Ever rent out a property yourself? (1 Viewer)

[Philip_G]

So I'm home shopping again. I can't take the townhouse thing anymore and it's only been a year.
My problem is my payoff is right about what I owe on this damn place, and the realtor will hit me for about 5k in comission, so I'm wondering if renting it wouldn't be a bad option.
Anyone ever done this yourself before? The house is only a year old so I worry about someone trashing it, but it's a 3br/2.5 bath I'd be looking for 1100 or 1200 a month out of, I'm not sure how to determine what to ask, guess that's question #2.

 

[Brad_Harper]

I am currently renting out a duplex and the basement in my current home. It is by far the easiest money maker ever! If your townhome is in good shape and you are even the least bit handy then being a landlord is easy work. Just screen possible tenants well (credit and reference checks) to avoid possible problems.

I determined the rent amount by checking to see what other places of similar description were renting for in my area. Also make sure you take into account all the bills (if you are paying them), insurance, and taxes.

 

[Philip_G]

the townhouse is a year old, so it's in fantastic shape. Places vary from 850 to 1050 in my town, I'm going to need to get close to the 1050 side of things.
Tenent will pay gas/electric, water, sewer and trash are handled by the HOA, the taxes are handled with the mortgage, unless you mean income tax on the rent paid, in which case the second mortgage should be enough write-off to cover that, I hope.

it's 3br, 2.5 bath, with a 2 car attached garage and really close to the interstate... maybe this could work out.

 

[Brad_Harper]

If you can charge enough to cover all your costs then I say go for it. Why pay your own mortgage when someone else may be willing to do it for you!
By taxes I did mean property taxes. Don't forget to keep every single receipt for any work or upgrades you do to the place as it can be written off on the income taxes. All the mortgage interest and property taxes can be written off too (here in Canada anyway). Worst case scenerio is you have to sell it one day, but until then your not the one paying to keep it.

 

[Marc_Sulinski]

Even if you come in a little behind after the rent, I would still consider doing it, depending upon how real estate is in your area. If the real estate prices seem to be steadily going up, then I would advise you to stick with it. If the prices are going down, then maybe sell now and avoid more losses in the future.

One thing you may want to consider, if you decide to rent the house, is to form an LLC or some similar corporate entity to protect yourself. You never know when the tenent or someone on your property will get hurt, etc. and try to sue you for eveything you own. If you protect yourself with a corporate entity, they can generally only sue you for anything the entity owns, but not what you own personally.
Also, as a previous poster said, keep track of every receipt, and also track your driving mileage when doing things related to the rental property. Also, you should be able to depreciate the house, which will help you on your taxes a bit, and should more than offset any rental income.

 

[Brad_Harper]

About the sueing...Just write up a very good lease agreement. Make sure who is responsible for what is clearly stated so that there is no confusion. I am pretty sure there are laws in place to protect the landlord from tenant stupidity. There are in Canada anyway so I can't imagine the U.S not having something similar.

 

[Philip_G]

Well, I talked to my real estate agent today. Basically she had a listing for a unit identical to mine, and she listed it right at what I owe on this place, got some interest but no sale, and the owner ended up leasing it out for 1100 or 1200 bucks. I think I would be stupid not to lease for that and build equity. So we're going to try to sell, and add in the MLS that it can be leased for XXXX.XX. I think it sounds like a good plan

 

[DaveF]

Philip - why'd you decide to get out of the TH? Do I remember right that you found you could hear your neighbors too easily?

I don't know anything about renting, but if you had the gumption for it and could get a renter, it seems like you could do all right. If nothing else, you could hold off selling until the housing market picks up again.

I'm moving into a new place in a month, and I hope to find a roommate to defray mortgage costs. I hope that's not too difficult.

 

[Philip_G]

Shouldn't be dave, aren't you fresh out of grad school? I'm sure there will be coworkers looking for places to rent...

You summed it up, dislike the neighbors, dislike the lack of parking, have 2 dogs and the yard is tiny. Just time to move on, plus a real house will appreciate faster.

Heck, if I rent this out for 5-10 years, with the payoff and appreciation I could probably pay off my student loans.

 

[DaveF]

Except my co-worker friends have all already bought houses too. Single from church either own, or are looking to live in the city in super-cheap apartments.

I'm sure I could find a roommate. But I'd like to cast a small net and hopefully find someone who's a friend or a recommended friend-of-a-friend. I've had great rooommates over the years and have high expectations now.

Sorry to hear about your TH woes. Bad neighbors can kill a housing situation. Are you looking to buy a house? Or go back to renting?

If you decide to rent out your place, let us know how it goes.

 

[Philip_T]

If I could start it all over again, I would have started out buying a simple condo or TH, live in it for a little while, then, buy a duplex. Live in one half, rent the other half out. Then, after saving up some more, move into a nice house that Id be happy with, and I would have 3 rental units, and a house of my own. I think if you could handle the tenants, its a no brainer. They pay your mortgage, you cash in on the appreciation when your ready to sell em!

 

[Philip_G]

I think I will rent.

