Landlord Experiences?

[MarkV]

We are considering buying some rental property and I have never been a landlord before. I know some of you own rentals and some I would bet have gotten out of owning rental for one reason or another. Though you might share some of what you have learned and your experiences.

For some background this would be a 5 acre tract within 2 miles of your home. There is a fairly well maintained 3 bedroom, 2 bath house that has had the same renters for more than 5 years and they want to stay. They maintain the grounds around the house. There is also another unused smaller block building that has its own septic system. It would require a full renovation but has the potential of being a second 1 or 2 bedroom rental with a separate drive on the same property. Initial calculations show that mortgage, taxes and insurance would exceed the current rent by less than $100 per month. If the second building were rented there would be a positive cash flow if you don’t consider the cost of renovation.

We are thinking of this as a possible supplement to a retirement income in the future. So what do you think? Good idea or bad idea? What do we watch for as a first timers in the landlord business?

Thanks in advance,
MarkV

 

[Junkman]

If you have good tenants it is great... if they are bad, don't pay the rent on time or just don't pay, it can become a nightmare to get them out. Tenants don't take care of the property like a homeowner, and many will do damage that can become expensive to fix. In many states, you are even responsible for fixing broken glass even though the tenant broke it.
I believe that if you want to go into investment property, you have to own enough of it to make a good profit at the end of the month. One property that is a break even situation can get you into financial trouble quite quickly if the tenant moves out or doesn't pay the rent. There is no telling the town, that you don't have the tax money because the tenant didn't pay the rent. Insurance on rental property is also expensive, if you can get it.

 

[cowboydoc]

Ditto what Junkman said. We own the office building where we are and it is nothing but a big headache. I would never be a landlord again.

 

[polecat]

have owned one rental when my exife and i split up in alabama.....so ended up livin there my self....BUT ....i watched my mom for years as she literally interviewed tenants for the 2 bedroom half of the farmhouse i grew up in...she always had a list for everything and SHE ALSO NEVER GOT BURNED BY A TENANT!!!!.....she went on the person's personal references....including past last 2 landlords!!!!...she always wanted to see married couples...no kids pref.....if they had pets...she wanted to meet them 2...mmmmmmmm???what else can i tellu...she had a great gut instinct 2 but 1st last and security was a must...(sometimes she'd work with the tenant's and let them pay down the last mos rent over time but it was always in writing...)
All i can say is be careful...be friendly with the old tenants as they seem 2 have a proven track record...ask the existing owner if they have ever been late and what time of year and if so what happened???...I guess there r ups and downs to everything but if u do your homework and know yer #'s and if u can afford the rental for up to 6mos. if vacant....without it killin u....u don't ever want to feel your own finances slippin because of a downturn....anywhere....do your homework on potential tenants...today u can have potential renters sign a permission slip so that u can do a background on them and git a credit report to boot or actually have them do it themselves....dozens of things to think about that's 4 sure....
do u know the insurance #'s for yer potential investment...???
is the house in good shape???all kinds of things u have to figure out......have u talked to the tenants to see if the landlord right now maybe hiding anystructural problems??? my mom would say "why are they selling.....and to a potential tenant....why r u movin???"...I guess u jist have to do the Encyclopedia Brown kinda thing....lots of deductive reasoning and thinkin...have a plan...go over it ....double and triple check yer #'s and then ....GIT ON TBN AND ASK US!!!!!! /forums/images/graemlins/grin.gif /forums/images/graemlins/grin.gif /forums/images/graemlins/grin.gif /forums/images/graemlins/grin.gif /forums/images/graemlins/grin.gif...OH YEAH u already did that guess i've bin gone a while!!!! /forums/images/graemlins/wink.gif /forums/images/graemlins/wink.gif /forums/images/graemlins/wink.gifGood luck and don't jump 2 fast!!!it can b jist like gittin a cut...truck or aq new toy...git a 5-10 year game plan laid out....i've seen so many friends bury themselves up to their eyes with debt that it eventually ruins everything.....i know you'll make the right decision...jist go in with both eyes WIDE OPEN!!! /forums/images/graemlins/wink.gif /forums/images/graemlins/wink.gif /forums/images/graemlins/cool.gif

