first time landlord - yay or nay?

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psychtobe said:   The neighborhood I'm looking at has an area I hadn't seen before, with nicer homes that are rental-ready and would need eventual expansion but are in very good condition, for $300k or so.

The rent wouldn't be much less than the mortgage on properties in the $300K range so that limits your pool of tenants greatly. I mean, why would someone rent for $1200 a month when they can get a mortgage for $1400? And if they can't qualify for a $300K mortgage for some reason, do you really want them as tenants?

just because the credit market is tight doesn't mean every renter is a deadbeat. but I see your point.

Not saying every renter is a deadbeat, just that unless someone was looking for a short term rental, 6-12 months, it might be hard to rent out. Why would someone throw money away on rent when for not much more a month they can own.

StinkPot said:   Baseline is...Treat people with respect and respect is what you get...
In many of the posts above, though it shows a landlords point of view, those renting are viewed like trash.
However they are the ones who need to be treated with respect since without them the units will not be rented.
Not one has said they got a good person as a rental....
I believe that the first time landlords have been renting for some time. I do not think at any point of time they would like to be treated as not welcome.
Thousands of those renting undergo background checks and are afraid security deposits will get confiscated if the unit is not left in a clean state.
Hence as I said earlier treat people with respect and respect is what you will get.
. Like any friend... Their objective is often to discourage and point out pitfalls

Rent is never 'throwing money away'. I wouldn't be especially concerned about finding qualified renters at any particular price range. We've done fine and know of many people renting very nice homes. One type of 'upscale' renter owns a small business - not only can that be a hassle to qualify for a mortgage, but we've known some who simply didn't want to sink any savings whatsoever into a down payment. They were focusing on investing in their business. There are lots of good reasons for non-deadbeats to rent.

OP, it sounds like you don't have a clear goal here. If you are trying to make money, don't limit your rental-property prospects to one tiny area. You are also unlikely to come out ahead by buying a house for 200k then adding 200k in renovations.

If you want to have your kids go to the better school, just get a box at the UPS store in that school district and have your mail sent there. A lot of parents do this to have their kids go to better schools.

tedteddy said:   If you want to have your kids go to the better school, just get a box at the UPS store in that school district and have your mail sent there.

Yep, teach your children early how to scam the government. That's the American way.

tedteddy said:   If you want to have your kids go to the better school, just get a box at the UPS store in that school district and have your mail sent there. A lot of parents do this to have their kids go to better schools.

It doesn't work that way, you will also need a mortgage statement, utility bills, and phone bill. (Some districts even require property tax bill).

atikovi said:   tedteddy said:   Yep, teach your children early how to scam the government. That's the American way.

I would call it a lesson in circumventing bureaucracy.

OP said they can walk to their desired school in 15-minutes... School district lines are drawn somewhat arbitrarily and it is likely that the "bad" school is actually farther away.

ChumChurum said:   JTausTX said:   I am honestly amazed that you'd buy a $200k house and put $200k in renovations into it. If the neighborhood has homes in all price ranges as you say, why not just buy one for $400k that already suits your needs?

Probably the smartest idea on this post out of all of them posted.


I had to green it

tgif777 said:   tedteddy said:   If you want to have your kids go to the better school, just get a box at the UPS store in that school district and have your mail sent there. A lot of parents do this to have their kids go to better schools.

It doesn't work that way, you will also need a mortgage statement, utility bills, and phone bill. (Some districts even require property tax bill).


Some town will send a cop to your house to make sure if you report as "living with relatives or grandparents" and can't provide mortgage statement, tax bill etc.

psychtobe said:   Ozymandias036 said:   You mentioned low interest rates as a reason to purchase now. Since it is an investment property, you won't get offered the same rates as an owner-occupied. I just refinanced my rental at 4.00%.
I would consider 4% very low.
What does a lender need to offer owner occupied rates?
In other words how soon must we move in?


