Has anyone been a landlord?

[papsrus]

I'm wondering if anyone has any experience as a landlord. I'm weighing whether to rent a home I own and am considering sounding out a property management company just to get a feel for the market. What are some of the pitfalls of being a landlord?

[Jazzmoose]

I'm glad to hear you're going the management route; I wouldn't do it on my own for anything. Though, in my situation, I'd be more apt to be the jerk trashing your place rather than a landlord...

[Drew Peacock]

I am a landlord if you count owning a two family with a mother in law unit. I rent out the mother in law unit and the upstairs apartment. I live in between.

I would recommend that you seek out a real estate broker to help you understand the market. These are the folks who really know where rent is heading and can help you understand what you can expect for a tenant in your location. In down markets the landlord pays the sales commission, in up markets the incoming tenant pays (Boston market, yours will very likely be different).

The most important thing to me is finding good tenants. There is no secret formula, you just need to be able to judge a person quickly. Be sure the broker/agent runs a credit report as it can give you a good idea on how they treat other creditors. These come in different levels of detail - you want to know which bills they pay and which are behind in terms.

Make sure the tenant fills out an application. You can tell a lot about them just by the way they fill out a form. Be sure to check references - both landlord and employer. In my market, if the credit is less than average then I won't take them unless they have an in-state cosigner. I would only do this for students and the like. I feel that if you are employed then you need to be able to stand on your own.

If your home is not de-leaded then you need to be careful about women of child bearing age. Once they are a tenant and if they become pregnant, you will be responsible for having the unit de-leaded. This will involve temporary housing for the tenant and a few thousand for the de-lead company. It's not a pretty sight if you need to do this. Once de-leaded however, you could charge a premium and market to young families.

Steering - it's illegal. This is where you try to push a tenant into a unit and avoid showing a similar unit because the landlord doesn't want 'that type'. Brokers/Agents can lose their license if they do this. If an applicant applies for your place then you'll need to base your decision on the information in the application and credit report.

What to charge? The most you can get upfront is first, last, and a month's worth of security deposit. The market will decide if you can charge all or some of these fees. I recommend that you always charge a security deposit - which is refundable when the apartment is turned back to you. You'll need to keep these funds in a separate account as you cannot use it for expenses. I waive the last month rent and charge only a half security if I find their credit and references are good.

Last, I wouldn't pay a property management company unless I lived far from the apartment. You likely already have a plumber and electrician - keep using the guys that you're comfortable with. No sense in paying a company to field the tenant phone call for just a single home. Most all issues can wait a day or so before they're fixed so don't worry about that 3am phone call.

If you have special rules about your house, consider creating a addendum to attach to the lease. We tell our tenants that they cannot park in the driveway. Upstairs tenant is responsible for clearing out the snow on the front stairs. No water filled furniture, no electric exercise equipment. We allow cats but not dogs.

Do you want to try to rent it on your own and avoid paying a sales commission? In the Boston market most small landlords try to do this. Post your apt on craigslist as a no-fee owner apartment (you can't charge a fee for your own place, that's illegal). These no-fee apartment listings get a lot more activity than the broker 'for fee' apartments. Be sure to include recent pictures in the ad.

Good luck. I'm sure I've forgotten a few pointers so feel free to ask away.

Edited July 1, 2009 by Drew Peacock

[BeBop]

Noooooo! Arrrghhhh! The memories. I'll spare you the details (here, anyway; PM me if you want them), but when I decided to go homeless, I rented out my small condo for a while. My losses over two years were three times the market value of the condo (evictions, damage repair, court costs, property management, legal expenses (not attorneys), sale commission...)

[Dan Gould]

Noooooo! Arrrghhhh! The memories. I'll spare you the details (here, anyway; PM me if you want them), but when I decided to go homeless, I rented out my small condo for a while. My losses over two years were three times the market value of the condo (evictions, damage repair, court costs, property management, legal expenses (not attorneys), sale commission...)

Holy shit!

[papsrus]

I am a landlord if you count owning a two family with a mother in law unit. I rent out the mother in law unit and the upstairs apartment. I live in between.

I would recommend that you seek out a real estate broker to help you understand the market. These are the folks who really know where rent is heading and can help you understand what you can expect for a tenant in your location. In down markets the landlord pays the sales commission, in up markets the incoming tenant pays (Boston market, yours will very likely be different).

