I'd like to read stories of how folks obtained their first rental properties, what the market conditions might have been, what sacrifices had to be made. I need a dose of reality.

Thanks!

I'm very curious about how others got into their first rental property.

Melanie

Renting to Section 8 clients can be a beautiful thing... *IF* you do the proper screening in advance to eliminate the destructive folks, and know how to manage them to prevent them from slipping into becoming negligent/destructive occupants. The fact that the government pays almost 100% of their rent bill (and 100% of the time, ON TIME,) means that you have far more consistent cashflows, and far longer tenure (since Sect. 8 tenants tend to not ever want to leave that nipple once they qualify & get accepted.)

Craigslist, Craigslist, Craigslist, for buying appliances (often seller-delivered!,) reselling useable (even barely useable) old appliances, and disposing (for free) of no-longer-operable appliances. Its amazing the crap people will drive across town to haul away for you if you advertise that they can do so *for free* (when you would otherwise have to PAY for hauling & dumping!!!)

As for *MY* 1st-rental story... almost identical to mostone. My wife & I owned & lived in a 2 bedroom condo originally. Rather than consume the space of the 2nd bedroom, we rented it out to highly-screened professional roommates. When we were ready to make the move to a nicer move-up home, we actually took our current rental roommate WITH us to the next house we bought (dropping our mortgage burden further on the new home,) and rented out the full 2 bed, 2 bath condo at a nice positive cashflow.

We then did that twice more, over a span of several years.

If we had originally bought a less-rentable home, or been shy of sharing space (at a profit ;~) we'd have probably been far more sluggish to take the leap... but it has worked out VERY well for us over time.

Luck!
Dave Donhoff
Leverage Planner

Dave--thanks for sharing your story too. Just out of curiosity, what is your job, in a nutshell, as "leverage planner"?

My DH doesn't really want to make the personal sacrifices that would be necessary on months when we don't have a tenant in the rental--I wouldn't say we have an extravagant lifestyle, but we're comfy (a bit less comfy since I quit working). I, OTOH, believe that we should sacrifice now while the kids are small and don't care about toys/clothes/vacations etc...so that we'll be ahead in the long term. To keep peace, however, I'm laying low and running numbers etc on my own.

Please keep the stories coming! Thanks :-)

Dave--thanks for sharing your story too. Just out of curiosity, what is your job, in a nutshell, as "leverage planner"?

I'm a fee-based planner specializing in tax-advantaged 'safe growth,' balanced leverage, and the acceleration of consumer debt elimination. I have an affiliate team of attorneys, accountants, and securities pros, and I directly fulfill the portions of my clients' plans in principal guaranteed growth accounts, real estate financing (investment and personal,) tax-free retirement roll-outs (conversions from traditional qualified to tax-free,) and tax-sheltered business principal retirement/pension plans.

In short, our firm does everything known as traditional Financial Planning (PLUS loan/mortgage fulfillment,) except that we outsource the securities and law practice fulfillments to affilitates or our clients' preferred brokerages.

Cheers,
Dave Donhoff
Leverage Planner

Good luck!

To make a long story short the damage and filth left behind when they moved out cost more to repair than the house. When a court found them liable for their damages they just both quit work and went on welfare. The house was repaired and re-rented and the second renters just figured out how long they could live there for free before they got evicted. They finished the job the first renters started.

That killed any interest I had in rentals even though I have been in the position to pursue them and it had crossed my mind as a supplement to my retirement income. I put the money in CDs, instead. LOL.

You will need to be very picky in choosing the renters and must follow all local, state and federal landlord-tenant laws. When you are picky choosing them, you end up turning down approx 75 percent of potential renters.this is not fun at all, as some are desperate. Turning them down is most often because they either have pets, smoke or have some kind of credit issues. I would not allow smokers, even if they said they would smoke outside only.

You will get calls for al kind of stuff and they think it is urgent even if very minor. I got a call about what the tenant thought was on ourside leak -when really it was condensation dripping off an overhead wire in the morning.

I got a call about a hawk flying through the porch screen and the hawk was inside the porch with the scared tenant waiting for me to help. I got another call from a tenant about their child pressing the buttons on the fridge related to ice/water in the door. The kid locked out the water/ice from working. The tenant expected me to call and pay for appliance repair. Luckily I figured out how to unlock from the appliance manual.

