Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
We own a rental duplex that my wife bought right before we met. She was originally planning on living in one side and renting the other - that doesn't fit into our plans and we have bought a house. We are worried that it will constantly need more and more fixes to the point where we will be putting money into the property at a rate that could influence our personal budget and potentially greater than the equity that we are building in it.
Here are some facts:
-2 units - each 1 bedroom, no garage
-Interest rate is 6.125% at 30 years
-Monthly payment that includes Insurance and etc is $799.25
-We rent the units out for a combined $825 (425 and 400), we also pay the water so we are breaking even with the bills.
-Originally appraised at $99,500
-I would "guess" we could sell it for 85,000 without an agent
-We owe $79,865
-Most recent month had $132 go towards the principal
-Time left on mortgage 24 years and 3 months
It seems like the windows will need to be replaced in 5 years or so and we are constantly fixing things that seem to add up pretty quick. The carpet is getting ragged, appliances break down, etc. Of course, we have had two tenants leave with much damage. I am not sure that we want to fit these repairs into the budget as they could continue to add up. We have already spent a few thousand on the place the past few years fixing things like replacing the laundry machine in one side.
Any opinions, if we should try to get out from it if we can pocket $5,000 or so, or do you guys think I should hold tight and build equity?
I would have preferred that she bought a place where the cash flow is positive :-)
Landlording is really much about mindset. If these little things bother you and you don't want to deal with them then you should sell. If you understand how landlording builds up equity over time and might serve as good retirement income then hold on. The numbers are usually difficult for the first 3-5 years and then they get better and its a no-brainer to hold on after that.
There are ways for a landlord to handle certain expenses.
- Damage: Check references; let the renter know that losses may be pursued in court and will affect future references; get a damage deposit AND inspect the property regularly to stem any damage; have a certain percent of the deposit go to preparing the property for the next renter (if legal)
- Losses: Require the renter to provide a certificate naming you as the additional insured so that you get notices of cancellation and compensation for losses. You will still have to have your own insurance but this will mitigate any losses.
- Maintenance: Specify in the lease exactly who is responsible for what (as long as it complies with local rental statutes). Minimize offering anything beyond structure like appliances. Consider buying a home warranty.
You still should talk to an investment realtor or read a rental investment guide. How much is your equity costing you? Is your property increasing in value?
I would guess that the property is not increasing in value as the real estate market has not picked up around here yet and the duplex is simply getting older. Likewise, the equity in the house is probably not going to be building faster than what we are putting into it with the upcoming repairs.
You gave me some things to think about, I will do some more research.
I would do a few things if i were you: I would get rid of the laundry machines, they are money pits, i would put in the vinyl wood floors that snap together, they look nice and will last much longer then carpet, and i would not hesitate to make other needed repairs. It feels like you are losing money but they are still paying the mortgage for you, so i would hang on. Also, if you treat the property well, then your tenants will treat it well, likewise if it is in crappy condition they will not care about trashing it further. You might also consider adding some kind of storage unit and charging extra to use it. You should also try to screen your tenants a little better but it is hard to know.
Is the rental in a nice area? Could you charge more for rent? Sometimes getting better renters in there makes a huge difference.
Also, have you really looked at the net effect of the rental on you overall-meaning, the deductions on your taxes. Are you losing money really?
Yes, rentals can be costly at times but sometimes if you can hold out, they will pay off in the end. We have had a rental property for about 5 years and have had the same renter in there since the start. He does an amazing job keeping it up. We did have to put in some repairs but they were "upkeep" things, not so much damage.
We also require our renters (we have one main renter that has been there and 3 other people that have changed out over time) to carry renter's insurance with a minimum liability limit of 3 times the value of our house. If there is any serious damage above and beyond the security deposit we could then file a claim against their renter's insurance. We are listed as additional insured and loss payee on their policy. That would be something else to check into.
What are you gaining by being a landlord? The only positive side is that some day you will own an asset that has value, but considering interest and maintenance, you are putting in more than the $100K or whatever that you can expect to have as an asset at some future date. So it looks to me like a lose-lose proposition.
I disagree with Ausparent and other above about the relationship between renter and landlord. First you are told to get the best possible renters, and then to play hardball with the same good decent responsible people who deserve fair treatment. Poo happens, and when it does, the renter and the landlord are in it together to take the knocks. You have no right to expect someone else to assume all your exposure, and then make a profit at their expense. If you don't want it to be that way, don't be a landlord.
I've never heard of only $400 for rent! In fact, I've never seen one under $500 and that is for senior housing. Where is there a place where you can only charge $400 for rent? I want to move there!
Seriously, have you looked at rentals in your area and compared what you are charging? Also, the idea of having laundry facilities is great - back when I was renting, it would have been a great incentive. So you may re-think hte advice of giving that up. The floors thing is a good idea. You could get by cheaper there.
Personally I'd give it a year and see how you feel about it. Watch the market and see what is happening.
Sell it and cut your losses, this was a horrible investment. The property has significant negative cash-flow. This example shows why you can't just subtract the PITI from the potential rent to derive a number, there are numerous other costs. Maintenance, vacancy, non-payment of rent, cost to evict, etc will all significantly offset your cash-flow.
I've never heard of only $400 for rent! In fact, I've never seen one under $500 and that is for senior housing. Where is there a place where you can only charge $400 for rent? I want to move there!
Seriously, have you looked at rentals in your area and compared what you are charging? Also, the idea of having laundry facilities is great - back when I was renting, it would have been a great incentive. So you may re-think hte advice of giving that up. The floors thing is a good idea. You could get by cheaper there.
Personally I'd give it a year and see how you feel about it. Watch the market and see what is happening.
Drive an hour from your home and you will see plenty of places, nice places, for rent for $400 or less.
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.
Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