TODD /forums/images/graemlins/grin.gif /forums/images/graemlins/grin.gif /forums/images/graemlins/grin.gif

 

[OkeeDon]

I echo some of what Junkman said. If you have to depend on the income from the property to pay the expenses of owning it, you could get in real trouble. That's what happened to me on my first venture into owning a rental -- the tenant was very good, and things were going fine. She was a single Mother, and she met a guy who moved in with her. He was a drunk and abusive, took her money, she couldn't pay her rent, he got drunk and wreecked some of the house. I got them out, but I lost a couple of months rent and the cost of repairs. I could have lost the house, so I ended up bailing out and selling at a loss to protect my credit.

The second time I tried to be a landlord, I was better off financially and didn't need the income to support the investment. But, the hassle became too much. I was running a small business at the time, and it seemed like the problems with the rental always came at the worst time. I'm also too soft-hearted to be an effective landlord. The tenant ran into financial problems; I tried to work with her; I let her get too far in debt to me, and when I finally couldn't let it go on any longer, I ended up losing a lot of what I was entitled to. I ended up selling that house, too, but at least I didn't lose anything on the sale, just on the rent.

Note, that these experiences were due to me being a pretty poor landlord. You don't have to twist your mustache and act like the evil landlord in the "Perils of Pauline", but it's pretty close -- you do have to be a lot more hard-hearted than I am.

My son also owns a rental, and does pretty well with it, even though he's as soft as I am. He does it by letting a rental agency handle everything for a fee, and they are as hard-hearted as needs be. In his case, the positive cash flow is good enough that it covers the agency fee, mortgage and all expenses and a little profit.

Sooo, I'd say a lot of it comes down to personality, and some of it to luck. If you're lucky enough to keep those good tenants, and if they keep paying on time, and if you fix up the other building with few problems, and if you get a decent tenant in the second building, then it doesn't matter whether you're a good landlord or not.

 

[mark777]

MarkV, Would like to add to the already excellent advice:
It only takes one bad tenant to wish you never made the original investment.
In the day and age of political correctness I made friends with a realtor and he charged me first and last months rental rate. Sounds steep? Not in the long run. He did background and credit checks, wrote lease agreements and made notes of condition of property at time of move in.
Avoided a discrimination problem for me too. I (innocently) asked for a retired or older couple as primary tenant - that is a NO NO.
Summary, If you can cover the mortgage, and property maintenance with the tenants income your a winner on the equity (only).
If you plan on the purchase thru a realtor, ask him all these questions and have him comit as closing costs and his % of sale include his legal advice. Been there and now I am finally comfortable. Good luck and Regards, Mark777

 

[Nasty135]

MarkV,I am a landlord only because 7 yrs. ago our house just wouldn't sell ,So we moved into our new house and rented out our old one.

CONS:
There is a long story here but I'll cut it short,
After about 7 months I get a call to come secure my house because the fire dept. is finished PUTTING OUT THE FIRE!!!
Thank God for insurance! Damge estimated at $40k at the time.. After rebuild now mind you I had to make the payments during this time about 4months or so/forums/images/graemlins/mad.gif /forums/images/graemlins/frown.gif NOT FUN ,but we were able to do it without much anxiety, Anyhow for me I had to realize that you can't be a control freak when you rent. I live 35miles from my rental and the house is in a subdivision,so I can't keep the eye on it I would like so I put it outta mind until I have a maintenance issue to deal with(just replaced 7yr.old fridge /forums/images/graemlins/confused.gif) Three different families in 7-8 yrs. Paint ,carpet,doors,etc. The current family is by far the worst that has been in the yet.The husband is a useless tick cant even use a screwdriver!! /forums/images/graemlins/mad.gif and well enough said! the rent does get paid ..

PROS: Positive cashflow, Tax write-off ,appreciation of property(equity) , One thing that makes sense to me is the fact that you can only sell your house once but you can rent it for a long time,once its pays for itself ,like you said retirement income /forums/images/graemlins/grin.gif,Or sell it and current house and move to WHEREVER! This house has a good location for the military but yet to have a military person reside there. If you can handle the maintenance issues periodically its not a bad deal,(better than money in the bank or stock market)Good Luck Mark S.