You can still get ~3.75% (depends on the day) for investment property with no points. Lender will consider OO if the owner lives there. You have to sign an agreement to move in within x # of months and stay there for y # of months. Also, the insurance is different for OO vs rental.

phils725 said:   dmikester10 said:   Couple questions about renting out to folks. My friend told me he didn't think you could turn people down for any reason, and if you did you could get sued for discrimination. Is this true? Second, my other friend mentioned her parents used to be landlords. They would have renters not pay for like 3 months and then up and leave in the middle of the night with no way to contact them. How do you protect against this?
Thanks!
Mike


You can't turn down a person based on a protected class (i.e.. race, color, sex, national origin, familial status), but you certainly can reject a potential tenant on other factors (i.e. poor credit, eviction history etc.)

As a landlord, eviction rules vary by state, and while sometimes you cant throw someone out as easily, or they will stiff you for three months as you mentioned, you have rights. Yes, you can get stiffed, and that can be the cost of doing business. You can sometimes put a lean on their credit by court order that will require them to pay you before they can get any kind of loan in the future, such as a car or home loan.

Your best bet is to run a credit check beforehand to make sure they have no prior eviction leans on their report, and they meet a minimum credit score (I like to see 650 or higher for my clients, but many are ok with 615-620 minimums). Running credit is your biggest safeguard when choosing a tenant. Will it guarantee you wont run into problems down the road? No, but it will be far less likely than leaving it to chance. You are also allowed to charge an application fee to cover the cost of a credit check. (The easiest way to do all of this is to list with a Realtor. The typical commission is 1 months rent, but they do all the leg work for you in terms of advertising, finding tenants, running background checks, and executing a lease. You simply make the decision on which applicant you want to go with.

Bottom line, being a landlord (or hiring a management company) is always a good thing, because it means you own real estate, which you can never own too much of.


There is some exceptions to the protected class rule. Federally (state law might be different), if its owner occupied and <4 units, you can discriminate against a certain sex or religion. The exception to the exception is it can't be related to race or lead paint. Some state even send out "spy" such as replying to craigslist ad etc. And I do know someone who got caught and had to go to court and do some training and was fine. Is is frequent occurrence? Who knows, bottom line, don't discriminate.

As a first time landlord for about 8 months, I've had a generally positive experience. Got lucky with tenants. Property value $240k. I clear about $300/month in rent - mortgage - taxes, and I get an actual tax loss on the property.

atikovi said:   psychtobe said:   The neighborhood I'm looking at has an area I hadn't seen before, with nicer homes that are rental-ready and would need eventual expansion but are in very good condition, for $300k or so.

The rent wouldn't be much less than the mortgage on properties in the $300K range so that limits your pool of tenants greatly. I mean, why would someone rent for $1200 a month when they can get a mortgage for $1400? And if they can't qualify for a $300K mortgage for some reason, do you really want them as tenants?


People who are moving to a new state might want to rent a place for a year while they understand the area/schools/market rather than buy blind.

OliverQuackenbush said:   Hankdoll said:   OliverQuackenbush said:   . The tax breaks are great, but be prepared to add rent to your income, not sure what that will do for you taxwise..

In my experience, tax breaks are not so great. If you make over $150k a year, passive income means no deductions. I'm writing off the depreciation, but that's it. Doesn't help me now, only when I sell. Is there something I'm missing? I've been a landlord for a couple of years, but should probably bite the bullet and see a professional tax advisor.

Also Op, it is rewarding, just be prepared to replace furnaces, water heaters, etc. on a moments notice...usually around Christmas time


When I wrote that I was thinking about how, assuming the place is 100% used for business, any improvement you make is 100% deductible, or in other words can be considered a business expense paid for by the LLC out of the LLC's assets, which is the rent that the tenants pay the LLC. So at the end of the year whatever is leftover from rent minus the cost of improvements is your "dividend" or income you get from the LLC that you show on your tax form. This gives you considerable control over how much you want to improve your investment and/or how much income you want to earn from it.
I own a duplex. I live on one side and rent out the other side. So if I want a new tile floor in my kitchen, 50% of it is deductable from the LLC's assets. That is my understanding of how its done, you take the deduction, then determine the amount of the property used for business purposes (%50 in my case), then multiply the deduction by the percentage. So half of what I do for the tenant is deductable and half of what I do for myself is deductable.
If OP wants a new tile floor in his rental's kitchen, then 100% of it would be deductable. Then later on he gets to move into the house and still gets to use that snazzy kitchen floor!
I am not a tax expert so I am fearful that nsdp or some other tax expert is going to burst my bubble and tell me I am doing it all wrong.

