Author Topic: Coping with being a landlord  (Read 5717 times)

Invester17

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Coping with being a landlord
« on: July 11, 2017, 07:33:21 AM »
In 2015 I purchased a brand new construction property near the beachfront. I've always lived in Virginia Beach and wanted a house near the water. The house was and is great - I don't regret the purchase at all. I purchased it at 439k and 4 more nearly identical houses popped up between 2015-2017 ranging from 440k to 500k.

However, I ended up deciding after traveling from Virginia Beach to Washington D.C. for work that it was best to just move up there and try it out. My goal has always been to purchase this first property and eventually make it a rental. I was 24 at the time so I had no intentions of living there forever. My goal was to buy it and ultimately let renters pay it off.

I hired a local property management firm that has been doing "okay". They were able to book it for a majority of the summer (weekly rental) at a great rate. I have high hopes they will rent it for the winter months as well without any issues.

The problem I have is I'm a perfectionist and I bought a brand new / perfect home that I kept in pristine condition. Now, whenever I drop by to see the house I see something else being damaged. The good news is for the most part it has been minor marks on the wall, grease splash from the stove, carpet stains, dings on the molding, moved furniture etc.

So far nothing expensive and in some cases the tenant paid to get fix (carpet that was stained is getting completely replaced for example).

I'm just having a really hard time coping with the fact that it's getting damaged and that the PM doesn't catch everything that I would and sometimes we can't charge the tenant (and therefore I end up paying for it).

I guess my question is here - as a first time landlord did you all feel the same way? how do you rationalize it/make it okay?

Edit - adding numbers
These numbers aren't perfect, but:

Mortgage: $3,200 a month ($2,700 required + $500 a month extra)
PM fee: 16%
Utilities: $400 a month summer / tenant pays in the winter

So far this summer I have booked $37,000 gross so after subtracting the mortgage, PM fee, utilities, and misc. fees I expect with the winter rental months that after the mortgage, utilities, all other misc. fees I'll end up pulling a profit of 5k a year + the extra principal going into the house and the tax write off.
« Last Edit: July 11, 2017, 08:04:24 AM by Element926 »

YttriumNitrate

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Re: Coping with being a landlord
« Reply #1 on: July 11, 2017, 08:46:29 AM »
The first house my wife and I bought was a 60 year old former rental house...a 60 year old college-town former rental house, so the house was far from pristine/new. After living it for seven years we moved away and converted it back to a rental. Even with tenants who were taking good care of the house, it was still a bit hard to see the house being taken care of in a way that was not 100% consistent with the way I would take care of it. Eventually, as time goes by, you'll see the house more as an investment and less as your former home, and accept that it doesn't have to be maintained in the exact same way you would.

Invester17

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Re: Coping with being a landlord
« Reply #2 on: July 11, 2017, 08:53:45 AM »
Appreciate the story, you are probably right. One side of me says I should have bought a property that I would switch to a rental (that wasn't brand new), but on the flip side I don't think it would be renting like it is now if it wasn't new.

srad

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Re: Coping with being a landlord
« Reply #3 on: July 11, 2017, 10:11:36 AM »
You will get used to it.  No one will treat your home the way you do.  You'll also learn what needs to be replaced\fixed to your standard vs what is ok to for the next tenant.  Trust me, most won't care about that small stain on the carpet or nick in the wall.  Yes, i try to repair everything on each turn, but as the years go, my level of perfection has dropped dramatically.  I save the perfectionism for my house, where i'm in control.

Also, why are you paying that extra 500 a month?  I know its very mustachian to have no debt, but mortgage debt is a good debt. That extra $500  could be put to better use than paying down an already low 4%(ish) 30 year fixed loan. Save it for another rental, invest it in an ETF.  You are young and in the accumulation phase, accumulate.  Pay em down once you get a few more properties. 

SwordGuy

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Re: Coping with being a landlord
« Reply #4 on: July 11, 2017, 10:20:35 AM »
You have not included setting aside money to cover things that break and wear out.

You have not included vacancy expenses.

Your "profit" picture is much too rosy.

Invester17

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Re: Coping with being a landlord
« Reply #5 on: July 11, 2017, 03:12:38 PM »
Srad:

This makes sense and I guess something I have to just get over. As for the $500 extra a month, I suppose the idea is that I wanted to get it paid off in 20 years (I'd be 44) and then I could have it as income in the event I wanted to retire early (maybe 50?). The other side note is I'm trying to get the PMI off the loan ($187 a month could be saved).