 

[Von]

Mark, I at one time owned a 78 unit apt. complex! /forums/images/graemlins/crazy.gif talk about headaches /forums/images/graemlins/tongue.gif lost one building to fire because the super's kid set it on fire! (wish the whole thing would have gone up, would have made more on the insurance than we did on the sale! After the fire we found out that the super was stealing rents from us. Stoled about $36k, and is still making payments back to us, and it has been 20 years now. I have seen and heard just about every excuse that there is for no rent! Most tenants were good, just a few bad apples. But enough to make me vow never to be a landlord again. Or so I thought! I now have one comm. space that I rent and one apt. Both are at my antique shop, and I am there almost every day, so I can keep and eye on everything. I have zero problems with the comm. tenant who runs a bicycle shop out of the old carrage house. But I have had 6 different tenants in the apt. in the last 3 yrs. The last two have been al right, but still seem to be a pain at times. I would not want to be dependent on the money that they bring in, but it sure helps when the bills come in to have it!

 

[jayhawkRoy]

Real good advice posted so far.
Before you consider using the unoccupied block building as a second rental prospect, talk to your county zoning commission first. I am assuming the five acres is one plat right now. You may need to get it re-platted before you can rent out the block building, even after renovations. The other issue is that the old existing septic system may not support your rental intentions or meet current standards. There is a lot more involved in gaining environmental approvals on what may be considered to be "new construction" than there used to be. Older septic systems are sometimes undersized by today's standards, and you may be required to upgrade/replace to meet current standards.
Check out all the angles before you commit.

 

[bgott]

I have 15 rental units, 12 trailers and 3 old houses. Most of the time I make a fair living off of them. It beats standing on concrete 10 hours a day working on cars and dealing with their owners. I used to be known as a "good" landlord, meaning that I was easy to stroke when the rent came due, after 7 years of this I'm getting to be known as a [cenosred]. /forums/images/graemlins/cool.gif The first thing you need to do is study your state's landlord/ tenent laws. You don't want your tenants knowing more about the law than you do. Having to possibly deal with the courts is a [censored] but, for better or for worse, the law is a business tool. For both sides. I would also go play spectator in eviction court. Your state can have tough eviction laws (in your favor) but they won't do you any good if you have some liberal judge that refuses to put deadbeats on the street. Just because the law says they have to do something doesn't really mean they have to do it. I don't have that problem with the judge in my area but the Constable's office can be a little remiss in serving the writ. That means showing up to put them on the street. Avoid Section 8, government paid rents, like the plague. I would see if there is a local apartment owner's association that you can get a lease agreement from and modify it to fit your circumstances. I rent month to month and not having at least a six month lease can be a [censored]. It can screw your budget up when they move after a month and you aren't expecting it. Call a few "For Rent" properties and price out the prevailing rents and deposits. The competition is fierce around here on the type of rentals I have so I can't get much of a deposit. This area is traditionally weekly rentals so I have a hard time getting $200 deposit and a months rent. I got tired of the weeklies, you make an extra month every year but you have to chase them a lot more. The larger move in is a pretty good qualifier, I have a lot less turnover. Stay away from roommate situations, most of the time one or the other screws it up and then you have to be the heavy on someone that doesn't really deserve it. The place doesn't ever seem to be in the problem's name. Check out the HVAC system before you buy, our utility bills are outrageous around here and it makes it hard for them to pay their rent. If they can't make the rent, dump them immediately. That sounds hard, and I break my own rule occationally, but a lot of renters are looking for a daddy. If you dump them right away they cuss and scream and go down the road but if you let them stick around and stroke you they start figuring they are entitled and then they take it personal when you've finally had enough. Remember, you are rich, you have all that property and it's only right that a rich man like you give a poor boy a break. And since you have a poor boy right there, it might as well be them. References from the last two landlords is a good idea, the current landlord will probably lie to get shut of the problem. Avoid letting them do repairs and upgrades, you wouldn't believe how deep a hole you can get into if you get into that trick bag. That is all I have time to think of for now, I'll post a couple more in the next day or two. I hope I haven't scared you too bad, the upside is that once you get good long term tenants in place you can set back and watch the money roll in!