Part 2- Landlord
I decided to do a new series of posts about all the different jobs I’ve had called Has Been. The tagline for my website is Mom/Mechanics-Many Hats because I’ve had a lot off different careers already and sometimes I still feel like one of those circus performers with all the plates spinning. If I’m lucky, I can remind myself “Not my circus, not my monkeys.” If you missed the first post in my Has Been series, here’s a quick link so you can catch up:
The next post in my Has Been series is about the joys of being a landlord. My husband has been in the real estate business for the past 13 years. We purchased our first condo in 1999 sold it doubled our money and put that down on a house in 2001. The housing market in Denver is ridiculous right now. Some people think that it’s not worth buying them because the houses are so much but The same house that you might want to wait six months to purchase could have $20,000+ in equity by the time you buy it down the road which could have been your $20,000 or $20,000 more that you’re paying for the same house. As you know, I do all sorts of different part-time gigs in order to continue my soccer mom lifestyle and with my husband as a realtor this means we don’t really have a plan for retirement. No one is offering us a 401(k) so we decided to invest our money in real estate. Let me preface this by saying that I’m no expert but my husband is or knows lenders who are so if anybody has any questions feel free to reach out, you can do this too! Because we purchased our house in 2001 we have a lot of equity in it meaning we were able to pull a HELOC (home equity line of credit) to use as a down payment on another house. The simple math of it is we paid $225,000 for a house, it’s now worth upwards of $400,000 because we only owed $180,000 we were able to take a line of credit out for $100,000 to put a down payment on a house second house. You don’t need $100,000 as a down payment on a second house, this is just the amount the max amount of the loan if we needed it. If you were purchasing a second home that is not going to be a primary residence you have to put at least 20% down. If you are purchasing a home that you are moving into that will be your primary residence and renting your own home then you may only have to put 3% down. The amount of money you put down will obviously determine the amount of money you have to finance. Your mortgage payment is based on how much the loan is so it is to your benefit to put as big a down payment as possible but none of us are made of money so you do the best you can. The rental market in Denver is nuts. It’s actually starting to freak me out whether or not my children will be able to afford to live here or if they’ll be stuck in my basement until they’re 45! This is a huge disadvantage for people who are paying rent in Denver but a great advantage for people who have rental homes in Denver. For example, our first rental home we purchased for $260,000 put 20% down so mortgaged about $200,000. The mortgage payment is $1100 a month and the rent is $2200 a month meaning we’re cash flowing an extra $1100 per month after paying the mortgage. You do have to figure in the amount the HELOC payment will be to repay the line of credit back but for $60,000 I think our payment was about $350 a month which I could easily take from the $1100 additional rent. Honestly if I had 10 of these I could be retired! Of course I wish I would’ve bought 10 of these 10 years ago but hindsight is always 20/20 and who had money twenty years ago! If you’re like most people and bought your first house in your 20s, your lifestyle has changed and that house is probably too small for you and your growing family. You can sell that house to buy a bigger house or you can use the equity in your original house as a down payment on a newer bigger better house and keep the old house as a rental income so it can keep making money for you. Not only are we making an additional thousand dollars plus per month on our first rental but somebody else is paying that mortgage for us (the renters) They’re paying for our second house for us and down the road 30 years from now they will have paid off the $190,000 that we mortgaged plus the house will increase in value so $$$$! I know it’s a whole lot of math. As a former auto mechanic, I’m not fantastic at math but I do understand if somebody else is paying a mortgage for me but I get to keep the equity that’s super beneficial and hopefully enough to retire on some day. As I already said, I’m definitely no expert when it comes to lending and mortgages etc. but I know a lot of great people who can answer any questions including my hubby so feel free to hit him up. We are about to close on our fifth house so one thing I feel I may know a thing or two about is how to be a landlord so here are my tips on that side of this coin.
The first step is finding renters. I usually use free sites like Craigslist or Next Door or Facebook to post ads looking for renters. Craigslist is very easy to use and free! Make sure you have everything you want in your description for example pets/no pets, smoking/non-smoking, include lots of photos. The next-door app is a great resource for finding out about everything going on in your neighborhood (maybe more than you need to know some times) and a great place to post about a house for rent. It is also a valuable resource for finding local tree trimmers, plumbers, recommendations for any kind of handyman you might need with your new rental property. Once you’ve created an ad on Craigslist and published it, there’s an easy link that you can copy and paste to your Facebook page or share to other Facebook groups you belong to. Ask your friends to share as well. I use Rentometer.com to get a feel for what I think rents will go for at my house taking into consideration of course how nice the finishes are, garage, basement etc.
Do your best to sell your new place including lots of details like close proximity to light rail stations, great schools, quiet neighborhood, washer/dryer included, whatever works. Once you have people calling, wanting to check out the place, if they’re interested in renting your house I always have them fill out a rental application. I found a pretty simple one online but I also use Mysmartmove.com which is a fantastic way to do background checks. This website has the option to have your possible tenants pay for the background check instead of you footing the bill. Most people who are willing to drop $40 for a rental application are serious about moving in. Mysmartmoves background checks include criminal history, credit scores, lots of good info but I always meet with all of my tenants and make sure that it feels like they’re the right fit for me.
