Becoming a landlord

[AlohaNow]

We are heavily leaning towards renting out our house rather than selling it when we move in a few years. We’ve looked into local rental management companies, as we will gladly pay someone else to manage the whole thing! So we have some idea of what our costs there would be. And we’re beginning to make some updates and changes to the house that will make it more attractive to potential renters. A few years ago I would have said that we don’t really live in a rental neighborhood, but post-pandemic we are seeing more of the single family homes in our neighborhood being rented. We are in a sought-after school district, so that definitely helps. And there is a military presence here so we would love to get military renters. It might mean higher turnover, but that guaranteed monthly BAH is no joke! I’m assuming that our rental company would get us listed with the local military housing office, but I could be way off base here. (Little military joke there.)

Does anyone who has been down this path have any tips? Any pitfalls or roadblocks that you experienced in the process? I don’t know what I don’t know at this point and would love to hear from anyone who turned their former primary residence into a rental. Thanks!

 

[RoseGold]

First you talk to your accountant. This is a layer of paperwork on your taxes that requires some knowledge.

 

[barkley]

We’ve looked into local rental management companies, as we will gladly pay someone else to manage the whole thing!

do a deep dive into the reliability of a company and make sure that there are contractually guaranteed (and financial bonds in place to back them up) so if something happens on their watch/due to their negligence they are financially responsible. i say this b/c a friend rented an inherited home through what was thought to be a reputable company. the contract stated that the company would do both drive by (for exterior) and interior inspections at set intervals. the did not and it wasn't until friend was contacted by law enforcement that she learned that a portion of the home had been converted into a 'grow room' which over time had repeatedly flooded which caused over $100,000 in damages. her homeowners would not cover it (illegal use) but thankfully there was the provision in her management company's contract (damage indicated it had been going on for multiple years during which it was apparent management company never entered the home for inspection).

First you talk to your accountant. This is a layer of paperwork on your taxes that requires some knowledge.

absolutely. also a good resource to bring info on what your new expenses as a landlord will cost vs. rent received can reasonably net you (after taxes/loss of some write offs).

might want to speak to a local realtor as well-find out how much of a drop in value on resale your home will take once it becomes a rental. we've lived in areas where a home that became a rental for so much as 6 months decreased tremendously in value (good to know if you decide down the line it's not for you and decide to sell or end up in a position where you have to sell).

 

[loves to dive]

I've never rented my own home, I did work for a property management company and managed a whole bunch of house/duplexes/apartments. Find out from the management company what their rules are for tenants and how they enforce them. Also, be prepared to throw some money at it. No matter how careful you are, tenants are going to do some damage. You almost always have to repaint at least after every 2nd tenant, carpets have to be cleaned or replaced, plumbing breaks, tenants bounce checks or flat out skip out without paying. We had a clause in our rental agreements that the tenant was responsible for x amount of money for the year, they could pay it in monthly installments of x. Even though the lease had a rental length, the amount of money trumped the length. We also had a clause that we would try to rent it if the tenant wanted out of the lease but until we did, they were responsible for the x amount of money. We also did not allow room mates to be added to the lease, there was one person on the lease, period. Make sure your management company has a 2nd banking account for the security deposits paid by the tenants and that those funds do not mix with the rent. Make sure they send you some sort of accounting every month.

 

[barkley]

check what current laws in your state/county/city are on renting b/c if being absent rent for months on end is make it or break it on keeping the house/meeting your current expenses it may not be in your best interest. used to be in our region that a straight forward totally valid eviction took 3 months but now even though the state dropped all the covid protections they introduced a concept that our county went running with-'eviction resolution' which is at the discretion of the TENANT to choose to participate in or not and entails mandatory arbitration, setting goals, seeing if the tenant succeeds in meeting them.......all resulting in months more of time before taking the steps to do the originally desired eviction.

 

[abdmom]

Some places will have much higher property taxes if the property is not occupied by the owners.

I used to rent out a couple of my properties. It was a PITA. I am so glad that I'm not a landlord any more.

My mother used to rent out her basement apartment. As one tenant was moving out, they set the place on fire while my mother was sleeping upstairs.

 

[_19disnA]

Sounds like you currently live there but will move elsewhere in the future and want to know what options you have. Some cities have restrictions on rentals (or short-term rentals) but sounds like others in your area are currently renting. My impression is you aren't going to make any money doing this and the wear/tear on the interior will be greater with renters who may not be as careful about how they treat a house they don't own. Know some people who own a house in a beach community and they rent when they are not there. Clearly, there is some difference in renting your place vs. a vacation destination, however, they don't make any profit on what they are doing and basically break even. The extra time/involvement dealing with either the renters and/or the management company is also something to consider. Your time isn't free and if you end up spending a lot of time dealing with rental issues you also have to take that into consideration. Do you have the extra time (or interest) in dealing with all of that?

