View Full Version : Tips on being a landlady or landlord? Advice, please.
I've been spending lots of time this past year learning about becoming a landlady. I now know enough to realize I need to find top advisers on choosing, buying, maintaining residential rental property. I'll start small and have professionals handle the property management.
I want to target single professionals working in downtown areas who like city life and want to rent there. I hope to offer quality places at a reasonable rate.
I'm thinking of starting with a condo, learning more, then eventually look at apartment buildings with a small number of units for over age 55 renters.
Would you landladies and landlords give me tips and what to do and/or avoid?
How do I find the best professionals to work with?
All tips welcome!
Thanks!
We were reluctant landlords when we were stuck with my MILs empty house during the height of the recession, so if I wrote a list of things NOT to do, which we learned the hard way, maybe that would help. So here are my big three "do nots":
--Do not be a long-distance landlord. You have to be there to keep an eye out, with or without property managers
--Do not hold a big mortgage on it. Try to pay cash, to minimize risk. Don't assume 12 months rental income coming in.
--Do not assume your tenants are "nice people." You don't know. This goes back to the first item. Keep an eye on who is living there, and how they maintain the property, before it's too late. We got stuck with a squatter who was not on the lease but who ate up prime selling season and a lot of legal fees trying while we tried to evict her. Make sure you do your credit checks and cover all your bases with all the lease riders you need to protect yourself.
iris lilies
2-10-15, 4:33pm
Over on the Mr. Money Mustache board there are several professional property owners who will get your started, including giving you links to forums where only landlords hang out.
The very first thing is to run the numbers on the units you are considering. Those MMM guys use the "1% minimum" rule which is this : The unit needs to generate 1% of its market value per month.
So, a $250,000 property needs to generate a minimum of $2,500 per month or it's no deal. They seem to get properties in the 1% - 2% range, so it is do-able.
Interestingly enough, one of the moderators on the MMM site purposely buys property sight-unseen, and from a long distance. To me, that is a recipe for disaster, but he's got enough creds with me to convince me that for him, it has worked. But he is pretty young so hasn't been at this for a long time.
I watched a friend, rolling in money from the sale of his San Francisco triplex, come to town here and set up as a property owner. Properties here are so cheap! He went around buying up historic buildings in need of renovation. He crashed and burned, going through $500,000. He did not run numbers in advance, he bought property when he liked the way it looked.
When you run the numbers, 90% + of properties will not qualify for the 1% rule. That's when you walk away.
I, too, became an accidental landlord.
What I've learned is that you will not be able to count on getting only "good" tenants. Not that I have bad tenants, mind you, but that there are enough legal protections for applicants that it would be very difficult to advertise your rental widely without running into marginal applicants. That's when things like good lease documents, credit checks/vetting, and keeping tabs come into play to limit your liability. You also could be willing to carry the unit(s) for months while you advertise exclusively wherever you hope to find your ideal tenants. But that's no guarantee, either.
If you're planning on professional property management, make sure you run your numbers. I looked at that for the place I rent out (a single-family house within city limits) and we looked at it again when DW's house was on the market for a year and a half. Their charges come right off the rent before you pay your mortgage and taxes and make capital investments/major repairs. That'll ruin your "1%" right there. Or make the rent so high you don't get good takers. And don't be tempted to go with the lowest bidder in the belief that all management companies are the same. Managers who make tenants' lives difficult invite passive-aggressive behavior on the part of tenants, and can easily cost you more than you save in fees.
Another suggestion I would make is to buy only properties you'd want to live in yourself. Not that I have to love the 1920's bungalow I rent out. But when I first started renting out this place, several other properties came on the market in this very neighborhood at very low prices courtesy of The Great Recession. I looked at them with an eye toward buying, updating, and renting out. But a cosmetic flip would not have covered problems like no garage (that's a big deal in Minnesota) or no yard/private space (fine for an apartment/condo; not so for a single-family house or duplex) or proximity to a busy business. There were reasons these properties were low-priced even during the Recession -- they were less desirable as homes, so they'd be less desirable as rentals. Which means less rent or less-desirable tenants.
Good luck!
iris lilies
2-12-15, 10:44am
I see the 1% rule as absolute minimum, that's where you start. If a property you like makes that number, you can proceed to more analysis. The 1% rule doesn't mean "buy it!" Just clarifying here.
