Apartment and Rental Properties - Rental Property ???

I currently own a small 2 br bungalow that I purchased 2 yrs ago for $65k. I have since done some work and had a fair market analysis done and the realtor said I could/should get $79k. My mortgage payment is $600 including taxes and insurance. I'd charge about $750 for rent. (not really trying to make money, just keep property for 5-10 more years so we'll have equity built up, then possibly sell or keep it till its paid off...)

Here is teh problem. I REALLY don't want to sell, yet I REALLY don't have the time to be a landlord. If I had to find the time I could. I work full time and go to school part time. The Fiance isn't interrested in keeping the home and renting it but is leaving it up to me since its my home and he is willing to help if needed. So what I need to know is what the benefits are to keeping a rental property and if using a leasing company is a good or bad idea?

Questions:

1. What are the tax benefits and other benefits to keeping our first home and renting it out?

2. If I were to rent if for $600 month, would I still do ok b/c of tax write offs?

3. What do leasing companies charge (normally) and would you bother to go this route.

I hope I put this in the right section and I hope I got my point and questions across. I have alot going on right now and I may not be making sense.

edit: We are possibly buying another home this weekend and we will be married in July. It'd happen today and at the Justic of the Peace if I had my way. [wink]

Hello,

1. What are the tax benefits and other benefits to keeping our first home and renting it out?
A lot depends on how your tax returns are structured. If you have no write - offs and are filing a short form and/or taking the standard deductions, then rental property can be an excellent shelter.
Bear in mind though that often you are simply deferring the tax. If you deprectiate the property say over a 20 year period, then turn around and sell it for a profit in 10 years, you may owe capitol gains taxes on the profit.

2. If I were to rent if for $600 month, would I still do ok b/c of tax write offs?
Depends - but generally yes. In some long term situations, even renting for a negative cash flow is ok. Say the mortage is $600 a month and you only collect $550 a month rent. At the end of the mortage, you've only paid a portion of the original mortage yourself. The key here is where ddo you want to make a profit and when?
(see below)

3. What do leasing companies charge (normally) and would you bother to go this route.
It's going to vary. Here in N.E Ohio, the charge is between $50 and $100 a month. They advertise the property, screen the tenants, handle emergencys (midnight calls that the drain is back up etc,), bug the tenants for past due rent, determine how much if any of the deposit is returned,,basicly do all the "dirty work". The catch is that you agree to have them make all repairs and such at very inflated prices.
Eg. A water heater goes out. You can buy one and put it in yourself for ~ $300.00. A heating and cooling company can install one for ~ $550/$600. The agency will charge between $900 and $1000 for it.
Tenant moves out and they renovate the property at retail rates for materials used and labor. A repaint of the preperty can run into a thousand or more.
It's a trade off. If the property is in A-1 condition, with all new fixtures, heating/cooling and you have a long term tenant, it's a good deal. If the property has older fixtures and a high turnover, you can lose big time.

I have alot going on right now and I may not be making sense.
Not to worry. Buying property , both for rental and for "flipping" is going through a stage of extreme popularity right now. Everyone seems to want to "get in on the action". A clear head and lots of forethought are really needed if you want to survive with you bank account intact.

In my not so humble opinion, you would be better off selling the property and not trying to rent it at this point for three reasons:

1.) It's a 2 bedroom. 2BR properties are typically difficult to both rent and turn. For rental - you're competeing with an apartment complex with a 2BR. Check the local apartment complexes and see what they offer for a 2BR apartment. Most will have a swimming pool, spa, gym, ,,etc. You need to "trump" their amenties in some way. Best is a 3rd BR, nice sized yard, "quiet" neighborhood. By limiting the BR to 2, you cut into your advatage significantly.

2.) "We are possibly buying another home this weekend and we will be married in July".
My wife and I spent from last January until mid October looking for our 3rd rental property. In my NSHO, you're "rushing" towards having two mortages and being in a position of having to take on whoever applies as a tenant. We also spent approx 4 months screening tenants for the 2nd rental we have.
It may sound lke we had the luxury of being able to let the property sit unrented for that time, but it isn't that way at all. We planned for that contigency in advance. Similarly, our 3rd property, which we aquired in Oct of last year, is targeted for rental in April of this year, with the contingency of having it sit until Aug if need be.

3.) Your fiance isn't behind the idea a solid 100%. My wife and I have been married for 26 years. We discussed getting into rental property for a few years and researched it before making the leap.
I don't want to come of as a "all knowing parent type" here, but your going to find that $$ plays a signifcant part in marriages. I believe it's the number 1 cause of most agruments.

