Just became a landlord, on purpose, for the first time

[Distshore]

Well, after a nail-biting finish (the bank never asked if I was a citizen, then wanted me to sign papers that said I was at closing; thought I better say something in case DHS comes knocking!!) we finally closed on our first investment property, a 3-family townhouse, yesterday.  So we are officially joining the MMM real estate investor community.  Our goal is to build a passive income stream that in a few years will replace DH's income, so he can go onto his second career and not worry about taking a MASSIVE pay cut.

I'm not really asking for advice or face-punching (yet - still too emotionally exhausted from sending off letters to the tenants asking for their rent!) but I am sure I will be soon.

Just FYI, some details on the property.  I devoutly hope it's a good deal; we restricted it to start with to places we can drive to and back in a day, so the mid-west wasn't available to us yet.  Perhaps in future we will look at a strategy like arebelspy's.

Cost:  $165K
Down payment 25 %
Rate:  4.75 %
Monthly payments ($654) + escrows to total ~$1100 (ok, we over-insured it; maybe will dial that back as we get more comfortable, but the market value of the property is ~ 1/3 of the replacement value and that makes me nervous).
Closing costs ~$7600 (but then less a $3K seller's assist)
Monthly rent (3 tenants + leased garage) = $2350

By my calcs ROI ~ 9 ish % after all costs (can't check my original spreadsheet as I stupidly spilled tea on my computer; world's most expensive cup of tea now).

Property is fully tenanted and livable; we need to do a little work on the outside (probably ~3.5K) to make sure all mortar and concrete nicely sealed and ready for a potentially brutal winter. 

So I hope this looks ok to you guys and thanks for letting us lurk on the forum until we were ready to dive in with the $$.  Hope to have more to contribute in future.

[jmusic]

Wow.  The numbers look pretty darn good!  Nice find!  You didn't mention the age or construction of the property so you might want to consider budgeting high for repairs if the property is older...

[Distshore]

You are right, it is old, somewhere around 1880 I'd guess.  Structure is very good though, brick; updated electric.  I have a maintenance budget built into the ROI but haven't included a capex budget in the numbers, though that will be needed too over time to attract better quality tenants etc. particularly if the area upgrades, as we would hope/expect it to.

Thanks for the kind words though!  Seven months of solid searching so we hope we made the right move.

[escolegrove]

Congratulations on your first rental! It only gets better and more addicting. We bought our first house 3 years ago now we have 5 with two more under contract. Our goal is to use the cash flow in fifteen  years to retire early. While tenants can be stressful I have found the best approach is being professional, sticking to your guns, and keeping business practices in mind. We self manage. While it has had it's movements I have been able to keep vacancy to almost 0, and have no management fees.

Good luck!

[Distshore]

Wow - that is amazing! 7.....SFH? in 3 years?
I'm concerned with being able to get together extra money for down payments.  I think we'll be able to manage 3 purchases (incl. this one), but after that, where does the money come from?  From cash flow from the other properties, from savings from your paychecks, or fancy financing?

I have already learned a lot in the last week, communicating with our tenants (including 1 who is behind in rent - didn't know that before we closed!), sending them letters, updating contracts, writing pay or quit notices to help one get rental assistance, learning who does the garbage :) etc. etc.  It is more work than I had realised but I think I'll get used to it, and hopefully become good at it, and in better shape to do it again when we find property #2.

Thanks for your advice.

[KBecks2]

Congratulations and best wishes!!!!  :)

[Dicey]

Whoo-hoo! Hold on tight and don't look back. The best advice I can offer is to vet your prospective tenants verrrrrry carefully. Don't be too eager to rent to the first folks who come along. Check all references (especially credit), pay attention to the cleanliness of their vehicle inside and out, and most importantly, trust your gut. It really cuts down on problems later. 

[Distshore]

thanks everyone!

[retired?]

