Considering becoming a landlord...

[mikester]

I'm considering becoming a landlord.

Basically and I'm open to criticism of this idea, the idea is that I want a bigger house but I don't want to sell the house I have. I would prefer to keep it and possibly build up some real-estate investments. Based on the current market we should have some reasonable equity in our house so I'm not sure I'd need to sell it if I can borrow against it to buy something else. I haven't even asked the bank yet as I'm probably quite a bit of time away from pulling any triggers on this.

I'd like to figure out what my expenses and how my taxes would look when renting the house out though. Obviously that plays into the profitability of the venture as a whole and if it doesn't look good then I wouldn't do it.

The market is good in our area and rentals are and honestly have been hot perpetually because of how good our schools are.

Can anyone point me to a good place to read about what is involved in renting out a property? We're in California in the Los Angeles area.

[id10t]

I wouldn't do it.... esp. in California, and esp. if state or fed subsidizing is likely for your area/price range

That said, if I were to do it, I'd find apartment buildings or condos near a university and rent to those who are working on their masters or doctorates... (as a rule, they will be more disciplined, less party animals, and actually be responsible for where they are living)

[Seahawk]

The financial numbers have to make sense, etc., pretty much a given. There are any number of really good websites that can help crunch the tax math, the % of occupancy math, etc.

I am also sure that the practical advice you'll get here will be invaluable.

Having owned rental property in the past (I do not now), the number one question you have to ask yourself is, "Do you have the personality to be a landlord?"

I did not. I bought more sad stories than Oprah, found myself willing to forgive rather than enforce where some tenants were concerned.

I do not like being a harda$$, which is often the exact right tact.

[rusnak]

This might be the most difficult real estate lending market in our lifetimes. If you manage a mortgage on a second home, then I would think you've got enough to do whatever you want. Lenders are all scared right now.

[Tobra]

If you are in California, do not do it unless you are renting to your kids or something.

[dipso]

I have 2 properties in Orange County that I rent. I borrowed against the first to buy the second. Then borrowed against them again to buy my house.
Mortgage on one is 900, mortgage on the other is 1200. They both rent for 1400.00 The second I took out costs 800.00 a month.
They pay my mortgages and my second, that I used as a down on my house. I pitch in a few hundred bucks a month to cover association costs. Taxes are impounded on them. They are condos.

They are worth about 500,000 in 6 years when paid off, and don't cost me anything.

Are you handy? that is important. Keep the place in good shape and people will stay a long time. Both of my current tenants have been there for a few years.

You can buy books on landlording, too. You might win, you might lose, but if you do you're due diligence it works out pretty good.

[911_Dude]

Ive been a landlord a few times for short term rentals (6 months). I always do a credit check and only rent to high credit scores, pass on long BS stories, etc. Ive never had a bad experience. Also, they were not sect 8 housing. They were pretty expensive homes in great areas.

[fastfredracing]

Originally Posted by Seahawk

The financial numbers have to make sense, etc., pretty much a given. There are any number of really good websites that can help crunch the tax math, the % of occupancy math, etc.

I am also sure that the practical advice you'll get here will be invaluable.

Having owned rental property in the past (I do not now), the number one question you have to ask yourself is, "Do you have the personality to be a landlord?"

I did not. I bought more sad stories than Oprah, found myself willing to forgive rather than enforce where some tenants were concerned.

I do not like being a harda$$, which is often the exact right tact.

This is tough, I too have had the same problem. but after more than 15 years of landlording, hearing every sob story there is to hear, and getting screwed in more ways than I ever thought possible, it is getting easier.
Be prepared to handle a number of situations that you have never even imagined before. People are strange. You have to be willing to either write the checks for clogged pipes, faulty toilets, racoons in the trash, leaky roofs, electrical woes... etc, or drop whatever you are doing and make the repairs yourself. You either pay with your profit, or you pay with your time. There will be times where all is quiet, and great, and there will be times where you will just want to give up ( I'm there now) .
The money has to make sense. I know of quite a few people who got into it , and just could not make the numbers work, and ended up in the red every year, most of them won't swing their own hammer, paintbrush, or poopie pipe unclogger.
Be prepared, for a Saturday morning, car all packed, kids in the car, ready to go on vacation, when the phone rings.... It happens .
You will be amazed that the carpet that you had managed to keep nice, and stain free for 10 years, will need replaced within 6 months. The knob on the shower will somehow fall off, and it will never be the tenants fault.
Be ready to have to strap on a set, and go collect money. Read up about eviction laws, tenants rights, etc...
My situation will be slightly different than yours, and we do mostly low income , in the city , but I don't know of a single landlord without stories to tell.
Think it through carefully, it has changed me as a person, and maybe not for the better. Best of luck.

[RWebb]

people currently renting are now buying - leaving lots of excess rentals out there in the near future

but it's all local - who would you rent to? what demographics?

also, contact state/city/county govts. FIRST to find out what your duties are as a landlord

[911SauCy]

Funny me too.

I have a home in CT, placed in a strong rental market, with a $1098/mo mortgage.

I can EASILY get $1800/mo for it as a rental, and I almost have the scratch for a chunky DP on the next one. Which will be a "lets raise our kids here house".

I'm leaning towards doing it.

