Owning rental property

[Coronita]

[quote=briansd1][quote=flu]So I’m curious if one has a house in a not-so-professional area, what constitutes your criteria for a “good tenant” without taking your criteria too extreme that it no longer fits the tenant pool in your area?[/quote]

That’s a very interesting question.

Some detectives or psychologists will tell you that it only takes them 10 minutes of conversation to determine the character of a person.

It’s kinda like that for me. I think when you meet the person you know who you’re dealing with. I like to take my tenant applicants to lunch for small talk.

Most important, trust but verify. Check employment, credit and references.

I would avoid the worst areas or price it into the purchase price.

BTW on the ad I come straight out and say it. “No slobs or dirty people should apply. I don’t accept excuses for late rent, but, in return, I offer a nice place to live.” It’s a little harsh but people recognize themselves.

Another thing is that I don’t like kids because they destroy things. But I don’t think that you can discriminate against families.[/quote]

But it’s it kinda discriminatory even say
“No slobs or dirty people should apply. I don’t accept excuses for late rent, but, in return, I offer a nice place to live.”

and ye…., saying no kids is a definite no no because it pretty much violates the fair housing act….

[paramount]

[quote=flu]

Paramount. I have a question for you… Do you still live around where your rental property is? If so, what is the reason that you are getting a PM to do this and for example not yourself? I mean, my relatives use an agent to help them find a prospective tenant, and pay them a flat fee for the leads if they sign up…But for all other repairs stuff, they ended up getting their own handyman/etc…

Have you tried renting out your place yourself versus using a PM? For folks that have 6,8,10+ properties, I can see were PM is helping one free up time, but if you have 1 or 2, what prompted you to use a PM?[/quote]

I live about 600 yards from my rental, and I may just manage the property myself.

I decided to use a management company for a few different reasons:

1. Last Summer I was busy moving into the new house, and already had a long list of things to do in preparing our previous house for rental. On top of all that we had a baby in the Fall.

2. Even though I had rented houses in the past, I though I might let the management company handle things the 1st year, and then I’d step in.

3. Eviction insurance

4. Believe it or not, it can be hard getting people to pay rent. Particularly when so many people feel entitled to a perfect McMansion with a million dollar view.

5. Did I mention eviction insurance.

I think one of the best ways to handle maintenance issues is to get a home warranty.

I intend to do that before my tenant moves on to fry my AC system.

[svelte]

To be fair, my father had rentals when it was much harder to do background / credit checks. It might be easier to screen prospective tenants now.

He has long since sold his rentals.

But better tenants still won’t eliminate the midnight “the water heater just went” phone calls…unless you go with a prop mgt company. Then you have a whole new set of problems of the fox watching the henhouse sort…

Buying rentals is tempting, granted. I still re-evaluate it in my mind from time to time. But then I realize how successful I’ve been at keeping my life simple and streamlined and chuck the idea altogether.

[Cube]

[quote=flu]…

1) If they break, I’m on the hook for fixing them. Plus, what if for some reason they get injured on them (god knows how).

…
[/quote]

FLU, as I understand it, you are typically not required to maintain all amenities that are part of your rental at the start. I.e., if an amenity such as a fan or a gas grill breaks, as a landlord, you can simply elect to remove it. Typically, this does not violate the lease or make the property uninhabitable. Now, in my opinion, I would repair such an item if it had been an amenity when the lease began, but perhaps only the first time (particularly if it was broken by lack of reasonable care on the part of the tenant).

With regard to ceiling fan injury, I managed to slice my fingers up pretty badly when taking a shirt off in a room with a ceiling fan once…

[Cube]

[quote=flu]
…

Question: for someone starting out renting property, is it advisable to do an out-of-area rental, even if you have a property manager? Serious question….I mean a lot of this is about experience, right? Is it feasible to learn when something is in another state managed by another person?[/quote]

A friend of mine owns a rental on the other side of the country. He bought it through one of those all-inclusive services that helps you find and purchase the property and then manages it for you. I believe he has still never laid eyes on it to date. After a couple years, he decided he didn’t like them as a property management firm and switched to another management firm.

It was the first rental he owned. However, his mother is in real estate and has experience managing property, so perhaps he shouldn’t be considered a total neophyte buying sight-unseen across the country. Seems to have worked out really well for him.

