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you could find problems with your bank and mortgage if you rent out. I bought a second house and they wanted to know if I was going to be renting it, because if I was I needed to put 50% down on the house not the 20% I was putting down.
There were also other conditions that would apply, as it happened I was not going to rent it out, it is instead sitting there waiting for us to retire. We go down three or four times a year to check on it and do work on it.
Point is if they find out you are renting it out they may give you problems. We did have to sign something saying we would not be renting it out.
Let's get this straight right now. If you buy a property with the intent to rent it out, you MUST tell your mortgage company because they have different rates for investors -- higher -- and if you don't tell them you are renting it there will be a clause that you can't.
My memory is a bit vague here so don't trust this part, but I think the prohibition on renting it out may expire after a period, perhaps 2 years.
As a lifelong Legal Services lawyer who started representing tenants back in the late 1970's, I can tell you that I'd much rather deal with a big landlord than a small, so-called "mom and pop" landlord. Small landlords are typically undercapitalized, underinvest in their properties, and (related to the first two observations) tend to think that once the mortgage and property tax are paid the rest of the rent is theirs.
The real estate is a long-term investment. Be prepared to make needed repairs, have a professional manager who will pay attention to the property, and remember that you can make money even with a negative cash flow.
Property management companies that keep things going while you are far away are very risky. Even good ones with good reps and you may even know personally. You are simply not there to see if they are taking care of things or not.
Also, as far as a good accountant goes: well, look, they need to understand that depreciation on your house is mandatory and explain what that means to you when you sell that house. Also, there is the difference between passive and active management of a rental that affects the way you can deduct things. If you are not involved directly in at least checking over applications and a few other things, it affects your income and taxes. Make sure you accountant understands these concepts and can explain them to you. You would be surprised at how many CPA's do not.
Also, make yourself very familiar with tenant/landlord law in your state. You need to understand how the eviction process works because even good tenants can turn bad. You want to be a good and fair landlord. Have a airtight rental contract specific to your property [not a general one off the internet or boilerplate one that the rental management company uses] and make sure a lawyer who deals regularly in tenant/landlord law reviews it. Also, have your lawyer review your contract with your property management. You need to understand that relationship and have it spelled out succinctly.
All worth the money spent on these things. You will feel much more confident and understand your worst case scenarios. Then you can focus on other things until you return.
Last edited by MorrisChick; 07-06-2014 at 12:13 PM..
Reason: typos
We became landlords almost 4 years ago. We just took possession of the house on July 1st. If you are able get a lawn service and include that amount in the rent. We have a punch list going and it's ridiculous. 22 light bulbs needed to be replaced. Who doesn't replace light bulbs? A foot through the mstr bedroom bathroom ceiling and holes in doors. Weeds 12 feet high and I am not joking. Just prepare yourself and get a property mgmt company that will do inspections if that's allowed in your state. Put something in the lease on how long gues5s can stay.
Property management companies that keep things going while you are far away are very risky. Even good ones with good reps and you may even know personally. You are simply not there to see if they are taking care of things or not.
I second this. I am renting a house from a so-called "professional property manager" who is handling it for an absentee owner. I can tell you that this property manager is very incompetent, has lied to us about several issues in the house, and has not kept a watchful eye on the property in the owner's absence. The owner doesn't have a clue...it doesn't take long for a property to go downhill; in the case of this house, just 2 years.
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The real estate is a long-term investment. Be prepared to make needed repairs, have a professional manager who will pay attention to the property, and remember that you can make money even with a negative cash flow.
In terms of things to consider, I think that making sure that you factor in costs for maintenance and repairs is a huge one, as well as being prepared to put into the house whatever you get in rent. In that way, you have a better chance that in 4 years, your house will be in good condition and you don't end up with deferred maintenance issues. I hope that you are not planning to rely on your rental income to pay for your new housing....
OP, you will probably be OK, and it won't be as much trouble as you imagine. A good PM will help a lot, so be choosy. Concentrate more on getting good tenants than on making a lot of money.
I'm not sure about notifying your mortgage holder, but you MUST identify your property as a rental to your insurance company and get a new homeowners policy.
One suggestion that worked for me: I notice a lot of colleges & universities around Sugarland. My rental was also located near a university. I advertised on the university website and rented to a married couple who were about to start professional school and wanted a place for the next four years. If you can find someone like that, you could get a long-term tenant who will take good care of your property. The biggest headache is in tenant turnover: each time you get a new tenant, you have to make a lot of cosmetic repairs and you are paying utilities and not collecting rent while they are being done, plus you have the added costs of finding and screening tenants. If you find a good tenant, keep the rent attractive for them; your goal is not to be a slumlord, but to maintain your property at no cost until you can occupy it again.
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