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@Goldilocks1107: I have a friend who is staying in a hotel right now with her husband & almost 2 year old son, due to her husbands job. They have a beautiful home but are also thinking about renting it out so they can find a place to rent where his new job is. She is paying the hotel the same ammount of money (actually a little over) as what her mortgage costs. So its a no way out situation for her & is a must. I don't know if the bank would consider a second mortgage or not. :/ Maybe some other bee's will know?
I know my friend is making a contract & in hers she is including no hanging pictures on the walls, no pets & I assume other things.
FI bought a home, and then we moved out of the state. He wasn't able to sell it, so we looked into the renting option. The real estate agent that sold him the home found someone who was willing to rent it. When that person moved out, FI got another real estate agent who found another renter. I believe she asked for one month's rent as her compensation. I would look into a realtor near you. She found the renters and set up the lease. We are still responsible for any maintenance issues and the checks come to us.
Does the property management company also do the lease? If not, i woudl do one and put any stipulations in there, as Mrs Estep suggested. We are a few years out, but once we start building our second house, depending on the market, we may rent. I am also going to start traveling for my job possibly as early as next year, so we may do month to month renting while we are away. i am hoping that since we are not far from a military base, it would be marketable
Would you still be living in the area to oversee any problems with renters or repairs needed, damages,etc Have you ever wanted to be a landlord? Many people have done it for many years, but some soon also tire of all the headaches renters can present. I'd be more worried about them trashing my house.
I suppose if you have enough income to be able to make the mortgages on two properties should one fail to rent long term, a bank may lend you the money, but in today's market it sounds pretty high risk to me. I'm not sure I'd want to take that on unless I had a ton of disposable income. Lots for you to consider.
We use a property rental company to rent out our first house (which happens be in Montana, so we couldn't really manage it ourselves). 6% commission is not bad; we pay 10%. I would do your own research on rent prices in your area, though. You might find the management company is spot on, or you might find that they are a little low or high. Anyway, it's always good to look at comparables every year to make sure your rental prices are similar to the local market.
One thing you'll want to ask the management company about is how utilities are handled. At our place in Montana, if the renter defaults on utility payments the utility companies are legally allowed to come back against the property owners to pay those bills. Similarly, where we live now, sewer, water, and garbage are not allowed to be placed in a renter's name. Even in a rental property, the property owner is responsible for those utility bills. We've avoided this pitfall by including utilities in our monthly rent; we charge a little more for rent, and all of the bills stay in our names.
Next, if you decide to rent your property, I would really suggest opening a separate savings account with emergency funds in it, just for the rental property. If something breaks, or if the house needs immediate repairs, the management company will usually take care of it, but you'll get a bill afterward to cover the costs. We found this out the hard way when our water heater exploded on our first tenant, and we had to quickly send a check for almost a grand to cover a new water heater and plumbing and the water damage. Now, we have about $1500 that just sits in a savings account for this purpose.
Also, make sure you are very clear with the management company about what type of renters you want living in your house. They should ask you to specify if you will accept pets or smokers, and if have any other preferences, let them know. Ask how often they do home checks, too (ours do checks before a new renter checks in, after the renter ends the contract, and every 6 months for long-term renters) and verify that they require renters to show a proof of carpet/floor cleaning before the renter gets his/her safety deposit back.
Lastly, about buying a new house. Once you can show a rental history in that house for one year, the banks will consider it an "investment" property, and you will be able to purchase a new house as easily as you did your first house (provided you have the money). Before one year of rental history, the banks will treat any new home purchases as a "second home," making it a lot more difficult to secure funding.
@Mrs. Spring: haha, that's why I edited my post, because you said it way better. Smarty pants! :)
@Mrs. Spring: This is really good information - thanks so much!
And we are planning on staying in the area - just moving to the other side of town to turn a 45 minute commute into a 5 minute commute.
I'm really concerned about damage to the property, since we did so much to get it ready for showings, but I guess that's what selective renting and damage deposits for for.
Oh, and the management company charges 30% of the first month's rent, and 6% of each subsequent month. But acc. to some of you, that's still pretty good. Just a lot to think about. Hopefully we'll get an offer before it gets to that point. Although I'm not optimistic about that happening at all.
@Goldilocks1107: I think that the fear of damage is why you have to be specific in the lease, and also make sure that you can drop by at least once a month or something so you can survey the house. Also take pics before you start renting, so that if need be, you have proof that the house was a specific way before it was rented
We rent out our first house ( investment prop) but we are close by so we choose to manage it.
Mrs. Spring had great advice in points. Be prepared to pay for catastrophic house failures like AC, Heating, natural disasters ( def get insurance) and also put away for taxes ( ours are very high).
Damage is probably going to happen; that's one of the risks you take with owning a rental property. However, your management company should be able to minimize damagae by carefully screening renters, doing regular house checks, and making any immediate repairs to damaged areas.
