The good, the bad, and the ugly of being a land lord

lyfiaNovember 29, 2012

I'm considering being a land lord as a side career. I know I've read posts on here where some have commented on some of the pros and cons when people talk about it in terms of their main home not selling. I know casragtop had some experience with this.

However I would be specifically purchasing a house or two to be used as rentals. I'm very handy as far as fixing things so would generally not have to hire much out.

Anybody care to share what is good and bad about being a land lord?

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wilcox902

Try this site it will be very helpful www.biggerpockets.com

    Bookmark   November 30, 2012 at 12:21AM
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    Bookmark   November 30, 2012 at 7:43AM
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sweet_tea

go to www mrlandlord dot com

Find the Q and A section. It might be called Ask a Question. There is a forum within there.

Many long term landlord post often on there(much more than this gw site you are posting on now). Some of the landlords on mrlandlord dot come have 20 properties, some have 3. They have excellent advice. You can read their issues and they help eachother a lot on that site.
go post your question there. you will get good answers.

    Bookmark   November 30, 2012 at 8:04AM
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cas66ragtop

deleted my own post

This post was edited by cas66ragtop on Wed, Dec 5, 12 at 23:06

    Bookmark   November 30, 2012 at 9:30AM
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RooseveltL

While I recognize others are sending you to resources to investigate more information. I'll give my opinion:

Landlording can be covered in two tracts:
a. you are forced into it because you can't sell your home
b. you do it for income, side job or whatever voluntary.

In either scenario you need to understand like every/any business or franchise you will need to invest time, money and learning curve but the pay off can be great.

Pay-Off (depends on tax code revisions and you must itemize):
Depreciation on home
All expenses operating home (vehicle, cell phone, supplies, landscape, repairs, etc.)
Interest, Taxes & Insurance are all deductible

so, if you earn $1100 p/mo in rent you probably have to subtract out mortgage, taxes, insurance, etc. but if you do make a profit your tax submission will show a significant lost (assuming you are filing your taxes properly). This works well if you have other income and wish to reduce your tax burden while building equity in your rental.

Ugly - Many landlords are unprepared for the tenants and their disrespect of your property. Think of the analogy - would you lend your brand new car to your college roommate?? Or to your teenager for a year? Well, you are lending a $250 or $400k property for your college roommate with their teenager to sleep,eat,sex,smoke,clog the toilet, etc. daily. I know it sounds bad but the key here is screening of tenants and verify references from at least two former landlords. If you can visit the property & neighborhoods and check their credit score & criminal status as that is a good indicator of responsible vs. negligent. Not a perfect indicator but better than a handshake.

BTW - Avoid renting to the following (within legal bounds) - cops, lawyers/judges, real estate agents, former criminals, some students, teachers, desperate or down/out families. Just makes it difficult to evict them if necessary

Not-Wise - Occasionally, people buy homes in cheap communities and deal with an element of renters they barely interact with on a regular basis. While this is profitable (e.g. Section 8) it isn't wise to constantly battle in a neighborhood/community you would rather not visit. Consider analogy would you own a business in the worse neighborhood and have to visit it every two weeks? Some do this because it is cheap/profitable but as we learn from the housing bust. Buying a condo in FL or NV doesn't mean you understand the community or dynamics to make it work for you.
I suggest if you are new buy a rental or have tenants somewhere you want to live and consider your home. Maybe, not as profitable as Sec8 but gets you more familiar and comfortable.

Good - if you have good tenants, need minor/few repairs and manage your accounting properly - it should be as smooth as receiving a check on the 1st of the month with minor repairs/updates annually.

Keep cash on savings and establish a Service Level with your tenant as if it snows 2 inches do they expect a plow within 30 minutes or the next day, if a toilet gets clogged are you expected to respond within 5 hrs or 5 days and if they call a plumber is that your poroblem or not?

Finally, learn the laws of a tenant and landlord. You may have to keep their security in a separate account, may need to provide new lease annually, may need to give 24 hr notice to enter their property for a repair as the last thing you want is a judge telling you you are wrong.

