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TouchyMcFeely
Aug 21, 2006

High five! Hell yeah!

I've kicked around the idea of purchasing a rental property on and off for a few years now. Financially, I'm getting close to the point where purchasing a rental property could be feasible.

However, I don't know the first thing about actually owning a rental and I'm guessing it's not nearly as easy or straight forward as the shysters on late night TV would have you believe.

I'm hoping there are a few rental owners who can give perspective and advice to someone looking to move into rental property ownership for the first time. Things that might have caught you by surprise when you were first starting out or things you know now that you wish you had known from the beginning.

The OP is criminally light on content but I'm hoping that just by having a place to discuss rental ownership good discussion between the experienced and not-so-experienced will help fill in the giant gaps.

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ShaqDiesel
Mar 21, 2013
I own a duplex (I live in one unit and rent the other) and a single home both in my small hometown. The duplex has been pretty stress-free (no major repairs, three renters since 1999) but the house has been a pain in the rear end until the most recent renters moved in. The house was kinda run-down when I bought it so it was a struggle to find and/or keep decent renters. However I recently made some improvements to it and now have had consistent occupancy for > 1 year.

As you can see I'm not an expert*, just a casual landlord, but my advice would be to avoid any 'slumlord' type situation (i.e. buying some crap-rear end property in a crap-rear end area and then trying to squeeze some deadbeat for cash every month). Try to offer a product that you yourself would consider.

* Hopefully there are some real experts (people with 50 or more properties, say) responding who can tell you how to make a career of it.

SlapActionJackson
Jul 27, 2006

I assume you're talking about 1-4 family houses and not larger multifamily which is a whole 'nother ball game.

When it comes to income properties, cash flow is king. You need to find properties that will generate enough in rent to pay the mortgage, taxes, insurance, estimated maintenance, and still have some left over. You need to assume a reasonable vacancy rate for your area (hint: not 100%) and you need to factor in tenant acquisition costs. Will you manage it yourself or hire a property management company? The latter is easier, of course, but they'll typically want 5-10% of the rent plus actual expenses.

2nd is tenant selection. You need to find and keep good tenants. What qualifies as "good" is going to depend on the type of rentals you have available. Obviously very different types of people are going to be interested in a $500 studio vs a $2500 single-family home. You want people who will not just not trash the place, but stick around for a while, too. Your tenant acquisition costs and turnover vacancy is going to depend on how frequently your tenants leave. How do you plan to find and handle prospective tenants? Craigslist? Full service broker? Basic tenant screening is pretty easy thanks to background check services on the internet, but that's still no guarantee you won't get a bad apple.

You'll need to have a good financial cushion - not only are loan terms not as generous for investment properties as for primary residences (higher down payments, higher interest rates), but you're the one taking all of the financial risk. A bad tenant or a bad run of high maintenance expenses can wipe out years worth of profit.

Rental income is schedule E income on your federal taxes. The rules and accounting are somewhat different from primary residence items on schedule A. You'll want to be familiar with all of that to be sure you're square with the IRS and getting all of the tax benefits you are due.

You'll also need to know the law in your locale regarding rental houses. What are your obligations as a landlord? Do you need any special permits? (not common, but woe to you if you need one and get caught without it) How hard is it to evict a non-paying tenant? Some jurisdictions can have a deadbeat out in 30 days, some will allow a knowledgeable tenant a year or more to fight an eviction while living at your expense.

Small-time landlording can indeed be profitable, but it's not a sit back and watch the money roll in kind of investment.

Elephanthead
Sep 11, 2008


Toilet Rascal
It is not a passive activity unless you can afford to hire a property manager that will burn up all your profits. Expect to get calls at 3 am when the toilet is spouting all over the place. I would probably just buy a dividend stock and not have to do anything but deposit the checks. Oh yeah lets not forget the exposure to the housing bubble take two, rental boogaloo. Zero percent interest rates don't drive up prices do they?

Harry
Jun 13, 2003

I do solemnly swear that in the year 2015 I will theorycraft my wallet as well as my WoW
You'll probably get a lot of poo poo posts like Elephantheads here.