Swordguy:

Agreed and honestly it's just laziness on my part / I don't have all of the numbers since this is it's first summer. My plan is going to be add all of the profit/loss information at the end of the year. I guess in a general sense I just know that it's profitable by how much - that I don't know.

srad

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Re: Coping with being a landlord
« Reply #6 on: July 11, 2017, 03:31:35 PM »
Ok, the pmi part makes a bit of sense...  But if you are trying to retire by 50, i'd add at least two more single family rentals as soon as possible.  Three paid off rentals in your 50's is much better than one paid off in your 40's.  You have time on your side and some very low interest rates to take advantage of.  Anyway,  you seem to be off to the right start, cheers.

bobechs

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Re: Coping with being a landlord
« Reply #7 on: July 11, 2017, 03:39:28 PM »
Create a non-profit organization to operate the house as a museum, dedicated to the memory of yourself, and transfer the property to the foundation.

Sure, the cash flow is likely to diminish radically but by keeping your thumb on maintenance you will not have to suffer the pain of seeing any substandard things done to it.

Invester17

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Re: Coping with being a landlord
« Reply #8 on: July 11, 2017, 04:41:29 PM »
Srad:

Yep, 4% is pretty good on this house. I want to get more rentals, but on the flip side managing them is a b****

Bobechs:

Clever haha is this to reduce risk or tax advantage?

waltworks

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Re: Coping with being a landlord
« Reply #9 on: July 11, 2017, 06:15:00 PM »
What tax writeoff are you referring to? It's a rental, there's no mortgage interest deduction. Are you talking about depreciation? Because that gets recaptured when you sell or move into it.

-W

Invester17

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Re: Coping with being a landlord
« Reply #10 on: July 11, 2017, 07:48:11 PM »
What? I read everywhere you can deduct mortgage interest and depreciation. I don't intend to sell or move into it - likely ever again.

cchrissyy

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Re: Coping with being a landlord
« Reply #11 on: July 11, 2017, 08:09:22 PM »
W - on the schedule E where you list rental income and expenses YES  you deduct mortgage interest as an expense, and you deduct depreciation.
this is above and beyond the question of itemizing or taking your standard deduction on the 1040.

waltworks

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Re: Coping with being a landlord
« Reply #12 on: July 11, 2017, 10:28:26 PM »
W - on the schedule E where you list rental income and expenses YES  you deduct mortgage interest as an expense, and you deduct depreciation.
this is above and beyond the question of itemizing or taking your standard deduction on the 1040.

I guess the mortgage interest depends on how you look at it. It allows a load of leverage but I don't see it as a "tax advantage".

Depreciation is great until you need to sell or move into a property. It's not something I would count as part of a return on investment unless your plan is to leave the property to your heirs.

-W

cchrissyy

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Re: Coping with being a landlord
« Reply #13 on: July 11, 2017, 11:14:57 PM »
I'm not sure what you're trying to say. I'm not talking about leverage or ROI or anything other than that this quote is incorrect, since mortgage interest IS deducted off rental income, like all other expenses are, before calculating tax.

Quote
It's a rental, there's no mortgage interest deduction.

smallstache

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Re: Coping with being a landlord
« Reply #14 on: July 12, 2017, 01:04:13 AM »
I live in a Florida beach community with many vacation rentals.  In the summertime, all of the rentals are packed with cars in the driveway and people in the house.  I assume the owners are making good money.  However, come mid-August, the place empties out.  There is a slight bump in the winter when the snowbirds come down, but they mainly stay in the high-rise condos.  The large vacation rentals see some activity for Spring Break when college kids come down and party.  The local sheriff busted several house parties, sometimes arresting 40 or more underage drinkers at a time.

I mention all of this because it appears your only experience has been this summer.  You should lower your expectations for other times of the year and be ready for the worst come March/April.

Invester17

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Re: Coping with being a landlord
« Reply #15 on: July 12, 2017, 06:27:39 AM »
Right, fair point. The PM I have has told me that they have a good booking rate (obviously they would tell me that). However, they do link up with local insurance companies to place people in these houses if their main property is getting work on and such.

srad

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Re: Coping with being a landlord
« Reply #16 on: July 12, 2017, 01:18:29 PM »

Yep, 4% is pretty good on this house. I want to get more rentals, but on the flip side managing them is a b****


You should try a single family home in an A or B class neighborhood and rent it on a yearly lease.  If you have a nicely updated property in a good neighborhood you will attract good tenants, and managing them will be a breeze. The majority of what will go wrong is clogged drains and broken appliances. 

