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Dear habs2487: regarding, "If I had my dream tenant, it would be a family that is not interested in being a home owner but want the luxuries of living in a home and would treat it as such. I totally understand this is a long shot and I am prepared to deal with less than stellar tenants."
This is not an unreasonable description for a tenant around here. I hope this is useful, if I describe my tenants, who have varied from 6 month renters, to two+ year renters over an 8 year period. Please know I allow pets within reasonable size and breed, too, because it's been hard for me to find "petless" tenants and it hasn't been too much of an issue. This is a townhouse in SE Huntsville, less than a mile from an Arsenal gate. 1- twenty-something engaged couple, no kids (until they wed and bought a house); divorced realtor with shared custody of daughter; gov't contractor on RSA; ER nurse; friend's college-aged boys, in varying configurations; twenty-something married couple no kids. I used the same property management company off and on doing it myself in between and if you'd like their information please DM me.
We have a rental home here in Huntsville. We had one previously in Atlanta.
I would not use a property manager again. Our last one charged us 1 month's rent as a finder's fee, then charged a percentage each month that about equals another month's rent. So you lose 2 months rent out of the year.
About all they do for you is arrange for repairs when they are needed, often at a discounted rate as they have people on call that they use.
The #1 thing is to vet your tenants. There are online services that you can use to run a background and credit check on. Unfortunately what you will discover is that in this day and age everyone with good enough credit to buy a house has already done so, because rent payments are about the same as mortgage payments. Most people are renting because they are not in good enough financial shape to buy. So most of your applicants are probably not going to have stellar credit. Our current tenant, who has been great, was discharging a bankruptcy as she was getting out from under an underwater house. This is not uncommon and we considered doing it ourselves a few years back.
Ideally what you want is a reference from a previous landlord. The question you want to ask them is, "Would you rent to these people again?" They may not give you details on problems for fear of being sued, but will generally answer this yes or no question which will tell you all you need to know.
Arranging for repairs is not a big deal to do yourself. You'll just be paying full commercial rates. You might consider one of those Home Warranties, though I don't know if they will apply to a rental.
We made our own lease agreement using one of those "be your own landlord" books with a CD in it. We modified the lease agreement to suit our needs.
The biggest hassle is when tenants move out. There is always damage, and sometimes it is significant, and you probably won't get anything more than the security deposit out of the departing tenants to pay for damage. Our last tenants, who we had to evict, did tremendous damage to the house, especially from cigarette smoke. The house reeked, and there were numerous burns in the carpet and counter tops. The carpet was due for replacing anyway, but we ended up putting at least $8000 in renovations to get the house back in shape - new carpet, new kitchen countertops, new flooring in the laundry room and master bath, and paint throughout. My wife and I did the painting.
Here is the hard part about being a landlord: You can't be a nice guy. Our last tenants lost their job, and, having been in that position myself, I told them I would work with them and give them a month or so to catch up. They never did. Since it costs $350 or so to evict, we did not want to go that route, thinking they would leave when their lease expired. They didn't. So we had to evict anyway. In the end we were out 6 months of rent. I made it very clear to the next tenants that I understand about life crises but we cannot afford to pay for both our mortgage and the rental house mortgage and if they are late on rent once and a while that is fine but if it becomes habitual we will evict. It's been about 6 months now and they were late once and called explaining they had forgotten to mail it and we got it like the next day. But if they stop paying rent, evict, evict, evict. Put it in writing in the lease when rent is due, and when it is late. Our lease stipulates that if the payment is late we do not have to accept it, and if we evict due to non-payment of rent they forfeit early-termination fees.
Here's another thing: Yard work. The last tenants were very lax and while they did mow the front yard from time to time they never mowed the back yard and I did not know it. I drive by the front yard frequently but don't do inspections very often. This, of course, annoyed the neighbors. You must make it clear in your lease that yardwork is the responsibility of the tenant and if they fail to do it you will hire it done and they are responsible for the bill.
I recommend inspecting the property at least every 6 months. Once a quarter is better. You can replace the air filter for them as an excuse for coming inside.
The way I look at it, is if you buy a $130K house and someone else pays the mortgage for you, then in 30 years you've got a house that someone else paid for. Even if you have to put $30K into it over the years, you still made yourself $100K. Not a bad nest-egg for retirement. And once it is paid for it starts making money outright, or perhaps your children inherit it as a free home to live in or to take over as a rental for themselves, making *them* $1000 a month. It would be very nice to start out life with a nice $1000 a month side-income!
Thanks Steve! I think with us being so new to being a landlord, we would start out with a property manager and then take over once we understood the entire process behind vetting our tenants, writing up a lease, finding contractors we like to work with, etc... Here is a random question. Say you are driving by checking the house and want to go inside to change the air filter or whatever. Can you just go inside the house anytime you want? And what if you do go in the house and it is totally destroyed inside? Can you evict them even though they are up to date on paying rent...?
Just a few suggestions on how to select a property manager, again my experience is out-of-state so I have no choice but rely on a property manager. However; these saged advices I received have served me well.
1.) Property management is NOT a part time job. Choose a firm that has the staff to do this full time. For example, the firm I use has separate departments for accounting, billings, maintenance, etc., and has a dedicated project manager dealing with a set of properties. So I deal with the same PM on every issues regarding to my property & tenants. Also, I have access to the owner if there are bigger issues (such as evicting a tenant, not happy with the PM, etc) I need to elevate the discussion. It is also a "full service" PM firm, I get monthly billing statements & direct deposit into my dedicated bank account. At the end of year, an auto-generated statement & IRS reporting form makes my tax filing very easy.
