My (Many) Thoughts on Becoming a Landlord

>> 6.28.2012

Making the Decision

We were lucky to be in the position that we were in this past winter when we decided to rent out our (my) old house instead of selling it once we found our new home. For one, we could afford to buy the new house without selling the old one. The last house was purchased by me alone on a smaller salary and Nate's savings + wedding gifts + my savings was enough to move forward on a new loan with 20% down. Oh, and we don't have any other debts so the ratios worked in our favor. The other major factor working in our favor was that the rental market in Austin was/ is super competitive right now. We knew that we would be able to rent out the place for a profit and we knew that it would rent pretty quickly.

Knowing that we *could* rent if we wanted to, we just had to decide if we wanted to become landlords. The pros and cons list looked a little like this:

Pros for renting:

  • Easier in the short term- We wouldn't have to worry about selling, which could have been much tougher than renting.
  • $$$- We stood to make a monthly profit of over 20% or $225 after carrying costs (but minus major unexpected maintenance).
  • Equity- We stand to gain equity over the next few years if the market continues to grow and we should be ever-so-slightly chipping away at that mortgage as the months go on.
  • Backup home- It was nice to have another home to live in as we painted our new home. In addition, ithe future, if/ when we do a big addition project, this could also serve as our temporary home for a few months.

Cons for renting:

  • The bookkeeping- The tax laws are confusing. I have a general idea of what deductions we can make and when we should claim our income, but this will be the year that we finally hire outside help to file our taxes. 
  • Potential loss of equity- The market could improve, but it could also decline and negate any profits that we make monthly. 
  • Unexpected maintenance costs- These could eat away at our profits big time. Insurance should cover most big things, but there would be deductibles involved.  
  • The time- Even in the best-case most minimal situations, we're going to have to spend time maintaining a separate property including paying bills and filing documents.

A peek at the thought that went into our choice.

Property Management

Obviously, the pros (money) outweighed the cons somehow (money) and we made the decision to  move forward with the rental (to make more money). Next, we weighed our options on using a property management company vs. managing the rental on our own.

Pros for hiring property managers:

  • Easier and probably less stressful- The property management companies offer services ranging from signing a tenant to maintaining the property. We wouldn't have to do much more than sign some checks if we chose this option.
  • Saves time- We wouldn't have to communicate with the tenants, advertise the listings, or research the landlord laws.

Pros for DIY property management:

  • Saves money- The standard start-up fees alone would eat up several months worth of profit and the monthly fees would eat up a decent chunk of what we would have left.
  • Control- Sure, we could let the pros do everything blindly, but it would be nice to have an idea of what's going on with our own home and how exactly the maintenance work is being done.
  • Flexibility- If things didn't work out the DIY route, we knew we could always start using a management company, but we wouldn't be able to ask for a refund if we changed our minds.

Finding Tenants

Again, the money made the difference in the equasion and we made the leap towards doing it all ourselves. Living and working less than 15 minutes from the rental was probably what pushed us over the edge. 

The first thing that we did before finding tenants was to pick up a lease packet from Austin Tenants' Council. Talk about a lifesaver! For $20 we received all of the legal forms that we would need along with a bunch of helpful booklets on what we should be doing to comply with the law.




Once we had our forms ready, we did a bunch of little things to make the home tenant-ready including paint touch-ups, fire alarm checks, etc. Finally I made a genius move which not only got us the best tenants ever, but found them in about a week!

My Genius Move

Instead of creating an ad on Craigslist, I actually scanned the "Housing Wanted" section for people who would be a good match for our place in both budget and location. The people who place ads there generally write a few paragraphs about their wants as well as information about their own backgrounds. When I found some seemingly perfect tenants, I sent them emails that included pictures of my furnished rooms and more information. The first two people that I contacted were interested and the very first person that came to see the place took it! The best part was that I was able to get an employed, late twenty-something female tenant out of the deal (as opposed to my worst nightmare: drunken frat boys).

