Rental houses, tell me about landlording

[jrfuda]

I recommend using a reputable management company if you’re going to do it, but think the market and your individual situation is going to determine if it is worth the trouble.

Here’s my story.

When we were first assigned to Fort Sam Houston, we rented in San Antonio. The management company was very strict, but also extremely responsive and required the owner to fix any issues. Unfortunately, the owner eventually moved back, and we could not renew our lease for a 3rd year.

The house next door became available, so we moved there. The management company was absolutely horrible. They were slow to respond and had a terrible maintenance guy that would barely fix things.

We ended up staying in the area longer than we planned so we decided to buy a new home instead of renewing that lease.

When it came time to move to Fort Bragg, there was a decent chance that I would be reassigned to Fort Sam Houston again in 3-5 years, so we opted to rent the house out so it will be there for us if we returned. Based on our experience with the first (good) property management company, we chose them to manage the property. They had a very competent in house maintenance team, so repairs were done cheaper than we could have finding contractors ourselves, I think they only charged us for parts as the labor was accounted for in their management fee. They occasionally brought in outside folks (changing a board in the dishwasher control panel, for example) but most other stuff they did themselves.

They did a great job for the entire 10 years and helped us sell it when we realized we were never going back in 2020.

In the end, it was probably a wash. We did not make any money, especially because of the tax penalties since we never reoccupied the house and the various military exemptions we could have used were not enough to help. Had we moved back and sold right after, our tax burden would have been less. I think I could have made about $60k investing the equity I had in the house when we first left versus nothing I actually made. Again – it was a gamble as had we returned we would have turned a profit and saved money and time not having to secure a home when we got there.

To make things worse, the market blew up a few months after we sold the house and the people that bought it from us sold it for about $120k more than they paid us less than 2 years later.

 

[sab]

What were your terms? (deposit, rents upfront, etc)

They changed over the years, but our last terms were:

1. Non-refundable application fee due with application. That was used to pay for the credit and background check (we used NTNOnline.com and had great luck with them.) Because we relied heavily on the credit report, I would tell them if they had no credit, or worse - bad credit, they would likely be wasting their money because they won't pass the screening. Every adult in the house had to apply and pay the fee. Sometimes good people hang with bad people, and usually the bad people are the dominant party in the relationship. Checking all adult tenants was very important.
2. If they passed, we'd do the lease paperwork and they'd pay a pro-rated amount for the first month's rent, and a security deposit equal to one month's rent.
3. Rent was due on the 1st of the month, and we gave a five day grace period with no penalty, but if they went past five days, the penalties were retroactive back to the first. I was very flexible on when rent was paid, and I had a few tenants who were paid once a month, sometimes after the fifth, so I'd allow a different pay date. However, I never allowed them to get behind on rent because most tenants live paycheck-to-paycheck, and if they get behind, you'll never see that money. I usually talked them into moving out if they lost their job and would allow them to break their lease because I'd rather it sit empty for a month with no income than have someone not paying rent in the unit. People who can't pay rent do some stupid stuff in a rental - like live with no electricity and let food rot in the fridge. Empty rentals make the same amount of money, but have the benefit of no one inside doing damage.

I also joined the local apartment association, which was an affiliate of the state association. They had leases and other documents that were revised after every legislative session to comply with regulation changes. They also had attorneys on staff, and we could ask advice of them. Usually, the questions didn't need to go to the attorneys because staff were very experienced. That was a great help and only cost us about $200/year in membership fees, and a nominal fee for the documents.

 

[sab]

I recommend using a reputable management company if you’re going to do it, but think the market and your individual situation is going to determine if it is worth the trouble.

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In the end, it was probably a wash. We did not make any money...

These two statements are related. In your case, your property wasn't really an investment. If a property is bought for an investment, the cap rate must be considered. In many markets, especially these days with home prices inflated to crazy levels, it's tough to make a cap rate work out if you're paying 10% (the market rate around here) or so off the top to a management company. Residential rental properties are a lot of work, and if you're below a cap rate of 10%, it's just not worth the headache. Just put your investment cash into a stable fund and watch it grow at a similar rate.

With BlueC's situation, it's not a dedicated investment, either, so he needs to decide how much income is acceptable. Maybe just getting the property taxes paid to have that large addition to his property is enough. If that's the case, the added cost of a management company might be worth it. On the other hand, if he's taking investment money to be used in retirement to purchase it, ROI is important, and a management company might NOT be worth it.

