NMMR: Becoming a Landlord

[robyn]

I've posted a little bit about the fact that our house is not selling. We got some pretty inflated ideas from people that it was going to sell very fast, wasn't going to be a problem, etc. We took a risk and bought our current house before selling the old one. It was a good idea for us at the time. Regardless, we are now moving into the 3rd week on the market with no interest for the last 2 weeks. Part of the problem is that the house is only 2 bed/1 bath. It's a cute house with lots of updates in a good area. But it's small. We are going into fall/winter when houses don't sell and we can't afford to carry this house plus utilities through until spring when hopefully it will sell.

There is a woman at DH's work who wants to buy the house, but financially can't right now. We have talked about renting it to her for 6 months, which will put us into spring. At that point she can buy it or we can go month to month on her lease with the understanding that it will be shown while she lives there. But the idea of becoming a landlord makes me want to cry. So does that idea of paying 2 mortgages and 2 sets of utilities all winter though.

If you are a landlord, any tips or advice for us? Is it worth it to use a property management company? How do you handle utilities? How much above the mortgage should the rent be?  We will make her sign a lease and do a background check and credit screen. I told DH we need to ask for a deposit plus the first month's rent up front. I don't think she has any pets thank goodness. She's in her 50's and has an older daughter who lives with her. But she also has a son who has a lot of drama, which worries me. (he doesn't live with her).

I hate that we are in this position, but we did it to ourselves by not playing it safe.

[Marmee]

Pay to have someone give you their lease & do a thorough background check (credit, references, prior landlords, criminal). I don't pay a prop manager since I'm in town. Rent should be dictated by the market not the mortgage. Tenant pays everything at ours except water/sewer/trash. Even if she claims she's going to buy (did you set a price/sign a contract?) I'd treat it like any other renter.

[Deleted]

Aug 26, 2015 15:51:18 GMT -5 Marmee said:

Pay to have someone give you their lease & do a thorough background check (credit, references, prior landlords, criminal). I don't pay a prop manager since I'm in town. Rent should be dictated by the market not the mortgage. Tenant pays everything at ours except water/sewer/trash. Even if she claims she's going to buy (did you set a price/sign a contract?) I'd treat it like any other renter.

ditto. A good rule of thumb in my market (North Texas) is monthly rental price is about 1% of total house value.

[cjeanette]

My SIL did this with 2 properties. One she lived in and couldn't sell and one she bought to flip and couldn't sell. She used a property management company which meant she really had to do nothing other than pay a bill if something needed fixed.

If she rents it for 6 months what is the goal after that? Have you looked into a lease to own agreement?


Edit:  Also I don't 3 weeks on the market is a long time.  At least in my area smaller homes sit longer.  We sold ours in 4 weeks and were extremely lucky.  We only had 4 showings total.  So I wouldn't freak to much that it hasn't sold yet.

[cjeanette]

Oh and I can get the name of the property manager SIL used if you want to look into it. Her homes were in KCK but I am not sure where the manager is located.

[Deleted]

We hate being landlords. Hate it HATE IT. We tried to sell our townhouse when we bought our current house (the houses are an hour drive apart). It didn't sell, after 3 months on the market we'd drained our savings and had to rent it instead. We hate it. The rental market doesn't come anywhere near the cost of our mortgage, so we rent at a 30% loss every month. It's GUARANTEED that anytime we're enjoying family time (vacation, beach, date night), our renter calls that something's broken. So DH has to leave us to go fix it. Same goes for ANYTIME we get ahead with our budget and have some extra money, something breaks at the rental. It's nothing out of the ordinary, our renter is a perfectly nice woman and not high-maintenance. But stuff breaks KWIM. And we just can't support two houses, financially or time-wise. EVERY TIME DH's phone rings unexpectedly my heart races, I just know he's going to get called away.

Frankly, we're so sick of it we're going to fire-sale the townhouse in the spring. We'll probably have to dip into DH's 401(k) to bring money to the table. It really sucks. But we just can't get ahead as a one income household with two mortgages.

[Deleted]

I also think 3 weeks on the market is nothing. I wouldn't be worried yet. If you want a faster sale, can you drop the price?

