New Landlord Seeking General Advice

[ArtistGrowingMustache]

Greetings, esteemed landlords and landladies!

A deal basically fell into my lap and I closed on my first rental property 4 days ago.  A landlord acquaintance was looking to retire.  I had been casually looking to buy, had read one book about evaluating properties, but was skeptical about it happening in the short term due to the weird market.  I feel like I got a good deal, but I also feel a bit unprepared. 


A few details first:

property- half a duplex in a very LCOL midsize city.  2 bed 2 bath 800 sq ft.  Built in the 80s. In great shape, newish roof, furnace, AC, flooring.  No serious pending maintenance. 
purchase price - $85,000
20% down, 4.5% interest rate
monthly payment (mortgage, taxes, insurance) - $500
property's rent estimate - $850 a month
actual rent from inherited tenants - $800 (they asked the previous owners for a reduction in rent in return for a long term lease, the term of which has since passed and now the lease is automatically renewing every 3 months)

I have been planning to have it professionally managed.  An acquaintance of mine who is a professional property manager offered a very favorable deal.  He went with me to evaluate the property and sounded totally interested to have the work.  He has since shown signs of flaking out, so i'm evaluating my options, including managing it myself.  I am honestly not very handy with repairs, though, so I still plan to hire out basically all maintenance.

Questions:

As i understand leases, nothing needs to be done for it to apply to me as the new landlord.  There is no clause in what they signed that makes the lease terminate with a transfer of ownership.  The next 3 month term is up in April.  They have apparently been model tenants, so my thought is just to let the lease ride and not raise rent.  Any thoughts or suggestions?

I don't have much in the way of reliable tradesmen contacts for maintenance.  How do you find handymen for maintenance, for those who don't do it themselves?  Homeadvisor.com? 

I'm reading books and online stuff about being a property manager, but there isn't much of anything about inherited tenants.  Should i do anything specific for this circumstance?  There are lots of checklists available for new tenants, but i don't think it sounds very appropriate to go in there to document the condition of the property they have been living in for 3 years.  Is it pretty much just go meet them and tell them where to send the check?

[SwordGuy]

Do you have documentation of what the property looked like right BEFORE they moved in?   Because if you don't you damn well need documentation of what it looks like now!

[waltworks]

The lease transfers with the property, so you do not need to do anything there.

Who was the previous owner using for maintenance? Ask for a list of phone numbers.

This is so crazy lean on profit that you are going to pretty much self manage and DIY everything. It's a theoretical money loser as a passive investment. So roll up your sleeves and start learning how to fix stuff. You bought yourself a job.

-W

[ArtistGrowingMustache]

Do you have documentation of what the property looked like right BEFORE they moved in?   Because if you don't you damn well need documentation of what it looks like now!

So, what I have for documentation is a checklist signed by the renter of many line items being in good repair at the time they moved in.  No photos or anything like that.  Broken down by each room. 

[ArtistGrowingMustache]

The lease transfers with the property, so you do not need to do anything there.

Who was the previous owner using for maintenance? Ask for a list of phone numbers.

This is so crazy lean on profit that you are going to pretty much self manage and DIY everything. It's a theoretical money loser as a passive investment. So roll up your sleeves and start learning how to fix stuff. You bought yourself a job.

-W

Not that I'm saying you are wrong, but one thing to bear in mind regarding the profit margin is it being a LCOL area.  My middle class personal residence was purchased 5 years ago for $120,000.   I can't figure out how to spend more than the $22k I live on annually.  People work for less here is my point.  A professional handyman will often work for 15 or 20 bucks an hour.  $20 an hour is the rate charged by the property manager I mentioned.  I am leaning towards you being right about self management.

Apparently the tenants actually do a lot of the small maintenance themselves.  That's a great idea to ask for a list of the people the previous owners used.  Thanks!

[SndcxxJ]

Whenever I need a referral for a tradesman I have a short list of other professionals whom I bother for phone numbers.  I find other professional property managers, realtors, and general contractors all know workers that they would recommend.  You won't necessarily need to contact say a plumber before you need them, but asking around who other people use as a plumber now before you need them is helpful.
Personally I do recommend attempting to do as much as you can yourself because it can be both fulfilling and economically beneficial.  Whenever I hire a tradesman I am there watching and learning and the next time that type of repair is needed I will give it a go before hiring the work out.  To each their own there as not everyone wants to do that type of work but being the owner you get first crack at the work before you hire it out if you want it.

[PMJL34]

OP,

Congrats on your first rental. Your margins are slim, you should try managing yourself for a while and re-assess periodically. I bet it will be worth it.

As far as tradesmen, you have already received great advice. But you already own a house. Who do you call when your home has problems? Just call them for the rental as well.

Questions:

How did you purchase half of a duplex? Is it a condo conversion?
Is there HOA?
How does the duplex handle roof, exterior siding, gardening, drive way maintenance?

Best of luck!

[waltworks]

Day to day maintenance (ie, clogged pipe) might be cheap if tradespeople really work for $20/hour, but roofs/paint/siding/driveways/etc only get so cheap. Even in the lowest COL place in the USA, any sticks and drywall type freestanding residential structure is going to require a couple hundred bucks a month to replace/redo stuff like flooring/carpet, appliances, roof, fences, paint, etc, etc, etc.