What I suggest is to spruce up your current house and put it on the market to see if there's any takers. Stay firm with your asking price. See if there's any takers. That will give you a very good idea of how "marketable" the property is. If no one shows an interest in buying it, there's a strong possiblity no one will show an interest in renting it either.
if someone does come in with a reasonable offer,,problem solved. Move on and enjoy your new home :)

If you can sell the place for anywhere close to $70K and can only get GROSS $750 for it; I'd sell it, TODAY. If you're not SURE you want to be a landlord then you have no business doing it. I was one for 28 years and my wife disliked every minute of it. IT'S A JOB.

The "average" unsuccessful landlord started out just like you; not sure, or couldn't easily sell their house, or thought it was a "road to riches". It's work, and the expenses are much higher than you imagine. I hang out on many landlord/investor sites and you should expect your TOTAL expense to run close to 45%-50% of YOUR TOTAL RENT!

You're not even close to making any money at the numbers you posted here, and your time and heartache are very hard to put a price on!

SELL IT NOW.

Frank

Frank's right, you're in over your head. Sell.

Ok, as I sit here in cry, b/c the thought of selling for some gawd awful reason just doesn't set well. I have some emotional attachment, more than one would expect in a 2 yrs time. lol

You all have provided some great advice and I will take it into consideration. Perhaps I am in over my head and I should sell to reduce stress among newlyweds and a few other good posted reasons.

If I wasn't in school, I'd take this property head on and have no reservations of being a landlord. I am a DIY and I can turn a wrench and enjoy the work. My degree however at this point in time is much more important. I can always look into buying rental props later in life.

Thank you again for the input and I appreciate it very much.

Hello liz,
"I have some emotional attachment, more than one would expect in a 2 yrs time. lol "
That'd be reason # 4 that it wouldn't be a good idea to rent it out.
As Frank said "it's a job".
In that repsect, your rental properties are simply nothing more than a commodity. Viewing them as anything other than a business item is a good way to lose out.

Selling to avoid financial loss is not "some gawd awful reason." Keeping it due to emotional attachment is.

How old of a guy are you? This answer means a lot. IF you are young enough, you can sock away money every month in a decent investment and retire like a king someday without having to yell at tenants or taking them to court. Many landlords I have talked to, that were landlords for years, now realize that if instead of making this career out of landlordhip and going through all the hassles involved...that if only they started out in their early 20's and socked money away instead, to become a millionaire someday, that way, instead.

Also, perthaps 15-20 years ago, one could buy used houses cheap and rent them for college rentals ( a lucrative sort of guaranteed market) and make a killing, and now have them paid off and make even MORE of a killing. Around here are landlords who bought properties for under $50,000 who are getting $300 per bedroom, often taking in $1500 a month on such a property, with it now paid of! Now THAT ain't a bad deal.

But, in that time period, maybe too many braggerts or something, but many people decided to give this a whirl. On top of that, housing prices climbed with new construction and this affected the used housing market. Because of this, you can no longer even find those diamonds in the rough anymore. Also the UBC (uniform building code) of 1976 came along and also DILHR became strict and any property transfer oftened required big money to be poured into it. REQUIRED, by the gov't.! Also often landlords came under the auspecies of the local health dept. inspectors and were required to fix things. (I worked for this one landlord in the mid 80's who always had 30-40 health code violations per property and faced fines, constantly!

Too many people wised up to these properties, as all those tv infomercial got lots of people in on this, years ago, as mentioned. Now renewed hope has resurfaced with shows like "Flip this House", on tv. (I did good on a couple trailer 'flips' years ago. :) )

Now it is a tough market. If you float some property on a hope and a prayer, and anything goes wrong like vacancy or the heat cost is high (if included and you are locked to your lease, or the market dioesn't climb very much in 5 years, and you find out that in one year the water heater went out, and so did the furnace and the roof...YIPES!

I know some landlords around here that are sort of nuts. I think they just LIKE being landlords because they keep pouring money into some old crapper. They put in new wiring, new plumbing, new vinyl siding, new vinyl double hung tilt-out windows, new high efficiency furnaces, and one wonders what the payback is on all of this. yet they are out there painting, mowing, pounding mails, yanking out the no longer needed brick chimney, remodeling the bathroom themselves, etc., as it became their very way of life and they never wanted to be a desk man or factory worker. So it's your choice I guess.

Me?

Trailer parks that include owner house can be a very good investment. From one who knows. :) I am a professional owner and worker who works for OTHER landlords as well, for the past 21 years. And actually, I enjoy it. Especially after getting out of owning so many of the trailers yourself. Less money but way less hassles.

Man, you guys are harsh. lol And I am a Lady, not a man. Take it easy on me and the emotianal attachment. [wink] BTW, I am not offended by anyones comments. I am taking advice and opinions as just that. If I was easily offended, I would stay away from forums.