Also, my friend who lost a lot of his San Francisco money DID of course do some analysis, he just didn't do it well. And because he worked with Victorian buildings that needed a lot of analysis, it was complicated.
iris lilies
2-12-15, 12:00pm
OP, are you in an area where condos actually appreciate and can be easily rented? Here in the Midwest they are a bad investment.
Condos come with their own set of problems. I would NEVER buy a condo. They are fraught with financial problems in management. So many people buy them and lose money on them. And if you own several condos in the same building, you may find yourself paying ALL of the maintenance fees because other units have defaulted. I see that again and again.
It's impossible to tell how much you know about real estate from your post, but you may be better off putting money in financial instruments.
I have to admit, i rented co-ops, with a very strict co-op board, and it was a blessing in disguise. They did the due diligence, scary interview and decided who could and couldn't rent. I never once had a problem with any of the tenants they approved. If you tend to be a pushover for a "nice" person who doesn't meet the criteria you've set out in your head, you need someone else to make the decision.
My landlord woes haven't been terrible, but I have had some people who didn't keep things up - make sure you decide ahead of time who will do yard maintenance! - I also had one tenant who was a friend of a friend, I relied on her judgment instead of my own, and that was a total mess. So again, you need to do your own hatchet work, or employ someone hard hearted to do it for you.
One last thing: letting people get cheap rent for carpentry services is a big no-no. If someone is going to do maintenance for pay, let that be separate from the rent. It's just too easy to ok a half-done or badly-done job or run into an uncomfortable situation. Ok, you say you did 30 hours of work and you should get free rent this month ... really? (friend of friend, it's not like everyone's crooked but you never know, just don't go there).
We are considering creating an attached studio in the rear of our house to use as an Air BNB or rental income. The space is already there (it is a family room) so we'd be adding a small kitchenette, bathroom, and a couple walls (by "we" I mean contractors:-). We are thinking about 20-25k to get it ready, and then renting it out. Question we keep coming back to is do we include space and appliances for stackable washer & dryer. I think having one would make the rental far more attractive, but I worry about repairs (we are *not* handy) and associated electric & water costs. How much would a W/D impact your decision to rent? (If this is too off topic I 'm happy to start a new post.)
IL, thanks for explaining the 1% rule. I read over at MMM often and wasn't clear of the 1%.
Many thanks for all the tips!
I have been living on MMM for the last few days. Learning lots there. The books some posters recommend look good, too.
Thanks for telling me to be careful when I run the numbers. I've been watching some very professional webinars on YouTube by Empower Wealth. EW is a company down under that helps real estate investors find properties. They also offer prop management services. EW stresses getting not just an appraisal on a property but also getting an analysis and projection complete with any repairs or renovations needed. Being brand new, I will definitely do this.
This is one of the best EW webinar:
https://www.youtube.com/watch?v=FMfz0keJLso
There's a real estate attorney in CO with good videos on YouTube. In the one in the link, he quickly and clearly explains how to mix entity types (Corportation, LLC, etc), tax issues, and residential real estate ownership for best monetary result.
https://www.youtube.com/watch?v=GbpxT3tkclg
99% of the real estate vidoes on YouTube are junk. The quality of these two companies is top.
Regarding the washer/dryer issue -
Having a w/d in the unit would be a huge draw for AirBnb renters. But if you want regular-style renters, have the hook ups but not the machines. This saves you expense and repair woes. Renters with their own machines can afford higher rent. If the renter doesn't have them, then s/he will have more closet space. Do you have wash & fold service nearby for renters?
I love this forum. You guys are the best!
iris lilies
2-13-15, 11:35am
Here's something I don't understand, although I won't dispute that can be successful: using a property manager. That's just another cost of the property. Doesn't that eat into your profit in a big way? I don't understand the mindset of buying property and not managing it yourself. I DO understand this if you find yourself an accidental landlord, that is a different scenario.