Here's a thread on Fatwallet that's been around for more than a decade. Most boards that have to do with investing usually have a rental property thread on it, so just browse around. The main thing I've seen is to make sure your property has good cash flow. Don't get trapped into the logic of "well they're paying down the principal so I'll be making money when I sell" mindset.

skipdogg
Nov 29, 2004
Resident SRT-4 Expert

I've had a couple family members build duplex homes in the midwest and rent one side of them pretty successfully. One cousin had an 1100 dollar mortgage and rented the other half of the duplex for 900 a month, covering most of his mortgage. It was new construction so not much to worry about the first few years other than renters trashing the place, but when you live on the other side of the wall you can keep an ear out for that crap.

TouchyMcFeely
Aug 21, 2006

High five! Hell yeah!

Thanks for the informative replies. In my own case this would be a long term investment that I would want to hold onto for at least 10 years and possibly expand later.

Lets say I was ready (or thought I was ready) to sit down and find my first rental property. What resources should I be looking at to figure out if I'm actually ready to purchase or not? Books I should read, websites I should be aware of, local organizations I should drop in on, etc.

With regard to figuring out the cash flow, what kinds of expenses should I expect? I'm guessing the mortgage is the biggest regular expense but what kind of numbers should I use when estimating the emergency fund and basic repairs? How do I determine if a property is likely to have a positive cash flow or not?

Snevet
Jun 12, 2011
I'm not a landlord, but I do work for a bank that finances such properties and know a person who owns some property as a landlord.

I don't know if you've thought too much about financing yet, but a thought for you as far as financing goes:

In Canada, many banks offer a financing option for properties where you have a mortgage loan and mortgage line of credit. The mortgage portion operates like any standard mortgage does and it could be variable or fixed rate, short term, long term or whatever you want. The line of credit is a piece of revolving credit that's typically at a fairly low interest rate that's also variable based on the prime rate. What it would let you do is use any available equity you have in your home to pay for any repairs (assuming you have any equity) or any expenses.

It goes without saying, but it'd be a good idea for you to explore the rental market you're looking to buy in as well as you might be very surprised at what you can rent a house for. The house next door to me is renting for $1600 a month not including utilities. The mortgage payment on my house is only $900 a month property taxes included. Assuming that person got a deal on their mortgage like I did, they are making a crap ton of profit.

Another thing to consider to is possibly opening up a business to explore different income tax deduction opportunities. Businesses are taxed differently than individuals and there are lots of opportunities to write off expenses (legal fees for the mortgage, bank fees, whatever). For example, if you own a corporation, you could pay yourself in dividends to reduce the amount of income tax you have to pay--in Canada obviously.

Anyway, good luck!

particle409
Jan 15, 2008

Thou bootless clapper-clawed varlot!
Multiple property landlord here. Get a decent spreadsheet that helps you figure out the cap rate on a building. That's basically the return on your money. It's a fairly simple formula:

(gross yearly income from rentals) - (expenses) / purchase price

Now your yearly expenses should include property taxes, electric that you pay, a realistic vacancy rate/credit loss, etc. If a tenant stops paying and you have to evict them, that's an expense to file eviction paperwork and lost income from non-payment. Figure out your cap rate, and then you can easily see if it's worth the effort to deal with it or just stick the money in the stock market with a broker.

kitten smoothie
Dec 29, 2001

I am an unintentional landlord; in January 2010 I was selling my house and buying another. We were going to close both deals the same day, but my rear end in a top hat buyer backed out a week before closing. I couldn't find any new buyer, and then I had a wave of deadbeat neighbors who got foreclosed on, which that sealed my fate as far as unloading the place goes.

I have a property manager who charges me a $250 leasing fee at signing, which covers the first month of advertising and tenant screening. Any additional time it sits vacant while she's advertising it costs $50/month. She takes 6% commission on rent; rent is $850 and she mails me an $800 check every month. The property is right near an Air Force base and she has an "in" with advertising there; my last two tenants have been airmen and they have treated the place immaculately.

