Tips for rental property ownership

By + fees I assume you're including everything ie property taxes, insurance, etc etc ?

Establish and keep a really good record keeping system. Record everything in some kind of ledger.

Take pictures.

You may want to consider setting up the rental in the form of an LLC. The LLC shelters or limits your liabilities should something go wrong and you end up getting sued.

Yes, fees include condo fee, taxes, insurance, etc.  Rent should cover about 90% of that.  I was also going to suggest that the renter get renter's insurance as my insurance will change since it won't be my primary residence anymore and I'm not concerned about insuring their goods.

I've heard that establishing an LLC isn't a bad idea mainly for tax reasons to have separate records of X amount coming in vs X amount out.  At the minimum I've been told to set up a separate banking account specifically for rental income and expenses and to keep track.  I'll have to look into the LLC more.  Thanks for the suggestion.

My $.02 - Don't rent it, sell it.

Been there, done that.  I never want to be a LL again.

We just started out as 1st timers.  Using a realtor to list for renting may be unnecessary but since you already went there.  I woulda tried Craig's List first and then resorted to the realtor. (altho my husband's a realtor so he has pretty good built in screening intuition)

X3 to the LLC - it limits your liability if someone sues.  Pretty easy to set up.  I just named ours the property address in case we get another one.

That you're handy helps. Never know when something will go out and don't want to have to call someone to fix every little thing.  For our first year we're not going with an agency and going to see how it goes but there are plenty of agencies you can use that will take a small %age of the rent to lease, screen, collect, maintain, etc.

Get yourself a rock solid lease agreement, security deposit up front, etc.  Get references, and call them.

Check local inspection laws and what you need to do to get a Certificate.  Ann Arbor has Draconian rules about code for rentals.

Try not to jump at the first person who inquires.  I don't know what they'd call it in New Hampshire but we had calls from what's called "Section 8" housing. some landlords love it b/c it directly deposits into your account but can be a nightmare b/c tenants often are unreliable and can be prone to not taking care of the property.

You will spend considerably more time managing it than you expect.  Count on it.

It can be worth it for sure, but it's a hassle even for one rental property.

Thanks everyone for the responses.

We're choosing to rent rather than sell because I do believe the market is going to turn around and in 5 years we will be able to make a profit.  Also, in 5 years my mother is planning on retiring and selling her house and either moving in with us or possibly the townhouse since the maintenance is on the lower side of things and it's relatively close to us.  So one way or the other, we kind of have a 5 year plan in place for the property.

As for the leasing agreement, our realtor has given us a copy of their lease agreement and all their criteria for tenants, so we feel we have a pretty solid base to work off in that regard.  I think the eviction laws in any state are more or less crippling for landlords, so from that regard I don't know if there is anything specifically we can "do" to prevent a situation besides attempt to get the best tenant in there we can... and cross our fingers.

There will definitely be expenses, and we've set aside a good portion of money to deal with those.  There literally isn't anything in a house that I can't fix and since I work in the construction business I have a pretty good list of contractors at my disposal as well.

Thanks for the cautions though, and I really hope no one pisses out the side of the house.  There are 2 bathrooms, one on each floor, in a lot of cases they are closer than the window.  That's gross.

My elderly in-laws own 2 places they rent, and my husband and his brothers end up doing all of the work. He has gotten called in snowstorms to go fix broken whatevers. He was called on 11:30 Christmas eve to go fix a broken toilet. Did you know that where we live there is no place to buy a new toilet at midnight on Christmas? After severe flooding he had to go take care of water in the basement in the rental house, and leave me to deal with our own flooding problems. My in-laws have gotten fines from the town because of old cars, and stuff that wasn't to be left sitting outside being outside, and the tenants wouldn't pay. My 78 year old FIL had to go in and shovel snow this winter off the sidewalk because the person that lived there said they weren't doing it, and apparently evicting someone is also very difficult.

Plus I know they have had many problems with renters destroying the place. They are looking now to sell it because it is too much of a hassle. Good luck, but there is more to renting a place than just collecting the rent check every month.

I'll second the "keep good records".  No need for a whole separate bank account (well, maybe for security deposits) but you need to keep the receipts for everything that goes on with the house.  I made a simple Excel doc that I transfer all the receipt data to (I still keep the receipts) so that it adds it up into the IRS categories for the Schedule E.

My other big put would be to make sure you understand the tax rules.  People don't understand them and try to do stupid stuff like claim the entire replacement dishwasher in one year instead of depreciating it. 

Be sure to emotionally separate yourself from the house.  It's now a business asset, not your home.  I actually got the "there was a fire at your house" e-mail once and my initial reaction was emotional...but very very quickly I was able to say, "Well, it's just a house."  And it is...just a house.  A building.  Never forget that.

It does sound like you are handy enough and close enough to handle the property management yourself...at least on the repairs, etc. side.  But just keep in mind that screening tennants is an acquired skill and what will really make or break you as a landlord...sometimes it pays to have some help with that!

I personally think that covering 90% of the mortgage is totally fine.  At that point the only money you are putting in out of pocket is principal and I sort of consider that like a big savings account.  Besides, that extra 10% will be made up via the tax advantage you will see from basically having a net "loss" on your taxes.  Interest + taxes + insurance + repairs + fees + depreciation is almost ALWAYS less than rental income.  My "loss" has decreased over the years (mostly because I keep refinancing and thus keep paying less interest) but it's always always always a loss.  And it's really a pseudo fake loss because it's due to depreciation of the house not money directly leaving your pocket right now.  Let's say your "loss" is $10k.  Well, if you are in a 25% tax bracket you just paid $2500 less in taxes...that probably just made up the remaining 10% of the mortgage that the rent didn't cover.