I have single family's and duplexes that I self manage (I also have an office job).  Single family's are by far the easiest to manage.   I get one or two calls/texts a year regarding maintenance or payments.  I also find that my tenants tend to stay a lot longer when its a single family.  My plexes offer better cash flow but they are more work.  And by more work i mean more turn's, i still only get a few calls\texts a year regarding maintenance\payment issues.  Funny, thinking about this i had two tenants this month text me and asked if they could pay a day late (one duplex, the other a SFR).   I said ok to both and didn't charge a late fee. 



Invester17

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Re: Coping with being a landlord
« Reply #17 on: July 12, 2017, 02:22:28 PM »
Yeah, actually the property is in a good area it would rent pretty close to it's mortgage. However, after the PM fee and maintenance it would be a loss overall. In an effort to stay cash positive I decided to go the seasonal rental route. I figured I'd do this for awhile and then when the rent exceeded the mortage + PM fees and so on I'd switch it over to a yearly tenant and avoid the hassle.

Gibbelstein

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Re: Coping with being a landlord
« Reply #18 on: July 13, 2017, 10:22:02 AM »
I don't know if it helps, but I try to remember that that my expectations of "what I would do" are often higher than what actually happens. It's easier to have perfectionist expectations than it is to do perfectionist work when it's your time, effort, or money.  Before moving into the place I live now, I fully expected that I'd be on top of things all the time, but after a long week, it sometimes next Saturday seems better for a project than this Saturday. This case is even harder because you saw it when it was brand new, but nothing stays new.

Good luck with year 1!

tralfamadorian

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Re: Coping with being a landlord
« Reply #19 on: July 13, 2017, 07:17:24 PM »
Not exactly on topic, but an issue for short term rentals that a lot of folks don't realize on their first one- if your average rental duration for the year is less than one week, your income will be taxed as active self-employment instead of passive real estate.  So there will be an extra 15.3% tax due in April on any profits.  I don't know if you're only doing one week beach rentals but if you're doing shorter minimum stays...

Invester17

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Re: Coping with being a landlord
« Reply #20 on: July 14, 2017, 10:24:27 AM »
I didn't realize that either, I'll have to consult my accountant. It is a minimum of 3 days, I try to go for one week. The only thing I have saving me this year is a boatload of furniture, morgage/interest, depreciation etc. to offset the gains.

NoNonsenseLandlord

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Re: Coping with being a landlord
« Reply #21 on: July 16, 2017, 12:30:00 AM »
It happens.  Get over it.  It's not your baby, it's our investment.  Make sure you save 10%+ of rents for maintenance. 

Cwadda

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Re: Coping with being a landlord
« Reply #22 on: July 17, 2017, 03:26:26 PM »
Are you in a position to manage it yourself?

Or could you interview another 3 PM companies and compare? 16% is damned high.

tralfamadorian

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Re: Coping with being a landlord
« Reply #23 on: July 17, 2017, 03:38:09 PM »
16% is damned high.

Depends on the area.  Vacation rental PM rates can be crazy- I've seen 45% before as a standard in one town. 

Invester17

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Re: Coping with being a landlord
« Reply #24 on: July 19, 2017, 04:31:50 PM »
I can't manage as I'm out of town. There are two primary companies in the area. The one I selected has a flat 16% fee on seasonal and monthly rentals. The other one I believe did have a lower rate of 12% in the winter months and 15% in the summer months. I selected the higher fee because they were more aggressive and they thought (and did) get more for the seasonal rental and intend to rent it more in the winter as well. Time will tell if this was the right decision.

Megma

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Re: Coping with being a landlord
« Reply #25 on: July 20, 2017, 10:07:25 AM »
We often go to the beach during the winter in NC for the holidays. I would think also in VA Beach you can attract someone for Thanksgiving, Christmas and NY but it might be vacant most of the rest of the winter. Good luck!

But really, short-term rentals get banged up. This is something you'll have to accept. Everyone moving their bags in/out will mark your walls and floors. Things will get damaged. A longer-term rental might be more gentle but it might not.