The Money Mustache Community
Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: wealthviahealth on June 30, 2020, 07:58:45 AM
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I just moved to a lcol area where home ownership is now a reality and its an area that I think very likely could soon to be one of the next hot markets. I am interested in getting into the rental property game and am curious to know how owning and managing rental properties have impacted folk's quality of life here. Ie- additional stressors/"emergencies", new burdens or time commitments. Or on the flip side- peace of mind having new income streams, sense of purpose/security/accomplishment.
Anything you wish you would have known when first starting out?
Any go to resources for novices?
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The Real Estate section of the forum would be a good source for you.
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Think of it like a job that you get paid for doing. The more work you put in, the more you can make. But even if you get a great property in a great area with best friend tenants and they promise to take care of it, it will still be work.
The best thing to figure out, is how upset would you be if you had awesome weekend plans, and your tenant called you Friday night saying the hot water's out, and you have to cancel your weekend to deal with it. Would you freak out, play it cool, want to fix it yourself, have a handyman come, hire a plumber?
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Self-managing landlord here - as a young family with school-aged child and two FT working adults. Annnnnnd, FWIW, our properties are in a different city - 6 hours away from us (by design, due to better cashflow market than our HCOL area) - and I *still* self manage them, with the help of established relationships.
I put in a lot of work initially - to set up processes and systems, and find great properties and establish connections with "on the ground" professionals I could call in when needed. IE, I drove to and from the city we wanted to invest in at least every other month the year we got into the market, when we were looking for and buying properties, and establishing a relationship with our realtor, etc. Now, a year or two later, our rentals are pretty low-maintenance and easy to run from a far.
Factors that work towards:
- Our properties are A+/A- type units, with full rehabs at the start and all major systems in good repair (roofs, HVACs, etc.)
- I have tight screening parameters for new tenants, but work with my local realtor who does all my showings and tenant placing using my guidelines (and I still get final say on all applicants). This means my realtor does all the time-consuming stuff between leases/vacancy, and he hands over keys and does move-in walkthroughs on my behalf.
- Tight processes for training tenants upon move in about expectations for general maintenance/ communication, including what constitutes an emergency.
- I utilize an online app for tenants to pay rent, submit maintenance requests, etc. Easy to manage from a far.
- Tenants know me as the "property manager" and are given a Google Voice number and local property address (virtual mailbox). They are not aware I live in another city, or own the properties. I'm sure they could easily figure it out with googling property tax info, but none ever has.
- I have three on-the-ground handypeople who I can deploy for minor maintenance requests on my behalf, when needed, and conduct my 6 monthly inspections/ replace air filters, etc. I pay them by the job and they communicate directly with tenants to schedule repair times once I've set up the arrangement.
- We've learned now, from experience, which local plumbers and bigger contractors to use for more significant repairs. Again, I deploy them and they schedule directly with tenants for entry times, when needed.
- Lastly, I have an arrangement with a local property manager who has agreed to act as my "in a dire emergency" person, meaning, if there was a fire in the middle of the night or some sort of serious issue that needed immediate attention from someone on site. I do not pay a monthly PM fee, but have agreed to pay this PM a generous hourly rate, in the rare and unforeseen event that I need them. This has yet to come up, but its for peace of mind and costs me nothing unless SHTF.
- My "In Case of Emergency" PM and my realtor also have significant experience managing their own rentals, and managing evictions. We haven't had an eviction come up, but if/when we do, I plan to utilize one of them to carry out the process. Likewise, both the PM and realtor keep a copy of my rental unit keys. (It should be said I spent considerable amounts of time developing these relationships and trust with these professionals. We have now considered partnering on some deals or flipping, etc. based on our positive experience. Both professionals are investors themselves).
I disagree with the premise that your whole weekend will somehow be ruined if your tenants have a plumbing problem. Unless you plan to be a total DIY landlord in terms of becoming a plumber, electrician, etc. (which I don't recommend), day-to-day property managing is mostly about being able to deploy a professional in short order. Is there a short interruption to your day when something comes up? Yes. But being decisive and taking quick action is almost all that is needed. Tenants call with a plumbing issue = dispatch a plumber.
I recommend thinking about what parts of landlording/ property management you feel comfortable doing vs. what you'd rather not and do a cost-benefit analysis. Those who want to be totally hands off are well served by a good PM who will charge 8-10%/mo. For us, I don't mind managing at a high level (and saving that percentage) but outsourcing the more time consuming or dis-pleasurable aspects of the job (like screening new tenants, showing the property) for a flat fee.
Resources:
BiggerPockets website
Brandon Turner's book on Managing Rental Properties
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I've been at it for 20 years. I recently sold a single family rental and might sell another as I'm getting starting to get sick of self managing. Things definitely pop up that require immediate in person visits (I've had fires, flooding, storm damage, etc). I gut rehab my properties before I put them on the market for a few reasons (and I would recommend all landlords do this).
-Better quality tenant
-Turnover is much quicker when all the big items are newer.
-I pick products that will hold up to repeated use (vinyl plank, composite decks, ceramic tile)
-Try to have as maintenance free exterior as possible
I generally get a good 7+ years before I have to refresh a home. I charge below market rent and hope to get good, long term tenants. Turnover is the worst part of land lording in my estimation. If you have a good tenant, keep them happy. Prepare to be the bad guy occasionally. Some people don't like confrontation and sometimes it's inevitable. Make sure the rental makes financial sense (check Bigger Pockets) and drill down on why you think your market is the next "hot market". Chasing appreciation can be a dangerous game.
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We don't have rental properties because we know it would stress up out. You may get a skewed sample of there are other people like us!
Things I know would make me miserable:
- picking tenants (stressful!)
-dealing with maintenance (stressful in my own house, I don't need more!)
-seeing the state of the house and waiting with dread for them to move out and deal with it (I am very neat)
-worrying if rent would get paid on time
My mil has tenants and when one doesn't pay she is like "whatever I'll get he check in a few days" and she doesn't stress. I would stress. She also doesn't work FT and regularly over the years takes tenants to small claims when they have damages exceeding the security deposit. She has time to fuss with that. I don't.
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I've managed my properties for about 20 years. While it can be stressful at times, there are things you can do to help reduce the stress. Just a few quick ones:
1) Live close to your rental
Getting a "emergency broken something" call on a Sunday evening can kind of suck but, it becomes much more sucky if you have to drive across town. You'll get stupid calls occasionally that don't warrant a $75+ repair guy visit. Plus, you'll want to keep an eye on the property and you'll likely drive by more often if you live close.
2) Have repair guys lined up "on speed dial"
While I do most of my own repairs, it's good to have the numbers of a good plumber and a general repair guy for times when you're not available or unable to do a repair.
Realize that most renters, no matter how good, won't treat your house as good as you'd treat it. It helps to remember they're paying the mortgage off for you.