I have been told this is an awesome deal as most property managers charge more like 10-12% commission monthly as well as the entire first month's rent. Is this true?

TheLizard
Oct 27, 2004

I am the Lizard Queen!
I'm moving soon and don't want to sell my place, so I'm going to be a landlord soon enough. DC area; my realtor takes the first month rent and 7% commission each month. This seems to be standard in the area.

My biggest concern is that in MD you can't discriminate on criminal history or section 8 status. I do NOT want section 8 renters in here; this is my first house, I've owned it for 9 years and put a bunch of work into it, so I don't want trashy people destroying it. I'm sure I'll get heat for that, but I don't care. Every place I've lived that has had section 8 renters in the community you could tell which house was theirs.

Authentic You
Mar 4, 2007

Listen now this is your
captain calling:
Your captain is dead.

TheLizard posted:

I'm moving soon and don't want to sell my place, so I'm going to be a landlord soon enough. DC area; my realtor takes the first month rent and 7% commission each month. This seems to be standard in the area.

My biggest concern is that in MD you can't discriminate on criminal history or section 8 status. I do NOT want section 8 renters in here; this is my first house, I've owned it for 9 years and put a bunch of work into it, so I don't want trashy people destroying it. I'm sure I'll get heat for that, but I don't care. Every place I've lived that has had section 8 renters in the community you could tell which house was theirs.

Raise the rent. My friend's parents own a rental duplex not far from me, and were renting it for what was a pretty drat good deal for the nice neighborhood it's in. When they were looking for new tenants, they'd get a shitton of inquiries about whether they accepted Section 8 (not sure about how Section 8 discrimination works in PA) and lots of low-quality applicants in general, so they just arbitrarily raised the rent by a few hundred a month. After that, only folks inquiring were quiet grad students, young professionals, and well-to-do young families.

Also, don't ever rent to undergrads. Ever. My downstairs neighbor is one of my landlord's maintenance guys, and oh god the stories he tells.

Dazzleberries
Jul 4, 2003
I think the biggest thing is to not make the critical error that I see so many people do, and even brag about which is to simply find a property where your mortgage is X$, and the rent is at least X$, or really anywhere near X$. You will be losing money every month and the only scenario in which this might be reasonable is if you have some belief that the property will appreciate.

Now, last year when I went looking for my first one, I was looking for a clean house, where the rent was 1% of the purchase price or more. Often times people will say 2% is what you should go for and it's a bit more complicated than just the ratio. As the price of a house rises, you can get a lower percentage because it's a higher total amount while the cost to maintain a house tends to be similar.

So for example, if you have a 60k house that rents for 600$. Let's say you're PITI is around 300$. That leaves you with 300$ for vacancy, maintenance, advertising and so forth. You're likely going to be lucky to cash flow 100$ a month, which if you put 15k down, is a pretty weak return unless the house is going to appreciate noticeably and chances are a 60k house is not unless we get into a bubble again.

Now I got a house for 130k, that rents for 1375$. My PITI is 700$ leaving 675$ over for all of that other stuff. I actually figure the rest costs me around 300$-375$ a month, leaving me with around 300$ in cash flow. In my case it's around 10% return on the cash I put down.

The 2% idea would be to get that house that rents for 600$ for 30k. Let's say that cuts your payment in half, you then make a similar amount to what I make, and you have a ton of equity. These sorts of deals can be had, but generally they are in certain markets and when presented with them, you're generally going to be paying cash for the house and not financing at all (It's harder to find a <= 50k mortgage).

The next step to not losing your shirt is picking tenants. Don't rent to my tenant, she's a flake and it's hard to screen every bad apple out but I have learned a lot in the past year. Make sure that they can afford the rent, and I'd say to look for people where the rent is less than 20% of what they earn. Have a good lease with strong penalties if they are late, even a day late. Mine turned out to be too soft because I thought I would screen people out so well that it wouldn't be an issue. I learned quickly that a 35$ late fee is not sufficient to avoid people being late for example.