Managing the Property

*knocks on wood* Over the past six-ish months, managing the property as been about as easy as finding a tenant. We've received our rent checks by mail at the beginning of each month and have had minimal maintenance problems to deal with. So far, we've had to hire a company to chop down a tree that died in the drought, a plumber to replace water lines to the toilets (preventative maintenance), and Nate swapped out the faucet and snaked the dryer when requested. We're definitely not regretting any of our choices six months in, but I'll be sure to update again later if my opinion changes.

If you're interested in becoming a landlord, I'd suggest thinking about the following first:

  • What kind of profit margin will you have after mortgage, taxes, insurance (after including renter policy), and maintenance costs?
  • What is the rental market like in your area?
  • Do you have the cash flow to cover emergencies in both homes?
  • What are the tenant protection laws like in your state? How hard will it be to evict, if necessary?
  • How long do you plan on holding onto the property? How will capital gains taxes affect your profit margin?
  • How will the extra income affect your income taxes?
  • Who will take care of the property while you're out of town?
I promised to do a write up on my experience months ago. Feel free to ask any other questions in the comments below if I've missed one!

PS I did get one late night phone call about two months ago. The neighbor, who was out of town, had a pipe burst in their home and my tenants discovered the leak when they saw water flowing through the wall of the neighbor's house. It was really bad! They had water flowing through their house for several hours and ended up gutting the entire first floor!! Luckily we haven't had any catastrophes yet, but I keep that in mind when I think about how smoothly things have gone for us.

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Hello again!

>> 6.27.2012

Three years ago, when I started this blog, I made a promise to myself that I would never be one of those bloggers who constantly does the "sorry for not posting; I swear I'm really here for good now!" posts that end up amounting to nothing. That promise has kept me from checking back in during the last five months when I just haven't felt up to blogging. I suppose you could say that I was burnt-out. Being busy with work and other not so blog-worthy activities just added to my issues


The perfectionist in me wasn't going to do any blogging if I wasn't going to do it right so I checked out 100%: no posting, no commenting on other blogs, no moderating my own comments, and no checking my emails. It was about a month ago that I began getting the itch to come back, but I wanted to come back big by creating several posts over a weekend and then posting regularly starting the following Monday. The posts were never created and, well, here I am today with over 1,000 emails to go through (mostly spam) and a lot to blog about!


As I promised myself years ago I won't swear that I'll be back to posting daily again. I also won't apologize for taking a break or lacking of posts... BUT I do want to sincerely apologize for ignoring those of you who have left comments or sent emails regarding my absence! That was not cool of me and I will check in with a warning if I do decide to drop the blog again. Readers and fellow blogger friends are really what drive me to share my life in the first place and I did not convey that with my actions :(

Let's catch up! Here's what I've been up to since the end of January:


January- February 

* I started spending money. I guess the super savings mode that I was in for our wedding and new house finally cracked me because I was all of the sudden aware of the extra "fun money" budget that I'd been missing out on and finding all sorts of ways to spend it all!

*I became obsessed with nail polish and make-up. So random, but so addicting.

March-April

*I got back on a Craigslist kick. Our old table that I spent so much time refinishing? Gone! I've replaced it with another Craigslist find that fits better in our new home (and made a profit while I was at it).
 Here's a preview of the new table and a some fixtures that we're swapping out.

*After some quiet months with our tenants, we did some land-lording.

*We did some major exercising. Like "20+ hrs/ week and spend all day Saturday and Sunday sweating" type of exercising.
In Texas, you stop to smell the bluebonnets. 

May-June

*I did an Ironman triathlon. Nate did it too. We both finished!...and then both got IVs at the end so no cute photos to share. Here's one from the starting line (when we were still smiling):


*We finally took our honeymoon to Bermuda! It was really beautiful and relaxing... and kind of, but not super thrifty.
 
*The money we'd been spending started catching up to us. Yikes!

 *We FINALLY started working on  renovating the garage apartment so that we can rent it out for extra cash.
 And of course we found a mold problem once we pulled up the flooring. Of course!

*I started reading The Happiness Project and thinking about what makes me happy. I realized that I'm happiest when I do things that make me proud. I missed blogging because it made me feel proud and happy! I came back!

How have you been?

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