in my neighborhood will get E-4 to E-6 occupants. Other neighborhoods will get E-7 and O-1 to O-3. So, I kind of know what I'm going to get. If you are in a neighborhood where the rent will pull in someone who is pretty stable and responsible, and you are willing to take the risk, then go for it. Also, if for any reason you do not have the house rented, you should be able to make both payments for a few months without feeling the pinch.
Renter here...not a PITA
I'm currently a renter, too. It's a guarantee this house will be better after we leave.
I've been in an apartment and currently a rental home. I've made upgrades on both (and will be leaving them there) because for right now this is home and I want it to be comfortable.
Not all renters are POS dirt bags but enough are to hurt you.
We had 28 SFH as rentals at the high point. Wife was deeply involved in the mortgage business for 15 years. We got out during the bubble and escaped intact more or less. We did OK but the area we had all of the property's attracts all walks from dirt bags to family's just trying to get by. We had some very reliable renters that we offered contract buys when we pulled out. All but 1 is still in their homes. Divorce was the loss on the 1 that is no longer there.
We had just enough crap to make it a PITA to continue. 1 bad situation can strip you of months worth of income/profit.
We had 28 SFH as rentals at the high point. Wife was deeply involved in the mortgage business for 15 years. We got out during the bubble and escaped intact more or less. We did OK but the area we had all of the property's attracts all walks from dirt bags to family's just trying to get by. We had some very reliable renters that we offered contract buys when we pulled out. All but 1 is still in their homes. Divorce was the loss on the 1 that is no longer there.
We had just enough crap to make it a PITA to continue. 1 bad situation can strip you of months worth of income/profit.
I will keep this brief. Be happy to add detail to specific questions.
First, Indiana law is rather landlord friendly. I have never had an issue evicting and even had an emergency eviction granted when tenant got super stupid. The catch is that the landlord has to be rental smart. Most aren't.
Second, it is a hassle. It is a PITA. And it makes you want to tear your hair out at times. You have to rent understanding all that it entails. Again, most homeowners don't.
Third, it is not generally a good idea to rent in lieu of selling for the average homeowner.
For you specifically OP, I would give you about 50/50 odds of breaking even between renting it out and selling it now. Meaning, that your net profit of renting will only be roughly what you would get by selling now. frankly, in order for you to come out ahead with the renting option, you have to have everything go right. Good tenant who pays on time. No catastrophic rehabs to bring it back to habitable condition for the future sale. And a real estate market when you sell that will actually be profitable. Even if you have 100% equity, you can lose profit by loss in market value. if even one of those doesn't happen, you're going to lose money by comparison.
in the end it's all about the math. Looking at sale prices and their relative proceeds now and in the future is not the right kind of math. You need to be looking at how long you would have to rent to reach the profit level of selling today. If you only make $100 month, it will take you 4 years just to break even with the expected earnings on a sale now. And that doesn't include any repairs or rehab that has to be done, that's just comparing your revenue in monthly rent against your monthly mortgage payment. A $2500 furnace replacement sets you back 2 years. Every month you don't get rent is another month you have to rent beyond that 4 years to break even.
Only you can decide what's "worth" it, but you'd best look far beyond the simple numbers of proceeds from a sale now versus a sale in the future.
First, Indiana law is rather landlord friendly. I have never had an issue evicting and even had an emergency eviction granted when tenant got super stupid. The catch is that the landlord has to be rental smart. Most aren't.
Second, it is a hassle. It is a PITA. And it makes you want to tear your hair out at times. You have to rent understanding all that it entails. Again, most homeowners don't.
Third, it is not generally a good idea to rent in lieu of selling for the average homeowner.
For you specifically OP, I would give you about 50/50 odds of breaking even between renting it out and selling it now. Meaning, that your net profit of renting will only be roughly what you would get by selling now. frankly, in order for you to come out ahead with the renting option, you have to have everything go right. Good tenant who pays on time. No catastrophic rehabs to bring it back to habitable condition for the future sale. And a real estate market when you sell that will actually be profitable. Even if you have 100% equity, you can lose profit by loss in market value. if even one of those doesn't happen, you're going to lose money by comparison.
in the end it's all about the math. Looking at sale prices and their relative proceeds now and in the future is not the right kind of math. You need to be looking at how long you would have to rent to reach the profit level of selling today. If you only make $100 month, it will take you 4 years just to break even with the expected earnings on a sale now. And that doesn't include any repairs or rehab that has to be done, that's just comparing your revenue in monthly rent against your monthly mortgage payment. A $2500 furnace replacement sets you back 2 years. Every month you don't get rent is another month you have to rent beyond that 4 years to break even.
Only you can decide what's "worth" it, but you'd best look far beyond the simple numbers of proceeds from a sale now versus a sale in the future.