[911SauCy]

Originally Posted by RWebb

people currently renting are now buying - leaving lots of excess rentals out there in the near future

but it's all local - who would you rent to? what demographics?

also, contact state/city/county govts. FIRST to find out what your duties are as a landlord

THIS...

MY parents just bought, refurb'd, and rented a duplex...rented to 2 police officers

Don't get the wrong person in CT, laws are in renters favor, and they can literally pay 2 months rent and live lawfully for 12

[greglepore]

It is VERY worth the 6% or whatever to have a mgt company...no calls at 3am about no heat.Yes it eats into the return, bu unless this is a "spare time/hobby" decision it makes sense, trust me...

In this market there are deals if you are careful, but you're a smart guy, the question isn't financial, its practical...so do what you thinkyou can handle. Self management is a f'in pain, trust me.

[aigel]

The returns may not be great, but a piece of property is a hedge against inflation and should be part of your portfolio IF you can have other assets as well. If you have to bend over backwards and overstretch to make it happen and it is your only asset, then I'd either sell or live in the old house for another 5 years and build up your portfolio before making the move.

G

[recycled sixtie]

Originally Posted by aigel

The returns may not be great, but a piece of property is a hedge against inflation and should be part of your portfolio IF you can have other assets as well. If you have to bend over backwards and overstretch to make it happen and it is your only asset, then I'd either sell or live in the old house for another 5 years and build up your portfolio before making the move.

G

This is sound advice. Be aware of the rate of return on investment and in our case with our rented condo it is only 2% after deducting everything. I believe that a house is a better investment for rental.Why? With a house there are no special assessments and no condo fees which you have no control over with a condo.

Kind of tenants is important. Check references. Write up a lease agreement that covers everything(eg. max no. of occupants etc etc).

Our condo has gone down in value by about 25% since we bought it 7 years ago.

Second set of tenants now who are very self sufficient.

Think of real estate rental as diversification. You should have no debt by the time you retire. If you get bad tenants your life can be hell. We have good tenants and I hardly give them any thought. I was Pres. on our condo board for a while.
I don't like the politics that goes on though. Would not want to live in that building as there are too many complainers and whiners(over 50 yo). Be firm but fair with your tenants.
I have learned a lot over the 7 years of ownership/being a landlord.

[look 171]

I say do it. There will always be renters in los Angeles. Especially in your area. There are many areas where they can't rent fast enough. If you are just a little too late, you are to look at the next one. A lot of people I talk to that are landloards list them just below market value just to get them rented and to a stable family. People who can afford to rent in your area will be fine. I know its hard to believe for many of you here, but people are still coming to socal.

[look 171]

One thing you got or thankful for are the sihtty schools. There are more of them around you then you think, so you win each and everytime. We listed (sale) a house with excellence schools and people were fighting over it.

[mikester]

Originally Posted by look 171

I say do it. There will always be renters in los Angeles. Especially in your area. There are many areas where they can't rent fast enough. If you are just a little too late, you are to look at the next one. A lot of people I talk to that are landloards list them just below market value just to get them rented and to a stable family. People who can afford to rent in your area will be fine. I know its hard to believe for many of you here, but people are still coming to socal.

Yep, we let our condo go before we bought this place because it was in Santa Monica - easily a great place to rent and it was bought in the 90s and the mortgage was damned near nothing but because all the renters in the other units were typically on some sort of assistance and the other owners were all kind of nuts we decided to sell. It wasn't an easy choice but we feel it was the right one.

In this part of town there is a very limited housing market - so even me buying something else is kind of a stretch to be honest. We don't want to leave town we just want to go from the 1700 sq ft we have to something like ~2500 sq ft, nicer garage - basically move up a notch. I feel like I could easily rent this place for 40% more than my mortgage. What I need to figure out is, if that is the case then how much of that 40% is going to be eaten up by other expenses.

I am handy and I have a lot of good resources for folks who can handle plumbing, electrical, structural and landscaping issues. I have a good tool belt of my own and of contractors I know and have worked with.

I'm not against having someone else manage it if that fits into the expenses and doesn't kill me on profitability. Just part of the equation really.

I'm not interested in making anyone a deal or listening to a story really. In fact because of this and the close-knit nature of the town I would likely lean towards a management company to isolate myself and not publicize myself as the owner.

[Joe Bob]

Renters suck....

[BK911]

Originally Posted by mikester

the idea is that I want a bigger house but I don't want to sell the house I have. I would prefer to keep it and possibly build up some real-estate investments.

I wanted a bigger house and COULDNT sell the house I had. So I was forced to stay or become a slum lord. Now I am on my 4th house, and the 3 rental incomes pay over half my current mortgage.

And since I was always purchasing a new primary residence versus a rental property, interests rates were lower and all 4 were ZERO out of pocket. (2 80/20s and 2 VAs)

Couple of bad months here and there, but over the long haul, probably the best retirement plan I have. Every year I make a little more on rental income, and by the time I retire I should brake even on rental income / mortgage payment.

[Zeke]

I think the days or using equity in a current home to expand are lost to more scrutiny by the banks. Better look into this first. I just had this conversation. The banks are now more prone to equate borrowing money against an existing property and using is as a down payment on another property tantamount to putting the down on a CC.

If you have cash, you can do this easily. And I agree with you that this is the time. More property is held as rental in L.A. City than owned by the resident. The landlords go through highs and lows, problems with tenants and more. But, they seem to come out on top in the long run.

In a lot of cases, way on top.