Advice on "crossing over" into landlord status...

Rehabbing, Fix and Flip, Rental Properties
1

hello all-first off, i want to thank you all; these forums are very informative. i’ve learned alot just reading threads.

SO, my situation: i’m considering buying an investement property strictly as a rental. this would actually be my 4th property. in addition to my primary, i own(outright) 2 other props. 1 was my first home, which is now rented out-to a friend of a friend. the other is in MN, and to simplify the story, my mom manages it. so TECHNICALLY, i have 2 rentals now, but as you can see, i am also technically only managing ONE RENTER. and, he came “pre-screened”. so i know this is an easy version of landlordism, relatively speaking.

im considering buying another rental prop in my neighborhood (cash deal). this would most likely put me in a cash flow situation of having all my annual living expenses easily covered via the rental income from the 3 properties.

however, technically, im still working. R.E. is not my occupation, but my line of work might be extremely curtailed in the next 5 years, so im thinking about prepping myself for that w/ the 3rd rental.

this 3rd prop would basically still be my first oddysey into being a landlord. so i have a few questions:

1-is there a “standard” ratio of prop value-to-rental income that is considered great, good, bad, terrible?

2-do you think that hiring a management company is a good or bad idea? im a handy guy, do most of the renovations/remodeling/upkeep on my places, but mentally dealing with tenants bitching about stuff every month doesnt sound fun right now.

3-any things im overlooking here? any “general advice”? thanks much!

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  1. I strive to buy properties such that the rental income will be 2% or more of the total amount invested in that property to buy and fix it up.
    For example:
    A property can be bought for 25k and needs 5k rehab to put it into service. That property needs to bring in at least $600/mo in rent. 30,000 * .02 = 600

This will most likely result in a good monthly cash flow. You will find people buying properties where the acquisition price is much higher vs. rent. They’re either not cash flowing well and hoping for price appreciation or they put a ton of money down on the property to make it cash flow.

  1. If you’re doing the lion’s share of the rehab/repairs, I would manage the property too. Otherwise, figure on 10% of your monthly rent being gone each month along with maybe a half month or full month of rent for a tenant “placement” fee. Tenant screening is key. You can’t discriminate against the “protected” classes (look up Federal laws for Equal Housing Opportunity). Outside of that, you can develop your own rules regarding who you’ll accept based on things like past felonies/misdemeanors/drug use/bankruptcy/etc. Figure out how you can screen tenants in your area. In one of our areas where we invest, I can do my own background searches on a website. In the other area, I have to pay $10 to the county sherriff’s dept for the screening. You’ll begin to develop a feel for people too. If you screen well and keep you properties in decent shape, it probably won’t be too horrible for you to manage them yourself. We own several properties and don’t get a ton of repair calls all the time. The majority of our calls are plumbing related.

  2. Know your local LL/tenant law to know what your rights are as well as procedures for eviction. Consider putting people in on a month to month lease. If they turn out to be horrible tenants, you can simply give them notice of lease termination rather than being forced to evict them thru a court if they’re locked into a year lease.
    Keep your properties up. They’ll be worth more and the tenants will be happier. I also like to charge a little below market rent. If tenants find a better value elsewhere, they’ll be gone and just one month of vacancy will eat up that extra $25-50/mo you were trying to get. My goal is to hook good tenants for YEARS where they don’t want to leave. Many renters are perpetual renters. Find one who has some pride and keeps the house clean and pays on time is money in the bank for you.

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thanks alot, justin. these things are really helpful-any of you other landlords, it would be great to hear your personal barometers on this stuff.

my 1st rental prop-single unit-is currently rented below market value. i did this specifically because of what you said, and i’ve been wondering if it was stupid. but the fact that i dont really need to worry about the place is huge, mentally.
your thoughts on this are validating.

4

We’ve owned our apartment building for about 3.5 years. We have a tenant who has been living in the building for 20 years and another couple tenants who have been there for 10 years. We’ve had very few move outs over the past few years. We’ve had a couple evictions and a couple people who voluntarily moved out because things changed and they couldn’t afford it. Otherwise, we stay full.

5

As far as keeping tennants: I’m new to the game, but have had more renewals than move-outs.
I always ask how they are feeling and if they need anything done to the place.
For example, I’ve put hooks on the back of doors and put in a better shelf and bar inclosets(would have done it after move out anyway). I feel this has kept them happy.
I also have dishwashers and laundry in all my units.
I’m able to charge more because of the appliances too.
I remember back to being a renter. Things like a dishwasher, hooks and towel bars made me want my own home.
Happy doesn’t always mean they will stay but it helps. I don’t particularly enjoy the landlord part, but as long as I’m not dealing w turnover, I’m happy. And I’m making a killing compared to hiring a prop mgr.