Two "first" homes -- different structure / rationale... Definitely a "learn from mistakes" situation.
First Ever: Apartment in high COL area
Transaction details (price / financing / closing costs / repairs / rent)?
Type of property / Yr of purchase / geographic market?
2 Bed 1 ba apartment, near the subway line, major shopping center, parks
Deliberate purchase of a rental property, or "accidental landlord"?
Accidental. Market was depressed when we moved, so we placed it in our buildings rental pool.
Did it cashflow (after accounting for things like maintenance, repairs, vacancy, etc)?
Self managed or get a property manager?
Hmm, not really. The rental pool was the only option for owners. If you wanted to rent, the bylaws said it MUST go into the rental pool, because then the owners HOA only had to deal with a single property manager if problems arose.
Do you still own the property?
No. Sold it when the market broke even to what we paid 7 years prior (we lived it in ourselves for 3 years first).
Overall, how'd you do?
Broke even, barely.
The problem with the rental pool, which had 48 units in it and a live-on premises caretaker, is that vacancy for any unit or maintenance costs were spread across all the units, every month. You only received a share of the total. What happened was because the management company also managed the books for the Condo HOA, they were very responsive to the HOA, and refused to rent out unless they found an ideal tenant, such as a senior that would live there for 10 years and not cause a fuss. This meant vacancy across 48 units was over 6% (3 units at least, every month) although the city's vacancy rate was 1%. Also, that they rarely increased rent on some of the seniors for many years (before we became involved), and only recently had rectified that, but local laws limited annual increased to current CPI, so many units were rented at $100/month below market, and no getting out because seniors stay for years and years. The management company only pulled about 5% for their fee, because of the bulk discount, so that wasn't so bad, it was how they managed the rents and vacancies. I think we lost money, maybe $1000 per year for 4 years.
When we sold, we recouped rental losses net of realtor fees, but did not recoup any of the costs for updating / renovating that were put in only 4 years prior (new kitchen, new blinds, new closet doors and organizers, new bath vanity / toilet, new tile). We also did not recoup much of the $15k assessment that we had to pay for the plumbing stack retrofit. In my mind these were equally related to our ownership position before the rental.. and the assessment was bad luck to happen in those years, if we waited 5 more years, we would have made a LOT on appreciation. (Sold it in 2002). Only sold because of kid #2 being born and wanting a detached home with the equity.
Are you still involved in real estate?
See next story
Any advice you want to pass on to newbies?
Need to vet management rental pools for profitability.
Always increase your rents each year.
Use a lease if you need to , to get bad renters out at the end of the lease.
Allow for 1 month/year of vacancy...! Holding out for a "perfect" renter does not pay. Instead lower your price by $50 to get many people to choose from and get it occupied faster.
SECOND FIRST: Self-managed Duplex (half) in LCOL area
Transaction details (price / financing / closing costs / repairs / rent)?
Purchased for $135k. Conventional Mortgage, Rented for $950, about $50 above market.
Mortgage and property taxes and insurance cost $750 per month. Cash Flow $150 per month (Plus the principal payments on 25 year amortization). $50 per month allowed for minor maintenance or 1 month vacancy every 2 years.
Deliberate purchase of a rental property, or "accidental landlord"?
Deliberate investment
Did it cashflow (after accounting for things like maintenance, repairs, vacancy, etc)?
Yes! It was in decent shape when we bought, although we had to repair all the toilet valves and many shut off taps / drippy faucets. Major cleanup and maintenance (caulk / repair trim, wax the kitchen floor, etc).. elbow grease and $100 of supplies from home depot. Minor costs for repairs during tenancy because DH did all the work.
Self managed or get a property manager?
Self managed, DH equated it to paying himself $50 per hour... see below.
Do you still own the property?
No. Sold it after 1 year and tenants moved out (in the middle of the night). After cleaning it up for re-rental, we asked ourselves if we wanted to continue or sell. We sold because appreciation of the market was up a lot in 1 year, and we could make our 5 year target after only 1 year, so we got out.
Overall, how'd you do?
We had problem tenants. DH' averaged about 6 calls per month (in person visits to chase rent, or to resolve tenant help requests.). One time the tenants decided to change out the faceplates on the electrical in the kitchen, and shocked themselves, ruined some electrical, and called to complain that the home was defective and it was our fault. DH went over, reset the electric, changed what needed it, and explained that they were not authorized to do their own electrical work, that you need to turn all the power off, that kitchen plugs had two circuits top and bottom, and that shoving a screwdriver into the box after removing the cover, before turning it off is a BAD idea.
We also had lots of calls for the running toilet, overflowing toilet, etc which always came at 6pm on a weeknight, and only 33% of these were not user-caused and all of them could have waited until the next day, but were not described that way on the phone. You can't ignore a plumbing emergency call involving water.
The kicker was that after 3 months, they stopped having money to pay rent. We had post-dated cheques and they bounced every month for the next 7 months, and we learned how to go to their bank, in person, to have the clerk check the account and pay us out immediately, or we would hold the cheque, and would show up every day for the next few days until it went through and we were paid before other creditors as soon as their pay hit the account. (A hassle).
We also received city notices ($100 if we did not resolve in 72 hrs) to remove debris from the yard (lane side).. they had an old car that was an eyesore just sitting there rotting..
Are you still involved in real estate?
No. After we sold, to afford a detached home, we had to pull all our equity. If we could get close to 1% again in rents locally, I would definitely consider doing it again, for certain, because I have made the mistakes, so future will be even better.
Any advice you want to pass on to newbies?
Get a credit check and a criminal check if legally allowed. They were a nice family with a kid in school down the street. We checked references, prior landlords, I called both employers for an employment verification / reference, and it all looked great. Both lost their jobs within 4-5 months. Turns out husband only held jobs for 3-6 months at a time, and wife was at 1-2 years only. Upon their disappearing in the middle of the night, with 2-3 months of rent owning, we realized that they had major credit problems before, they knew the tricks to get by with shut off utilities.. they had put 15watt bulbs in the lights (electric was cut off), gas unpaid in winter (illegal to cut off), and we received calls from paycheck cashing places.
Also, start the eviction for no pay immediately. Renters have the ability to lift this with NO consequences if they pay up in 2 weeks, so no need to be "nice" and let it delay for 2 weeks. The eviction process already allows for that. I trusted the because "Mom died and we are flying to ontario for the funeral". but we are getting an inheritance.. "Our son got out of jail and stole the rent money".. " Taxes were higher than we thought for DH's new job because of the housing allowance when he is in camp"..
Do your own minor maintenance, and be the type to respond to 6pm calls. (or have the $s to pay property manager to do this). Don't be an absent landlord. We had a lot better handle on things when they started to go wrong because of all the hands-on time we had throughout the prior months.
Rent the place for market rent -- because we had higher rent, we had fewer quality applicants applying: we had an overly picky senior, complaining during the application about the dirty kitchen vinyl (That I had just stripped and waxed it myself two days earlier. It was white, but discoloured by UV in one spot). A group of three students in first year university with no credit history or ability to pay individually for the whole thing, and a teacher that did not get the application in until after the deadline.. and this nice family.
Other than the car in the back, they kept the place nice, and built a deck with basic materials we bought, that covered in hindsight the value of 1 month of the lost rent. We had no address to forward the security deposit, and enough "damage" (the car in the rear, the electric, etc) to legally justify keeping it, so recovered a second month.