I have been fortunate to experience both sides of the rental equation. I think most of us have been (or are) the renter. Fewer of us have been the rentee.
When I first purchased that duplex down in Somersworth, I was terrified. There are no shortage of scary tales of terrible tenants.
One family friend explained the experience of his tenant smearing wallpaper paste mixed with grass seeds all over the walls in order to "plant" them and get grass to grow on them. The same tenant had (discreetly, apparently?) moved in multiple bags of potting soil and mulch in order to make a small garden in the living room. Yeah, those stories are not what I needed to hear at the time.
But looking back on my experience, I had an amazing time. I met some cool people. And, more importantly, those people were responsible for paying down my mortgage.
The primary driver for me, when it comes to rental properties, is the investment value. I love the ability to get a piece of property in my name and watch the mortgage dwindle down while others are making those payments for me. It is incredibly satisfying and something I can't wait to get back into. All in good time.
Today, I'd like to look into the prospect of becoming a landlord and offer up a few suggestions for you. While I don't have all the answers, there are a few tips that are pretty universal I believe will help keep you on the path to a successful project.
And you should think of this as just that: A project. You will work on it. You will strategize a bit on it. And you will also tweak your processes along the way. It is a learning process for sure and one that will reward you for your learning. So let's get started.
The first question is whether or not you have the time to take this on. When I owned this property, I had just moved to Lincoln and was working on ski patrol at Loon Mountain. The primary hassle with this was having to drive two hours to show a prospective tenant the apartment or to fix some sort of issue with the other, rented unit. I mostly worked weekdays, so weekend jaunts down south were not uncommon.
Having a rental property does take a toll on your free time. It is basically like having a part-time job. You will be responsible for rental showings, repairs, emergencies that arise and a whole assortment of other interruptions into your daily life.
I feel very fortunate that the majority of the "systems" in both units were quite stable. The furnace that heated the whole building was functioning just fine and had been maintained properly. I put a new hot water heater into one of the units before renting it and that remained stable as well.
In general, I avoided those 2 a.m. phone calls by things just functioning as intended. The lesson here is to get and keep those things well maintained and serviced. This will simply prevent issues later on.
The money is the other entity that you'll want to have a good handle on (and have a bit extra as well). While the property will certainly take your time, it can also be a bit of a strain on your wallet.
The bank, when you're going for financing, will allot you about 70 percent of the rental income (to essentially add to your "income" for qualification purposes). I think this is also a good number for us to use for the actual income we will get. For example, if you're charging $1,000 a month, you should really only count on $700.
This is a safer way for you to budget in case a tenant flakes out and leaves or simply misses rent due to their own financial struggles. One of my tenants was (literally) always late with rent, but also always paid. While this was a bit annoying for my budgeting purposes, I was always able to pay the mortgage on time and always (eventually) got their rent payment. It helped to have a few months of mortgage payments in the bank so I was more able to absorb the late payments.
And everything you can do, regarding maintenance, property management, etc. that does not involve you hiring the service out, is going to save you money and give you a sense of satisfaction that is unmatched. When possible, do it yourself. Nobody has a more vested interest in those four walls as you.
When looking for an investment property, there are a couple of things to keep in mind that should help you along the way.
"One of the best pieces of advice I ever received was to keep things impersonal and business-minded when it comes to buying an investment property," Badger Realty agent David (Doc) Dyson said. "Don't get emotionally connected to the property itself and maintain the thought-process that it is solely a vehicle for investing your money (and making more)."
And just like purchasing a home, research is paramount. You'll want to be aware of the location (obviously). It would be super helpful to know about any upcoming construction (road or commercial). And a decent understanding of the rental market (past and future) will help you evaluate the property through the eyes of a landlord, not a tenant. It needs to be a property that "other" people will be interested in paying to live in. Your tastes, at this time, are not a factor. Mass appeal is the name of the game.
Purchasing rental property, as you've heard me say in the past, is a fantastic way to build your financial worth and even establish future income as your mortgage is paid down.
You should certainly enter the "game" with an open mind, thoughts towards the future and a critical understanding of the potential hiccups and overhead costs that are associated. All that said, I couldn't be more excited about my next property purchase.