I am seeking advice from some of the guys on here. I have purchased my first home. I was living in my own apartment before this and when I was buying the house (short sale processes take a long time) I stayed back at my parents. Well, I have been thinking about using it as a rental property, possibly the first of many, and just stay at my parents for now.
Anyone have any experience with rental properties that they would like to share? I am 28 years old with a good steady income, so I figured I could use this money I have to start up with repairs, etc.
Whether it’s a good rental property or not is dependent upon the math of the property. Here is the quick and dirty:
Did you purchase the house cash or with financing?
How much $ in repairs does the house need? Not for your standards, but the standards of the neighborhood?
What is the current amount of Rent comparable properties are receiving?
What are your insurance costs?
What are your property taxes?
You need to calculate what the Real Rental Income could be and use a vacancy rate of 25%, ($1,000 a month x 12 x .75 = $9,000 Gross Rent). Then you need to total up your Financing Costs (Mortgage payment if it exist), your Insurance Costs, Property Tax, Any HOA, Misc Repairs, and a Lease Out/ Marketing Cost (whether you are using an agent or not), also you need to factor in a end of lease cost to clean/fix up the property again ($1,000 min to be safe). If you are not making a minimum of 10% on your money invested after all the expenses are backed out of the rental income then it’s not a deal and you should live there and look for properties that fit the math.
I am a Flordia Real Estate Broker, I do acquisitions and management of income properties for clients and also own my own properties with my partner.
Very cool information. I am going to start to run some numbers. My full mortgage is only 900 dollars/month with HOA dues. I have put 20% down on it. For the area, I could get 1600-1800/month for rent; but I have to run the rest of the numbers. Thank you so much!
Does that mortgage payment include property Taxes & Insurance?
Let me know if you have any other questions.
BTW, evictions in IL suck donkey dick so you will want to be strict with your qualifications, I would recommend only accepting tenants with 2.5-3x the monthly rent in documentable income.
Does that mortgage payment include property Taxes & Insurance?
Let me know if you have any other questions.
BTW, evictions in IL suck donkey dick so you will want to be strict with your qualifications, I would recommend only accepting tenants with 2.5-3x the monthly rent in documentable income.
[/quote]
That payment is EVERYTHING. I got a really good deal on the property. Repairs (which I was going to make anyway when I moved in) amount to maybe 5000. The point about documentable income is awesome, I am really worried about them not paying. All I hear is horror stories.
Since you have experience with tenants, if they do not pay, what kind of situation does that put me in to get rid of them? (thanks for your help)
I’m not sure what the practice is in the US, but in the UK it can be a lot easier to use a leasing agent.
My original house is still mortgaged, but when we moved we put it on the market for lease and have been lucky enough to get substantially more each month than the cost of the mortgage. We use a local leasing agent who just take a small cut; they deal with repairs (at cost), inspections, payments, legalities, deposits, finding new tenants, etc. leaving minor things like landlords insurance for me to pay.
Like I said IL eviction sucks, it takes a long time, Florida on the other hand is great for evictions.
The point of higher qualifications is to limit risk of having to evict. You also do a background check to make sure they have never had an eviction before.
You will also need to learn the “Landlord / Tenant Laws” for IL. So you can learn about notices that you must provide and all the other important details.
A real estate agent will charge you either 1 months rent or 10% of the gross lease as commission for leasing out the property. In this market you may be able to lease it out yourself or you can hire someone (if you hire, they only get paid once lease is signed and you receive $$$, also if you hire factor that cost into your equation for your rate of return.)
Grumpig Hunt are you sure “at cost”? I manage many houses and as far as I’m concerned no property manager in their right mind would handle repairs at cost, that’s loosing money when you factor in labor costs and time. I charge for time if I have to meet with a contractor who will do the work, or if my company is doing the work we charge for labor and parts (and the parts cost has a fixed premium added in as well).
Sorry, meant to say “at cost to me” - they arrange quotes for the work and have a list of companies they use, the cost gets deducted from that month’s rent.
Seriously, I don’t know why anyone would rent out their house unless they had no other choice.
How much would you get for the rent as opposed to what you pay each month?
I’ve worked in property management in three states, and I sure as hell wouldn’t do it for one place.
But if you do, follow the laws of your state to a T. Make sure the lease follows the laws. The laws in most states will favor the tenant and not the landlord, so please, look up the landlord-tenant laws of your state.
One more time… Look up the laws in your state send all notices to the tenant via certified mail.