zibazinski
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Post by zibazinski on Mar 31, 2011 8:01:57 GMT -5
Can you handle what you considered to be your home trashed? A lot of renters are disrespectful of another's property. Can you fix simple things? Are you around to inspect a fair amount? A hands on landlord doesn't have as much issues with houses being trashed as one that isn't. Does that 600 a month include taxes and insurance?
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brdsl
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Post by brdsl on Mar 31, 2011 8:05:48 GMT -5
mortgage being taxes, insurance, PMI, etc....or just the house payment?
If the house is worth 100k, the 1k a month meets rule of thumb.
You probably won't make a whole lot per month, but it is an easy way to get started.
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zibazinski
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Post by zibazinski on Mar 31, 2011 8:11:56 GMT -5
Don't be so sure. I built my house so it's ME thru and thru. I rented it out to my builder at below market rent because it was the 2 of them, no kids or pets, and I knew he would care for it. He may have to move on because of a death and he said he'd find a good tenant for me. I told him I would have to see about that as he is a good tenant, others may not be and that house is worth a lot of money as well as emotionally, it's my home.
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brdsl
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Post by brdsl on Mar 31, 2011 8:38:01 GMT -5
" Yes, the $600 includes taxes and insurance. "
Even better....
One other thing, check the area ordinances to see how friendly they are in regards to rental property. Some want a home inspection, residency inspection (each time a tenant moves out), etc.
Good screening, NEVER rent to a person you know, and GOOD LUCK.
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kdamron
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Post by kdamron on Mar 31, 2011 9:19:42 GMT -5
I did this exact thing when I moved in with DF. Good renters are key. Get yourself an agent to list it and sort through the applicants. Yes, there can be issues, but its been almost a year for me and my tenants are great, the house is still in perfect condition and I increase my net worth with every rent payment!
Good luck to you.
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Gardening Grandma
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Post by Gardening Grandma on Mar 31, 2011 9:44:36 GMT -5
This may seem elementary, but open a separate bank account to handle the incoming rent and the outgoing expenses. It doesn't have to be a "business" account (some banks charge extra if you tell them it's a business account).
If you use software to track expenses, it's very easy to add a "rental" account to track income/outgo which will make it pretty straightforward come tax time. And I found that Turbo Tax did a great job figuring depreciation.
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zibazinski
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Post by zibazinski on Mar 31, 2011 10:01:48 GMT -5
I "second" that. It makes tax time easier as well. I deposit one of my rental checks into that account and use that to pay taxes, repairs, insurance for all of them. i REALLY should deposit all my checks from renters into it but I'm lazy.
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Tiny
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Post by Tiny on Mar 31, 2011 10:58:45 GMT -5
I'm a new "landlord" and I second the open another account to handle the rent/property stuff. I had one month of 'co-mingled' money and it drove me nuts.
I'd also think long and hard about renting out your current home (even if you move to a new one) especially if you did alot of work/decorating to the original home. Renters can trash a house (or just talk trash about the 'hideous' to them wallpaper (which you absolutely adore and paid an arm and a leg for!) they have to live with). You need to cut all your emotional attactments to it. It's easier to be logical and rational about someplace you buy specifically to rent out.
Think about what other expenses you'll incur by renting - will you pay some of the utilities? who cuts the grass/shovels snow - what other costs are there. Will those costs, plus the mortgage (PITI) be less than or equal to the rent you can charge?
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phil5185
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Post by phil5185 on Mar 31, 2011 11:01:53 GMT -5
As a way to get started, I am considering purchasing another home to live in and renting out my current house. That's what we did - 1975. Before we moved we got a second mortgage, used that money for a DP on our new home. A few months after we moved, we got a second mortgage on our new home and used the money to pay off the second on the rental, and to make a DP on a second rental. As others said - think of it only as an asset that you are going to sell in a few years, NOT as the lovely home that you lived in. And rent only to strangers with a formal arm's length agreement, never to acquaintances, friends, relatives. We have an umbrella policy - no LLC. Altho that may not be the way to do it now. We didn't want the separate tax return, etc. And it is difficult to finance or refinance inside an LLC (banks don't loan to LLC's, they need the name of the responsible payer of last resort). And once that door to your personal finances is open, the legal discovery process leads to you (as it should?). If you were negligent, you would be held liable (correctly) - and if you were not negligent you prevail in a lawsuit. If your payment is $600/m, your mortgage is probably in the $450/m range? If it will rent for $900 to $1000, maybe you have some equity that you could take out? Maybe take out $50k and increase the payment from $600/m to $900/m? When you start depreciating the house, that will probably add over $100/m to your rental income. That would give you positive cash flow, plus an extra $50k of capital to invest elsewhere.