I usually ask for at least a year lease. If I give somebody a six-month lease then I’m looking for tenants all over again in six months and if we go too long like a two year lease than you don’t have the opportunity to raise the rent based on increases in market value. You should be able to google and download a generic lease and adjust it to fit your needs. I always put in my lease the rent is due on the first day of the month. There is a $50 late fee per day for any rent paid after the first. This usually deters people from paying late but it’s still very difficult sometimes to make a millennial understand adulting. When I meet with my tenants to sign a lease and put down a deposit, I go over all of my expectations with them. My number one expectation is that rent will be paid on the first! I won’t have to call you or track you down or hear “you’ll gladly pay me on Tuesday.” There are fantastic apps like Venmo or PayPal that tenants can use to pay me without me ever even seeing them.
Handy Venmo App
I don’t really appreciate late night cash deliveries. This means I have to make a trip to the bank. It’s 2017, let’s use all of the great technology available to us to make life easier. We expect our tenants to make a first and last months deposit before moving in but I also state clearly in the lease if there’s damage above or beyond done to the house that is not covered by the deposit, the tenants will be responsible for repairing any damage over the amount of their deposit CYA! We also require a $300 non-refundable pet deposit per animal. I love animals as much as the next person but they can do a whole lot of damage to carpets or properties. I don’t really want to be the one paying for that damage. I also state in the lease that it’s a non-smoking house, again protecting my assets. Everyone who is living in the house needs to be on the lease meaning they’ve had a background check and I don’t have 10 people living in my two bedroom home. Being straightforward and honest with your tenants about your rental agreement is a great way to have success. We are learning as we go with this and each new house we acquire with new tenants teaches us a new lesson like give them an inch they will take a mile. Or don’t make any promises. We had the air conditioning unit go out on one of our houses mid August this year. It’s a 1000 square-foot house so we just went to Home Depot and bought a portable AC unit that they could roll around from room to room. As much as I would love to drop $3000 replacing the air conditioning unit, I’m not going to do it at the end of summer so I definitely didn’t set my tenants up with that expectation. You also want to be clear with your tenants what bills they will pay, for example cable and electricity. We always have our tenants pay the water bill. Water bills can vary based on super long showers, over sprinkling the lawn whatever so if the tenant is responsible for that bill, they’re usually good about being stingier with the water. We always keep the water bills in our name and have them sent to our home then forward them on to our renters. Unlike cable or electric bills, in the state of Colorado, a delinquent water bill goes against the owner of the property, not the tenant. You could even incur a lien on your property if your account goes unpaid for too long or have collectors come after you. We have lawnmowers at each of our houses but we expect the tenants to take care of the yards. It’s also pretty easy to install electronic door knobs on the front doors so you can punch in a key code to open them. I bought mine for about $100 at Home Depot and installed it in half an hour with only a screwdriver. It even came with a 9V battery. This makes it easier for you not to carry around four different sets of keys and if there’s any maintenance work that needs to be done you can easily get in and out of the house.
Keep the receipts for any money you spend on your rentals i.e. blowing out the sprinklers, tree trimming, remodels, making copies of keys, buying electronic door knobs. These are all tax write offs. Speaking of tax write offs, and I’m definitely no expert on this, you usually don’t have to pay a lot of taxes on your rental income because the interest on the mortgage is deductible, along with depreciation on the house and any money spent on repairs.
One other thing to consider in Colorado, is whether to allow your tenants to grow marijuana on your property. This can be a lucrative endeavor for you without “getting your hands dirty.” For our properties with detached garages, we offer the option to grow. We have a grow agreement signed by all tenants and a grow deposit usually around $500 but also written into the agreement any damage above the $500 would be the responsibility of the tenant. I had one friend with a rental property who’s tenants decided to grow in his basement and messed with his electrical panel and all sorts of things without bothering to ask so I feel like being straightforward and open with any kind of arrangement hopefully prevents people from doing shady stuff in my homes. The agreements always state they can only only grow within the current laws.
After a garage fire at one of our rentals this summer, we make it mandatory for our tenants to purchase renters insurance. Their property was damaged inside the garage. We were not responsible for this but I think requiring renters insurance, which is crazy cheap maybe $360 per year,is a fantastic way to not get sued for something stupid.
It may seem daunting but if we knuckleheads can handle it, I think it’s pretty easy for anybody. Our first rental house is cash flowing thousand dollars a month. We use that money to pay back the HELOC and eventually hopefully to retire into the sunset. I certainly don’t have all the answers but feel free to absolutely reach out to my charming hubby who can hook you up with lenders or help you find a second house of your own.
One more time, in case you missed it 😉
