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NBR: Anyone own a rental home?
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How has your experience been with finding good renters? Are you finding the rental market competitive and what are some of the challenges of having a rental?
We are considering renting our home and purchasing a new one. We bought at a bad time and we're underwater so we can't sell, but our house is not at all ideal for our growing family for a number of reasons. We could rent our current home for about $450 LESS than the current mortgage we think. However with the crazy low prices/interest rates we could basically get a 1000 sq ft bigger home on some land for $500 less than we pay now so our out of pocket would remain the same. That is, if we have consistent renters!
We've saved a downpayment, we can carry both mortgages for at least a few months if we had to (longer if absoultey necessary, but I'd hate to deplete our savings), but I'm a little scared to pull the trigger. I also don't want to be kicking myself in 5 years for not taking advantage of the crazy rates and low prices that could get us into the home we want to be in and actually build some equity.
So, any advice? Thoughts?
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Re: NBR: Anyone own a rental home?
I own and rent out a condo I bought in 2003. I have great renters that have been there for a few years. I had HORRIBLE renters before them and it was a nightmare to get them evicted. On paper, both sets of renters looked comparable- good jobs, good credit, etc.... I am not losing money on my rental and since it is a condo I have very little maintenance. however, when the terrible renters moved out- it was several thousand dollars in unpaid rent, damage, paint, finding new renters and this was going on while I was on pregnancy bed rest :-)
Not sure I am answering your questions but I would honestly consider selling your current property at a loss and being done with it because rental property can be a huge pain and potential for money drain.
Ahhh that is what I'm afraid of. The problem is we will not get out of this current property for YEARS at this rate unless we do something about it while prices are low. We bought in 2006 and are currently probably at least 100k underwater on it. We couldn't sell it for that big of a loss and I have no clue when the market will rebound enough to get us a refi. It sucks because we were trying to be responsible and got a fixed rate loan, 30 year, we even took a course on responsible lending practices and homebuying before we bought but now we are stuck.
My husband and I have a rental home and are working on purchasing a second. We have had our share of bad renters, but now we have great renters in and it couldn't be easier. Just make sure that any money from the rentals just goes to the rental, DO NOT use it as income. Use it to pay that mortgage and keep a pot for repairs, taxes, etc After about 3 years, we are actually making a profit on our rental. thus why we're looking to buy a 2nd. Killing us on taxes..
We used a management company. However, we saved money by finding our own renters than having the managment company locate renters. We found our renters on CraigsList, but then the management company did all the regular background and financial checks. We did have to pay a monthly fee for their services, but it just made us more comfortable.
Although, our rental didn't really make us money either. It was running at a loss of about $400 per month.
We plan on holding onto this house for a while, since it's down $20K. We just can't take that loss, or don't want to.
Please keep your LOs RF as long as possible
I'd be scared too. I had a rental house for about 3 years - turned my house into a rental and it was great WHILE it was rented. But then they move out, you have to fix things, they ruin the carpet, you have to find new renters, you have maintenance on 2 houses, etc. Really, I should've just sold the house, taken the hit on being upside down and been done with it.
Just because you're underwater, it doesn't mean you can't sell. It just means when you sell, you'll have to give the bank some cash. It might be worth it to just be done with it - depending on how much the gap is. It might not be.
I'd personally recommend just sucking it up for a year or two...let house prices rebound. Interest rates aren't skyrocketing anytime soon. Stockpile cash, then buy what you want.
We rented our house out for 2 years when we were out of the country. We got lucky finding our property managers -- colleagues of a good friend. They did a great job of finding and vetting renters, and the house was returned in great shape.
(We have a university nearby and one of our options would have been to try to go through the listing service they have for visiting faculty)
I'm sure you have figured this into your big picture, but just in case -- check with your insurance company about what policies are available when you turn home #1 into a rental home. Ours called it a "landlord policy." Also consider the costs of property tax, general maintenance and upkeep, etc. I regret not hiring a landscape maintenance company for the time we were away, as our tenants were not really inclined to take care of the landscaping. And our foundation leaked at the end of our tenants' lease. We had a great foundation, got a great look at it when we moved in and did some initial reno, so that was a big unforeseen cost that our insurance wouldn't cover.
So I can't really say we were in the black at the end of our tenants' lease, but I'm glad the house wasn't empty for all that time.
It may also be worth doing some research to figure out what tax consequences there are for 2nd homes, rental homes/income property, etc.
I don't have a rental home, but we do rent one
We have been renters of homes for years now and from my view of it I would:
1. Consider the area the property is in. Tons of people rent in my town because it hosts both a major research university and an army base. There is a large pool of possible renters which means properties rent faster
2. Either find a management company or be incredibly diligent about meeting possible renters face to face. My DH and I are very careful with our rental homes. In the two, almost three, years we have been in this home we have called to have a leaky sink and a broken light fixed. You can't guarantee to get renters like us if you meet prospective renters, but you up your chances.
3. Once you are fairly sure you have a good tenant, keep them. Our current landlord is bad about this. He keeps trying to raise our rent considerably every year. We know what other properties are renting for and will move if you try to take advantage of us.
We're not underwater on our rental (at least I don't think we are), but we just didn't want to deal with selling it and were able to buy our current house without doing so. We rent it out for about $100/mo more than the mortgage. To be able to do even that we had to refinance it.
Our first set of renters were not great, but not awful. They paid their rent, but were messy. The only thing they really destroyed, though, was the carpet and that came out of their security deposit. After they moved out we painted everything to a neutral color and scrubbed it down. Edit: We also replace two windows and a door. We try to take that in between time to do some regular maintenance.
The next time it came up for rent we gave a $50 discount for a two year lease. We have a young Navy couple (the other couple was Navy, too) in there and they are awesome. A little needy, but at least they let us know when something is wrong. Again, carpet replacement will be coming out of their security deposit thanks to their chihuahuas.
We don't use a management company which hasn't been a big problem up to now but we are responsible for all repairs and we have to put a lot of elbow grease in between renters. I am concerned, though b/c their lease is up about 6 weeks after I'm due and can't imagine dealing with all that. Thinking of offering them an early out or further discount for another year. If neither of those work we might work with a mngmt co. for 1 year.
If you decided to rent and not use a management co. I suggest using EZLandlordforms.com and then any of the credit check services. The forms site will customize a lease to state law. We advertised in a lot of different places, but 99% of people came from Craigslist.
HTH
We have a rental property and our situations are very similar. We bought what is now our rental in June 2005 when the market in Northern Virginia as booming, then in July 2009 we found a foreclosure that was in our ideal location to family & jobs and the school district we wanted. When we first started renting our house we had to come out of pocket each month about $500, we have sense been able to increase the rent and our mortgage has gone down slightly. We had the same tenants for two years and didn't have any real problems, we now have another set of tenants and they are great. But we have been very lucky. My sister has a rental property and has had terrible luck with tenants, she has had to evict two sets and is owed more than 14k in back rent from them and has judgments against them, but will most likely never see the money.
The best advice I can give you is to make sure that you can afford to cover both mortgages for up to six months, also make sure you qualify for another mortgage. The most important thing is to use a realtor, yes I know that you then have to pay them an amount equal to the first month's rent (that is what they charge in Northern Virginia), but they can do a background check that you on your own cannot. Also, as for references and research the references as well to make sure they are legit.
I hope this is helpful, if you have any other questions let me know.