    Bookmark   November 30, 2012 at 9:43AM
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c9pilot

We've been long-distance and local landlords for one or two properties at a time, and the biggest factor is getting good tenants.
We've had a 13-year tenant in our townhouse who pretty much took care of everything. When the HVAC went out, he got three bids and we paid for the one he recommended (we were in CA and he was in MD). We sold the place to him a few years ago.

I had a new tenant totally fix up the investment condo that we purchased after the 1031 sale of the townhouse. New paint, ceiling fans, light fixtures, carpet, door to bathroom (was arched before), took down wall mirrors, etc.

Then he bought another (bigger, better view) unit and the current tenant, who seems to be with long-term intentions, is okay. She didn't realize that water leaking out of the utility closet wasn't normal and it ended up damaging the wood flooring in the next room before we knew to come in and replace the water heater. Fortunately the condo association pays for the damage to the downstairs unit. She thought the water was coming from the A/C drain blockage that we had cleared the week before after she reported the A/C not working (15 min of troubleshooting for a 2 minute fix). The previous time the A/C stopped working was because of a setting on the thermostat that had something to do with replacing the filter. Another 2-minute fix. Although she pays on time and is easy-going, I'm worried that her ditzy-ness might cause more damage.

We had an Air Force couple rent our house in MD and dropped the rent when they agreed to take care of the yard instead of me paying for a service. They were pretty much fine until they had a baby and then they didn't have time and when I stopped by to check on the property, there were 4' tall weeds growing through cracks in the front walkway. Then he got orders and told us they were moving so we called our agent to list the home for sale and started that process. A week later he says that the orders fell through and he wants to stay. We balk, rent will be raised to take care of the yard, etc. Two weeks later he has orders to CA. This is too flakey for us and we just press on with the sale. (This is the house where the financing fell through on the morning of closing because the buyers did something on their credit card - soon after Countrywide went down in flames).

The other military officer we rented to was a Commander that would forget to pay his rent. He would send three checks at once but then would forget four months later to send more, and I'd have to call and leave very awkward messages for him (being one rank below at the time and still in community.)

Good luck. Screen your tenants. Understand the military clause and the difference between permanent and temporary orders. (I refuse to accept the military "out" for 6-month temporary orders. Just because the wife wants to go stay with her parents while her hubbie is overseas doesn't cut it for me - might make exceptions for the current wars, but those are 1 year orders.) Get credit checks. Actually check out the references. Accept pets with a hefty deposit AND references.

    Bookmark   November 30, 2012 at 9:44AM
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lyfia

Lots of good info here. I've only got a few minutes sitting in a doctors office, but I really appreciate all of you responding and sharing your info as well as providing links to other places to find out more.

    Bookmark   November 30, 2012 at 3:05PM
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dreamgarden

"BTW - Avoid renting to the following (within legal bounds) - cops, lawyers/judges, real estate agents, former criminals, some students, teachers, desperate or down/out families. Just makes it difficult to evict them if necessary"

Wow. I would have thought that renting to a cop or judge would be a good idea...

    Bookmark   November 30, 2012 at 4:02PM
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greg_2010

My guess would be that cops or judges would probably know how to manipulate the law to make eviction hard (if it came to that point).
I don't understand the teachers comment at all. What would be the problem with teachers?

    Bookmark   November 30, 2012 at 4:25PM
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cmarlin20

I have been a landlord for quite a while and think it can be great. My rentals are in a desirable beach community, it is not difficult to get nice young professionals that pay every month and the place is clean when they leave.
Now I only advertise on Craigslist with photos and get lots of calls, I do a credit check. I do have a list of electricians, plumbers. etc, I've used over the years, I get a call, I just call them to go out, they mail me a bill. It is usually easy to maintain.
I did rent to an attorney, he knew he was undesirable, he made it clear he worked in patent law, he was a great tenant until he bought a house and moved.

