You may not have known this, but over the past two years, not only have I been working as a program manager and photographer, I also added landlord to my resume.
At times, this may have been the most stressful of all of the jobs.
I didn't apply. I didn't interview. I landed right in my lap.
Here's how it all came about:
When we moved from Charlottesville, we did not sell our home there. Through a series of unfortunate circumstances (mainly, the buyer backed out of the contract just as we crossed the Ohio border in the large Uhaul truck, complete with all of our belongings to move to Michigan.) Yes, unfortunate and stressful it was. I remember sitting in a Biggby coffee shop, searching for property management companies in Virginia. Kyle sat across from me and we'd trade calling them to discuss potentially hiring them to rent our property. We had no idea what we were doing, but we learned quickly. That specific coffee shop still conjures up the memories of those first few days in Ann Arbor, as not only our hearts but our home was in a such a bittersweet place- left in C'ville.
Without being convinced we found a management company that wouldn't rob us of every penny possible, we decided to list the home on craigslist for a week, just to see what happened. Thankfully, we found a great couple who took decent care of our home for almost a year and half. Our realtor had sent us rental agreements and legal information so we had all of the proper paperwork to move forward on our own.
After our first renters moved out, we decided to rent for one more year and found other tenants who were equally great. (Between those two years, the market wasn't back up to a point that we wanted to sell, and since we didn't have to sell, we decided it wouldn't hurt to see what market would do in one year).
Overall, it worked out well. The rent more than covered the mortgage payment, the tenants were trustworthy, and we just kept paying down the mortgage. It became an income property (temporarily). We also had tenants who could really enjoy the house like were able to years prior! Win win!
Now, I'll give you the flip side. Since owning a rental property certainly isn't that straight forward, and lovely!
Here's the reality:
No matter how trustworthy or kind your tenants are, they are still tenants. They don't own the home.
Sure, this may be obvious. And we knew this was the case, but you don't know it really...until you are hiring contractors and hemorrhaging money.
At the end of the day, your tenants are not there to care for your home. They will move out. YOU are responsible for any and all that they left behind. Fun is not how I would define hiring a handyman to fix a wall that the movers destroyed with a couch, or finding someone to do landscaping who won't lie to you with how much has to be done, or finding out the dishwasher is now broken ("suddenly") or there is a leak in the kitchen ceiling or the washer and dryer appear to not be working....and the list continues. This is all very basic home maintenance (the home was built in 2008).
Bottom line- unless you can make multiple trips to the location of your rental, you are relaying on other people's opinions and insights. And guess what? Each one of those comes with a price tag. Sometimes, a pretty hefty price tag.
The rental income you have can easily be put right back into the home when you are ready to list it. (Assuming you cannot be there to do anything yourself)
For example, one board on the back porch had begun to warp and started to bend one piece of vinyl siding on the home. The inspector wanted it fixed. So, we paid hundreds of dollars for someone to go to the home and measure, go to the store and purchase the goods, order ONE piece of vinyl to replace the small area, remove one piece of wood from the porch and nail a new one down. It's almost funny how ridiculous it is. This story repeats itself in minute ways and not minute dollars over and over again.
The difference is, if you owned and lived in the home, you'd take care of things as they arise. You do landscaping and care for the exterior. You'd power wash and clean the gutters yourself. You wouldn't let a dog stay for a weekend and eat through a banister. You would fix appliances or scruff marks, or repaint when needed. You naturally would keep things tidy and kept up. You're invested in the home and you care for it continually (welcome to home ownership, right?).
I should mention that if we would have hired a company to find renters and collect rent, they may or may not have done any of these things either. It would have completely depended on the contract we had with them as to how involved they would be in home maintenance vs. just being a collection agency. But again...the price tag would have kept increasing with the more responsibility we gave a property management company.
Maintenance is necessarily and unavoidable.