Also some tanents might lie - such as saying they don't know how in the world the lightbulb that is 15 feet high on the ceiling broke out of the socket - with the metal part of the bulb still in the socket but the glass part clearly broken from someone trying to loosen the bulb or throwing something at it. This is when the lease said that only landlord is to replace those high ceiling bulbs. But it is now a safety issue and needs fixed asap.

Then when they move out they will often fight tooth and nail over items that are deducted from the deposit when you clearly have damage and are actually giving them a real good deal for the damage repair, even paying some of the out-of-pocket yourself. And they threaten to sue you, even when you know you were fair and follow the law.

Carpet that was brand new when the tenant moved it, now is so badly damaged that it needs to be replaced and you could live there 20 years and not get the carpet so bad as the tenant did in 1 year.

Damaged door hinges and door frame from teenages slamming the doors when they are mad...when doors and trim were brand new when they moved in.

And if it is a home, landscaping, lawncare, weeding and mulching will always be an issue. They will likely mow the lawn and that is all(if they even mow). No mulching or weeding or watering, even if things die. You end up having to do it if you want it done.

When renters move out, you will need to clean and fix damage asap, so you can get the next renters moved in. So this ends up being an urgent job, and you might even take days off from your day job just to get it done pronto, since you want to get the place rerented.

And some folks are pigs - leaving sticky residue on counters, cabinets on floors - like they never wiped up messes and then the dirt stuck to it. They think it is normal because they swept. It is normal - for them.

When it is not rented, you are paying the utilities. Also insurance can be higher when it is a rental. Also you need to check the insurance for periods of vacancy. This could be for several months. Some policies don't cover if vacant for over 30 days or so.

lastly, rents do not always cover the mortgage, taxes, insurance. You have to set rent at market rate, else it wil stay vacant. Sometimes market rate is below your costs and you end up paying a couple hundred dollars per month out of your pocket just to break even. This doesn't even cover the repair/issues that arise periodically. Market rates for rent could go down - as they did when I had the rental. You have to lower the rent to stay with the market.

When time to sell you most likely want the renters out. This means you have to carry the mortgage for many months. If you can't do this, then dont consider buying a rental.

When I was evicting one tenant, his lawyer argued to the Court that it was unfair that I had greater "economic power" than the tenant. Even though the then Landlord and Tenant Tribunal guidelines said such arguments are not to be given any weight, the judge did not object.

HERE'S the thing to thoroughly understand;

A) Renting property is a business, and can only succeed if treated as such. Its not "just a side thing" or "a hobby" (although it need not take any major amounts of time. We own a decent number of units in our portfolio... more than a couple... and we self-manage (along with on-call handymen,) and really don't spend more than a few hours a month, if that, at it... and that's simply on the bookkeeping of the cashflows (rents & bills.)

B) Every area, regardless of local laws, has happy, successful, profitable landlords. All you have to do, if you want to be one, is to thoroughly learn the local process of being such a landlord.

If it were really so torturous, nobody would ever do it ;~)

(And it you want a hobby, *DO NOT* choose being a landlord... that's my side 2 cents ;~)

Luck!
Dave Donhoff
Leverage Planner

I checked out a library book called "The California Landlords Law Book Rights and Responsibilities" to get an idea of what it might entail. I have another library book on the way called "First Time Landlord: Your Guide to Renting Out a Single Family Home".

It's a lot to take in--we're definitely not going to rush into it OR get into a place that we can't afford to keep if it's not being rented. Still, now is a good time for us to start thinking about it and educating ourselves so we will be prepared when the opportunity appears :-)

Bad outcomes are not always the fault of ignorance or failing to prepare for rental responsibilities. I have a gut feeling your pool of perspective renters will factor into success, and that is one thing over which you have no control. Renting is mainstream in some areas, especially urban areas where property values are very out of reach for even successful young people. In other areas, such as mine, renting is not a typical option for young upwardly moving professionals. We live in a rural county, considered economically depressed by current standards. We are also in the rust belt, where manufacturing jobs in towns have disappeared and unemployment is rampant. Those who have good jobs, good credit and good references buy their homes. There are no major employers here anymore who might have incoming employees looking for temporary housing. Those who do rent are typically people in life crises who are in transistion, folks with part time jobs in retail, those who have lost their homes, or young couples with no credit history.

A home, even the most modest one, is a major money sink. It would take many, many months of successful renting to pay for damages. If you are paying a mortgage on a rental unit, you have very little leeway between profit and loss in which to move. You need to know, that should you have months of vacancies, or major damage to repair that you have the financial resources to comfotably cover or absorb it. It is a risk, and perhaps more risky than other types of investment. If you are comfortable with that, I wish you the best of luck.