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Taxman10
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Post by Taxman10 on Mar 31, 2011 11:02:04 GMT -5
I've done this with 2 houses, it's worked out well for the most part. It's nicer to open a 2nd account. I actually open 2 additional accounts. One that the tenants can make deposits into, and the other one where I sweep the deposits to and pay the mortgages, expenses, etc.
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raeoflyte
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Post by raeoflyte on Mar 31, 2011 11:18:06 GMT -5
We've done this with 2 properties, and will be converting our current home to a rental when we move again in a couple years.
I've always known the plan long term was for the properties to be rentals so I've never had an emotional issue when tenants didn't like my carpet, etc. Take it, or leave it. ;D
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Deleted
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Post by Deleted on Mar 31, 2011 11:18:29 GMT -5
How much do you make, can you afford the payments on both if you do not have a tenant?
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Post by Savoir Faire-Demogague in NJ on Mar 31, 2011 11:57:44 GMT -5
As a way to get started, I am considering purchasing another home to live in and renting out my current house.
Have you thought of purchases a duplex, triplex or perhaps a two/three family home, and living in one unit, then renting the others? As a newbie, you'd get your feet wet, and be around to keep an eye on things.
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brdsl
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Post by brdsl on Mar 31, 2011 12:01:49 GMT -5
" Does this sound feasible? "
Make sure you contact a professional to make this decision. See SF for his recommendation.
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Gardening Grandma
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Post by Gardening Grandma on Mar 31, 2011 12:18:21 GMT -5
Savoir, I wouldn't be comfortable living side by side with our tenants.
Neither would I. The original proposal sounds like an ideal way for the OP to find out if they are cut out to be landlords. If, after a year or two or three, they decide that it isn't for them, they can sell a SFR easier than a duplex or triplex.
Starting out this way seems to be the least risky, smartest way to put one's toe into the water.
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shandi76
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Post by shandi76 on Mar 31, 2011 12:20:50 GMT -5
I agree about not wanting to live next door to your tenants. Far too close for comfort.
I rented out my first residence when I bought my current place. It made sense financially, but it is tough renting out somewhere you might not be as arms-length and detached about. I also didn't stick to the rule about only renting to strangers: I rented it to a friend of a friend, and paid a bit of a price for that, in terms of being a bit too soft about late payments. I would prefer to rent to strangers next time.
It is pretty hard to be detached about a place that was your home. I was annoyed when the tenant painted the living room canary yellow because he disliked the previous color, and I was really upset by the state it was in when he left (nicotine stained walls and carpets, really filthy bathroom and kitchen). In the end it cost less than $1000 (and a lot of work) to get the place back into a decent state, but it saddened me more because I had an emotional attachment to the place.
Renting out the place you already own is the easiest option, but is it the best option financially? Could you sell it, buy somewhere else to live, and then buy a second property purely as a rental? Are there other areas of town where you could get a better return on your investment?
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zibazinski
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Post by zibazinski on Mar 31, 2011 12:21:17 GMT -5
My son and I own a place together. He has a roommate, did have 2 but now down to 1. His roommates do not know that he owns a part of the place. We did this on purpose because "friends" would take advantage. I am the landlord and my last name is different than his. No one ever knows and that's the way we decided it should be.
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Gardening Grandma
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Post by Gardening Grandma on Mar 31, 2011 12:31:50 GMT -5
is it the best option financially? Could you sell it, (pay commission and closing costs) buy somewhere else to live (pay down payment and closing costs), and then buy a second property purely as a rental (paying another down payment and closing costs?) Are there other areas of town where you could get a better return on your investment?
Sounds like a pretty expensive proposition. Renting out the original residence, waiting a few years to see how it goes, then deciding to either sell and quit the landlord business, or sell and buy a duplex/triplex - that makes more sense to me.