Outside of the basic maintenance, you are also tacking on other costs such as increased home insurance, as once your home becomes a rental the insurance companies love to hike up your price, or paying the utilities between tenants and the fees associated with transferring accounts.
Let me reiterate that our only experience is from being a landlord from far, far away. 12 hours away. Where you don't have access to check-in at random times, and fix things yourself at the drop of a hat. The rental market can be quite profitable if done as a business, but obviously I'm not jumping at a new business opportunity here.
If you are thinking of renting your home in a state that you do not currently live in, and do not have the availability to continually visit that home numerous times a year- be prepared (and errr..forewarned).
Here's some questions you should think about :
- Do you have the resources to cover your current housing situation (rent or mortgage) if you also had to cover your mortgage at your rental property? How many months would you be able to do handle both?
- Is there someone in the location of the rental property that you can call and trust to make decisions on your behalf? (And represent you, as the landlord, to the tenants in a professional way)
- Are you willing to sort through tenant applications, call past landlords and ask difficult questions of future tenants?
- If the rent payment does not arrive on time, what systems do you have in place to collect payment in a timely manner? (aka how do you not get taken advantage of?!)
- Do you have the resources to maintain the home: Could you buy a new washer and dryer if it breaks? What is the crawl space needs to be relined? Ice machine is broken in the refrigerator? All of these can range from one hundred dollars to thousands. Remember, it's still your home.
- Will the rental income impact your income taxes? You have to claim rental income as income, and you can only write-off mortgage interest. Depending on your annual income and what you are charging for rent, this could change your tax bracket.
- Is the rental market in the city advantageous for you? Could you cover your mortgage with the rental fee? Are you looking to make money from the rental cost? (For any profit made monthly, a percentage should be saved to cover basic maintenance)
- How long do you want to rent for? Is it for income or necessity or to wait out the market, or all?!
- When you eventually list the home, are you prepared to pay the mortgage (it's very difficult to have renters while showing the home), pay the fees and contractors, cover unexpected costs (such as paying for your lawn to be mowed each week) and then, have a backup plan if the home doesn't sell.
- When you do sell the home, at what price will it make it worth having rented the home for an extended period of time? Are you looking to make money, break even or are you okay losing money? If so, how much?
Despite all of the items listed above making renting seem like a huge debby downer, having a rental property has advantages as well. Ours was a bit trial and error, but we were very blessed to have great tenants and friends in the city who stepped in when random things came up. All along, we made money and paid down the mortgage (thus establishing more equity). In doing so, we were able to hold off on listing the home until the market was healthy enough to ensure we wouldn't be losing a lot of money from the investment. <-- all great things!
We listed the home this year at the suggestion of our realtor, as the market had gone up so much that it was a wise decision to try and sell it now. In all honesty, this is where the majority of expenses come in - preparing a home for the market after two years of renting it.
Our realtor has been amazing and a HUGE help. She recommended the best contractors, got estimates for us and helped be our eyes and ears on site. One of our great friends took on the "landlord" role, did the walk-throughs with our tenants, and made very detailed lists for us to look over. If it weren't for either of them, either Kyle or myself would have needed to fly down to Virginia for at least a week to do everything ourselves and coordinate contractors. Honestly, neither one of us could have taken that time off of work to do it this time of year. (And frankly, my helpfulness levels have declined since carrying a human!)
Despite a lot of phone calls, using up an entire check-book, multiple estimates, "now what" conversations, and a few hiccups along the way, we still made the right decision two years ago when we decided not to re-list and to rent instead. We have learned a lot in the process and all in all, we have no crazy rental horror stories to report (huge sigh of relief!).
I'm am happy to report that after all is said and done, we will be closing on our dear home in C'ville in less than two weeks. Oddly, it feels bittersweet! There is a wonderful couple who is purchasing it as their first home. It's really fun to know that our first home is going to bless another family as much as it did ours (even if it's a little sad to let the little adobe go).
(celebrating our first anniversary with a cookout in the old backyard...okay, now I'm just getting sappy)