[robyn]

Marmee thanks, I found a website that seems to do all of what you listed. Our ideal would be she rents for a 6 month lease, then if she is able to buy and still wants to at that time she does, otherwise it goes back on the market and she can rent month to month until it sells, or she can move out and hopefully we can sell it quickly at that point. We will be treating her as a normal tenant.

cjeanette the goal after 6 months would be for her to buy (she's cleaning up some credit stuff from a divorce). Lease to own is way too complicated. I see people getting screwed over by that all the time so we are not offering that at this time. The only reason the timing is freaking me out is because we are getting into the fall when showings/buying drastically slows down. We would like to get a tenant in while we have one and she has to move out I think by Oct. 1. Kind of between a rock and a hard place here.

[cjeanette]

Aug 26, 2015 16:04:06 GMT -5 robyn said:

Marmee thanks, I found a website that seems to do all of what you listed. Our ideal would be she rents for a 6 month lease, then if she is able to buy and still wants to at that time she does, otherwise it goes back on the market and she can rent month to month until it sells, or she can move out and hopefully we can sell it quickly at that point. We will be treating her as a normal tenant.

cjeanette the goal after 6 months would be for her to buy (she's cleaning up some credit stuff from a divorce). Lease to own is way too complicated. I see people getting screwed over by that all the time so we are not offering that at this time. The only reason the timing is freaking me out is because we are getting into the fall when showings/buying drastically slows down. We would like to get a tenant in while we have one and she has to move out I think by Oct. 1. Kind of between a rock and a hard place here.

I would only go into this if you are okay with the chance that she many not be able to buy it in 6 months.  If she has been denied for a mortgage at this point I would have serious concerns that her credit will improve enough.  Or perhaps an interest rate hike could make the house not affordable for her...etc.

Basically have a plan B and a plan C.

[robyn]

Aug 26, 2015 16:03:43 GMT -5 @supergreen said:

I also think 3 weeks on the market is nothing. I wouldn't be worried yet. If you want a faster sale, can you drop the price?

Yep, we have dropped the price twice. If we sell it at our current price we will make $1500 before commissions and will be selling it for $4K less than what we paid for it. We bought this house in 2005 when we were 22 and dumb, with no money down, and it lost almost $20K in value when the market crashed. It has rebounded, but just barely so I totally feel you on having to bring money to the table. Thankfully based on what I've seen on Zillow for rentals we should be able to get enough to cover our mortgage each month.

[Cicero]

How is the rental market in your area?

We gave up on selling our other house pretty quickly because the rental market is so strong and our house is in a really high demand area. It's worked out well so far but we have a management company so we don't actually have to deal with anything. We do pay for lawn service but the renters take care of everything else.

[robyn]

Aug 26, 2015 16:07:27 GMT -5 cjeanette said:

Aug 26, 2015 16:04:06 GMT -5 robyn said:

Marmee thanks, I found a website that seems to do all of what you listed. Our ideal would be she rents for a 6 month lease, then if she is able to buy and still wants to at that time she does, otherwise it goes back on the market and she can rent month to month until it sells, or she can move out and hopefully we can sell it quickly at that point. We will be treating her as a normal tenant.

cjeanette the goal after 6 months would be for her to buy (she's cleaning up some credit stuff from a divorce). Lease to own is way too complicated. I see people getting screwed over by that all the time so we are not offering that at this time. The only reason the timing is freaking me out is because we are getting into the fall when showings/buying drastically slows down. We would like to get a tenant in while we have one and she has to move out I think by Oct. 1. Kind of between a rock and a hard place here.

I would only go into this if you are okay with the chance that she many not be able to buy it in 6 months.  If she has been denied for a mortgage at this point I would have serious concerns that her credit will improve enough.  Or perhaps an interest rate hike could make the house not affordable for her...etc.

Basically have a plan B and a plan C.

I agree with you on this. We don't want to be landlords AT ALL, so entering into a traditional 1 year lease with someone is not optimal. We want to get rid of the house ASAP. So letting her live there for 6 months to get us to the spring when people are buying again seems like the best way to do it. I think the main issue with her buying is that she was out of work on worker's compensation for a period of time so her income reflects that. Now she's back full time. There are so many what-if's in any scenario, it totally sucks. I will let you know if I need your SIL's property management info, thanks!