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Deleted
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Post by Deleted on Mar 31, 2011 12:54:32 GMT -5
is it the best option financially? Could you sell it, (pay commission and closing costs) buy somewhere else to live (pay down payment and closing costs), and then buy a second property purely as a rental (paying another down payment and closing costs?) Are there other areas of town where you could get a better return on your investment? Sounds like a pretty expensive proposition. Renting out the original residence, waiting a few years to see how it goes, then deciding to either sell and quit the landlord business, or sell and buy a duplex/triplex - that makes more sense to me. And the rates would be higher. I would say this is bad advice.
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Deleted
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Post by Deleted on Apr 1, 2011 13:41:15 GMT -5
We are in the process of doing this now. Our new home will be finished late June and we are turning our current condo into a rental. We'll be paying $1000 out of pocket each month on top of the rent, but principal is reduced right now at $1300 mo. 14 1/2 more years on a 15 year mortgage at 3.5% and we'll be clear on a $400K+ property.
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8 Bit WWBG
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Post by 8 Bit WWBG on Apr 1, 2011 14:50:37 GMT -5
...:::"Can you handle what you considered to be your home trashed?":::...
Seconded. Even minor things like not taking care of the landscaping the way you might, or a few scratches/dents here and there can grate one's nerves.
...:::"(banks don't loan to LLC's, they need the name of the responsible payer of last resort). And once that door to your personal finances is open, the legal discovery process leads to you (as it should?). If you were negligent, you would be held liable (correctly) - and if you were not negligent you prevail in a lawsuit.":::...
In all the years that property rentals and LLCs have been mentioned, this tidbit has never come up. Can you elaborate on this, and other ways to protect your own liability? I know an LLC may be overkill for one property, but if you plan to get more and more, wouldn't it be smarter to have one? I can understand banks wanting an extra person on the loan for an LLC that has just started. But would they lend to one that has been around for a while? Otherwise, can you transfer the house into the LLC somehow?
...:::"My son and I own a place together. He has a roommate, did have 2 but now down to 1. His roommates do not know that he owns a part of the place. We did this on purpose because "friends" would take advantage. I am the landlord and my last name is different than his. No one ever knows and that's the way we decided it should be. ":::...
If they are his friends, haven't they met you? I mean, unless your last name is common like "Smith", or unless you only ever introduced yourself as "Mom" or "firstname", might they not deduce you are the same <lastname> that is their landlord?
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Post by debtheaven on Apr 1, 2011 16:11:22 GMT -5
Gowron I am intrigued by that as well but as Zib has already said, they don't have the same name. I'm guessing they don't live in the same place either but I could be wrong.
Even if they do, given that they don't have the same name, it's not hard to introduce your housemates to your mom if she comes over saying "this is my mom". And personally, although we have been to DS1's shared place a couple of times to help him move in or pick up laundry (very occasionally) or move out, we generally prefer to see him outside of that context (usually taking him out to lunch or dinner.) He preferred that too. And of course he'd come back "home" too.
It's all moot now because he moved out of that place after he finished his Masters and he now works / lives abroad, so when he comes back on holidays or R and R he comes back "home".
This said, kudos to Zib's son for keeping the secret, it can't have been easy all the time for a person of that age to have kept that secret from his housemates.
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Post by debtheaven on Apr 1, 2011 16:27:36 GMT -5
ETA: Also, I think these questions of keeping one's residence as a rental apply more to people in LCOLAs or MCOLAs.
You'd need a REALLY hefty income in a HCOLA to be able to keep your "starter home" as a rental rather than a sell it to provide the DP on a bigger place for a growing family.
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Post by debtheaven on Apr 1, 2011 16:53:46 GMT -5
Also, per LLCs: I'm in Europe and the laws aren't the same, but we recently looked into that because we thought with four rentals we'd be better off in a LLC. Apparently they recently changed the laws here so we would need to set up a seperate LLC per rental. With an annual GA, a separate tax return, etc. Times four.
So we opted for leaving well enough alone, and keeping the rentals in our names.Our RE lawyer told us exactly what Phil posted, the details of any LLC that you create will always end up leading back to YOU.