Get a book about the real estate laws in your area, since inevitably you'll have to follow them.

HistoryMiss
Mar 7, 2012

I'm a small landlord in the UK. I fell into it accidentally. Do not do this. I rented to friends. Do not do this either. I have been far luckier than I had any right to be! Take the long view and think very carefully before allowing pets. My tenant moved out after 7 years and ... stinky. I knew I'd have to redecorate anyway but, yeah, cats, dogs, pet rats and rabbits. That hair gets embedded into things, I swear. Not to mention the poo poo in the garden.

Got a new tenant now, through an agency, and she is young - straight out of mummy and daddy's house - so she expects everything to be perfect straightaway, and worries about noises, lights, and gently caress knows. The toilet cistern makes a hissing noise when flushing. She worries about this. And so on.

So anyone want to ask about renting out in the UK, fire away.

TouchyMcFeely
Aug 21, 2006

High five! Hell yeah!

Things are starting to look a little clearer now. Thanks for everyone's efforts.

I saw a discussion on the BiggerPockets.com forum where you should estimate roughly 50% of the gross rent in operating costs for a property.

Does that sound about right to folks here? That seems awfully high but the people over there seem to trust it and if it's a solid rule of thumb it makes evaluating property a lot easier.

Jalumibnkrayal
Apr 16, 2008

Ramrod XTreme
Hopefully TapTheForwardAssist can visit the thread, though I believe he/she does multi-unit building(s) in immigrant neighborhoods. Probably not the same market, but their thread was insightful.

Harry
Jun 13, 2003

I do solemnly swear that in the year 2015 I will theorycraft my wallet as well as my WoW

TouchyMcFeely posted:

Things are starting to look a little clearer now. Thanks for everyone's efforts.

I saw a discussion on the BiggerPockets.com forum where you should estimate roughly 50% of the gross rent in operating costs for a property.

Does that sound about right to folks here? That seems awfully high but the people over there seem to trust it and if it's a solid rule of thumb it makes evaluating property a lot easier.

That's about right. It's a purposely conservative number.

Dazzleberries
Jul 4, 2003

TouchyMcFeely posted:

Things are starting to look a little clearer now. Thanks for everyone's efforts.

I saw a discussion on the BiggerPockets.com forum where you should estimate roughly 50% of the gross rent in operating costs for a property.

Does that sound about right to folks here? That seems awfully high but the people over there seem to trust it and if it's a solid rule of thumb it makes evaluating property a lot easier.

I think it's again something that varies depending on a variety of factors but even if it's high, if you use 50% as a guideline to evaluate a property, if you then only run 40%, the rest is just money in your pocket.

DemonLlama
Jul 11, 2005

particle409 posted:

Multiple property landlord here. Get a decent spreadsheet that helps you figure out the cap rate on a building. That's basically the return on your money. It's a fairly simple formula:

(gross yearly income from rentals) - (expenses) / purchase price

Now your yearly expenses should include property taxes, electric that you pay, a realistic vacancy rate/credit loss, etc. If a tenant stops paying and you have to evict them, that's an expense to file eviction paperwork and lost income from non-payment. Figure out your cap rate, and then you can easily see if it's worth the effort to deal with it or just stick the money in the stock market with a broker.

That makes sense when you own the property outright. What if you buy a building to rent via mortgage?

Do you do use: (gross rent) - (expenses) / downpayment+closing costs
Would you include the portion of the mortgage note going to principal under expenses?

In my neighborhood, houses are renting for around 1000-1500, selling for around 100k. Figure 20k downpayment, another 10k in closing costs. Rent for 1k, expenses of 500. I get this yearly:

12k-6k/30k = 20% return

If you divide by the sale price + closing costs, its way different:

12k-6k/110k = 5.45% return

Which one is right?

Dazzleberries
Jul 4, 2003

DemonLlama posted:

That makes sense when you own the property outright. What if you buy a building to rent via mortgage?

Do you do use: (gross rent) - (expenses) / downpayment+closing costs
Would you include the portion of the mortgage note going to principal under expenses?