There are not definite answers in rental investments. Every situation is unique and requires the right approach tailored to the situation.

 

[BlueC]

With BlueC's situation, it's not a dedicated investment, either, so he needs to decide how much income is acceptable. Maybe just getting the property taxes paid to have that large addition to his property is enough.

That is pretty much my case. I have an opportunity to buy adjoining property (~25 acres with house) at a very good price. My estimated monthly payment is pretty much the lower bound of current market rent for a similar house. Worse case seems to be break-even minus repairs, best case the house pays back a few hundred $/mo, plus I have the land do do something with, which I just found out how much storage lots are charging people to park trailers (equipment, campers, boats), so I'll likely be trying a little of that soon.

 

[Zorba]

That's probably a little closer to my situation. The property is connected to my backyard, and there are other potential uses/income from the property (land around the house), so I can't see any reasonable way around a tenant knowing who I am, and why I want to figure out how to shake out a good one. How did you advertise for rent most recently?

GET. A. PROPERTY. MANAGER. TO. FIND. YOUR. TENANT.

 

[BlueC]

GET. A. PROPERTY. MANAGER. TO. FIND. YOUR. TENANT.

I actually did not know they would offer that service without long term management contract. How does that work, what do they charge?

 

[DeltaNu1142]

How does that work, what do they charge?

Mine offers that as an à la carte service. He charges half a month’s rent to place a tenant. We’ve established criteria, etc., so we don’t have to have that discussion each time a unit becomes vacant.

 

[Zorba]

I actually did not know they would offer that service without long term management contract. How does that work, what do they charge?

Mine keeps the one half of the first month's rent - and is darn well worth it. I'm sure there are some that won't do it, but mine does.

 

[Rubeyu]

Having been a landlord since 1999 I can tell you many stories about renting out properties. If you decide to self manage you need to ask yourself if you have the mindset to deal with anything and everything that will come up. The benefit of a Property Manager is their the in-between you and the tenant. I self managed for many years and at times it sucked getting a call for a problem but luckily for me I had a field job so I could take the time during the day to handle problems. Once I moved out of state from one of my rentals I switched to property management. I pay them $150 a month on a $3500 per month rental. It's well worth it.
With using a property manager I still get the final say on who I want to rent to.They do the advertising field all the calls do the showings. I review all the applications and today's world of the internet it's amazing what you can fond out about peoples lives for free. We had a prospective tenant who had a verifiable income of 200K but a little search on the net revealed the guy was a crooked businessman and was screwing over his subs. Good Luck and I bet your property will be worth much more 10- 20 years from now and a godd investment

 

[Mhass]

All good stuff.
I second the credit score being the best indicator of a low maintenance tenant. You can do a credit check and background check online pretty cheap.
A few things I haven't seen discussed-
Pets- are you going to allow them? If so, I would put in place some very specific rules regarding them and make them ironclad- no unattended pets (renter gone 10-12 hours a day and pet left alone), no pets on chains outside, pet waste is to be collected DAILY, every other day at most, Unattended barking dogs not permitted, pets must be spayed/neutered (cat piss on drywall can easily turn into a $10k repair), the renter must sign for liability in case of dog bite/attacks, dog bites/attacks are a one and done issue. One incident and the animal goes. No fake "service animals" find out the law where you live and require proof of service animal training.
After experiencing shitty pet owners, I require an extra month's rent as deposit for EACH animal. I do allow that to be paid over time with the monthly rent, but it must be complete by month 6 or the animal goes...maybe the renter with it. I know this means someone with two animals is going to end up with three months rent on deposit. I don't care. When their sweet dog gets bored and rips out the entire irrigation system and chews through the drywall, I'm covered. Don't like it, go somewhere else.

For where to find good renters- here's a weird one-older recently divorced MEN who just want peace. Seriously. Most of them have decent credit, they just want a quiet place and to be left alone, not the women though, they run out of money, are needy and picky and are generally entitled and become a pain in the ass when 'another man' won't do exactly what they want. If you have any lawyer friends, drop em a line and let em know you're looking for older men looking for peace.
another weird one, men in recovery/sobriety. A lot of them have shit credit, but if they are 40 or older, they're also quiet and just want peace. I would steer clear of people 'in recovery' with less than a year of sobriety. Most sober clubhouses have a bulletin board.
Military members can be a good bet, but more middle rank or senior people, and never several young, junior men. They will drink and never clean anything. The bonus with military folks is if they do stupid shit or owe you money, a quick call to their command usually nets results.
Church bulletin boards are a good source of reasonably decent renters, but again, most have mediocre credit at best.