On the flip side, I’ve also heard personal anecdotes of people buying sight-unseen and being told that the management company “just can’t seem to get it rented”, only to find out belatedly that the management company’s had it rented all along, and they’ve been pocketing the cash. If you do buy a rental far from home, maybe make it somewhere that you or a friend can drive by on occasion if it stays “vacant” for a while.

[Hatfield]

All true. You can’t beat the tax benefits though. If you can hit the sweet spot you’ll have a property that generates positive cash flow while simultaneously delivering a paper loss due to depreciation, lowering your tax liability.

On the other hand, your mutual fund will never call you up at 10pm on a Sunday night and tell you its water heater is broken.

[Coronita]

[quote=svelte]To be fair, my father had rentals when it was much harder to do background / credit checks. It might be easier to screen prospective tenants now.

He has long since sold his rentals.

But better tenants still won’t eliminate the midnight “the water heater just went” phone calls…unless you go with a prop mgt company. Then you have a whole new set of problems of the fox watching the henhouse sort…

Buying rentals is tempting, granted. I still re-evaluate it in my mind from time to time. But then I realize how successful I’ve been at keeping my life simple and streamlined and chuck the idea altogether.[/quote]

Parmount and svelte.

Well my experience in the past in bay area was… I selected the first folks that contact me who (1) meet my rent asking price (2) claim to have good credit and no criminal background (3) have an income that can support my asking rent, and who all check out with credit/employment/background checks.

To this end, I and finding out the following

1. Getting someone’s credit is pretty easy these days. Most of the 3 credit bureau have website that provided you know the person’s email address, you send them a request for credit file. They pay for a credit file and send you a secure link to their credit file..You view there credit file.

2. If your tenant candidate happens to work at a large company most likely, the company already has done a background check as part of pre-employment verification, so it is unlikely one would need to do a criminal background check on top of that for someone who still employed there.. So it seems like the only task is to be verifying that the person still works there…which is easy..Most large companies provides an HR number to do this… Furthermore, most HR’s also allow verification of salary, whether they are full time employees or contractors, and how long they have been working.
Am I missing something, or is there some flaw in my thinking?

[disimilar1]

Re: purchasing a home warranty – sounds like a good idea. However how do you get them to repair or collect from the company?

[Coronita]

[quote=disimilar1]Re: purchasing a home warranty – sounds like a good idea. However how do you get them to repair or collect from the company?[/quote]

Recently I had to make a claim on a home warranty. I think what happened was the transformer in my heating unit burned out.. I think the reason while I was having someone redo the thermostat, they must have crossed some of the wires, and shorted it out. Anyway long story short, I called the home warranty company to file a claim. They dispatched on of their partnered heating/cooling repair companies…You pay a service call deductible (mine was $60)…The person came out, diagnosed the problem, coordinated with the warranty company, replaced the broken parts, did a basic walkthrouh of the system, and billed the warranty company.

Worked pretty well for me… Apparently, the warranty companies have been getting really bad reviews so they started to offer policies that are complete coverage policies. And at least with my home warranty company, they honored the heating/cooling part.My insurance policy covers the stove/oven and microwave, dishwasher, garbage disposal, electrical wiring, plumbing, etc.

.. Policy was like $335/year, paid by seller (well I paid $35 part of it). …

I’m still on the fence on whether it would be good to get one or not…The main concern is if major problem happens with heating/cooling system, that’s really expensive. Things like electrical wiring probably don’t have too much issues, that you can’t solve yourself (bad outlet, bad GFCI outlet. Bad circuit breaker)…Plumbing, leaks..Well, yeah maybe…

My warranty did not include non-built in appliances likelike fridge,washer,dryer…But I’m not too worried about… You can get warranty on that too as an add on, but those are more expensive (I think together, insuring fridge/washer/dryer would cost $200 extra per year)…It seems like getting the additional coverage for washer/dryer/fridge is not cost effective because there’s a constant steady stream of used ones on craigslist that are dirt cheap (people moving out, or leaving the area etc)…
Washer/dryer last for 3-4 years at least. So even if you had to replace a washer/driver/fridge every 3 years, you probably would still come out ahead versus getting the warranty for those…

[Jazzman]

Phoenix and Las Vegas have seen much bigger corrections. One of my properties is in Las Vegas, and was bought through a Redfin Partner (Remax) who had a property management company in their office, so the transition was smooth. Bear in mind vacancy rates, which will be higher, but if you find a good property it will rent. The returns are acceptable. The only place I found comparable returns was Rialto. I couldn’t find anything in Riverside. Remember, it’s not just returns, but finding an established, reputable property manager. Let that lead your search. Geographical distance is not a problem with modern communications.