If you, the theoretical you, buy one rental unit yet pay someone to manage it--what are you really bringing to the table in this business deal? Besides the money to own the property, there is nothing else there if you don't manage it or do work yourself on the property. And if one is getting a mortgage on it, there is very little money invested. I know that the idea is "leveraging" the little bit of money used as a down payment, but I think that is not realistic for people who do not know the market, cannot do simple repairs and property maintenance, and cannot screen and install tenants.
Iris -
I am going into real estate purely as an investment. I am bad at repairs and hate doing the few I know how to do. Rather than build my tenant selection / rejection skills, I'll hire the best pro I can find.
Providing safe, healthy, pleasant homes to renters is a service business. The renter is the client - s/he is using my property AND s/he is helping me buy it. It's a trade.
I love interior design and have taught classes in it. I'll have fun painting and creating a nice unfurnished
place. (Better long-term renters have their own furniture.)
Yes, it costs me some of the proceeds to hire prop manager, but it also frees my time for other things like volunteer work.
I'm not so charitable. I have to admit that while being a landlord can be profitable, it can also be ... ok I'm spoiled ... really annoying. I don't like dealing with tenants. For 10% of my gross, I hired someone else to have their dinner interrupted with complaints about the guy clog dancing upstairs, stress out over finding a plumber on a holiday weekend, find a new tenant who actually had money to pay for the apartment, (or tell a potential tenant they didn't), call with a gentle reminder that the rent was due yesterday, and so on. It costs, but I found the peace to be worth it. I guess all by way of saying it's still possible to make money owning extra real estate even if you don't want to be a landlord; just not as much.
If I were interested in investing in real estate but didn't want to be a landlord I'd be more inclined to look for a REIT to invest in. Investing in individual properties may be a good plan for someone who wants to treat it like a job, and who has sufficient wealth to sustain things between tenants, but the reality is that it's not a very diversified investment strategy and a 10% of the gross income expense ratio right off the top sounds like a recipe for financial failure or anemic returns at best. I hate to be a Debbie downer but this doesn't sound like a good idea unless houses in the OP's area are very underpriced.
SteveinMN
2-14-15, 12:16pm
If you, the theoretical you, buy one rental unit yet pay someone to manage it--what are you really bringing to the table in this business deal? Besides the money to own the property, there is nothing else there if you don't manage it or do work yourself on the property.
Well, that's essentially the way franchising works. You front the money and hire others to run the thing for you. That seems to be alive and well as a way of doing business.
Actually, I agree with you to some extent on property-management firms not being terribly cost-effective for just one or two local properties. As I mentioned in my previous post, going with a property-management firm on DW's house would have either cost us something every month for the delta between PITI and rent or have caused us to have to raise the rent to unmarketable levels.
But Tradd makes a good point about paying for someone else to deal with the hassles. Just the same way as I could learn how to DIY every repair on my car or to do my own taxes, it sometimes makes sense to hire out a skill if you have the money to do it and it simplifies your life.
iris lilies
2-14-15, 12:34pm
Look, I thought it was a given that tenants are a pain in the ass. That's their schtick.
i dislike tenants so much that we own multiple tiny houses with no one living in them. This is NOT a model for making money.:~)
Owning rental property and owning a coin laundry have this in common: You should have the skills to do most maintenance and repairs, and do them the right way, or the expense will cut into the profits, very badly. Or, your place will deteriorate to the point of being unrentable and greatly reduced in resale value. Your real profit should be when you sell, or after the mortgage is paid off, and it has appreciated. Also, a calm, non-emotional personality is essential. Another mistake I've seen is rental companies or individuals that get greedy and own too many units(cute cottages, to you kids), and they lose control. Also, screen your tenants. Again, Screen your tenants. This is possible to do in a non-discriminatory, non-invasive way, using the internet. Have them sign an ironclad lease, that is in your favor, that waives some of their legal rights. One mindset you will encounter is that they think you are rich, and they are poor, and that you are fair game for them to defraud you or trash your property. S'why you must screen your tenants--get references. Bear in mind, they may be willing to vouch for a tenant to get rid of them, if they are currently living there. So, drive by. Forget about being a bleeding heart. Renting out houses, is a tough business suitable for cool heads and hard workers. Not a cash cow for dreamers, where you just sit back, and watch the cash flow in.
