Author Topic: Dipping a toe into landlording--need advice  (Read 5178 times)

Zoot

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Dipping a toe into landlording--need advice
« on: February 15, 2012, 05:14:45 AM »
Hi, all!  This is my first post here on the MMM forum--looking forward to getting to know everybody!

I'm considering taking a job out of state, and turning my now-primary residence into a rental property.  Whether or not I would ever return to it as a primary residence would remain to be seen--I'm not particularly attached to the house, but it is definitely possible that I'd return to either it in specific or the area in general after a few years at said new job.

I have no interest in being a landlord (especially from 2000 miles away), and so would want to contract with a property management company.

A friend is attempting to steer me away from this option, saying that my property will end up trashed.  My own take is that one of the things I'd be paying the property management company to do is vet tenants so as to minimize the possibility of this happening.

Anybody have experience with this kind of thing?  Also, what am I not asking that you wish I were?

zt

Gutless Bastard

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Re: Dipping a toe into landlording--need advice
« Reply #1 on: February 15, 2012, 05:48:20 AM »
I've done this exact thing (although only a couple hundred miles away) and can tell you that it all depends on the property manager you have.  When I moved to Dallas and rented my Austin home, the manager I had was fantastic.  Only took 7% and I never had any problems.  The property was not trashed at all and was just the same when I came back as when I moved out.

I've since moved back the other way and am not fully pleased with the manager I am currently using in Dallas. 

arebelspy

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Re: Dipping a toe into landlording--need advice
« Reply #2 on: February 15, 2012, 06:58:42 AM »
Agree with Gutless. 

Screen your property manager carefully, since they'll be screening the tenants.

Garbage in, garbage out, and if you get a garbage PM, you'll likely get garbage tenants.

Ask around for recommendations, look online for reviews, and interview them about their policies.  This is a case where it may not be best to go the cheapest route, nor is it necessarily you get what you pay for.

But yes, a property manager is likely necessary from that distance.  I know some who argue it isn't, but for most it would be, unless you have a high pain threshold.  ;)
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Sparafusile

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Re: Dipping a toe into landlording--need advice
« Reply #3 on: February 15, 2012, 07:05:03 AM »
One thing I'd like to add to arebelspy is to ask for references. You're essentially hiring them to do a job, they should be willing to give you a list of people they've worked for before or currently work for.

arebelspy

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Re: Dipping a toe into landlording--need advice
« Reply #4 on: February 15, 2012, 07:11:02 AM »
One thing I'd like to add to arebelspy is to ask for references. You're essentially hiring them to do a job, they should be willing to give you a list of people they've worked for before or currently work for.

Excellent point, and something I neglected to mention.

One place to start is by googling phrases like "how do I choose a property management company" and "interview property management" and "questions for property management company" and variants on those.

That'll give you a good list of questions to take to the companies to ask them, as presumably you haven't done this before, that would be a good place to start.

If they're hesitant to answer your questions now, how much harder will it be to get answers from 2000 miles away when something is going wrong?
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adam

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Re: Dipping a toe into landlording--need advice
« Reply #5 on: February 15, 2012, 12:34:25 PM »
I have been renting my first house for the last two years by myself, and had considered going with a property management company after I had to boot my tenants, but something fell into my lap (neighbors across the street who I trusted), and I never ended up doing it.  I currently live about 80 miles away in my wife's house, with which we are about to go through the same headache (I'll come back to this).

I took in my original tenants on a recommendation from a co-worker.  The pros to this was that they did take care of the house in that there was no physical damage, but I don't think they ever cleaned the place in a year and a half.  The con was I was too nice.  First they couldn't give me a deposit because they had to break another lease and I said it was fine, you can pay me extra until you build it up.  For a while we were fine (despite me losing $400/month because my mortgage was more than I could rent it out for) but after we renewed for a second year, they both lost their jobs.  I used the deposit to pay the rent one month.  They said they couldn't come up with the next month's rent, so we had a mutual agreement where they could break the lease with no penalty but they had to be out by the end of the month and their deposit was already gone.

If I had paid a company to take care of it I may have missed out on a few of these headaches.  The company wouldn't hesitate to charge them late fees (they were often late after the first year), they would have charged them to break the lease, etc...  I was too nice.

The house sat empty for about 3 months where I was paying two mortgages on top of everything else while we deliberated on moving back right away and my wife would just quit her job outright.  We also considered getting a PM company this time and trying to do a 6 month - 12 month rental.  That became moot when my neighbor sold his house and needed a place to stay for 6 months, so he is in there now.

In the mean time, my wife's house has been on the market since November without a single bite.  We are considering selling it at a loss this time, since we don't really want to deal with the potential headaches of renting it, or the worst case of having it sit empty for a few months and making two mortgage payments on just my salary, whether we choose to rent on our own or get a PM company.

