Author Topic: Live-in Landlording  (Read 4054 times)

smalllife

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Live-in Landlording
« on: May 31, 2012, 05:36:51 PM »
I've read through pretty much all of the posts on landlording and owning/buying a first house but my situation is blend of both and I wanted some Mustachian input :-)

Concept: My parents are strongly in the "own to build equity" camp.  In light of this they have effectively said they will fund any down payment and renovations to help me achieve home ownership.  The "gift" amount would be capped, while I would pay them back with zero interest on the rest.  The house would either be in their name or mine, or both, depending on what I qualify for/final purchase price.  Either way I would be making the mortgage payments - with a catch.  The "blend" of landlording/owning is that I would rent out the extra rooms in a purchased house.  I've taken a good look at the rental market and I think this is entirely feasible - there are three major colleges within biking distance of the area I'm looking for and the city has a thriving young professional scene.   Even with conservative rent estimates my personal expenditures would be significantly less than renting and squarely at 25-33% (or less) of my take home pay after a 13% contribution to a retirement account.  Has anyone rented out rooms in their house? 

Things I've taken into consideration:
-Mortgage payments in the area I am looking are equal to or less than rent, assuming multiple people are contributing (3 bedroom house compared to 3 bedroom apartment, etc.). 
-All projections use conservative projected rental income, overestimated expenses, and the ability to fully pay all expenses (albeit with a Ramen noodles type budget) myself.
-Combined family skills mean we can do almost all renovations - electric, drywall, construction, etc. personally.  We are only looking at properties where sweat equity plays a major role (again, the help is offered and the idea of renovating a house has ruminated for a while even without me purchasing being an option) and are severely under-valued.
-I'd be going from living at home to managing a rental property, in effect.
-I'm uncomfortable with debt in general, but mainly because I've had fun watching my net worth grow since I found employment :-) 
-I haven't been employed for very long, so I'm worried about qualifying - and the fact that I did pre-qualify scares me given the recent housing crisis.  Did I mention I'm conservative with money/like to prepare for worst case scenario?
-The area has great potential for resale or true landlording down the line: good school district, close to the city, etc.
-I can bike to work (cut my commute in half even while switching from car to bike) and be closer to everything I want to do.
-Roommate tensions could be an issue, as well as collecting rent from friends.
-I don't want to put less than 20% down, but if we bought immediately that might not be possible (well, it is, but I don't want to be indebted that much to my family)

There are other considerations, but those are the big ones (I think - it's highly possible I forgot something).

Thoughts?

kaeldra

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Re: Live-in Landlording
« Reply #1 on: May 31, 2012, 06:54:17 PM »
I can't weigh in on the landlord side, but I have lived in a house with a landlord, so I'll pitch in about that situation and maybe you can avoid the same difficulties.

It was an unpleasant experience for all involved. The owner was extremely protective and possessive of the house. The other renter and I felt uncomfortable using common areas and were not welcome to contribute decor. The landlord was inconsiderate regarding shared house resources - for example, the wireless was cruddy, so she'd sometimes unplug the wireless router and plug the cable directly into her laptop, preventing me and the other renter from using the internet. We felt more like boarders than equal roommates, following 'house rules' rather than agreeing on rules together. We were scolded for having boyfriends over too frequently (even when we stayed in our own rooms) because she didn't know them very well. I left after two months, and the landlord and I were mutually happy to be finished.

TL;DR - be a good roommate, even if you are the landlord. Don't feel entitled/higher priority because you own the house. A welcoming attitude and a little trust goes a long way towards making the living situation more comfortable for everyone.

kudy

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Re: Live-in Landlording
« Reply #2 on: May 31, 2012, 10:17:01 PM »
I had a roommate from hell before my current roommate.... said she had a job but didn't... her mother paid for her rent, so she never left my house unless she was headed out shopping (packrat).  Just be careful of who you get, screen well, make sure you can get along without trouble, and DEFINITELY have them sign a respectful roommate agreement.

On the other hand, it's awesome to have a good chunk of mortgage paid in rent every month.

arc

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Re: Live-in Landlording
« Reply #3 on: June 01, 2012, 05:38:27 AM »
I also plan on buying a house and renting out a room or two. I just put an offer in a house last night (fingers crossed).  At least for me, I think it will be easy to find a roommate. I plan to buy in a town with a college so there should always be people looking for a room to rent. I think the key is to really interview people before you sign anything. Iíve always been able to judge if I could get along with someone fairly quickly so I donít think that will be a problem for me. I like to think I would be easy to live with (and hope they would be too) but I would have them sign roommate agreement anyway. Another thought I had was to have all leases be month to month that way if we were not getting along we would not have to suffer for months on end.

Mixing 3 people that donít know each other together all at once could be a problem too. So my plan is to have one roommate for a month or two, see if everything is working out then look for another roommate. It will cost me more money at first but hopefully save me from a few problems in the long run.