I have a neighbor who is a longtime rental property owner. He handles the repairs, even in his 70's. About 10 years ago a tenant moved out without notice. They had been there for awhile, I guess. Anyway, they left behind an older Cadillac, and in the basement, they left behind a corpse of an elderly gentleman who as it turns out, was from callyfornya. He was wrapped up in a plastic tarp, and quite mummified.The Cadillac had been his, and he and the car had gone missing quite awhile prior. I can't recall the outcome; I suppose the police tracked down the renters/murders. The neighbor was pretty philosophical about it--he was quoted as saying that over the years, renters had left a lot of stuff behind when they vacated, but this was the first time for a dead body.
Gardenarian
2-16-15, 1:05am
I only have experience as an AirBnB landlord, but agree with what has been said here:
Those diy and repair skills are really necessary. I have worked with handymen (of both sexes) to help me learn more of the basics. You should have a general fix-it person on speed-dial.
Also, do not underestimate the amount of cleaning you will need to do.
If you live in a tourist area (or any big city or college town) you can make a lot more from short term rentals than long term. My sister rents out her Cape Cod cottage for $1400/week during the season; she gets $1400/month off-season.
I would not even consider it if I had to pay a mortgage. Better to buy the cheapest property you can afford with cash than to get in over your head.
With AirBnB I started off with really loose rules - the sharing economy and all that. NO. Be very strict about who you allow on your property. Charge for cancellations. Charge for messes.
I did have a washer/dryer at my cabin, but renters rarely used it. I needed it to wash linens etc. I don't think it matters much to short term renters, esp. If there is a Laundromat nearby, or if you let them use yours in emergencies.
Cheap amenities, like providing a good coffee/tea set up, nice towels, flowers, and little treats, seem to have a greater impact on short term renters than big ticket items, like fancy tv/ cable, jacuzzi, etc.
You have to decide whether this is a pastime that you don't mind losing some money on, or if it is a real business.
Of course, property values are key as well. I made an enormous profit when I sold my cabin. Property values are on the rise right now.
I can think of much more fun hobbies!
(Though I do think, with some knowledge and luck, property can be the best investment of all.)
Gardenarian,
We are seriously considering doing AirBNB over renting the studio. We are driving down to California next month. Maybe we could meet for tea on our way to/from? I'd be great to hear your AirBNB experiences.
CBC radio aired a special article this morning on AirBnB landlords and insurance.
AirBnB properties must have their own commercial insurance as they are not covered under the usual house insurance plan when the rooms are part of your home. One interviewee with AirBnB property said he discovered this after he had been renting out a portion of his home via AirBnB. He phoned his insurance agent to see if he needed to purchase a Rider.
He was told that the Air listing must be dropped immediately or his home insurance would be cancelled right away. No riders available. None of the insurers this fellow or CBC spoke said Air unit would be covered under a usual homeowners' plan.
The insurance company sees tenants as more liability. More risk for fire, vandalism, theft. People who own the homes they live in are more careful.
Just something to check out.
Thanks for all your suggestions. I'm following up. I had considered the AirBnB route, too, and it was serendipity that CBC (the NPR of Canada) radio aired the article.
I currently live in a resort town. My friend gets $100 a day for her cottage near the beach in summer. She gets $600 a month in winter. Most renters want a year-round lease and don't want to scramble to move out every summer. If we had a college nearby, that would be completely different.
I can see that demographic studies and careful analysis with projections will factor hugely.
Resort Town= Eating, Drinking, more eating and drinking. Tenants that are here today, gone tomorrow.
Gardenarian
2-17-15, 2:53pm
Profnot - when you run the numbers, it seems like your friend would make more money renting out as a vacation rental.
Also, AirBnB (and other vacation rental) legalities, tax requirements, etc. vary wildly from place to place. Where I live, you do have to get permission (not difficult) and a business license ($10/month) and of course pay taxes on the income. Many places (as where my cabin was located) have no requirements at all (aside from income tax.)
Gardinarian - My friend does rent it out in June, July, & August to holiday goers. Currently she is renting out during the winter for a couple who are friends and plan to move out of town this Spring. An unusual situation that works for both.
You're right: her priority is vacation rental. Plus she is preserving the property to pass along to her daughter.
I mentioned a winter / summer variation in case some property owners here live near colleges and can take advantage of unusual demographics.
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