Anyway, something that none of you know about me is that I am a hardworker, an achiever, and while there are things I have failed at in my 30 yrs, I have no regrets. I am always willing to try new things and I often do. Becoming a Landlord would not be a second thought if I were not in school and about to get married. And as stated in my first post, i wouldn't be doing it to make an immidiate profit. What I don't understand is why is it that I HAVE to make money by your terms? (no one really needs to answer this but do as you will). I see the long term investment regardless of immidiate loss. But thats me and thats what I care about. To each his own I guess.

Also, I am already sinking money into investment and have been for approx 10 yrs. Between my fiance and I, we bring in decent pay, enough that we could keep this property and take a monthly loss.

My point to my original post wasn't whether I should be a landlord but what are the tax benefits, if any and blah blah blah.

With the responses I have received and the advice given, I have taken all into consideration. While a big part of me doesn't want to sell, I AM. lol One thing I didn't put much thought into before my post here was the stress it could cause amongst the fiance and I. They say the first two years of marriage is the hardest. While I think we will be fine, anything I can do to keep problems from happening I will. So that is my reason behind selling. One less thing we will have to worry about as newlyweds.

Thank you again for you input, everyone.


When I die, I can't take my possessions and money with me. Money isn't the basis of my life. It is a way to survive and I am surviving comfortably. No worries here.

Just always remember that when the day comes that the property is paid off, about at that time, you may not be able to keep all the money because by then several things about the house may need replacing. That can be most annoying when you were counting on keeping all the money.

Also, since you sound like you are and maybe will even be even more financially secure when you get married, you never know, but you and your partner may enjoy rentals as a hobby. You may be able to put even more money down on the property to pay one off faster. You could flip houses the way I knew a single young woman did 15 years ago. She did a few house she said where she did basically cosmetic improvements and claimed she had already made $50,000 by doing this to a few houses.

Sit down at your desk or kitchen table and run some numbers. With rentals, your investment really is just the downpayment, while the tenants pay for your investment for you. You don't have to take money from your paycheck to invest..so that is a plus. Then, after you pay the place off, if you can say that you are now making more than 130% on your investment, each year, like I will be in 1 more month (YIPEE!!!!!!!!!!!)..then you might be able to say when all is said and done, that you did the right thing 20 years earlier.

While I was paying the bank off...even then, for those 21 years, I STILL had a real decent return on the investment of about 30% a year based on 2 free places to live, included. (No mortgage for me or my parents.)

I forgot to reiterate in my post above how even though the business will be paid off and I can expect 138% return on investment each year, that as I so stated, there will have to be some major improvements done, and this will eat into that profit. Try $40,000 for a new road for size (and who knows, maybe the way we have it done, it could cost more). If I get a 5 year note on this, then my profit per year will be about 138% less about 48% per year, still leaving me with a profit of 90% a year on the original investment. Of course, there was no adjustment made for the increase in the cost of living since 21 years ago. But then again, how many people factor other investments that way. But even if I did, that is still a very good return each year.

In the rental business you want a higher return than some investment where you just play the money game in any of the various markets because a person really is not involved with that form of investment, other than making a contact once in a while. With the rental busines there is much more work and hassles to it. It is a hands on business. And if you own property there is depreciation on it. Even though you have appreciation going on, you also have depreciation going on. That becomes apparent when you try to sell and the buyer wants you to deduct for everything they spot that is not in like-new condition. Although, many landlords sell their problems to the buyer because often the buyer is a greenhorn who only sees dollar signs and doesn't consider al the expense at having to fix some of the stuff up down the road.

An example of that woud be a roof. A person could have a 2 story steep, multi-faceted roof that would cost thousands of dollars to reroof. The original landlord may sell just at that time when the roof still looks okay (say 15 years after the original roof). Then the new buyer has the property for 5 years and discovers how the roof seemed to suddenhly go down hill and really needs to be replaced. In the case of our road...if we had sold 5 years ago, not every prospective buyer may have called alot of attention to the road, thinking roads last 50 years or something. When our road started to go...it really started to go.

So these are things the astute buyer must be aware of. What may appear to be a really good deal may not be that great a deal the time EVERYTHING is factored in. At least not as good as they originally thought.

Another way of looking at this investment thing would be to ask yourself where you would stand financially each year, if instead of buying the rental property with your downpayment money, that instead you invested it prudently and let it compound, and then after 21 years asked how much money you could live on each year without touching what had accrued. In MY case, if the yield was 5% a year, my initial investment would have only gone up by about 2.5 times, and even if one did not figure having to pay tax each year on the interest made (which you would)...the money to live on each year without touching the principle would be a pittance compared to the yearly yield after sitting on the rental for all those years, paying it off, and then living off what the tenants pay you each year.