Thanks everyone for the horror stories.  Hopefully it doesn't come to that but I realize it may and I need to mentally prepare myself for whatever.  I've been in this complex for 6 years and over that time it's been a very friendly community that has never had any problems with individuals not respecting the property, so let's just hope it continues.

jldicarlo - Thank you for the tips.  Very informative.  My wife is going to have a hard time letting go of the house.  It's where our son spent his first 2 years, where we lived after getting married, etc.  From here on out it's a property.  That's it.  As for the taxes I'll definitely get myself more familiar with everything as time goes on.  We're still negotiating with the new house and polishing up the rental to be ready, so we do have a bit of time before both mortgages crush my soul.  I'm trying to digest as much as I can now as I go.

regarding evictions...Don't do it yourself.  I repeat DONT DO IT YOURSELF.  It is well worth the money spent to hire an attorney, for at a very minimum drafting a good solid rental agreement, and a bank of forms you can use for your 3, 7, or 10 day notices for eviction and your complaint for evictions.

Do Not, I repeat DO NOT use the form complaints you can get on line or at one of those business stores like Staples.  They are horribly insufficient, and too often do not include the required pleadings to prevail in Court.

Remember in doing an eviction for failure to pay rent there are TWO counts in the complaint, Count 1 is for possession of the property, count 2 is for the back rent.  Most of the form pleadings only have one count.

Again, while it's your dime, I personally think the money spent on an attorney to handle at least your first eviction, and there will be one if you're a landlord, is well spent.  Or if you can find an attorney that will simply draft the forms for your particular jurisdiction just as good.

Been there done that. LLC, Background/Credit checks, Tenant responsibilities for repairs, Maximum deposits allowable, read vested intrest in the property condition. We did have seperate bank accounts for ours just easy to manage.

Good luck just remember you do not have to rent to the first person, have a projected move in date and take applications do the background/ credit checks.

Has everyone owned a rental property in here?  I need to be selective in my advice! 

The wife are planning on it.  Haven't look into it much yet but plan to just pay a management company to handle it for us since we will be in a different city.

My brother is doing it, but I see the problems he has to go through getting things take care of for his property when he lives states away (usually ME doing the work - boo).

I would love to just sell/flip it, but being upside down (Vegas was REALLY hit bad with the housing crash) It's better to rent and hold onto it until it at least is even.

I own a real estate management business (www.foresidemanagement.com) and part of the business is managing property for owners in your very same situation.

Looks like you have thought of most of the stuff and run the basic numbers so that is great. It appears that you have realistic expectations for the best case scenario as in most market you should come within 10% of breaking even on monthly cash flow with the situation you described.

I have two thoughts for you.

1. If you are planning on renting with the intent to sell make sure your lease has some wording or out clause in it that allows you the flexibility to list the property if the market turns right.

2. This is a cardinal rule in residential investment real estate that should only be broken if you like losing money and wasting your time. Do a proper and thorough screening of your potential tenants. Make sure you set high standards on credit checks, check criminal records, employment history, prior evictions, sex offender records, prior landlord, current landlord. DO NOT LOWER YOUR STANDARDS FOR ANY REASON. Trust your instincts, if you don't feel comfortable with a potential tenant, do not offer the apartment/condo. Losing a months rent on the front end is worth it to avoid an eviction process to get out a non-payor or the thousands of dollars in damage that a bad tenant can cause. I hear sob stories all the time with people calling me to manage their property and 9 times out of 10 the sob story is because the owners did not stick to tight screening standards.

I wish you the best of luck ad success!

I'll just tack onto that last bit that be OPEN to reducing the rent if a good tenant tries to negotiate.  Lower rent for a year is better than a place sitting empty.  If you charge $1300 rent and they ask for $1200 if the place even sits vacant for another MONTH then you just lost as much money as if you rented it right away.  Don't lower your standards, but consider taking a slightly weaker rent offer to make sure it's not vacant.  I did this with my first tenants and they ended up staying two years (I raised the rent a bit after the first year).  I never thought rent prices were negotiable but people do negotiate them...

Renting our first home out now, have a great tenant, but will never ever be a landlord again.  With rent only covering 90%, I think it isn't wise.  If you are flush with money and are willling to pay 10% of the fees for no return, not to mention the additional management fees, then I guess you can.  Seems like you would be better off paying down the current mortgage.  I am sure there are other factors that you have considered, but it seems like your throwing money away to me.

Remember there are tax implications for renting a house too, and unless you know how that will impact your taxes, don't just jump into being a landlord. Just doesn't make any financial sense to me. Stick with the place for a few more years and then sale it.  If your mom wants it, she can buy it from you.  If you think it is hard to get a training run or ride in now, try responding to your tenants calls on the weekends!!  Good luck.

Remember, that a chunk of your mortgage is actually PRINCIPAL that (in theory, barring another massive housing crash) YOU WILL GET BACK WHEN YOU SELL THE HOUSE!  So, someone is paying 90% of your mortgage and you put a little bit of principal (aka savings) into it out of your pocket.  I do not see how this can be considered "no return".  It's ALL gain.  ALL of it.  

Also, you REALLY have to cash flow a LOT every month for the rental to negatively impact your taxes at least in the short term.  Yes, you eventually pay taxes on the capital gains from the sale if you didn't live in the property something like 2 or 3 of the last 5 years (check the rules, I can't quote them off the top of my head).  But with housing prices not skyrocketing you really won't make much gain even after factoring in depreciation.  Yes, if you rent a house for the full term of the mortgage you will probably get killed on capital gains.  But if you do this for 3-5 years then it's going to be pretty negligible...especially if the value of the house hasn't skyrocketed.