2.) Understand the IRS rules about your involvement with the rental so you can write off the expenses. Basically you'll need to stay a level of "actively managing" your rental. Such as approving tenants' applications, major maintenances, etc. For example, I set up an agreement with my PM firm that they can authorize repair that is below a $ amount without my approval. This way I maintain a level of control but not be bothered with some $150 repairs.
3.) Property Managers are NOT realtors. A good realtor is so busy that he/ she does not have time to do property management. A part time property manager will not serve you adequately. They are two very different ends of the real estate business.
4.) Shop around for PM & what they charge for fees. For example, another poster mentioned that they charge you the 1st month rent as "commission" for finding that tenant, then 10% of rent per month after that. That was what I paid when I used my realtor as property manager on my first rental (did not know any better). On my current rental using this professional PM firm, I pay 7% of rental income as fee, no first month rent as "commission", plus they pay for all advertising for vacancies, do all credit checks (applicants pay $35 credit check fee), and call on contractors for maintenance and supervise all repairs, automated billing statement & direct deposits.
5.) Rental is a business so take your emotion out of it. It's no longer "your house" so don't be upset when stupid repair items come across your list (such as what kinda people will do this?). I choose to stay with quality appliances (stainless Bosch line) for my rental because I am looking for higher end renters but every property is different. Be prepared to invest back to your property because renters (no matter how well behave) will not put in the same care as if this is their house.
Well, I hope this is helpful. Best to your investment decision.
Thanks Steve! I think with us being so new to being a landlord, we would start out with a property manager and then take over once we understood the entire process behind vetting our tenants, writing up a lease, finding contractors we like to work with, etc... Here is a random question. Say you are driving by checking the house and want to go inside to change the air filter or whatever. Can you just go inside the house anytime you want? And what if you do go in the house and it is totally destroyed inside? Can you evict them even though they are up to date on paying rent...?
To answer your questions on checking up on your property, know all State & Local tenants rights & rental laws. Generally, you'll need to give notice up to x days in advance that you plan to inspect your property. Another word, you can't just go in anytime you want to. Tenants have rights.
Depending on how you set up your lease, you can terminate the agreement without any reason but just need to give a 30-day notice to vacate notice. Generally, most leases are set up with an initial 1-year lease then month-to-month after. So after 1-year you can choose to vacate the current tenant and look for another.
In general, you can also increase rent annually based on the local rental market supply & demand.
You can also write off associated expenses incurred relating to you managing your properties. So if you drive to check up on your property, you can deduct the mileage on you car (not recommended though, the bookkeep itself is more trouble than it worth), or if the property is out-of-town you can deduct hotel & meal expenses. For example, my property is in California so I do an annual inspection trip & my air fare, hotel, meal & incidental expenses are all tax deductible. Just because I choose to do a vacation along with my "inspection trip" is totally immaterial & coincidental.
HB2HSV gives excellent advice and makes fantastic points. As a newbie, one thing to learn about write-offs. That term doesn't mean that you don't have to pay for the expenses, merely that the expense is a deductible item on your tax return. In effect, it shields other income from taxation. What it boils down to, depending on your tax bracket, is that you spend a $1 but get to recoup $0.28.
Thanks Steve! I think with us being so new to being a landlord, we would start out with a property manager and then take over once we understood the entire process behind vetting our tenants, writing up a lease, finding contractors we like to work with, etc... Here is a random question. Say you are driving by checking the house and want to go inside to change the air filter or whatever. Can you just go inside the house anytime you want? And what if you do go in the house and it is totally destroyed inside? Can you evict them even though they are up to date on paying rent...?
My property management agreement says the tenant must have 48 hours prior notice before I can come in the house. The exception being emergencies.
Thanks Steve! I think with us being so new to being a landlord, we would start out with a property manager and then take over once we understood the entire process behind vetting our tenants, writing up a lease, finding contractors we like to work with, etc...
It can be a wise move. Aside from cost, we had good experience with our property manager in Atlanta. They handle finding and vetting tenants, probably the biggest thing. They know what good tenants look like, and they will flat out tell you, "I would not rent to these people." It's a big peace of mind issue. But, it will cost you about 2 months rent out of the year.
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Here is a random question. Say you are driving by checking the house and want to go inside to change the air filter or whatever. Can you just go inside the house anytime you want?
There are probably laws that dictate this; We used a "Be your own landlord" book that came with a CD full of example contracts. I think ours stipulates in the lease contract that we have to provide 24 hours notice or something. But we do have right of entry in an emergency - say there is a water or gas leak or whatever - if life or property is in danger. I think that's fair - nobody wants guests dropping by without notice, let alone the landlord.
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And what if you do go in the house and it is totally destroyed inside? Can you evict them even though they are up to date on paying rent...?
Eviction is tricky and there are laws that dictate what you can do and how you can do it. Our lease is written such that we can terminate the lease at any time, but we have to provide 60 days notice and pay a $500 termination fee. However if they are late on rent and we have refused payment then this is negated.
Even if they are not paying rent, the court will issue a letter to them saying they haven't paid the rent and are being evicted, which the tenant can challenge. They have like 2 weeks to respond, as I recall.
There is nothing in our lease that directly states that they can be evicted as a result of failure to keep up the property or damaging it. But, they will be liable for the damages and costs will be deducted from deposits.
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