    Bookmark   November 30, 2012 at 7:46PM
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RooseveltL

Teachers - I should clarify
Professor or advance degree faculty = great - reliable, responsible, doesn't want risk to job.
Younger beginner teachers in elementary is not so great as they make little money, have entire summer to themselves and difficult to beat them in court as everyone is compassionate for a teacher.

Cop/Judge/lawyers are the worse as they know the law and how far they can push/play the game before eviction. It is your business/livelihood but for them an ego and competition. Plus, cops may/can have domestic issues and you can't call the cops on him.

I can summarize - would it be practical to take time out of your day to visit court against a judge, lawyer, teacher with a summer off or police officer (with unconventional schedule)?

There are exception to the rule but would keep looking if police officer is my only prospect.

    Bookmark   November 30, 2012 at 10:49PM
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kashka_kat

I just rent out my downstairs apt and I live upstairs - I dont think Id do it otherwise. Being a live in landlord gives me certain advantages I think - it tends to weed out applicants who want to be loud and party without supervision or build a meth lab or whatever. (You still have to have CRITERIA and do the screening.)

And, the fact that I care for it well and have nice gardens/fish pond etc. tends to attract people who are themselves into keeping a nice home. Offering a nice, clean esthetic place does not guarantee a tenant who cares for their house, but offering a dirty smelly dump w stuff broken and lots of cheap cheesy remuddling pretty much guarantees that you WON'T.

Screening - I have pretty strict income criteria and I check employer and housing references and require co-signer for anyone lacking those references. Since its my home I cant risk living w/ someone who cant pay the rent - I only had to make that mistake once - a hard lesson to learn. Some people make a good living renting to low income and people living on the edge incomewise - God love em, poor folks need a place to live too - but I cant afford to take the risk of missing a payment. You can apply any criteria you want but put it in writing and document that you applied the criteria and that you asked the same questions regardless of race, color, creed, etc.

Which brings me to the above comments - I would never discriminate on the basis of someone's profession or any other half baked notion about who would sue more. My strategie is to offer either a lease with a clause that lets them out with one month notice, or... if I have some doubts about the tenant then I'll offer a month to month lease which allows both tenant and myself the option to terminate the lease with one month notice. In the case of the one tenant I had who couldnt afford the rent, I let her go as soon as she found a place and allowed her to use security deposit as the last month's rent.

An experienced landlord a long itme ago advised me to take that route whenever possible - just let them go vs. attempting to hold them to a lease and going to court. Just move on and maybe re think your screening procedures. Your sanity is worth something. (Best advice I ever got BTW!)

Because its a well cared for place - nothing super deluxe, but its nice - and because I slightly undervalue it to offer potential renters a good price, AND because its in a halfway desireable location - I always have a good pool of applicants. During the winter I may have had to wait a month or 2 to find someone but usually I need some time anyway to do repairs/updating (since I have another fulltime job I have to do landlord stuff evenings only.)
Good luck!

    Bookmark   December 3, 2012 at 12:30PM
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c9pilot

kashka_kat makes a very good point - make sure your rentals are highly desirable. I would never consider buying a place that I wouldn't live in.

Location is obviously important, but I'll tell you that my condo will NEVER be empty because it has a garage. There is a HUGE pool of people who want a condo/apt (due to zero maintenance) but few (none around here) have garages for their motorcycle/stuff/fancy car/whatever.
Friends with a rental house in the best school district around here have no trouble getting solid renters (1yr lease) - again, location.

If you are not experienced with craigslist, you need to do some research and be pretty savvy before you delve into it. It is a great free resource, but also rife with fraud and scammers. We have a huge problem around here with people "stealing" your ad and renting your empty home out (I have no idea who could fall for this, but they do) and then you have to evict the illegal tenants. Some of this has to do with the local laws that loophole this, but you need to know about what's going on in your area on the real estate boards.

    Bookmark   December 4, 2012 at 7:33AM
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pink_overalls

We have two rental properties that supplement our SS payments, thank goodness! Before we began investing in real estate, we studied what the pros said. We joined a real estate investors group, listened to lectures, took courses on tape (this was in the 80's), attended seminars, bought books, and made mistakes until we've tuned a formula that works for us.