I want to buy a house, the mortgage would be about the same as this place, but the HOA fees a lot less.
I can get what I owe out of this place, but then there's the matter of the 3% comission, that would come out of my pocket.
The TH is 1 year old, I can't imagine too many problems, and it's NICE for a rental compared to similar I saw a year ago. My only problem is what to do about the washer and dryer, I either have to make the tenent use their own, or leave this pair and buy new on a tight budget.
It's bad enough that I have to buy a new referigerator if I rent... Can't afford that let alone that and a W-D.

Heck I'll rent this out for 5 years, refi it to a lower payment and have some monthly income!

The house I'm looking at isn't nice- it's a house. 3 bed 2 bath, 1600 sq ft, one level, I'll upgrade to maple cabinets and everything else will be bottom of the barrel cheap. I looked at that snap together tile flooring at lowe's, I'd like to replace the vinyl flooring with that as the budget allows.

 

[SethH]

Don't forget to include in the price regular keep-up on the place. Most rentals have to change carpet every 2-3 years. You also have to think about replacing the fridge, stove, dishwasher, etc when necessary and possibly the roof depending on how long you own the property. The top finance prof at my university once told me that it is not a financially-sound decision to rent out a single-family unit for less than 1% of total value per month. Meaning that if you bought the place for $100,000 you need to pull in $1000 per month in rent. I didn't pick his brain about his reasoning (and I'm not a finance guy by any means), but I feel as though it has to do with opportunity costs of other potential investments.

 

[Philip_G]

it's a townhouse- the exterior isn't my problem. Interior paint and carpet is however.

 

[John Perry]

I bought a duplex right out of college and rented half while living in the other half. I just sold it for twice what I paid for it 6 years ago. I could have easily kept it, why did I sell it?

1. I felt that it had made its money. It's doubtful that real estate prices will continue to apppreciate the way they have the last couple of years. Also everyone wants to be a lanlord now, it's the investment that made a lot of money the last 5 years so it will be the one that makes the most for the next 5 years, right? That's the kind of thinking that drove the price of my house way up and why I got 6% over asking price in a bidding war.

2. Increased competition. There are "For rent" signs everywhere now. With interest rates so low, many of those who could not afford to buy previously have been able to, decreasing the demand for rental property.

3. The house was 46 years old. I kept it in good shape but 46 year old houses always need something. I'm handy and it's a huge advantage to live at the address where repairs are needed.


Your new townhouse is a different story and in your favor is that it's new and includes exterior maintenence.

Two cautions:

1. Make sure that you can cover the mortgage payments/bills if it sits empty - at some point it likely will while finding tenants.

2. You had best be handy or don't expect to make much if any profit. You have an obligation to fix problems immediately and if you can't do it finding someone who can do it and quickly will cost you.

Good Luck

 

[Micah Cohen]

My advice would be to be careful.

Check credit: http://www.tenantbackgroundcheck.com/

No tenant is better than a bad tenant. Be a stickler. Get recommendations from previous landlords.

Take a security (one month) and a pet deposit, and make it understood that any cleaning or repairs at the end of the lease time will be taken from those monies.

Email me direct, if you want, and I can give you a good lease in an MSWord doc (an "easy-legal" form).

MC

 

[Philip_G]

I probably wouldn't be into it for the long haul, just long enough to get out of the home with a little equity, or at least no loss.
Watching around the neighborhood the "for rent" signs stay up for a few weeks while the "for sale" stay for months....

 

[Chris Lockwood]

> Tenent will pay gas/electric, water, sewer and trash are handled by the HOA, the taxes are handled with the mortgage, unless you mean income tax on the rent paid

You probably won't have to worry about income taxes, since by the time you pay all the expenses, you rarely have any profit left.

Keep in mind your property taxes might go up if the home goes from you living in it to it being rented out.

Here we have homestead exemptions, where for your primary home, they deduct $25,000 from the value which they assess property taxes on. That doesn't apply to homes you rent out. So if I had a place they said is worth 100k, if it's my main home, they tax it like it's worth 75k. But as soon as I start renting it out, I lose that exemption, so I'd have to pay tax on 100k instead of 75k. It's actually worse than that, because when I convert it to rental, they jack up the value close to the current market, while primary homes have a cap on how much the taxes can rise in a year. So that home I had been taxed on a value of 75k, might get revalued at 150k when I started to rent it, if I had owned it a few years and prices had gone up quite a bit. So in other words my taxes would DOUBLE on it.

Of course this varies depending on where you live, but is something to consider.

 

[Philip_T]

Interesting method of valuation in your state Chris and would definately have an impact on which way to go. Here in Colorado, value is based strictly on the market regardless if its your primary or secondary residence so I don't Philip_G has to worry about that scenario. But an interesting method none the less. I would imagine thats due to the higher ammount of rentals/vacation homes found in your area? Maybe not.

 

[Chris Lockwood]

> I would imagine thats due to the higher ammount of rentals/vacation homes found in your area? Maybe not.

No, the main reason for the homestead exemption is to keep people from losing their home due to rising property taxes, because there are so many retirees on fixed incomes. If their house triples in value while they live in it, it's not really fair to triple their taxes.

The exemption doesn't apply to second homes or rentals.

Even in states where there is no such exemption, selling or converting to rental still might trigger a reassessment for tax purposes that would drive up the taxes.