The initial month's cost is often called an enrollment fee. It usually goes to an emergency fund for home repairs and start-up costs to get the house rented. I'm not sure how much 30% is, but that might be pretty reasonable.
Another thing I forgot to mention is the headache of defaulting/non-paying renters. We've dealt with this only once, and while our management company handled most of the issues (including taking the renters to court), we had to pay a couple months mortgage while they tried to find another renter for our condo. Since then, they've been great about having another renter lined up before the current contract ends, but it was still a tight couple months for us while we paid almost an extra grand a month for a property no one was using.
Good luck on getting an offer! Obviously, it'd be better/easier if you were able to seel it, so hopefully that happens for you!
@Goldilocks1107: Have you thought about doing a rent-to-own situation? These type of renters usually have poor credit or not enough in the bank to buy, but want to. Usually you take a small portion of the rent and put it towards what their down payment would be when they purchase from you (for instance I did $200 of a $1000 rent) If they move they don't get the money back, but if they purchase they get that money put towards the purchase of the home. These tenants tend to take better care of the property since they are viewing it as their home and not just a rental.
However, if you continue to go the route of the managing company 30% is very reasonable, most here charge the entire first months rent.
@mwitter80: Why can't you live closer to us? I would love rent to own, but it does not seem as popular in this area. I can't outright buy since I still technically own a house with my ex.
From a renter's POV... Make sure all appliances are up to date beforehand and that any minor repairs are taken care of prior to renting. Who will be in charge of house maintenance i.e. if the gutters need to be cleaned, if a tree needs to be limbed, those kind of things. We are responsible for all of these with our house but our situation is a bit unusual. We are fixing the house up for the owner. We have a rent to own situation where if we decide to buy any repairs we have made will come off the final total of the house (quite frankly we got screwed), if we don't then we are out that money.
I'm not sure about the property management companies, I've never heard of those. We are currently renting our house, and here's some things I've learned.
-We told our renter she could paint. We didn't mention any other renos, cuz she's renter and we're the owners! Well...she ended up sawing part of our gate off (a big deal since we need the tall fence so our dog doesn't get out, if we were to ever move back), without telling us. Make sure you are SUPER SPECIFIC in your contract, so if they breach it, you have that backing you up.
-Take pictures of everything before the renter moves in. I told DH to do this (as I was already living in our new city) and he didn't, and this worries me.
-We posted on a site like craigslist...and what she pays just covers the mortgage, property tax, etc. We realize now that we definitely could've asked for more and actually be making money. So make sure you add up what taxes, etc. will cost and factor that into the rent cost. We had the time, so if I could do it again, I would've asked for $300-$400 more than we did, and lowered it if we didn't get interest.
I think that's all for now. Good luck!
My sister rents her home in Cali out while she's in New England because they couldn't sell it. A management company takes care of issues for them for one months rent I believe (may be additional if they need to bring in new tenants). I *think* they had an issue with a military couple claiming they needed to break lease with zero notice for the job, but refusing to show the orders that would demonstrate such. I don't recall full details. My dad was military so we're pretty savvy on how this all works, and they were tryng to put one over her and skip out.
My parents rented their house in NH out when we were out in Cali because the market sucked back then. (While in the Cali house it lost half its value so it was a good call.) A realtor handled it. They ended up havng to get a different manager because the agent was bad. Apparently the renter requested expensive modifications for handicap purposes and they lost a lot of money on it. I think the next set (police officers) also left the house a wreck, skipped out w/o paying last months rent and the deposit wasn't enough to cover it all.
My friend rented his home in CT. The renter "helped him out" by cutting down some beautiful old trees on his property. (No, this was completely unrelated to storm damage - he just wanted to park his car where there were trees apparently.)
I just talked to our realtor about this and she recommended talking with our mortgage company to find out any implications about getting another mortgage for a new house, and mentioned all the damage considerations that we'll need to factor in.
We'll definitely be super picky about who we are willing to rent to, but it's nice to get all this information so we know what pitfalls to look out for!
I would personally be uneasy with renting out the house for less than your mortgage and then paying 6% to a management company, particuarly if you live close enough that you could manage it (although I have no idea if 6% = $60 or $600). It's more the idea that you will still be covering normal costs associated with the house in addition to anything that may go wrong in the time it is rented. I guess you have to decide if this additional cost is worth the shorter commute.