Sometimes I wake up early, thinking about that blasted road that will be eating into my cigarette money (Ha, no, I gave up the 3 pack a day habit 22 years ago. :) ) But I do think about the road. Think about all that money and then blam, some heavy garbage truck or school bus or even the hauling in of a new trailer busts out the road during the spring thaw when the ground becomes hollow under the road. Considering pavers.

dave look just have the road bed dug down under the frost line plus a foot or two then fill and pack the three feet and pour a minimum 12" reinforced concrete topping and be sure to seal it every year. It can then be used for a plane runway or anything you want. Archeologist in the 25th century may dig it up and their eyes pop out in wild wonder trying to figure out why so much overkill. they may even figure it out eventually IT WAS ALL FOR A GOOD NIGHTS SLEEP

I could laugh at your post...but you are absolutely correct. 12 inches would indeed do it. I just wish I could afford it for the 20,000 square feet drive, not counting parking pads!

My parents, plus one pad, were done a few years back to 6 inch. The concrete guy told me he thought that was unnecessary (overkill). Ha. Even those are cracking outside the joint lines in places! We have this slab on the property that is about 8 x 20 feet and is about 10 inches thick, poured back in the days when things were cheap (about 30 years ago). That slab may have only a hairline crack in it, at worst!

I really do wish we could float the bill for a 12 inch pour as that would be thick enough to support a frost heave even if the road got hollow under it in places during the spring thaw, ...and it probably would not break. Up at my parents house a Waste Management truck backed over about a 3 foot diagonal of the end of their drive to get at the dumpster and cracked the 6 inch slab so it now sags some with about a 3/8ths joint gap.

Today I went to one of local concrete manufacturing plants and looked at pavers and did some initial paperwork on this. THIS could get real pricey. Sure would look nice though. He said I could expect to pay $15-25 a square foot for all the prep, (47 cent a piece bevel-edged pavers), laying, sand, broom, clean up. At $15 per, it cost like $300,000!!!

I asked the salesman if he knew of any company that used migrant workers to do this. He said matter of factly that nobodfy advertises at their business! I said , "You mean to tell me...in the business, there isn't some pin board here with all kinds of cement-paver layer contractors listing their cards here?...like when you go to the lumber yard and all kinds of builders have their cards up by the front desk or some pin-up board?" He said no. Odd. Really odd.

wow great real estate info in this thread just learned a lot thanks guys!

As they say " Don't fall in love with anything that can't love you back !! "

I just wanted to respond based on something I am going through with one of my duplexes. Make sure you can afford a vacancy and never be friends with a tenant.

I have a long time tenant who has fallen on hard times (actually, hard liqueur) and is way behind on rent. I never should have let him go this long, but I broke the cardinal rule of becoming somewhat friends with him. Anyway, I just sent him an eviction notice Friday. If I am VERY lucky, he will just move out and not damage the unit and I will "only" lose about $1,200, after I keep the security deposit. If I have to go the Unlawful Detainer route, the sky's the limit.

Getting an emotional attachment to a thing is bad enough, but you don't ever want to become friends with a tenant. Always remember, charitable donations to a tenant in the form of free rent is not tax deductable.

We own a duplex. We sent the first tenants packing. The second pair were great. But after 10 years of continuous renters, it was time for repairs. If you are a DIYer and don’t mind doing it alone, it might be for you. The tax breaks are good, maybe better than for a homeowner. Anything you do there you should be able to write off. I would get a CPA to do your taxes until you get the hang of it (and the next year he is a tax break). but I am still not rich ;) .Right now with the fix ups we have a vacant apartment, so don’t put all your eggs in one basket. I understand emotional attachment.

Also, how far away do you live from the place? You might be able to save some $$ by answering those late night calls (and there goes the cell phone/phone for tax reasons!) yourself, then find a contractor you like.

PLUS and this is the big one, you can screen your own tenants and see who floats your boat.

I’ll follow the thread~

PTBG

I will give a quick update.

I still own the home but it is under a Lease to Buy contract.

The buyer is responsible for all repairs. It was written that way in the lease which was reviewed by an attorney.

Buyer is getting $100 a month toward the purchase of the home and paying me about $275 more than my mortgage payment. (Which was originally thought to be about $200 more a month but the payment went down b/c insurance is cheaper w/ a Landlord's policy).

My buyer has been leasing to buy since June and has paid on time every month. She told me this month that she will start the process to buy sometime after January/Feb when she files her taxes.

In the lease I gave her the option to buy at anytime in the 12 months.

So, I hope to have the home sold soon and I no longer have that attachment to it I had when I made this post. LOL

Thanks for the replies and I hope this thread can help others who come along.