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Deleted
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Post by Deleted on Apr 2, 2011 16:38:19 GMT -5
ETA: Also, I think these questions of keeping one's residence as a rental apply more to people in LCOLAs or MCOLAs. You'd need a REALLY hefty income in a HCOLA to be able to keep your "starter home" as a rental rather than a sell it to provide the DP on a bigger place for a growing family. It wasn't uncommon 5 years or more ago for someone with a "starter home" in a HCOLA having enough equity through rising home values to cash out refi or HELOC and get into another property. Those opportunities have dried up for most people. I was not planning to buy something new this year, but the San Diego area has really stablized and mortgage rates are probably about to start their march upward. We just sold a car with $11,000 equity and low MPG and leased a good MPG vehicle no money down with a similar payment. I sold $8000 in camera equipment (a hobby). We made some other moves to scrape together the $105,000 down on the new place. We bought our current place 3 years ago and while we still have a bit of equity, I wasn't ready to turn my paper loss into a real one - so we'll be renting it. We'll be putting our own money into covering the bills on it for maybe 10 years, but eventually it will pay off.
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Deleted
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Post by Deleted on Apr 4, 2011 6:55:02 GMT -5
OP, I regularly recommend what you're thinking of doing. You'll have the ability to acquire your new property using the best kind of loan and interest rate vs a non-owner occupied loan. Plus you know the house so you know its foibles, how to maintain and what needs replacing. You also know and hopefully have good relationships with your neighbors so if someone starts packing in illegals, turning the place into a mechanic's shop you'll hear about it. It can be a little tough when you rent out the house for the first time. We've now rented out two of our personal residences, and each of our deceased parents' homes so there's been potential for emotional turmoil. DH did have an issue the first time we did it. But I've used that emotional tie to my advantage by carefully screening our prospective tenants and advising them we don't want to be slumlords or return to a beater rental house. It's worked well for us. We've had the same tenants in our SF Bay Area house since we moved to AZ in 2003. Our tenant in the AZ house keeps it cleaner than I ever did. ;D . Ditto for my first tenant in my Mom's place. DH's father's place is in vacation rental service (now 10 years) and I think only one decorator pillow (from Target!) was stolen. We've got one more rental house that we bought thinking we would live there as a part time retirement house. Although our plans have changed somewhat, the pitch is still the same; we plan on living in this house in the future and we don't want a beater rental when we return. So far, so good. Like Phil we have the properties in our own names (converting to a Trust but we're on the line) with an umbrella policy. To do the LLC thing properly you need a separate LLC for each property otherwise what's the point. If the LLC has all of your properties and you get sued, all the properties could be attached. We are diligent about maintaining our properties and communicating with our tenants. My annual trip to the States includes visiting each property. I also personally screen each tenant and perform the Move In and Move Out inspections. Finally, I keep a separate bank account for each property. It's so much easier at tax time as well as looking at cash flow for each property. Also make sure that you have a six month EF for each property. As you build you inventory you can probably follow Phil's suggestion to keep most of the money invested in an index fund (like the S&P 500) and sell shares when you need the money. But when you first start out it's better to have a nice cash cushion while you're in the learning phase. Good luck!
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Deleted
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Post by Deleted on Apr 4, 2011 7:45:14 GMT -5
We will be turning our primary residence into a rental as well. We have no other choice. We have to move out of state and are about $80K underwater. It stinks that we can't sell it, but hopefully we can get a good renter in here. Walking away or short selling are not an option. We will have to hire a property manager since we will be out of state. I do worry about what a renter will do to my house, but I don't plan on ever living in this house again so I don't let it keep me up at night. I am not really emotionally attached to it.
Anyway, good luck with your plan. I think if you follow the advice given here you will do just fine.
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2kids10horses
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Post by 2kids10horses on Apr 4, 2011 18:09:07 GMT -5
One benefit of converting your residence into a rental is the interest rate you currently have on your place is probably lower than what you could get if it were purchased as an investment property.
If you have significant equity in it that you might want to tap to aquire additional properties, take out a HELOC. You don't have to draw the money out now, just when you need it. But get it while you live there for the best terms.
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zibazinski
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Post by zibazinski on Apr 6, 2011 19:56:05 GMT -5
That was the deal when he and I discussed doing it and it made sense. I do not go over there. Yech. They are "friends" but adult friends not high school/college friends who would know me. DS handles everything including collecting the rent from them. Now it's just one and she's a nice girl and he is happy as the place isn't as messy!!! Plus, she has a kitten which amuses him.
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zibazinski
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Post by zibazinski on Apr 6, 2011 19:56:48 GMT -5
We live about 40 minutes from each other. He likes the "big" city and I'm in a more casual area.
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