Whoo-hoo! Hold on tight and don't look back. The best advice I can offer is to vet your prospective tenants verrrrrry carefully. Don't be too eager to rent to the first folks who come along. Check all references (especially credit), pay attention to the cleanliness of their vehicle inside and out, and most importantly, trust your gut. It really cuts down on problems later. 

Any other tips (that's a good one) for screening possible tenants aside from credit report?  What sort of references do you request?  Former landlord?  Thanks.

[arebelspy]

Whoo-hoo! Hold on tight and don't look back. The best advice I can offer is to vet your prospective tenants verrrrrry carefully. Don't be too eager to rent to the first folks who come along. Check all references (especially credit), pay attention to the cleanliness of their vehicle inside and out, and most importantly, trust your gut. It really cuts down on problems later. 

Any other tips (that's a good one) for screening possible tenants aside from credit report?  What sort of references do you request?  Former landlord?  Thanks.

My best tip for you is to go get some landlording books from your local library as well as googling "landlord screening tenant" (and variations around those words) and read all the articles you can find.  :)

[retired?]

arebelspy - thanks for the googling tip.  Doing that now.  How do you advertise for your properties?  Use a regular realtor?  That plus other services?  All on your own?  Craigslist?

Doing research now on "landlording" as I look for homes.  Thanks.

[arebelspy]

arebelspy - thanks for the googling tip.  Doing that now.  How do you advertise for your properties?  Use a regular realtor?  That plus other services?  All on your own?  Craigslist?

Doing research now on "landlording" as I look for homes.  Thanks.

Advertising houses for rent I assume you mean?

For the ones I manage personally, I use a tenant placing service (that costs me 3/4ths of a month's rent, but is worth it if they find someone quicker) and I "race" against them with my own stuff to see if I can save that money.  For my own advertising I submit info to four websites: Craigslist, AHRN.com (for military tenants), Section 8 website (for section 8 tenants), and Postlets.com (which actually helps me make the craigslist ad, and crossposts to dozens of real estate sites, like Zillow).

[Distshore]

I have found that I'm a bit underprepared on the landlording side.  I have not directly managed property before, and the first thing I had to do with this was prepare a pay rent or quit notice, as I didn't know before buying that one tenant was delinquent.  Each state has its own code, it seems.

Thanks for the tips about landlording and tenant placement; I will also look them up.  It is likely that I'll have an apartment to fill shortly.

[arebelspy]

I have found that I'm a bit underprepared on the landlording side.  I have not directly managed property before, and the first thing I had to do with this was prepare a pay rent or quit notice, as I didn't know before buying that one tenant was delinquent.  Each state has its own code, it seems.

Thanks for the tips about landlording and tenant placement; I will also look them up.  It is likely that I'll have an apartment to fill shortly.

Sometimes you learn as you go.  :)

Familiarize yourself with your state laws, and if you'll be finding your own tenants the fair housing laws.

[jnc]

You might also want to consider joining a landlords association if there is one in your area, maybe for just 1 year till you learn the ropes. You get to meet other landlords (oh what a bitter bunch!) but seriously, you can also get access to lots of resources such as leases and other forms, some basic attorney advice, etc... At least that what we experienced with we joined the San Francisco Apartment Association (SFAA) for a year.

Also couldn't help but notice you said you are chasing one of the tenants. Unless you have a multi-unit property, I would put the tenants on the same lease and make sure the lease states they are all responsible for the *entire* rent. That way you don't have one of the roommates freeloading off the others.

- jnc

[Distshore]

Thanks all.

It is a multi-unit, so I'm chasing "the" tenant in "one" apartment :)  I have the magistrate's number and will call them on Monday.  The rental is actually interstate for me; while that doesn't preclude joining the local landlord's/investor's association (which does exist), I'll probably wait until next year after I have our first kid (currently incubating in third trimester) or send my loving husband!!

Until then I may just have to read, use Dr Google as you suggest and make a million phone calls...
and put in letterboxes with locks; apparently some mail is going missing....