I don't know if you have enough property to hunt (25 acres is plenty in Virginia and surrounding areas), but if you're going to allow hunting, you need to get waivers signed by each hunter.

Edited to add: Beware that if you advertise it for rent on a housing board or with a realtor or craigslist/fb, you are opening yourself to discrimination lawsuits if you say dumb shit like, "I only rent to older men."

Just some thoughts.
Best of luck to you.

 

[BlueC]

Pets- are you going to allow them?

That's something I've thought about and already decided no pets, but not be so rigid that I miss/lose a good tenant. For the right person, I'd consider allowing a small to medium sized dog or two, but most likely still a hard no with cats, I've seen and smelled their damage too often.

For where to find good renters- here's a weird one-older recently divorced MEN who just want peace. Seriously. Most of them have decent credit, they just want a quiet place and to be left alone, not the women though, they run out of money, are needy and picky and are generally entitled and become a pain in the ass when 'another man' won't do exactly what they want. If you have any lawyer friends, drop em a line and let em know you're looking for older men looking for peace.
another weird one, men in recovery/sobriety. A lot of them have shit credit, but if they are 40 or older, they're also quiet and just want peace. I would steer clear of people 'in recovery' with less than a year of sobriety. Most sober clubhouses have a bulletin board.
Military members can be a good bet, but more middle rank or senior people, and never several young, junior men. They will drink and never clean anything. The bonus with military folks is if they do stupid shit or owe you money, a quick call to their command usually nets results.
Church bulletin boards are a good source of reasonably decent renters, but again, most have mediocre credit at best.

Very interesting source. When I first read that I thought no, but then I remembered a guy down the street who is a divorced dad. Mid 50s, teenaged+ kids, went through a divorce and bought a house down the street. Dude takes care of his place and minds his business. He's nice enough to wave and talk now and then, and old enough that he's not making noise and raising hell. Somebody like that would make a good tenant.

I don't know if you have enough property to hunt (25 acres is plenty in Virginia and surrounding areas), but if you're going to allow hunting, you need to get waivers signed by each hunter.

Assuming your talking about the tenant, that's most likely a no. There's enough land, and I might do some hunting/shooting myself, but I'm only renting the house and surrounding yard to a tenant. I know I'll need to convey that up front and put it in writing. The rest of the land I'm going to try to find some other income, like trailer storage and maybe some fenced pasture if I can get the fence mended (it's an old cattle farm that was fully fenced when I was a kid).

 

[Zorba]

That's something I've thought about and already decided no pets, but not be so rigid that I miss/lose a good tenant. For the right person, I'd consider allowing a small to medium sized dog or two, but most likely still a hard no with cats, I've seen and smelled their damage too often.

I'm the opposite. No dogs, 1 cat OK with deposit.

 

[DeltaNu1142]

I'd consider renting to just a dog rather than most people.

 

[BlueC]

I'd consider renting to just a dog rather than most people.

Me too.

 

[tworley]

... credit score tells a lot. A bad credit score is an almost universal indicator that this tenant is going to give you a hard time. But a good credit score doesn't mean they won't.

100%

We rented out our first home and used a property management company. They found this one individual who wanted to rent our place and his credit score was near perfect and his paperwork indicated he made damn good money.

What ended up happening tho was multiple HOA violations; he had car seats sitting in the driveway (like entire car seats, not baby ones), left out the trash cans, blinds were tore up and crooked, backyard was filled with dog poop, trailers stored in front of the house, he missed multiple(!!) rent due dates, didnt pay the HOA fines. He was an absolute nightmare. This tenant also had a dog (dont allow pets! That was a hard lesson learned on my end), so the base boards in the house were destroyed from this dog chewing on them, the carpet was ruined from accidents, the backyard was filled with poop and dog holes. We booted this tenant out after 1 year.