We use a month to month "rental agreement" rather than a lease. It's better for both landlord and renter. We wrote it ourselves with legal help, and make sure it stays current with regulations and changes in the property.

We never show a property until it is completely empty and clean. Clean as in detailed, they way your car comes out of a detailer's shop. We let renters know that we take pride in the home and we want them to call us as soon as anything isn't right. We're retired, so we take care of problems immediately, ourselves if we can, or with professionals we have relationships with otherwise (HVAC, electrican, appliance guy, plumber). We never let tenants do work for rent, because we think it makes the deal too loosey-goosey, and you surrender control of the quality of workmanship. You can be friendly, but you can't be friends.

As for finding good tenants, it's pretty much a crap shoot. You can do all the credit checks (they pay for one and bring it to you), references, employment and housing checks, and still be surprised. If you combine all that, and then follow your gut, you might reduce the chances for problems. People divorce, lose their jobs, get cats or rabbits without telling you... Be prepared.

The best advice is to study, study, study. Learn from the websites and forums. Maintain the property well. Never rent to family or friends. And have a good rental agreement.

    Bookmark   December 4, 2012 at 12:59PM
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cmarlin20

As a landlord, when you advertise on CL, you may get a call from someone telling you they are out of town and want to rent your place, they will tell you they want to send you a cashiers check for the deposit, asking you to cash it and return the balance to them, it is a scam.

    Bookmark   December 4, 2012 at 4:04PM
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kaismom

I use similar philosophy as Rooseveltl. I am stating similar things with a slightly different bent.

1. You have to understand the business of rental properties. At the end of the day, you have to make money. Don't let someone else tell you that you are making money. You have to really know it. Read read and read about accounting aspect of rental business. Know how to do it yourself even if you end up paying someone to do it for you. You are running a small business; debit and credit, profit and loss. You would never run a business without knowing if you are making or losing money in that business.

2. Know your comfort zone. I am only comfortable with people that I would want to know socially as tenants. I don't want them living in my properties that cost 400K or more. (That is a starter home in my town) I could not and would not do section 8 or rental properties in very low income areas. That is my comfort zone.

3. Know how to market your property and how to read the market: good school district, close-in location, up and coming area, apartment with parking in a central location when no one has one. We have done well by picking in high demand areas.

4. Know your local laws pertaining to tenant rights and landlord's responsibilities.

5. Vacation rentals are very different from long term rentals. Ask yourself what you want. I prefer long term rentals. There are many people that do vacation rentals and do well financially.

6. Always have enough capital that you can use to deal with unexpected problems: leaks, breakage etc. We have had to come up with replacements quite quickly many times.

7. In my city, credit and criminal check is mandatory. I personally select my tenants. I do not use any service for managing the properties. Make sure that you make money even after you pay the service.

8. I have a list of people that I call for repairs and issues. I pay them promptly so that they are willing to work for me when I need them quickly. Unless the repair is very minor, we don't repair much because the time is of essence to the tenants. (ie non-working DW, appliances etc) We also charge market rate for rent.

9. We also do not let tenants stay a long time (decade or so) at a below market rate. We did that 20 years ago. The problem was that when they left, we found a significant amount of deferred maintenance that we could not get to which can have severe consequences. We would rather have them move every 3 to 5 years so that we can really go through the empty house and clean and repair. We just raise a minor amount each year: 2 to 5% or so. Then we stay current with the market.

10. I also buy in areas that I want to live in and in a house that I would/could live in if my income was lower or if I was younger. This way, I know that the property is desirable.

    Bookmark   December 4, 2012 at 7:36PM
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kashka_kat

What kaimom's post above illustrates is that there are a variety of markets & local economies that would shape what your strategy/business plan looks like. In my situation - the rents I can realistically charge is not enough to cover my depreciation, insurance, utilities, interest payments & repairs so where I come out ahead is claiming the loss and getting a nice tax refund every year, and having the investment value as my primary residence and being able to live in a better location than I could otherwise afford.