If you are paying some 3rd party to 'manage' the property for you that is also an added cost. Personally, I think you would be further ahead selling the property once you intend to move. As others have mentioned, you may get 'good' renters as well as 'bad'. If you aren't able to charge for rent that is significantly more then all of your added costs would be, selling would make the most financial sense.

 

[kdonnel]

I was technically a landlord as my parents rented a second home I owned. They were the perfect tenants.

I had a boss that owned several properties in Cincinnati that he rented. His problems were two fold. He was in Atlanta renting multiple properties in Cincinnati and every tenant he had was a nightmare.

One tenant in particular was always in trouble with the police. The police were called to the address so many times they started fining the owner, not the renter, each time they were called out. The tenant was dealing drugs and there was little my boss could do to get him out since the grandmother paid the rent on time every month.

It took over two years to get the tenant out and when he was finally gone the home was destroyed. He had to gut the property to the studs and rebuild to be able to sell.

He had so many stories, all bad.

His stories are why I never want to be a landlord.

 

[Mackenzie Click-Mickelson]

I would probably look more into this later when you're getting very close to moving out. Climates change as you've already seen with the pandemic shifting your area to being more of a rental happy area.

Presently many homeowners are holding onto homes and becoming "reluctant" landlords with the home pricing and interest rates.

I think people often look at the monthly income they may make but don't necessarily consider the investment monetarily and physically and emotionally that goes into this responsibility.

So for me I would probably just hold off on the idea until it got closer to when you're really thinking about moving.

 

[tvguy]

a portion of the home had been converted into a 'grow room' which over time had repeatedly flooded which caused over $100,000 in damages. her homeowners would not cover it (illegal use) but thankfully there was the provision in her management company's contract (damage indicated it had been going on for multiple years during which it was apparent management company never entered the home for inspection).

My daughter is looking at renting her house for 2 years while she goes to school overseas. The first thing the Property Management companies she is interviewing tell her is that her homeowners won't cover anything if the house is a rental, she needs business insurance because of the exact situation you mention, grow houses.
She is not totally in love with the house, but she has a 2% mortgage and it is highly unlikely mortgage rates will be anywhere that low 2 years from now if she goes to purchase another house. She owns half a duplex in a duplex community, and the same floor plan duplexes are renting from $700 a month more than her current house payment. If she can make some money great, but she just wants to clear enough each month to cover the payment.

 

[Mackenzie Click-Mickelson]

she is interviewing tell her is that her homeowners won't cover anything if the house is a rental, she needs business insurance because of the exact situation you mention, grow houses.

That is totally not true at all.

You need a landlord's policy. That's not a commercial policy de facto because of that, it can def. still be under personal lines but the type of policy would need to be switched from a homeowner's to a landlord's policy.

A person who owns a business may need to be under commercial lines but that is not the vast majority of homeowners who switch their home they used to live in to being a rental unit.

OP should be checking with the rules of the company they have their home insured with regardless to see what they want them to do.

ETA: And for a business on premise of a home you live in (meaning don't rent out) most companies have allowances for what those businesses are in terms of it sticking with personal lines things like what type of business, how much square footage it takes up, etc.

 

[tvguy]

That is totally not true at all.

You need a landlord's policy. That's not a commercial policy de facto because of that, it can def. still be under personal lines but the type of policy would need to be switched from a homeowner's to a landlord's policy.

A person who owns a business may need to be under commercial lines but that is not the vast majority of homeowners who switch their home they used to live in to being a rental unit.

OP should be checking with the rules of the company they have their home insured with regardless to see what they want them to do.

ETA: And for a business on premise of a home you live in (meaning don't rent out) most companies have allowances for what those businesses are in terms of it sticking with personal lines things like what type of business, how much square footage it takes up, etc.

Well, she has interviewed three property management companies and commercial business insurance is a requirement before they will manage a property. And her current homeowners company says they don't write commercial coverage. Maybe California is different.

 

[Mackenzie Click-Mickelson]

Well, she has interviewed three property management companies and commercial business insurance is a requirement before they will manage a property. And her current homeowners company says they don't write commercial coverage. Maybe California is different.