The property management company we used to rent that house was terrible too. Initially, they wanted to charge rent that wouldn't even cover the mortgage I had on it. They were adamant that what we were asking for monthly rent wouldn't work. It was also hell trying to get them to respond or act on anything. The HOA was on my ass and was threatening to put a lein on the house due to the unpaid HOA dues and violations. When we finally decided to cut ties with them and move back into the house ourselves, we let them know how disappointed we were in them. The managers respose was "I got you $X amount in the last year, why are you upset?". We didnt even make much on this - between the rent, the property management company, and the mortage I had on the house, I think we made a couple hundred bucks a month if that.

I'll never rent another property in my life. It was the worst experience Ive had.

 

[MtPockets]

Lot's of great advice!

I've had rentals for over 20 years. Started out renting a house next door, then moved West and rented them both out.
I preferred being next door.
I finally sold them (thank the Lord above) and bought a couple of houses next door out here.
Yes, it can be a pain in the ass when they know you're the owner but that also works the other way. They tend to keep on the straight and narrow because they know you'll see whatever BS they are pulling.
On whether to hire a property manager, I have considered it many times over the years but never pulled the trigger.
Especially when your rental is right next door, I prefer to be the one to pick my neighbor- that was a big part of why we bought the place to begin with. If we hadn't bought it, someone could've bought it and had a dirt bike track on it and there's not a damn thing we could've done.
You look to be in a similar situation.

 

[MtPockets]

I'll never rent another property in my life. It was the worst experience Ive had.

I would absolutely, positively 1000% agree that rentals as a source of income is a horrible investment. If making money and/or keeping your sanity are high on your list of priorities, I'd put that money into stocks.

In some limited circumstances I do believe being a landlord is tolerable but a money maker it is not.

 

[MtPockets]

Another piece of advice- do NOT be swayed by prospective renters' sob stories. I have more time times than I'd care to admit and it's ALWAYS bit me in the ass.

Every. Single. Time.

 

[suicideking]

I learned about this early in life. At 20, I rented a 4 bedroom house, lived in the master and rented out the other 3 room.

Month 3 - I had a cat (because I was gone all the time). I was looking for my cat. My roommates girlfriend said my cat is hiding under the washing machine because 'Bob was terrorizing it again!' What? So he was literally chasing it for fun and pretending he was going to stomp the cat. He 'jokingly' stomped the cats tail when drunk. So he got a bloody nose and was thrown out with 2 days notice. Luckily, he wasn't on the lease.

Another roommate on the lease was supposed to be paying the utilities. Was collecting money, etc. Then the power got shut off! Jim! WTF!!! Oh yeah, I didn't pay them... Thanks Jim! Didn't throw him out, but learned after 5+ years of being friends that he couldn't be trusted with money.

Roommate Mario - Hey Mario, where's you rent money? Oh, sorry, I don't have it this month! WTF Mario! When will you have it? Sorry, not going to have it until next month. Ok Mario, I will be gone for 24 hours (I was an EMT working 24 hours shifts). If you're here when I get home, I'm throwing you the fuck out and will likely punch you in the face. So either 'FIND' the money or pack your shit!

More stories with that place. After the 1 year lease was up, I moved out so I didn't have to deal with my deadbeat friends lol.

Fast forward to a year ago. We moved to a new house, were thinking of renting out our old house. Wife's hairdresser talked us out of it. She was doing the same, rented to a cousin. Cousin was a drug addict (not known when she rented it to him). Stopped paying rent. Upon eviction, he became bitter and started destroying walls and flooring, even some fire damage. By the time he was out, the house needed over $100K in repairs. So she got a 'second' mortgage to be able to afford it. Took months to repair, so no income for about 6 months by the time she repaired it and was ready to rent it out. She ended up selling it because of the hassle.

After that story and hearing a few others, we decided to sell the previous house.

 

[DeltaNu1142]

I would absolutely, positively 1000% agree that rentals as a source of income is a horrible investment. If making money and/or keeping your sanity are high on your list of priorities, I'd put that money into stocks.

In the past few years, I 1) sold a property and paid a massive tax on the profit, and 2) transferred the sale of another property into a different one via 1031. I still own the one I 1031'd into, and unless I want to pay taxes on it (nope) or move into it (hell nope), my money is stuck there. It's off the topic OP is asking about, but I'm curious how others got out of theirs. I got it at a decent price and cash flow is good so I'm not hard up to get rid of it, but I could potentially be doing better elsewhere.