The most important thing to me is finding good tenants. There is no secret formula, you just need to be able to judge a person quickly. Be sure the broker/agent runs a credit report as it can give you a good idea on how they treat other creditors. These come in different levels of detail - you want to know which bills they pay and which are behind in terms.

Make sure the tenant fills out an application. You can tell a lot about them just by the way they fill out a form. Be sure to check references - both landlord and employer. In my market, if the credit is less than average then I won't take them unless they have an in-state cosigner. I would only do this for students and the like. I feel that if you are employed then you need to be able to stand on your own.

If your home is not de-leaded then you need to be careful about women of child bearing age. Once they are a tenant and if they become pregnant, you will be responsible for having the unit de-leaded. This will involve temporary housing for the tenant and a few thousand for the de-lead company. It's not a pretty sight if you need to do this. Once de-leaded however, you could charge a premium and market to young families.

Steering - it's illegal. This is where you try to push a tenant into a unit and avoid showing a similar unit because the landlord doesn't want 'that type'. Brokers/Agents can lose their license if they do this. If an applicant applies for your place then you'll need to base your decision on the information in the application and credit report.

What to charge? The most you can get upfront is first, last, and a month's worth of security deposit. The market will decide if you can charge all or some of these fees. I recommend that you always charge a security deposit - which is refundable when the apartment is turned back to you. You'll need to keep these funds in a separate account as you cannot use it for expenses. I waive the last month rent and charge only a half security if I find their credit and references are good.

Last, I wouldn't pay a property management company unless I lived far from the apartment. You likely already have a plumber and electrician - keep using the guys that you're comfortable with. No sense in paying a company to field the tenant phone call for just a single home. Most all issues can wait a day or so before they're fixed so don't worry about that 3am phone call.

If you have special rules about your house, consider creating a addendum to attach to the lease. We tell our tenants that they cannot park in the driveway. Upstairs tenant is responsible for clearing out the snow on the front stairs. No water filled furniture, no electric exercise equipment. We allow cats but not dogs.

Do you want to try to rent it on your own and avoid paying a sales commission? In the Boston market most small landlords try to do this. Post your apt on craigslist as a no-fee owner apartment (you can't charge a fee for your own place, that's illegal). These no-fee apartment listings get a lot more activity than the broker 'for fee' apartments. Be sure to include recent pictures in the ad.

Good luck. I'm sure I've forgotten a few pointers so feel free to ask away.

Thanks Drew. I appreciate all the advice and info. My initial thought was to contact a property management company just to get an idea of the market. I did a quick search last night of one local property management company's web site and they had just a handful of houses available in the general price range I'm thinking of for this place, so maybe I'm low-balling it? I'll contact a realtor I know as well.

Noooooo! Arrrghhhh! The memories. I'll spare you the details (here, anyway; PM me if you want them), but when I decided to go homeless, I rented out my small condo for a while. My losses over two years were three times the market value of the condo (evictions, damage repair, court costs, property management, legal expenses (not attorneys), sale commission...)

Yikes. This sounds like a horror story. Hopefully an exception, not the rule, and maybe puts added emphasis on Drew's point above about being vigilant about the whole application process, etc.

[sidewinder]

Ber extra careful vetting the applicant/s. Lots of horror stories over here of industrial cannabis farming conversions being set up in residential houses, even though the applicant was professional and looked to be an A1 bet. Good luck !

[BeBop]

Yes, I hope my experience was the exception. Actually, I did it because my parents had successfully rented out condos in the same complex. Despite using a very reputable property manager (who happens to have a monopoly at this location), I had a string of people who came in, paid first/last, never paid again, had to be forcibly evicted and trashed the place. (Bay Areans could confirm, by way of background, that the Watergate complex in Emeryville isn't the Ritz, but it's also not the ghetto.)

At one point, I even had a corporate(!) "tenant", who housed high-level employees visiting the area, presumably for long periods of time. They didn't thrash the place, but it turns out they didn't have any money to pay, and the guy living there didn't know/believe that the rent wasn't being paid, so....call the sheriff to bounce him out. Hope he's not still living in his Bimmer.

Another tenant was the sister of a co-worker. How she got lipstick on the ceiling... She didn't ever pay and STILL had the gall to sue me!

[sidewinder]

How she got lipstick on the ceiling...