That may be their requirement (as in a particular property management company) but is not a requirement by an insurance company uniformly. I saw thousands and thousands and thousands of landlord policies under personal lines across more than 30 states. And I know of people who have management companies here and they do not at all require a commercial policy.

In order to be under a commercial policy you have to meet the requirements of that as liability and protections vary. The insurance company I worked for would not approve a policy under commercial lines if it didn't meet the requirements and would instead require it to be under personal lines. This also worked in reverse a property that needed to be written under commercial lines would need to do so rather than personal lines. This goes for vehicles as well. For instance the insurance company I worked for if you had logos of any kind for your business on your vehicle it had to be in commercial lines but not all businesses were appropriate for commercial lines as opposed to personal lines.

CA is not different in the least on that. What I did know that varied with CA is losses on a Landlord property. For most states that would still count against you in terms of acceptability. So let's say you had a water loss but it was on your rental property, most states we wrote in would still count that towards your homeowner occupied property. In CA they required us to look at like for like so that losses on a landlord property would be stacked up against other landlord properties but not necessarily homeowner occupied properties. I absolutely without a doubt saw thousands of landlord policies under personal lines. That's all I dealt with was personal lines.

 

[Traveling on cc points]

I bought my house at the worst possible time, at the hight of the housing bubble. When I got married, I moved into my husbands house and was so underwater on mine that I had to rent it out for several years.
I was very lucky and had 1 Renter for several years that I never had any problems with. At the very beginning of the pandemic, when the government banned evictions, I was beyond nervous that my renter would just stop paying simply because he could. Luckily, he decided to move in with a family member that needed his help. As soon as he gave his notice that he was moving, I contacted a real estate agent and sold it.
Although I got very lucky, I would never be a landlord again. Maybe I was naive but I had no idea that both states and the government had the power to force landlords to allow tenants to live in their properties for almost 2 years with very little recourse.

 

[Mackenzie Click-Mickelson]

had the power to force landlords to allow tenants to live in their properties for almost 2 years with very little recourse.

It was really a tricky situation but I can understand being hesitant to be a future landlord because of it.

I don't think the recourse should have been the issue because logistically where else were these people going to go when they were forced to not go to work? However, the main issue became that landlords themselves were not given any assistance.

It was needed to not evict people but it was also needed (and just not done) to financially protect the landlords too by outside (meaning other than their tenants) ways. In addition there for sure were landlords who were also part of the group of people whose primary occupation may have been drastically disrupted by the pandemic and stay at home orders or companies going belly up or just layoffs in general/buyouts, etc.

It was really more of a lopsided thing with the landlords largely getting the raw deal and while I'm not sure we'd have such a grand scale of CDC requirements for non-evictions it's hard to not worry something of some sort couldn't happen in the future for any potential landlord.

 

[barkley]

My daughter is looking at renting her house for 2 years while she goes to school overseas. The first thing the Property Management companies she is interviewing tell her is that her homeowners won't cover anything if the house is a rental, she needs business insurance because of the exact situation you mention, grow houses.
She is not totally in love with the house, but she has a 2% mortgage and it is highly unlikely mortgage rates will be anywhere that low 2 years from now if she goes to purchase another house. She owns half a duplex in a duplex community, and the same floor plan duplexes are renting from $700 a month more than her current house payment. If she can make some money great, but she just wants to clear enough each month to cover the payment.

in that situation, if it were financially feasible (to the extent of even accruing some personal debt) i would put clearing enough to cover the payment each month AFTER finding someone that i knew i could trust to maintain and protect my property. i assume she will have to store all her furnishings and private property (been there for 9 months when we sold one home and lived in a small rental in your neck of the woods before buying the next) in a climate controlled unit to ensure non warping/mold of furniture, no damage to electronics. a SECURE/SAFE facility is was pretty costly. to be able not to hassle with all of that ( or at least reduce it dramatically) and ensure the care of MY HOME (not some rental property that will just get a cheap refresh and go on to the next tenant) i'd try to go with a trusted friend or family member and offer them a below market rate rental in exchange for them doing certain things pertaining to routine upkeep (changing hvac filters being at the top of the list b/c the last rental we lived in a month after we moved in the entire hvac went out only for the owner to learn the previous tenant never in 3 or more years changed the filter-the unit burnt out and all the duct work collapsed into itself-tens of thousands in damage).

 

[Traveling on cc points]

It was really a tricky situation but I can understand being hesitant to be a future landlord because of it.

I don't think the recourse should have been the issue because logistically where else were these people going to go when they were forced to not go to work? However, the main issue became that landlords themselves were not given any assistance.

