I am debating buying a second home to rent out. I can get a killer deal on this place. The home was built in 1991 and it doesn't really need much work, just some minor cosmetic stuff that I could do in my spare time after work in a week or so. So my question.... Do you, or have you ever rented a house to someone? I know the experience of the venture would have a lot to do with the tenate... But how did it go? Would you do it again? Details please.....
My mother and her 2nd husband owned seven houses at one point. I remember riding in the El Camino to go track down the infamous trucker known as McAllister the Disaster. Dude had six daughters and still trying for a son and was never around come rent time. After some time they sod all their ****holes and we moved to the country to our split level 2100 square foot paradise. To make a long story short, make sure that you can float two mortgages should you not get paid on time or even for a few months. Do thorough credit checks and reference checks on the people who will be renting and consult with a lawyer and know your rights as a property owner. Here in Illinois I have seen bastards go several months without paying and then the property owners have to file a court motion to get them evicted. Can be lucrative but can also be a pain in the butt.
I've rented out houses and it can be great and it can be a nightmare. Good: 1) A rental house that pays for it's self and even makes income is a serious way to build your wealth. If you can leverage the equity you can really multiply worth. 2) Now is a great time to buy. Bad: 1) A rental house is almost always considered a liability as far as banks are concerned. So if you wanted to buy a more expensive personal home, they'd look at the payment you have for your rental and count that payment against your income but they won't consider the income from it unless you have a couple years of tax returns showing the income and a signed, long term lease. 2) You're twice as tied down to an area with two houses. It's hard to be an absentee landlord. 3) If you need to liquidate in a hurry and the market is like it is now... well, you're screwed. 4) A bad tenent can wipe away several years worth of rental income by trashing your place, not paying rent and costing you court costs to evict them. My advice... never rent to friends or family unless you have a detailed lease and the nerve to enforce it. Don't rent to strangers without doing a check on them and get a detailed lease and the nerve to enforce it. :d No dogs, no waterbeds. Check on the property from time to time. (and most of all.. Don't let your soon-to-be-ex rent out the house that you paid for!) :D
I have been helping my father rent houses for a few years now. I help do the fix up work (initial is always WAY harder than in between tenants), pick up rent from those who "need a few days", and make house calls when something goes wrong. The houses are an amazing investment. Watch for "fix er uppers". Not a dump, but the houses that need just enough elbow grease to get it living ready (paint, new floors possibly, etc) to ward off the lazy buyers/investers. Auction houses can often sale for a LOT less than what they would on the market, enough so that if one was lucrative about it..they could make a living flipping houses by buying, fixing, and selling (just takes a lot of money being tied up while you wait for the sale). We currently just buy to rent. My main advice, don't allow weird color paints that take several coats to cover up, do NOT on ANY circumstances allow ANY wallpaper , and have an enforced late fee. One months rent, one months deposit. typically 1 year lease around here. Avoid carpet when possible, other surfaces are MUCH easier to maintain and keep "new" from renter to renter. Remember, if it pays for itself, even if you make minimal to no cash flow....you are still coming out GREAT in the long run. Someone is BUYING a house for you over the years if they make the payment, you just sign for it upfront. Typically there are two types of rentals, those that are investments which grow in value over time, and typically don't cash flow that great month to month....and those that are just a dump, they cash flow a LOT...but your investment won't grow and may even depreciate slightly. Both are money makers, one is for cash up front, the other for a great investment down the road. I will most certainly be in the rental business when I get sufficient funds to jump in. The sooner the better. You will be burned occasionally, but watching who you rent to can really help this. All in all, the burns can be overcome considering that in the long run, it is STILL a small price to pay for a house being paid off in your name. And down the road when the houses are finally free and clear, talk about a money maker....More than a full time salary (like double) for nearly anyone can be had by less than a dozen homes easily once they are paid off. The hard part is getting the bank to allow you to buy them, which they are tightening up here recently.
I know the gig from other ventures. It can be very fool proof if you have everything covered. The rental market is extremely important (for obvious reasons) and before you venture out, make sure that you know what it's like. I've been fortunate as the area of our properties were in a hardcore college town and were extremely easy to rent. Screening your tenants is EXTREMELY important, depending on your market you can screen as much or as little as you like, sometimes you have to "settle" for a tenant to fill the vacancy. I will not rent a property if it won't cover the mortgage, plus a few additional hundred bucks per month. At the very least with lots on 9 and 10 month leases here, I wouldn't rent it if I couldn't make enough additional throughout the year to cover at least 2 of my 3 month vacant periods. I understand that may be difficult elsewhere, but where I'm at, that's my goal. Also, your deposit is extremely important. Not only will it pay for some damages if need be, but if someone skips town, that money should be able to buy you a couple months to find another tenant. It can also weed out some of tenants before you actually have to interview them. I know my dad has also asked to look in people's vehicles, because a lot of the time they take care of their vehicle like they'll take care of your house. If you ask a group of well to do people, they've made reached their financial status by property... not the stock market.
The easiest way to keep every thing in check is to pick up the rent in person every month a quick walk thru lets you know how they are treating your investment. And when you get a good Tennant treat them good, don't try and suck every last buck out of them, it will cost you more to have your house empty than you will make up in an extra fifty per month.
While not personally having done it, I have 2 close friends that did. #1 didn't screen tenants that well, got a complete trash family in there, could not evict them for many months, & many thousands of dollars later. Lost a lot #2 started out just by buying a duplex, lived in one side, rented the other. Slowly picked up more & more places. Most were small 4-5 unit apts. Now we tease him that he is a slum lord...but the dude could retire at a moments notice & live off his properties now.
You could rent it while you try and sell it. I have flipped houses in the past and made my money up front. If you are looking long term duplexes are the way to go. IMO
We own a two family free and clear that we used to live in.Tenant selection is key.Don't be a softie,you will get burned.I am not especially handy and a don't have a lot of free time.If I had those qualities I wouldn't hesitate provided I could buy the property right and had a goo market for tenants.The rental income from that property has allowed us to live in a home that we other wise would have to really stretch to afford. I have lot's of clients that own many investment properties,some of them do remarkably well.