In our city there still are professional investors who expect to make most of their profit when they sell from the renovation/appreciation of the bldg and not so much from the rental income. So I guess that would be the starting point for the OP - just what do you hope to get out of it and what does your local market look like - I guess Id try to talk to the locals to get a more specific picture to know what your options are - apartment owner associations and what have you.

    Bookmark   December 5, 2012 at 10:57AM
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RooseveltL

@Kaismom is dead on.
I neglected one other item - it is important before you go into landlording to understand the municipality and their budgets, etc. The last thing you want is to anticipate a certain set of financial assumptions and within a year is a 10% tax or sewer or water increase or new assessments, etc.
This is very important if you don't live in the neighborhood or area.

    Bookmark   December 6, 2012 at 1:15PM
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cmarlin20

I know it was already mentioned but I want to emphasize it is a business, sometimes you need to make tough decisions and it isn't pretty, if that is not in your comfort zone don't get involved.
Your tenants are not your friends, don't rent to your friends or family, it is a business, you are the CEO.
There are good tenants out there, don't risk a questionable one, keep it vacant until you find a good one. A nice place will attract a nice tenant. Once you find a good tenant, treat them well, fixing problems.

    Bookmark   December 6, 2012 at 4:56PM
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oklahomarose

Hi. I have a full-time business, but I own rentals (duplexes) on the side. My rule of thumb is to only buy adorable properties....places where I would want to live. And I take good care of them. If you own pretty properties, you will never have difficulty renting them. And I require high security deposits. If a tenant breaks the lease (happens rarely), then I keep the deposit. I have it written into the lease that way. I think being a landlord is quite a bit of fun--a lot of work, yes--but for me, it's a passion and a hobby that also pays pretty well. Good luck!

    Bookmark   January 20, 2013 at 11:04PM
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gmp3

I am by no means an expert, but had a long distance rental due to inability to sell a property due to price drop in the 80s. I included a monthly cleaning service in the rent, with an agreement with the service that they were to notify me if the people were trashing the place. When it was time to sell a about seven years later, ( still long distance) my realtor couldn't believe how nice it looked. I never saw it, but it sold very quickly. The cleaning service was about $60 a month and well worth it. I think it helped attracted tenants who wanted a clean home too.

    Bookmark   January 21, 2013 at 10:47PM
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brickeyee

I just finished billing a tenant for ceiling damage below a bathroom (it actually collapsed into the basement bathroom) after they scrubbed the caulk out from the tub on the first floor.

If they do not pay they will be declared in default and eviction commenced.

    Bookmark   January 22, 2013 at 1:21PM
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kashka_kat

They scrubbed out the caulk? How is that possible unless it was already peeling and grungy and should have been replaced anyway. Not saying you couldnt have an OCD person with way too much time on their hands - who might buy caulk remover and or a blade to chisel it out bit by bit - it happens. But by golly they would really have to work at it. Having just replaced 10 storm windows I know of what I speak.

BTW Lexel is great! Seems to stay on for a while - no I dont work for them. I am so over Alex Plus.

    Bookmark   January 30, 2013 at 5:10PM
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kashka_kat

One thing I forgot to mention. I always take a month or so between tenants to get the place in top shape before new applicants even SEE the place. Every speck of dirt is gone and all repairs made. That first visual impression makes a difference. They never see it messy with old tenant's stuff so the expectation is they leave it as they found it - knock on wood I've gotten great tenants ever since I started doing that.

    Bookmark   January 30, 2013 at 5:14PM
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brickeyee

"They scrubbed out the caulk? How is that possible unless it was already peeling and grungy and should have been replaced anyway"

It was less than 3 months old when the ceiling collapsed.

Their problem if they let mold grow on it, not mine.

There is a working fan.

I did replace it with polyurethane caulk.

That is significantly harder stuff that should stand up to them better.

This post was edited by brickeyee on Fri, Feb 1, 13 at 16:00

    Bookmark   February 1, 2013 at 3:59PM
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