[imojoebunny]

I don't recommend renting for a 6 month lease. It is a pain to turn a property and cost more money than it is worth. She is unlikely to buy it, unless you have a contract in place with specific terms. I agree that three weeks is a drop in the pan for selling a house. We are in a hot market, and some houses still sit for months because they are not for everyone. If you want to rent it, rent it on the open market, CHECK CREDIT, and don't go the "friend" route, especially a co-worker. I can imagine the fall out when she either can't or doesn't want to buy it at the end, or if things are not perfect, and you don't get it fixed fast enough for her. No way would I do that.

I would like to reiterate the credit check part. No matter the income, you really can't believe how bad some people can be off, even though they seem fine. I have rented apartments to people driving Jaguars, wearing suits from Neiman's, that defaulted on leases (when I was in college, not for our rentals). Other's, with tool belts, and stained shirts driving beaters, had stellar credit and paid on time, every time.

We don't use a property management company. You can get leases and credit checks online. I think MM has proven that selling a place that is rented is hard.

[InBetweenDays]

We have several rental properties that DH manages. For the SFH we had (just sold it) we had virtually no problems over the 6.5 years we rented it out. Occasional maintenance, but really it was not a hassle (the house is less than a mile from ours). Our renters paid for all of the utilities but we did have someone do yard work. And as a PP mentioned, I would base your rent on what the rental market dictates, not on your mortgage. Which really should be your first step to see if this makes sense. Figure out some comparable rents, and see if it makes sense (financially) for you to hold on to it and rent it out.

[imojoebunny]

Aug 26, 2015 16:04:06 GMT -5 robyn said:

the goal after 6 months would be for her to buy (she's cleaning up some credit stuff from a divorce).

Of course she is, I am sure she had no part in it either.  I hate to be cynical, but really, run her credit.  6 months is not enough time to clean up a lot of credit problems.  

[robyn]

Aug 26, 2015 16:22:27 GMT -5 imojoebunny said:

Aug 26, 2015 16:04:06 GMT -5 robyn said:

the goal after 6 months would be for her to buy (she's cleaning up some credit stuff from a divorce).

Of course she is, I am sure she had no part in it either.  I hate to be cynical, but really, run her credit.  6 months is not enough time to clean up a lot of credit problems.  

I know I'm cynical too (I've also done bankruptcy law for the last 10 years so that plays into my cynicism.) I agree with a lot of what you said here and above. I don't have super high hopes of her actually buying it in 6 months, that's just her goal. The 6 months is mostly just a way to get us through the fall/winter when houses aren't selling. I made an appointment with a property management company here to talk about options.

[robyn]

Aug 26, 2015 16:08:04 GMT -5 Cicero said:

How is the rental market in your area?

We gave up on selling our other house pretty quickly because the rental market is so strong and our house is in a really high demand area. It's worked out well so far but we have a management company so we don't actually have to deal with anything. We do pay for lawn service but the renters take care of everything else.

Rental market in our area seems decent. I've made an appointment with a property management company to get their input on rent amount and their fees. From what I'm seeing on Zillow we could rent it out for enough to pay the mortgage and a little more.

[pooh8402]

Don't do it!

I hated being a landlord. Dh and I said never again.

[robyn]

Aug 26, 2015 16:31:24 GMT -5 pooh8402 said:

Don't do it!

I hated being a landlord. Dh and I said never again.

LOL we so don't want to!! Here's hoping something will happen and we won't have to.

[Deleted]

Rent it out but do not do a lease to own. My h says that these very rarely work out. In Texas, the courts tend to side with landlords but you lose a lot of flexibility doing a lease to own when it comes to evictions and stuff.

[robyn]

Aug 26, 2015 16:51:47 GMT -5 @missy1 said:

Rent it out but do not do a lease to own. My h says that these very rarely work out. In Texas, the courts tend to side with landlords but you lose a lot of flexibility doing a lease to own when it comes to evictions and stuff.

Yep, no lease to own. I've never seen one work out well. If we do rent to her it will just be a standard landlord/tenant rental.

[marie3246]

Aug 26, 2015 16:22:27 GMT -5 imojoebunny said:

Aug 26, 2015 16:04:06 GMT -5 robyn said:

the goal after 6 months would be for her to buy (she's cleaning up some credit stuff from a divorce).