Also, keep in mind a security deposit can only cover so much damage and as PPs said, tenents can damage things that you can't recover (i.e. old trees). DH's best friend rented out his apartment for 2 years while he was overseas for his job and came back to an absolute disaster from a sloppy painting job that turned his formerly white bedroom a dark blue including the wooden window trim to a broken glass door pane to a toilet clogged beyond repair. His tenent left hours before they had agreed to meet for the turnover and took with him some of the light fixtures that belonged to our friend and were specifically covered int eh lease agreement that he was not to remove them. He also left a lot of his stuff in the apartment. Once our friend paid for the tenent's stuff to be removed and dumped he had gone through the security deposit never mind the other damages. He talked to a lawyer but ultimately the renter didn't have any money (he also defaulted on the last few months rent) to go after so it would have resulted in a lot of court costs with little return and our friend basically had no recourse. Yes, he could have potentially avoided this situation by screening tenents better but when he rented the place it was to this guy and his mother (she was the actual signatory on the lease but she died unpredictably during the second year of the lease) who seemed like a safe choice. I know this is absolute worst case scenario and I'm not trying to scare you but point out the risk involved.
I would never rent out my home. I've had too many bad neighbors and have heard too many horror stories. there are some tenants that will trash your property. also, if they are troublesome, it is SO hard to evict. to me, it's not worth the risk of all the extra work and/or a potential financial risk (like if they break the appliances).
We spoke with our realtor about this and she provided good insight and also says she often works with clients who need to lease a property. DH is moving ahead with talking to the property management company because he doesn't think we'll sell the house this year, and wants to wait to re-list for 18 months to see if the market for starter homes gets better.
Good points about the appliances - depending on what all happens, maybe we'll look into putting the "good appliances" into storage in our new basement, and get some workable appliances from craigslist for the renter to use.
We'll definitely work on a good screening process, but I think he and I are both at the same point where the house is a huge stressor for each of us and for our relationship, and we both hate driving up to the place at night (as in, I love coming home to DH, I just HATE coming home to that house).
We have another showing on Friday though, so hopefully we'll get an offer in the next 2 months and this will all be for naught!
We are getting ready to rent my current home and are building another. What PP have said is absolutley true in regards to funding. If you have less than 20% equity in your home, or have not had it rented out for 1 year or more, then you have to qualify with both mortgages (rental property + new house). This can present a challenge if you have any other debt and you aren't making bookoo bucks every year. Just to give you a ballpark--FI and I make a combined $110k per year, my first mortgage is for $1150, and our second mortgage is going to be $2200. We have no credit card debt, and one car payment for $415, and we have impeccable credit. You have to look at the debt to income ratio's for the new loan that you will be attempting to qualify for. Also, if your first mortgage is an FHA loan, you can't have a second FHA loan, you have to qualify for a conventional mortgage, which brings a higher down payment (between 5-20%), so that often times messes people up as well, because they weren't prepared to put that money down. While we haven't rented our home out yet, our mortgage lender suggested to us to post a description on craigslist and attach a price to it (we put $1350 on ours) and just see what happens. I didn't respond to any of the emails, because we weren't prepared to rent yet--but it gave me a good idea of how many legitimate people would pay that price. Only one out of the probably ten responses that I got, asked me if I would decrease the monthly rent. Another thing to think about is Section 8 Renters...it's a pretty controversial area, and we are currently researching it, but often times you are able to rent for a higher monthly payment than if renting outright, and the govt. pays 80% of the monthly rent, so often that will cover your mortgage, even if you do get shady tennants who don't faithfully pay their 20% on time each month. And, I would NEVER, EVER rent my property for less that what my mortgage was. You need to take into consideration taxes, repairs, insurance, etc -- and you might also want to consider investing in a home warranty, that price should also be passed down to your renters.
Definitely check the tenant laws for your state. Here in MA, tenant laws are very much to the benefit of the tenant. It's an extremely complicated and long process to evict a tenant, even if they don't pay rent.
We have space we could have rented out, but decided against it for the above reason. A friend of mine rented out his house. The lease specified 9 months, he wanted them out after that but they didn't want to leave. They stayed for as long as THEY wanted. And finally left the house damaged. He kept the security deposit to cover the damage and they got a lawyer to get the deposit back. Big headache.
Unless the property management company handles the lease, and there are stipulations for damages (insurance etc to cover your investment for when you are actually able to sell the home) I would be leary.
There are too many bad renters out there. Sure it would be nice if everyone could have great tenants, like an older couple or a quiet younger couple w\o children (kids are great, but they are havoc on homes) but unfortunately too many ppl end up with the tenants from hell.
weigh your options & make sure you are 100% covered if something goes terribly wrong while you have tenants living in the house.
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We put our house on the market in March and although we've had several showings, there have been no nibbles or actual offers. DH and I are getting frustrated and just want out (and since we've just found out I'm pregnant, it motivates us a little more to get into our "forever" home).
DH contacted a property management company that would manage the property for 6% of the monthly rent, we'd just have to keep paying the mortgage, they handle everything else. The property management company thinks that we can rent it for $100-$250 LESS than our current monthly mortgage, which isn't horrible.
Any other bees been in this situation? I'm just wondering what pitfalls we should consider . . .
And also if it would be too risky to then try to buy our new house - would a bank even consider giving us another mortgage?!?