You need to go out there and vet the agents, and see properties. Go armed with questions which will give you peace of mind on trust issues. I can give you some pointers. Most common surprise is costs are usually higher than you wish for. Anticipate 50% of income paid away on costs. I know of no property managers in SB (anyone…sdr, SDR?), but Realtors may recommend someone. Many advertise on craigslist.

With turn key operations, you pay a premium in the sense that you are buying flips, but that’s the peace of mind, and no hassle you are paying for. You buy a rehabbed property together with a tenant already in place.

The first step is to educate yourself thoroughly on the housing market, and being a landlord. Books, blogs, forums and talking to other investors. Biggerpockets is a starting place. Give yourself six months to do this. Good luck!

[exsdgal]

As for broken appliances it is reasonable to take action within 24-48 hours of notification. At least that is how a lease agreement can be written.

On one occasion the water heater broke, and this is how I handled the repair. Ordered a new water heater from HD and had them install it. At that time HD had some models that were eligible for life time warranty. This warranty allows for free replacement if the unit were to break again. I haven’t used the ‘free’ unit so unsure how that process works. It took about a day to resolve the water heater and the tenant did not complain. Cost wise I spent about $150 more than the lowest priced unit, but felt it was worth the additional price.

I consider a late night call about a burst water pipe an emergency requiring immediate action, while a broken appliance can wait until tomorrow. Also the agreement requires all repair requests to be emailed, and the contact phone is for true emergencies.

I am ambivalent about the home warranty… and would appreciate if someone can share their experience when a warranty was helpful.

@cube – thx for sharing your ceiling fan encounter. Hope you have fully recovered. I had not thought about such scenarios.

[sdsurfer]

I bought a condo as an investment property last year in Encinitas.

I kind of went about my decision backwards in a way. Most people look at the cash flow first then the tenant…I wanted to go after a property that would attract a great tenant & cash flow. After I found the property I searched for a tenant that reminded me of myself 10 years ago because I do not remember any of my landlords or property managers having to chase me around for the rent. I learned the tenant first approach at an investment meeting with Ward Hannigan and it seemed to make sense although he does it a bit differently.

Of course there are horror stories out there, but I feel like the people with bad stories tend to be more outspoken than the ones with good stories where the investment went well. I know a lot of people that had it go well and you usually have to ask them about it.

I definitely took a big risk, but I can’t help but think I’m cash flowing about $500 a month and if it comes down to it I could find a tenant in a day if I lowered the rent $100. I intend to keep the rent reasonable so they never move…they probably will, but I’m hoping for the best. I do not know it all as I’m only 34, it might end up being a big mistake but I feel like that condo will be a monthly payment towards a college education for one of my unborn children one day.

[briansd1]

[quote=sdsurfer] unborn children one day.[/quote]

Unborn children, or yet to be born children? (just kidding)

[paramount]

[quote=sdsurfer]
I kind of went about my decision backwards in a way. Most people look at the cash flow first then the tenant…I wanted to go after a property that would attract a great tenant & cash flow. After I found the property I searched for a tenant that reminded me of myself 10 years ago because I do not remember any of my landlords or property managers having to chase me around for the rent. I learned the tenant first approach at an investment meeting with Ward Hannigan and it seemed to make sense although he does it a bit differently.

[/quote]

I think most conscientiousness investors/landlords take the same (or nearly so) approach.

Anywho, as I had mentioned I received an email stating that my PM company had been sold to another company (a different rpm franchise). So I decided to do some digging, primarily because I want to decide who manages my property not someone else.

So the previous owner tells me that there was an assignment clause in the contract and that reassigning my contract was a provision in contract.

So I went back and read the contract and sure enough, the reassignment clause is there in black and white. Well, almost.

The clause stated that the contract could only be reassigned to another qualified PM company. The word ‘qualified’ could mean different things; so I went to the California Department of Real Estate and as far as I can tell, anyone who manages properties for compensation MUST possess a California RE Brokers license.

Since I had the names of the new owners, and I plugged their names in and wouldn’t you know it…neither has a license (of any type).

[sdsurfer]

[quote=briansd1][quote=sdsurfer] unborn children one day.[/quote]

Unborn children, or yet to be born children? (just kidding)[/quote]
Correct. Got ya. I guess I should be more conscious of that difference. Let’s call them the children my wife would like us to have asap….gotta run. duty calls!

[Author]

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