Of course she is, I am sure she had no part in it either.  I hate to be cynical, but really, run her credit.  6 months is not enough time to clean up a lot of credit problems.  

ditto this. I have been in real estate for 6 year and we own a handful of condos we rent and just rented our house for the 2nd year. Almost every tenant tells me they want a long term lease or wants to buy our house. Our last tenants in our house wanted a 1 year lease and then wanted to buy. We were really thinking about selling it since renting a house is a much bigger pain than a condo and turns out they were not being truthful at all and were actively looking for a home and wanting to get out of their lease early. 

Do not count on her buying in 6 months. Don't make any decisions based on that. It is unlikely 6 months will make much a difference if she is unable to get a mortgage for your house right now. 

If you want to sell, I would rent to her for 6 months and then plan on having her vacate at the end of her lease. Obviously she can have the option to purchase, but let her know you will be putting it on the market by a certain date. Make sure you add that in the lease so she will have to allow showings. 

I have been using cozy dot co for my condos recently and I like it so far. The only issue is that it takes about 10 days to get payment directly into my bank account, but it is very nice to not have to deposit checks and it is a nice organized system. Their background and credit check is just ok. I prefer have the tenant fill out an application, send it in with the application fee (if you charge one) and do it myself thru my company. I have also used bigger pockets for background/credit check and liked that service a lot. 

For the lease, I would see if you could find a lawyer who does leases in your state (I pay one $50 per lease). You could also use legal zoom, I believe they have one for each state that is decent. 

I would not hire a property manager since you already have a tenant. If she decides not to rent it, I might consider it, but I have been doing it myself for years and while it can be a pain, its not hard to deal with it yourself to save some money. 

[aspentosh]

We rented because the market was still rebounding and we needed to get out of our TH.

We ran background checks (asked for a check with each application) and had them submit a recent credit score. We called previous landlords and other references. It worked out really well for us because we were able to sell after 2 years and they took care of the property pretty well.

Just make sure you have an iron clad contract, ask for security deposit (= to one month of rent) plus first months rent up front, and keep on top of it.

We didn't pay a company because we were local. Utilities were transferred to their name (I provided the info on how to hook them up in the contract). And before they moved out I required a copy of the last utility bill to show they were paid up.

[thatgirl2478]

We were in a similar situation, except our house was on the market for 9 MONTHS with no bites.

We put a renter in, and in 18 months she and her kids did $13k in damages. We made NOTHING - rent was $950 our mortgage was $1400. I can elaborate if you like.

[Deleted]

Yeah I really wouldn't do it for 6 months either. I get wanting to and the pain/hassle of double mortgages, but so many things can go wrong. We have perfect tenants and a house that is less than 10 years old and we still will never do it again.

We rented our house out when we bought 2 years ago because we bought in 2006. We used my life savings as a down payment and I just couldn't stomach losing all of that AND bringing money t the table. So Ive been there. But still...it depends how risk averse you are because truly it could be worse than your house sitting for 6 months.

[vanillacourage]

Mysmartmove.com

i would be very wary about renting to a coworker with bad credit. This is business!

[MDmomof2]

I would hate to be a landlord so I'd keep it on the market longer. I know you are worried about the fall slow-down, but you are selling a 2 bedroom which is unlikely to be attractive to families with kids who want to settle before the school year. Hang in there!

[robyn]

Thanks for all of the input. DH is all gung-ho about this. I'm not. We need to do some serious talking about it. He was out last night, and wanted to talk about it while I was getting ready this morning. I told him we would talk about it tonight in detail. I may just make him read this thread first!

[robyn]

Aug 26, 2015 20:09:32 GMT -5 thatgirl2478 said:

We were in a similar situation, except our house was on the market for 9 MONTHS with no bites.

We put a renter in, and in 18 months she and her kids did $13k in damages. We made NOTHING - rent was $950 our mortgage was $1400. I can elaborate if you like.

Ugh, I'm so sorry that happened to you! What horrible people to do that kind of damage to someone else's home.

[leonard131]

I say don't do it but then again I have had the worst luck and my property is probably in the most tenant friendly place in the whole country.

We did all the right things, property management company, background checks, etc and we are still sitting at 3 months without rent.

If you are serious about renting I would ask yourself how long you can comfortably go without receiving rent and be able to make both mortgage payments. If it is more then 3-4 months I would do it. This isn't only because of the chance your tenant won't pay but also finding a tenant can take a while, there can be turn over or a major repair.