I mean, most months you won't spend a dime. But then the waste line to the street cracks and you're out $3000. Or you need to do new carpet and paint to attract new tenants who aren't scum, and you're out $2000. Fences laset 15-20 years, decks last 15-20 years. I could go on and on. Everything is slowly breaking, and you will have to replace or fix it _all_ if you keep place long term.

Those expenses will eventually come up, and they will wipe out years and years of "profits".

I've never, ever heard of management costing under $80-100/unit or so, and even getting into that range is going to require LOTS of units so it's worth the management company's time. Maybe your buddy will really do it for $20/hour, but I bet you end up getting billed for at least 5 hours a month. Hell, just getting ONE set of tenants in often requires doing showings for several full days, unless you're not picky at all about tenants (hint: be picky about tenants).

Like I said, you bought yourself a job, if you don't want to lose money on this.

-W

[ArtistGrowingMustache]

OP,

Congrats on your first rental. Your margins are slim, you should try managing yourself for a while and re-assess periodically. I bet it will be worth it.

As far as tradesmen, you have already received great advice. But you already own a house. Who do you call when your home has problems? Just call them for the rental as well.

Questions:

How did you purchase half of a duplex? Is it a condo conversion?
Is there HOA?
How does the duplex handle roof, exterior siding, gardening, drive way maintenance?

Best of luck!

We may have a different set of terminology.  What I purchased is a single family home that shares one wall and a roof with another single family home, which is owned by someone else.

There is no HOA.  Maintenance that affects properties has just been handled by reaching an agreement with the other owner.  They replaced the roof and split the cost a few years ago.  I'm aware this could result in some pains in the butt, but apparently the guy has been good to work with in the past.  Each property has separate fenced yards and its own driveway (well, there is a short connected piece as the "ramp" to the street.

The guy who I have called for work on my own home is unfortunately the same guy who seems to be flaking out  on the rental management.  He had been very reliable in the past for me and multiple family members.
.

[ArtistGrowingMustache]

Day to day maintenance (ie, clogged pipe) might be cheap if tradespeople really work for $20/hour, but roofs/paint/siding/driveways/etc only get so cheap. Even in the lowest COL place in the USA, any sticks and drywall type freestanding residential structure is going to require a couple hundred bucks a month to replace/redo stuff like flooring/carpet, appliances, roof, fences, paint, etc, etc, etc.

I mean, most months you won't spend a dime. But then the waste line to the street cracks and you're out $3000. Or you need to do new carpet and paint to attract new tenants who aren't scum, and you're out $2000. Fences laset 15-20 years, decks last 15-20 years. I could go on and on. Everything is slowly breaking, and you will have to replace or fix it _all_ if you keep place long term.

Those expenses will eventually come up, and they will wipe out years and years of "profits".

I've never, ever heard of management costing under $80-100/unit or so, and even getting into that range is going to require LOTS of units so it's worth the management company's time. Maybe your buddy will really do it for $20/hour, but I bet you end up getting billed for at least 5 hours a month. Hell, just getting ONE set of tenants in often requires doing showings for several full days, unless you're not picky at all about tenants (hint: be picky about tenants).

Like I said, you bought yourself a job, if you don't want to lose money on this.

-W

I don't really mind putting in a few hours.  Low skill stuff I would be happy to do myself and finding tenants could be interesting. Part of the reason I was going to pay for management was to have an experienced professional on my side since I'm new at this. I was considering a side gig in addition to being a landlord actually.

[waltworks]

Well, you definitely have a side gig.

Finding tenants is fun the first time, you meet some new people and chat.

After the 3rd or 4th set of prospective tenants fails the credit check, it gets less fun.

-W

[franklin4]

It's also not so fun after several folks tour but aren't interested in applying. I suppose that's better than having to reject them though:)

[poetdereves]

Not to sound negative, but I really would listen to @waltworks on this one. You already bought it, so it is what it is, but you really will have to put in a ton of work on your own for it to ever be profitable. Just as a comparison, one of my rentals was purchased for $88,000, I put in a few grand to fix it up, and my mortgage/taxes/insurance payment is also $500 ish a month. I get $1,500 a month in rent for it. My other rental was purchased for $125,000 fully fixed up and the mortgage/taxes/insurance is $600 a month. That one rents for $1,400 and is bare bones bottom what I wanted rent to be to know that I would make any profit over time. All of the people that work on my houses make $15 an hour.

If you are ever looking for another rental there are some basic rules to evaluate whether you can actually make any money. One of the best ones that works for me and many of the people I know with rentals with a mortgage payment is that the rent coming in needs to be at least twice the mortgage/taxes/insurance payment, and over three times if possible. Any less than double your mortgage payment and you'll be spending your time and money out of your own pocket to manage and fix it. The chances get even worse in a LCOL area where people work for less because you can't really hope for much appreciation.

Just realize that with property taxes, repairs, capital expenses, and a myriad of other things that are inevitable with rentals, it will be hard to ever make money with that house unless you can get your rent over $1,000 a month. You're "profiting" $300 per month right now. One $5,000 repair, which are not as uncommon as you think, will eat nearly a year and a half of any money you made and will not increase your property value at all. Just be careful and realize that you need to keep some cash handy and get comfortable on YouTube with making your own repairs.