In my neighborhood, houses are renting for around 1000-1500, selling for around 100k. Figure 20k downpayment, another 10k in closing costs. Rent for 1k, expenses of 500. I get this yearly:

12k-6k/30k = 20% return

If you divide by the sale price + closing costs, its way different:

12k-6k/110k = 5.45% return

Which one is right?

Neither is right, it's two seperate things. The cap(italization) rate is what he was talking about, and does not take into account a mortgage. What you're talking about is more like cash on cash return, or what you earn on the money YOU put in.

If you buy something outright, they are the same thing. This is why typically even if you had the 110k to buy the house outright, it's a terrible investment compared to how you could buy 4 similar houses using leverage to get 4x the cash flow.

TheLizard
Oct 27, 2004

I am the Lizard Queen!

Authentic You posted:

Raise the rent.

Yeah, definitely. Rents in the neighborhood go for $1600-1700, so I'll probably err on the higher side. I also assume most Section 8 applicants have lovely credit, so I can always deny them based on that. No schools close by, thank god, so I don't have to worry about college kids.

Dazzleberries posted:

Have a good lease with strong penalties if they are late, even a day late.

Gotta love MD; state law says it's not late until 10 days after the first of the month, can you believe that?

sleepy gary
Jan 11, 2006

You have to be ridiculously careful with how you reject tenants.

TouchyMcFeely
Aug 21, 2006

High five! Hell yeah!

I saw a a discussion regarding section 8 and one of the posters uses a simple rating scale to determine if they will except a tenant or not. Something like, "bad referral from previous land lord -1 point. Bad referral from 2nd previous land lord -7 points. Working for same company for 2+ years +3 points." etc. If the tenant falls below a certain threshold then they don't get to rent the property.

Don't know if it actually offers them any protection if they're called on it but it seems like a good way to rate potential tenants, section 8 or not.

TheLizard
Oct 27, 2004

I am the Lizard Queen!

DNova posted:

You have to be ridiculously careful with how you reject tenants.

I know; I worked at a company that did background checks for multifamily properties for years. Most big firms at the time just did a 3:1 income: rent ratio and made sure you hadn't ended up in landlord tenant court. This company had a proprietary score it sold that did a lot of what TouchyMcFeely describes, but in way more detail. It generally keeps you compliant with Fair Housing laws.

kitten smoothie
Dec 29, 2001

Dazzleberries posted:

Have a good lease with strong penalties if they are late, even a day late. Mine turned out to be too soft because I thought I would screen people out so well that it wouldn't be an issue. I learned quickly that a 35$ late fee is not sufficient to avoid people being late for example.

Yep. This sounds like that study that day care fine study that Freakonomics discussed. Some late fees don't encourage good behavior, they encourage people to think they can just pay you for their bad behavior.

Saying "rent is due on on the 1st, grace period until the 5th, $35 late fee afterward" just means someone will think they can pay you rent+$35 and buy themselves the right to pay you late. Friend of mine had a tenant who did this every drat month.

Saveron_01
Dec 27, 2004

kitten smoothie posted:

Saying "rent is due on on the 1st, grace period until the 5th, $35 late fee afterward" just means someone will think they can pay you rent+$35 and buy themselves the right to pay you late. Friend of mine had a tenant who did this every drat month.

My landlord used to do just that, but then raised the late fee to $50, which made most of the people in the building fall into line. She really only does that to the people who were doing that every month, not to those it was their first offense.

Since the rent covers heat/hot water, another thing that she started was charging a $50 fee whenever they had the heat on and windows open. There was a couple that had the temperature in their apartment set to 90° with all their windows open, she later installed all new thermostats in each apartment that the max setting was 70°.

I toyed around with buying a quadplex a few years back, intending to live in one of the apartments and get a property management company to take care of the business side of things, but it was right around the housing-bubble crash, so I am pretty glad that I didn't. (House was selling for $300k, but saw it relisted recently at $210k).

Haifisch
Nov 13, 2010

Objection! I object! That was... objectionable!