Good luck!

darkelenchus

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Re: Live-in Landlording
« Reply #4 on: June 01, 2012, 09:43:01 AM »
From 1998 - 2004 I owned a house and rented out rooms to min. 3 and max 5 people. From 2004-2006 I lived in a house that my wife and I renovated & saved from being condemned due to health code violations.1  We rented the extra rooms out to two people. We've also rented a room out in our current place since March of last year. We haven't had any really bad experiences, though I'd say our current housemate is more of an inconvenience than it's worth (owns a rabbit & the wife and I have allergies, is something of a slob, and is somewhat unpleasant though not totally intolerable to be around).

The obvious benefit of renting out rooms is that you generate some decent income with little to no effort. Also, if they're likeable people, you'll likely look forward to coming home to a non-empty house, and you'll get to spend more quality time with another/others than otherwise. 

But there's a lot of potential for tension, awkwardness, and conflict...

  • You'll sacrifice some privacy and immediate access to the household facilities (kitchen, bathroom(s), possibly television & computer if held in common, washer/dryer, etc.).
  • They might have idiosyncracies that clash with your own. For instance, if you like things tidy at pretty much all times, it might growingly irritate you that your housemate is a bit more lax on, say, doing the dishes or folding up blankets in common areas.
  • Additional shared expenses like groceries could be problematic if one of the parties tends to consume more than the other.
  • Noise and having guests over might disturb your or another's peace.
  • If they fail to pay their share of expenses within a reasonable time frame, this could lead to real tension.

Many of these things can be avoided, or at least mitigated, if you carefully screen your potential housemates carefully, talk out your expectations with them before they move in and continue to talk routinely while they're living there.

As far as screening is concerned, here's what we did: We started with considering close friends and family who could move in to our place and who needed a place to live. We identified their tendencies and imagined whether and to what extent we could tolerate them, and discussed how they might clash with our tendencies. We did the same with acquaintances, and then ranked them from most preferred to least preferred. I'm glad we've always settled on housemates from our pool of family, friends, and acquiantences, and never had to turn to advertising open rooms on craigslist or similar sites, as there's much more risk in that approach.

This isn't a foolproof method, of course. We're less than satisfied with our current housemate (though we acted in haste in this instance, since he was in need of assistance). His tendencies somewhat clash with ours even though it didn't seem that way before he moved in, and talking about our expectations hasn't really helped, either. But, all my/our other housemates were pretty pleasant to live with, and I/we've had 11 housemates, so that's a pretty good track record. If you're willing to give up some privacy, can tolerate minor inconveniences, and put in the work to find a compatible housemate, it'll certainly be good for you financially and likely will be an overall positive experience.

Let us know what you decide and how it goes!
 


1. Long story, but here's the shortened version: the house was owned by an older gentleman who didn't have the expertise, strength, or funding to fix the place up or pay someone to do it. Plus the guy made the people from that Horder's TV show look like a bunch of fucking amateurs - trash packed from floor to ceiling & wall to wall, with small canyons that allowed one to navigate from one room of junk to the next. I felt sorry for him, and agreed to help him out in exchange for my wife and I renting out the place at $100 a month + utilities (average of about $160 a month) while the guy lived in an apartment, which his veteran's assistance paid for in full. We rented out two of the rooms for $300 each, giving us a $340 monthly net profit.
« Last Edit: June 01, 2012, 09:47:48 AM by darkelenchus »

smalllife

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Re: Live-in Landlording
« Reply #5 on: June 02, 2012, 09:42:13 AM »
Thanks for the responses everyone!  I actually was expecting to get blindsided by rejection, so some affirmation that I'm not crazy and it is a viable financial plan is a huge relief.  The suggestions on finding roommates were especially helpful and I'll definitely keep them in mind.

We just put an offer in on a house today and are working on the legal side of things (whose name is on what, how renovations are going to be paid/repaid, etc.). 

JohnGalt

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Re: Live-in Landlording
« Reply #6 on: June 11, 2012, 01:56:49 PM »
I'm currently in the process of evicting a tenant for non-payment of rent (2 months behind).  Stupidly, I trusted my own judgment of character and skipped the background check and lease. 

Here are some recommendations I have from my experience:

Know your local landlord-tenant laws.
Have a lease and a list of household rules - even if it's a good friend, having everything lined out in a lease will make sure all parties understand the expectations.
Run a background check (not sure if that would have helped my situation or not, but will be doing it every time going forward).
If you are looking at houses with roommates in mind - I would suggest trying to pick one that will put your bedroom as far from theirs as possible. 
Do not buy a house if it puts you in a situation of needing to have roommates to stay current on the bills.  I'm very thankful that I do not need a tenant, it just helps my savings rate to have one.  You don't want to be stuck in a miserable situation just because you need the money.
Don't let them bring pets.  I have a dog and thought it would be good to have a tenant with another one for mine to play with.  The tenant's dog has caused damage (beyond the deposit that I will have a hard time recovering) and I can't stand the way it is treated. 
Treat it as a business transaction - remain cool, don't listen to their stories about why they are late, rent should be paid and rules followed without exception.

El Dueno

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Re: Live-in Landlording
« Reply #7 on: June 29, 2012, 11:29:21 AM »
It's a great idea to rent out rooms in your home for extra income, particularly when the cost to rent and own is close in your area! We rent out our lower level walk-out basement to tenants and the rent pays like 50% of our mortgage + utilities.

Let us know how it goes.