We recently move to new house and our old house will be in the market for leasing. I was thinking about selling it but I can rent the house little over double the mortgage that I am paying right now. So I thought why not? So here I am trying to get any suggestions or websites that can get information about first time landlord like me. I am thinking about hiring a property management too but they are saying that they will charge me 15% of the monthly rent. It’'s not about 15%. I am glad to pay that but I just want to learn myself all the ins and outs as I might acquire more properties down the road.
I didn’t see a specific question but you can expect doing your taxes to become more complicated. I use a spreadsheet to keep track of everything like: amount of rent received, tenant repairs, landlord repairs, HOA fees (if any), rental property insurance, property tax, advertising/listing fees (if any), and total number of days rented. You should get rental property insurance and umbrella insurance too.
I am an intentional landlord (as opposed to accidental), and I’ve spent a lot of time getting ready, reading, learning, so when I actually got a rental property it was not overwhelming. Other than figuring out how to do taxes for it, I read my state’s legal guide for landlords and tenants (free!), and picked up Landlording by Leigh Robinson and Nolo’s Landlord’s Law Book for my state. As far as forums, FWF had a great thread (perhaps we can revive it here, many of the contributors are members here), but I’ve also found a lot of info on biggerpockets.com (website and forums). IMO one of the best sites for figuring out how much to charge for rent is Zillow (Rent Zestimate, plus you can see what others are asking in your area). I also track all income and expenses in a spreadsheet, which makes filling out Form 1040 Schedule E very easy.
Around here property management companies usually charge a few hundred bucks to advertise and get a tenant, then 6-10% of the monthly rent. A few charge half of the first month’s rent to advertise and place a tenant followed by a flat fee, like $99/mo, but that could end up costing more if the tenant stays less than a year and the same if the tenant doesn’t stay much longer than a year.
You can make money renting. We did renting out 4 homes. If you get a good tenant great. But the other tenants. Renter calling a plumber to light the water heater at emergency rates, then taking the plumbers charges off the rent payment. After telling tenant to call us before calling a tradesman, getting calls at all hours over stupid things. Going to court with months long eviction process. Repairing and replacing after tenants leave the place trashed and stripped. I make my money other ways with much less stress.
It’s important to look at what you would make (net) from being a landlord versus the expected return of the funds if you sold the house and invested. For many people, they would rather take the returns of passive investments since there’s no hassle involved.
Consider talking to your bank - the rate you’re paying may change if you’re no longer residing in your house (this is just what I’ve seen others say, I don’t have any knowledge of this area).
This is no where near enough information to make this decision. @BostonOne is right, you need to compare your investment income with the sale income. And you need to put a value on your time and effort as a landlord, even if you do have a management company do all the difficult work.
An even simpler way of looking at it is like this:
Let’s say your home would sell today for $200,000. You have a mortgage on it for $150,000. Your monthly mortgage is $1000. You can rent the house out today for $2000. In an oversimplified equation (using net numbers, so assume you have factored in sales commissions and maintenance on the rental), you will make $1000/month profit. That’s $12,000 a year.
If you had $50,000 sitting in the bank right now, would you invest that $50,000 to make $12,000/year?
What if the equity in the home was $100,000 and the rent profit was only $500/month? Would you invest $100,000 to make $6,000 a year?
Figure out those numbers for your case and look at it like that. Pretend the home equity is cash in your pocket that you have to INVEST in order to make money as a landlord. DO NOT assume your house will continue to go up in value the way it has for the past 5 years - look mostly at the rental income in making your decision. Contrast that income with a conservative estimate of the income/appreciation you would get from another form of investment for the home equity.
Could OP pull out the equity regardless and invest that to his/her liking? Leverage the property to close to 100% and then all he has to do is beat the mortgage rate?
You can always do that. Then you just ask yourself, “Should I take a 5% loan in order to invest in XYZ which I think will make me XX%?” The answer to that question is usually, “No you shouldn’t.”
Edit to add: I didn’t realize you meant rent it out AND pull out the equity. See Jerosen’s point below.
I don’t know easy ways to leverage rental investments to 100%. Maybe theres some trick to that but you generally can’t get home equity lines on investments and they expect 25% equity for mortgages.
No, he definitely should NOT talk to his bank, and no – generally, the lender cannot raise your rate if you convert your primary residence to a rental. There may be exceptions if you obtain a “primary / owner-occupied” mortgage rate and then never occupy it or occupy it for a short time (I think “less than 1 year” is the usual contract wording).
Why? If the lender cannot raise the rate, what’s the harm?
There are certainly clauses in some mortgage contracts which would require a homeowner to report to a lender that they are no longer the occupant of the property. Does the risk in notifying the lender outweigh the risk of not fully complying with the mortgage terms (not a rhetorical question, the answer very well could be yes, but still worth considering).
Also, you probably have to provide some indication that you are not residing there in that the address for contractual notices to be sent to may have to change. Perhaps it already is set to go to an attorney or PO box, but if it isn’t, it’s definitely something that needs to be reviewed.
I think it’s likely the lender will find out - through property tax filings not claiming homestead exemptions, changes to insurance policies, etc. But if they can’t cancel your mortgage or change the rates after the first year is up, why not notify them?
I was just providing examples of how a lender could potentially find out you aren’t living in your home - it doesn’t have to be the homestead exemption. We don’t know OP’s state and California, Illinois, New York, and Texas all have these exemptions. But even if the property is in a state where it doesn’t apply or the homeowner never claimed the exemption, there are other ways for the lender to find out (e.g. change to homeowner’s insurance, change to notification address, and probably many others that I can’t think of).
Scripta was adamant that you should not contact your bank, so if it’s important that the bank not find out, OP should consider how to move forward to keep the bank from finding out.
Generally the banks don’t care as long as its not within a short period after the loan was originated. There are some exceptions for certain kinds of mortgages but those wouldn’t be standard. (thinking of loans that are assisted by govt. programs to make purchase affordable)
I don’t know if theres a specific reason to NOT tell the bank generally, but Scripta might.
Thank you all for the replies.
I bought the house in 2014 and moved out from there at the beginning of 2018. So I lived little over 4 years there. I don’t think the bank (credit union in my case) cares as much whether I tell them or not. But why should I throw a stone in a standstill water, right? If they come and tell me that they will increase the rate, I will cross that bridge when that comes.
I bought the property for a very good price. I am not in hurry to rent it right away. I want to find the right tenant. I was renting that place before I bought it in 2014. So I rented that place for four years before I couldn’t pass the opportunity as the price was too good to pass. The landlord I had before was long distance landlord and she didn’t want to deal with it anymore. If I sell it now, I can easily make $100K more than what I paid for. So it was a good investment.
If I invest in a land in my country in south-east Asia, I know I can double that money in 3/4 years. I bought land in 2015 in my country for $120K and now someone is willing to pay about over $250K if I want to sell it. That’s how bad/good the market is out there. Sometimes I think…to hell with being a landlord, I will sell it and invest it but other time, I think, well…down the road, when my kids grow up and leave, I will need that house to come back to because it’s just good size for a couple. That’s a long time coming.
I pay $572 for the mortgage plus $100 for HOA. I did a good chunk of downpayment when I bought it originally without thinking about other investment options (I know dumb idea now). And I will be easily able to rent it for $1650 to $1700. I am thinking about aggressively paying it down. My whole thought process is that, if I rent it, it will be paid off by the time if I decide to move back. The income from it shouldn’t matter much from where I stand at. I might be wrong.