Taco Defender

Saveron_01 posted:

Since the rent covers heat/hot water, another thing that she started was charging a $50 fee whenever they had the heat on and windows open. There was a couple that had the temperature in their apartment set to 90° with all their windows open, she later installed all new thermostats in each apartment that the max setting was 70°.
So how much luck did she have renting it out to tenants worth having once she did this? I sure as gently caress wouldn't rent an apartment with a thermostat capped that low; 75, maybe(although I'd still have to wonder what the rest of the place is like if they pull poo poo like that), but 70, no way. Some people get cold easily, especially in the winter, and would like a little wiggle room above standard room temperature. This is assuming that the thermostats are accurate in the first place, mind you(and I would not trust a landlord cheap enough to install limited thermostats to make sure they were also accurate thermostats).

I guess this serves as a lesson that what might make sense for the landlord's wallet might also scare away good tenants, especially if it's an overreaction to what only a few tenants are doing.

(Or maybe I just don't understand the world of bad tenants, since I pay my rent on time and only bug my landlord if something breaks.)

Haifisch fucked around with this message at 16:34 on May 12, 2013

kitten smoothie
Dec 29, 2001

I'd be afraid that if you capped the thermostat like that, then the little old lady who gets cold at 70º and wants it to be 75º will take out her 1964 vintage space heater with exposed coils and set the whole building on fire.

spog
Aug 7, 2004

It's your own bloody fault.

HistoryMiss posted:

I'm a small landlord in the UK. I fell into it accidentally. Do not do this. I rented to friends. Do not do this either. I have been far luckier than I had any right to be! Take the long view and think very carefully before allowing pets. My tenant moved out after 7 years and ... stinky. I knew I'd have to redecorate anyway but, yeah, cats, dogs, pet rats and rabbits. That hair gets embedded into things, I swear. Not to mention the poo poo in the garden.

Got a new tenant now, through an agency, and she is young - straight out of mummy and daddy's house - so she expects everything to be perfect straightaway, and worries about noises, lights, and gently caress knows. The toilet cistern makes a hissing noise when flushing. She worries about this. And so on.

So anyone want to ask about renting out in the UK, fire away.

I'm interested.

Especially whether it is worth using an estate agent to handle tenants, or do it yourself.

Dazzleberries
Jul 4, 2003

kitten smoothie posted:

Yep. This sounds like that study that day care fine study that Freakonomics discussed. Some late fees don't encourage good behavior, they encourage people to think they can just pay you for their bad behavior.

Saying "rent is due on on the 1st, grace period until the 5th, $35 late fee afterward" just means someone will think they can pay you rent+$35 and buy themselves the right to pay you late. Friend of mine had a tenant who did this every drat month.

That is exactly what my lease said except no explicit grace period, just rent due on 1st, 35$ after 5 days. This gave me at least the option to on the 2nd post a pay or quit notice. My tenant was confused but I explained that the late fee is separate.

From now on it'll be like 100$ on the 2nd. The other bad side at least in my state is that in the scenario where I post a pay or quit, and they owe late fees, if they pay me the rent only, I can't do anything, the fees are something I'd have to take them to small claims court to get.

Dazzleberries
Jul 4, 2003

spog posted:

I'm interested.

Especially whether it is worth using an estate agent to handle tenants, or do it yourself.

It depends. While people say that property management is maybe 8-12% of gross, you have to look at it like it really is, probably more like half of your profit. So I have a house that rents for 1375$, I'd be paying 137$ a month, plus often half of the first months rent for a new tenant. I project out to make only around 300$ in profit a month from the house, so over the course of the last year, that would be 2304$. That is 2/3rd of my profit gone to cover management which has taken just a few hours of my time.

I'd consider it in a scenario where I didn't have a mortgage and as a percentage of profit it was closer to 10%, or of course investing out of my local area which is something I'm going to be doing in the future.