Although we one day want to own rental property, we'd be in a financial bind if we went more than 2-3 months w/o renters. I know our street has several rentals and they seem to rent fairly quickly, especially the ones that are more updated (like our house).

We've decided not to pursue a rental right now. In a few years, when we have dual income again and our boys are older, we'll probably move to a home that suits us better than this home. Then we will try renting out this house (our current place).

Many years prior to that, my then single husband bought a house in a suburb. Hated it, and bought another in the city and turned the suburban house into a rental. But, he remodeled the new house, ran out of money, rented out the house and he himself rented a small room to save money.... When he finally moved back into the newly remodeled home, he had many roommates to help with the finances.

When we were first married, we built a mother in law apartment in the basement and rented that out. That helped with our expenses. We did not ask her to leave until my son was 2 years old. We then reclaimed the basement for ourselves.

(You asked for stories and sacrifices...)

We now have enough cash flow so not having rental income for a few months is not a big deal. This gives us the luxury of picking "good" tenants. We only pick tenants who are professionals with good jobs and stellar credit and rental record. The longest we have had vacant rental is about 3 months.

We are also in an urban environment where many young professionals cannot afford to buy due to the housing price. Most houses in a suburban subdivision do not make a good rental, unless you can make the rent 1/3 or less than the monthly mortgage of buying the property. (now days, that may not be true because of the downpayment requirements have gone up for buying a home...)

Like most everything else in real estate, it's location, location, location that determines the rentability, the amount of rent, the type of tenant etc. We have never needed to go to section 8 route. My condo is very close to the University and Medical school. We almost always have medical residents as tenants(currently dental student and the working spouse). We don't rent to undergrads. They have "no income" and do not qualify in our minds. Our suburban house is near many tech firms in the area, and we tend to get techies with well paying jobs living in the house.

melle sacto, not only do you need to have enough money to get through prolonged vacancy, you need to be able to deal with unforseen emergencies quickly. These rentals are your investments. You don't want to do anything to devalue that investment. For example, we had a leak in a very old bathroom. We decided that it was a good time to update the bathroom rather than "patch" fix the bathroom when the tenants moved out. The tenants move out when they want to not when you have the money to fix the bathroom. Like any other business, you need to have available capital when you need it.

In order to rent the property quickly, you need to make it look fresh with regular painting, yard maintenance, deep cleaning, etc etc. The most recent tenant turn over uncovered very old sliding glass doors that were not closing property due to age and settling etc. It was noticeable enough and would have detracted from the house from the potential tenants point of view. Again, we had to spend a few thousand $ to get them replaced. This is a regular part of being a landlord.

We will probably get one more rental, either a duplex or a quadplex. (our next door neighbor probably has 10 houses/buildings or more) Anything larger than that, we are not willing to manage ourselves. We call trades people for just about everything that needs to be done. It is not worth doing it ourselves at this point. Initially, you will have to do everything yourselves, ie painting, yard work, cleaning, etc. If you and your husband are handy, you will spend less money versus calling someone in. Again, this is not on your schedule but the house's schedule.

My brother has a dulplex that he rents out and also the house my parents willed to him. He too had to spend money when things happen. (both of our rentals needed new blower for the furnace this last winter.) We just laugh when these things happen....

Unlike calliope, I consider the risk I take with the rentals as a controlled risk. I actually think it is much less of risk than money I put in the stock market. However, a rental has little potential for huge growth as would in some stocks. To be a successful landlord, you also need to learn your market. In some markets, it is not a feasible business model. For example, I would not buy a rental in a rural area with high unemployment. But I would buy a rental in an urban environment with a large number of transient well paid professionals. Rental properties are a part of our entire portfolio along with other more and less risky things.

What is the going rate for rent? Where are the jobs? What kind of jobs? where do the young people want to live? Where is the hot spot? Any universities around? Graduate/medical/dental students; they make good tenants.

Suburban house rentals often leased to families with young kids. They cause more wear and tear to the house. They tend to move out after a short time when they buy a house. Often, they are testing the neighborhood to see if they want to settle there permanently. Normal wear and tear are not damages. Know the difference.

Ask around. Are there family/friend/neighbors that have rental properties successfully. We know a slew of people with rentals. we are in a high income bracket socially, and many people have rentals as a part of investment portfolio. As in any business, rental is very location specific. Good luck.