I don't think this is how it works. Use of the LLC does not allow you to ignore the passive activity loss rules. You would need 750 hours of real estate activity and no other job to make this work.

Krazen1211 said:   As a first time landlord for about 8 months, I've had a generally positive experience. Got lucky with tenants. Property value $240k. I clear about $300/month in rent - mortgage - taxes, and I get an actual tax loss on the property.

How are the utilities, insurance and maintenance?

atikovi said:    Why would someone throw money away on rent when for not much more a month they can own.

The rental market is what it is.
If houses are renting for $1200, that means as many people are willing to pay $1200 as there are landlords willing to accept it.
Why the market is like that doesn't really matter, but one good reason might be that the tenants can't get the kind of interest rates that make for $1400 principal+interest+tax.

Offering one up for $1100 should allow you to pick your tenant. If you don't get multiple takers advertising for a week at that price, then you're wrong about the market being $1200.

jamesboy said:   
I don't think this is how it works. Use of the LLC does not allow you to ignore the passive activity loss rules. You would need 750 hours of real estate activity and no other job to make this work.


No other job???

taxmantoo said:   

[If neighborhood comp rents are $1200], offering one up for $1100 should allow you to pick your tenant.


IMO, This is bad advice. In my own experience as a renter during and shortly after college, I learned to screen out the super cheap rentals because they were usually cheap for a reason (bad location, crappy house, etc).

A landlord asking a market, or above market, rate is making a statement that they believe their property is a desirable place to live.

I've been a landlord for the last 7 years and when I have advertised my rental, I have always asked what is slightly higher than the market rate. I've been very choosy about renters, and have had good luck thus far for the most part.

My area has a landlord's coalition which for a small annual fee provides copies of customizable leases that are tailored to our local rental laws, as well as provides advice on advertising, tenant screening services, credit checks, basic tax advice, evictions, etc. It's well worth it. I'd encourage any new landlord to see if their local area has a similar group.

Rental Housing Association of Puget Sound

Deciding whether to be a landlord or not is a big decision. I personally enjoy fixing/refurbishing/servicing my property and have been generally lucky that nothing has gone majorly wrong with my property in the last 7 years that I couldn't handle myself. At this point I don't have the capital to be the sort of landlord that hires a property manager, but if I were going to do that I almost think I'd rather just buy a REIT rather than physical properties. I would miss doing the work myself and meeting prospective tenants, etc.

As for the OP's specific situation, it doesn't sound like he wants to be a landlord. Why not just buy a house in the neighborhood you want to live in 2.5yrs from now when you are ready to move there? Maybe prices will have gone up by then, maybe not, but a lot can change in that amount of time (lose your job?) and having two houses will definitely complicate your life.

$150-200k for a rehab? good lord, that's a bunch. that better include a sizable addition. why not just lipstick rehab and just make it nice?

sbr9 said:   Krazen1211 said:   As a first time landlord for about 8 months, I've had a generally positive experience. Got lucky with tenants. Property value $240k. I clear about $300/month in rent - mortgage - taxes, and I get an actual tax loss on the property.

How are the utilities, insurance and maintenance?


Utilities - Renter pays. You might have to shell out some limited amount for water or something between tenants.

Homeowner's insurance: $220 a year. It's a condo, not a single family home which is quite pricier. Walls in only policy. I do have monthly HoA dues which I included in the 'mortgage' figure above (I clear $300 after paying the HoA).

Maintenance: Haven't had too much. It was new construction.

Keeping careful records helps. You can write off your personal mileage @ $.24 mile, advertising, mortgage insurance, etc. I had a tax loss this year thanks to the depreciation, but I had only 8 months of rent rather than a full 12.



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