It was needed to not evict people but it was also needed (and just not done) to financially protect the landlords too by outside (meaning other than their tenants) ways. In addition there for sure were landlords who were also part of the group of people whose primary occupation may have been drastically disrupted by the pandemic and stay at home orders or companies going belly up or just layoffs in general/buyouts, etc.

It was really more of a lopsided thing with the landlords largely getting the raw deal and while I'm not sure we'd have such a grand scale of CDC requirements for non-evictions it's hard to not worry something of some sort couldn't happen in the future for any potential landlord

I completely get it. No one wanted to see anyone out on the streets but not in a million years did I ever think that the government had the right to tell me as a private citizen with 1 rental property that it was my responsibility to house a stranger at my expense.
Everyone who lost their job was getting $2400 a month + unemployment. At the very least, a good portion of that money should have been held and paid to landlords if they weren’t being paid.
Hopefully for everyone’s sake, nothing like this ever happens again and this is a moot point but wanted to give my perspective to the op. Being a landlord can be very risky.

 

[barkley]

I bought my house at the worst possible time, at the hight of the housing bubble. When I got married, I moved into my husbands house and was so underwater on mine that I had to rent it out for several years.
I was very lucky and had 1 Renter for several years that I never had any problems with. At the very beginning of the pandemic, when the government banned evictions, I was beyond nervous that my renter would just stop paying simply because he could. Luckily, he decided to move in with a family member that needed his help. As soon as he gave his notice that he was moving, I contacted a real estate agent and sold it.
Although I got very lucky, I would never be a landlord again. Maybe I was naive but I had no idea that both states and the government had the power to force landlords to allow tenants to live in their properties for almost 2 years with very little recourse.

i'm sorry you had to deal with this. to take it a step further-some places allow neighbors to sue a property owner if their tenant engages in behaviors that detract from the owner neighbors having reasonable peaceful enjoyment of their properties. i had a co-worker who joined in with a number of neighbors on her street and sued on this basis when their requests and pleas to another neighbor who was renting out went unresolved. they knew the neighbor/landlord was doing their best, was in a situation where they had to rent the place out and had involved the police and the courts to try and and solve the bad tenant issues but the landlord was blocked at every step by tenant protection laws. the result was the landlord was forced to sell at a loss and pay all the neighbor's legal costs-sad day for everyone involved.

 

[tvguy]

That may be their requirement (as in a particular property management company) but is not a requirement by an insurance company uniformly. I saw thousands and thousands and thousands of landlord policies under personal lines across more than 30 states. And I know of people who have management companies here and they do not at all require a commercial policy.

In order to be under a commercial policy you have to meet the requirements of that as liability and protections vary. The insurance company I worked for would not approve a policy under commercial lines if it didn't meet the requirements and would instead require it to be under personal lines. This also worked in reverse a property that needed to be written under commercial lines would need to do so rather than personal lines. This goes for vehicles as well. For instance the insurance company I worked for if you had logos of any kind for your business on your vehicle it had to be in commercial lines but not all businesses were appropriate for commercial lines as opposed to personal lines.

CA is not different in the least on that. What I did know that varied with CA is losses on a Landlord property. For most states that would still count against you in terms of acceptability. So let's say you had a water loss but it was on your rental property, most states we wrote in would still count that towards your homeowner occupied property. In CA they required us to look at like for like so that losses on a landlord property would be stacked up against other landlord properties but not necessarily homeowner occupied properties. I absolutely without a doubt saw thousands of landlord policies under personal lines. That's all I dealt with was personal lines.

She'll get it all sorted out I'm sure. Not sure if she will interview other property management firms, but so far the three she has talked to said the same thing, she needs a business policy.

 

[HopperFan]

You don't say what YOUR plans are. Are you moving far away so you need a management company? Are you planning to buy another residence? Are you going to rent somewhere or just travel?

I guess the question is why do you want to keep the house? I get buying a vacation home, renting it, letting someone else take care of it while it's being paid for by others. I get being in the landlord business for the LONG haul aka profit. I'm not sure why you would want to hold on to the primary and all the hassles that come with it, unless perhaps you think you will move back in to it later.

If I were you and was not planning to move back in to it I would sell it, avoid the hassles.

My Mom was a landlord of three properties her and Dad bought to cover college expenses for kids. Dad passed early and I had to do lots of the grunt work for her with the houses. She ended up using for my brother and sister's college but I'm not sure it was worth it in the end financially or emotionally.