Deep State of Mind
Jul 30, 2006

"It was a busy day. I do not remember it all. In the morning, I thought I had lost my wallet. Then we went swimming and either overthrew a government or started a pro-American radio station. I can't really remember."
Fun Shoe
Having never been a landlord, being one looks like the easiest damned thing in the world. My landlord does literally nothing and collects US$1300 a month from me. In the year I've rented from him, I've asked him about getting the busted mailbox fixed (US$6). I've been a renter in other places since I was 18 and I really can't think of anything that's put my landlords under any hardship, or even made them exert effort.

Am I a weirdly easy tenant? Are there that many people out there who make trouble for property owners and cost them crazy amounts of money and make renting unprofitable? Is it because I rent in newer buildings that don't require expensive upkeep?

KaiserBen
Aug 11, 2007

Bloodnose posted:

Am I a weirdly easy tenant? Are there that many people out there who make trouble for property owners and cost them crazy amounts of money and make renting unprofitable? Is it because I rent in newer buildings that don't require expensive upkeep?

Yes, basically you're a model tenant in a nice building. I worked for a local landslumlord for a bit in high school, and the poo poo his tenants would pull was ridiculous. 4 college students dumped most of a keg of beer in the basement (finished and carpeted) and left it for a month or so before moving out. Lady kept her dog penned up in the enclosed porch, never letting it outside, then moved without cleaning. Both of those ended up being "gut and replace" rooms, both tenants were essentially uncollectable so he lost a fair bit of $ on those. Tenants that don't pay, don't pay on time, wreck the place, etc are all too common (especially if, like him, you don't screen them well and rent crappy places). Some tenants call about every burnt out lightbulb, or every time they clog the toilet (seriously, people need to learn what a plunger is). Some will never call unless the building is on fire (and even then, they'll wait an hour or two).

If you want to find out for yourself, it's not hard to become a landlord. Read the fatwallet thread or any of the other RE investing forums out there to get a feel for it.

Deep State of Mind
Jul 30, 2006

"It was a busy day. I do not remember it all. In the morning, I thought I had lost my wallet. Then we went swimming and either overthrew a government or started a pro-American radio station. I can't really remember."
Fun Shoe
Yeah, my area (Hong Kong) is in the midst of a ridiculous property bubble that when it finally bursts will make for some great real estate investment opportunities. And I've always been a more conservative investor in that I'd probably prefer long-term renting over short-term speculating.

Again, it looks like the easiest job in the world from the perspective of a (apparently) model renter, but I guess if you get a bad tenant they can really mess things up for you both financially and make your life uncomfortable.

HistoryMiss
Mar 7, 2012

spog posted:

I'm interested.

Especially whether it is worth using an estate agent to handle tenants, or do it yourself.

Well my first tenants were done myself. This ONLY worked because they were cool as gently caress and didn't mind that I let them get on with it. I live 200 miles away from the property. I let them have pets, smoke, whatever. When anything broke they just got on and fixed it, and phoned me up later to tell me. They replaced the shower and redecorated because they lived there 7 years and just accepted that it was their responsibility. I was VERY lucky.

Now I have gone fully-managed with a well-known national UK estate agents and they are a barrel of money grabbing cocksucking arseholes. In my opinion. They seem to charge me and the tenant for the same stuff, and their 24-hour helpline was actually "accidentally" turned off over the bank holiday. I was going to get out of the fully managed thing because I would rather deal with my tenant direct but then I would not qualify for their 100% rent indemnity insurance. I suppose I could shop around and get it independently but I have not had time. I ended up with these cowboys because I needed to get a tenant in quickly and they had dealt with my house sale. In hindsight I WISH I had shopped around a lot more and found better agents.

dreesemonkey
May 14, 2008
Pillbug
Everytime I start reading about rental properties I get all hot and bothered.

If I had things to do over again I think I would have bought a duplex as my first home. One guy a coworker knows buys a new duplex and lives in it for X number of years, apparently if the place is your primary residence for however many years (3? 4?) when you sell you don't have to pay capital gains. In this case he's not selling, just building a slew of rental properties, though.

That same coworker lives in a duplex and the other side has been his long-term renter for 8 or so years. They're looking for a single family home now, but still planning on keeping the duplex. It's paid off too, which is awesome.