So I guess the point of this long ramble was I wish I had given up the 10% or whatever and handed over management to someone else.  You can still find and screen your own tenant before you find a PM, then hand over management btw.  But once the house goes empty I don't think YOU are allowed to screen potential new tenants.  I could be wrong though.

arebelspy

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Re: Dipping a toe into landlording--need advice
« Reply #6 on: February 15, 2012, 02:19:56 PM »
But once the house goes empty I don't think YOU are allowed to screen potential new tenants.  I could be wrong though.

I don't believe this is true, though maybe it is in your area, I suppose it could be the case in some states.  I know usually the owner can review applications and approve tenants.  Watch out for fair rental laws.
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AJ

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Re: Dipping a toe into landlording--need advice
« Reply #7 on: February 15, 2012, 03:59:53 PM »
We're renting out our first house and using a PM company. We don't live far away, but we may as well, we are not involved in the rental at all. We just get a direct deposit every month for the rent minus PM fee, and we get reminders about regular maintenance asking if we want to take care of it (i.e. do we want to pay $75 to have the gutters cleaned this month, etc.) It has been a year so far, and everything is fine. We had to visit the house to get some things out of the attic we had accidentally left and the place looked fine.

I expect that your friend giving you this advice isn't a landlord himself. Having a rental get trashed is always a possibility. I don't think being physically near your property increases that risk very much. All the work is going to be handled by professionals anyway.

The downside is that, well, all the work has to be done by professionals. There is no DIYing anything from 2000 miles away.

billc

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Re: Dipping a toe into landlording--need advice
« Reply #8 on: February 19, 2012, 09:24:33 AM »
Unless you have someone in the area willing to help you out, 2000 miles away pretty much requires you to have a PM.

You have the option to set the standards for use in screening applicants. Some ideas for that:
- Max 2 incomes to qualify
- Annual Salary >= Monthly Rent * 40
- Good verified rental history
- No judgments/late pays on credit report

All the things in the list above are perfectly legal within the confines of fair housing rules (which your PM must abide by - even if you were renting it out yourself it's still a good practice to abide by fair housing laws)

As for protecting against damage/loss:
- Your PM should be willing to do a semi-annual inspection
- You should verify this with PM in your state, but you can choose to not accept pets or only accept them with a non-refundable pet fee.
- Get a full month's security deposit with the lease stipulation that it cannot be used as the last month's rent.
- Good insurance - talk to your agent and let them know you are considering renting the property.

___

I own one rental property myself and I assist an investor who has 15 rentals. We do not use a property manager, but we are local to the properties and have established relationships with the necessary trades. We currently don't DIY due to # of properties and time.

One thing you could consider - find the first tenant yourself and THEN get a PM. Usually real estate brokers get the first month's rent as commission for a 12 month lease. If you live near a military base - militarybyowner.com is a good place to find tenants.

Good luck.

P.S - nothing above should be considered professional legal or real estate advice.

sirspiffy

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Re: Dipping a toe into landlording--need advice
« Reply #9 on: March 06, 2012, 05:55:31 PM »
Thing is its only one house.  I'd recommend selling.  You'd be paying for a manager for just one not very profitable house.  Management usually handles quite a few properties with higher margins. 
Point of fact is you probably paid too much for your house for it to be investment grade.  As an investor you should be able to keep a very steady bead on the pulse of your market.  Its difficult to gauge that living 2k miles away. 

It sounds like you are jumping the gun.  Please learn all you can about contract writing.  Contact the REIA in the homes area to get a tip about the good managers.   Around my neck of the woods its very difficult to find good property managers. 

If you go to keep it have a very long list of inspection criteria, and screen for excellent tenants.  Most manager's will just do a quick drive by and only check if something seems wrong or a check doesn't come in.  So they miss the growing piles of bodies in the backyard from the murder suicide cult until the leader grabs the wrong Kool-Aid cup.  that or the little leak in the upstairs bath that causes the southeast corner of the house to collapse.  Its the little things that can get you, little things like termites. 

A good way to interview potential manager's is to ask them what system's they already have in place for worst case scenario's and their identification, prevention and resolution.  Also how quickly can they evict a bad tenant.  Also please don't let them use a standard lease contract.  Learn all the local clauses and uses them in your favor. 

Also you are definitely allowed to screen your tenant's everywhere and at anytime.  You can screen for income, credit, down payment, age, criminal past, past lease history, employment and many other things. 
The only things that you can't screen are Race, Religion and, Sex.

The best option for you though would probably be to lease-option the property out.  It naturally get's you highly invested tenants, and and extra couple thousand bucks at the beginning for the option buy-in.  Giving you the benefits of both long term rental and the quick turnaround of wholesaling and after a few years you get to collect all the equity they've put into your house when they buy.