I'm a pretty conservative guy and I think I could make it work in my favor, but I probably won't ever get into it, at least not in the next 10-15 years at least.

SlapActionJackson
Jul 27, 2006

dreesemonkey posted:

apparently if the place is your primary residence for however many years (3? 4?) when you sell you don't have to pay capital gains. In this case he's not selling, just building a slew of rental properties, though.

Homes are exempt from cap gains tax if you lived in it for any two of the last 5 years at the time of the sale. In other words, you have to sell the place within 3 years of moving out of it to get the exemption.

Your coworker's strategy lets him finance the properties with normal primary residence loans, which are cheaper and easier to get than loans for investment properties.

SlapActionJackson fucked around with this message at 14:55 on May 13, 2013

KaiserBen
Aug 11, 2007

Bloodnose posted:

Yeah, my area (Hong Kong) is in the midst of a ridiculous property bubble that when it finally bursts will make for some great real estate investment opportunities. And I've always been a more conservative investor in that I'd probably prefer long-term renting over short-term speculating.

Again, it looks like the easiest job in the world from the perspective of a (apparently) model renter, but I guess if you get a bad tenant they can really mess things up for you both financially and make your life uncomfortable.

Yeah, people think it's really easy until they do it. Done right, mind you, it's not hard, but it does take effort, especially to set up everything to do it right (eg: have to have someone to handle all sorts of emergencies, must "train" your tenants to pay on time and not gently caress up the place too badly, have to screen tenants, and navigate the local courts when it all goes wrong).

For example on costs: the lady with the dog mentioned before ended up costing ~$3500 in damages along with $900 in unpaid rent when she left. She left a $900 security deposit behind. $3500 is about a year's worth of profit on that house, in addition to the month it was off the market for repair (another $900), and having to find a new tenant in the off season.

A bad tenant can easily kill several years profit. My old landlord ended up $20k in the hole after one of his rentals went south on him (OTOH, that was largely his fault for renting section 8 without understanding the program properly, then being a dick when he got called on it by the Housing Authority).

mastershakeman
Oct 28, 2008

by vyelkin
At least in Chicago, an eviction can take months upon months, during which a bad tenant can destroy the whole place since he knows you're trying to evict him. Happened to a friend of mine - Sheriff couldn't be bothered to come until 5 months after the eviction order, during which time the tenant absolutely destroyed the entire apartment. Probably cost him 3+ years worth of rent and since the Sheriff was lazy, there was no legal recourse that he had.

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Authentic You
Mar 4, 2007

Listen now this is your
captain calling:
Your captain is dead.
^^That sounds like a nightmare.

Bloodnose posted:

Am I a weirdly easy tenant? Are there that many people out there who make trouble for property owners and cost them crazy amounts of money and make renting unprofitable? Is it because I rent in newer buildings that don't require expensive upkeep?
I'm one of these tenants. I totally hosed up on getting the lease in on my previous house and it got rented out from under us. I talked to the landlord (a big one in my city), and he remarked that my roommates and I were super good tenants and then bent over backwards to get us set up in another one of his properties down the street. It all worked out in the end, and his maintenance guy downstairs is happy to have non-lovely upstairs neighbors for the first time in ages.

My current building is over a century old, but well-maintained. It got a new roof recently, but that had nothing to do with lovely tenants. Otherwise, with us replacing a pack of slobby college kids, all units in the building are occupied by easy-going, long-term tenants (I plan to stay here a while), I'd imagine it would be a nice building to maintain. Maintenance guy has some fun stories about the previous batches of tenants in my unit. Like them not knowing how to use a thermostat.

My dad keeps encouraging me to buy a house here (even though I'm loving broke), and that the way to do it is to buy some hulking Victorian that's been chopped up into apartments so that I could have built-in tenants to pay down the mortgage, and then boot them out one by one as reabsorb the divided units and restore the house to its former glory. I mean, I want a cool old house, but I don't know if I want to deal with tenants while trying to restore it. :psyduck:

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