UnThreaded | Threaded | Whole Thread (19) | Ignore Thread Prev Thread | Next Thread
Author: mhtruck Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 127261  
Subject: Rental Property Questions Date: 12/26/2012 11:31 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
Hi Everyone,

I’m hoping you can either offer some advice or point me in the right direction to some resources.

1) Is there a rule of thumb regarding home age and yearly maintenance costs (Central Coast area of California)? Or number of bedrooms/baths, square footage maintenance costs?

2) What are some of the standard ratios to look at for rental property? And what should they be/do people look for?

3) From a rental stand point (ease of rental, maintenance costs), do you all have an opinion of 2 bed/1 bath, or 3 bed/2 bath?

I’m currently a renter but my landlord has some financial problems that worry me and I have pets that make finding rentals difficult. The end result was even though I have more debt than I’m happy with (from long term unemployment) mortgage brokers seem fine with it, and I’m in the final preapproval phase (first time homebuyer).

Because this isn’t the timing I would choose to be buying a home (from my personal financial perspective) I’m looking for something that will make me happy for now, but several years down the line, make a good rental.

If there are any books, websites, or references you can suggest about what to look for in rental property, I’d appreciate it.

Thanks.

mhtruck
Print the post Back To Top
Author: Gingko100 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 124504 of 127261
Subject: Re: Rental Property Questions Date: 12/27/2012 1:35 AM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 2
There are a number of warning signs in your post.

You need cash at hand and enough $$$ float to be able to deal with problems that inevitably come up on houses. Houses cost more than rentals, period. It sounds like you may not be prepared for that.

As far as renters, they can destroy a house or turn a house into a money pit unless you are very careful to screen and monitor Tenants carefully. Plus you still have to deal with all the maintenance for the property - leaking roofs, wonky water heaters, trimming trees and maintaining fences, etc. That takes time and money, and can't be put off if you have Tenants. This happened to my brother who was forced into a short sale of both his house and his rental property as he wasn't prepared financially or logistically to deal with managing a rental. There is no "rule of thumb" that tells you if a house has issues. You need to inspect a property carefully with a qualified GC or someone who knows construction to know if it has issues. If buying a condo, do check that the HOA has properly funded its obligations and that vacancies aren't causing it to press remaining owners for extraordinary expenses for maintenance.

Print the post Back To Top
Author: Gingko100 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 124505 of 127261
Subject: Re: Rental Property Questions Date: 12/27/2012 1:39 AM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 2
mortgage brokers seem fine with it,
Of course they are. They get a commission if you buy a house through them.

The more important question is: Can you do this for a fixed term loan with PEI totaling 30% or less of your net take-home pay after other debts are deducted? If not, don't buy.

Print the post Back To Top
Author: inparadise Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 124506 of 127261
Subject: Re: Rental Property Questions Date: 12/27/2012 6:31 AM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 2
MH,

It is good that you are asking questions. Perhaps the best board to ask them on is the Real Estate Investing board: http://boards.fool.com/real-estate-investing-113590.aspx?mid...

Best of luck.

IP

Print the post Back To Top
Author: mhtruck Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 124507 of 127261
Subject: Re: Rental Property Questions Date: 12/27/2012 8:33 AM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
Hi Gingko,

I can afford to buy a house. All of my "can I buy a home ratios" are good. I just won't be buying a home in the expensive nearby city that I'd like to. What is PEI? Was that suppose to be P&I?

The loan is fixed and I qualify for the best rate. Plus I qualify for a first time home buyer credit of 3% that will go for down payment/closing costs freeing up more of my cash to sit in my bank.

I have no interest at all in HOAs or Condos.

I would absolutely use a qualified inspector and have a GC look at it before buying.

Since this will be my personal residence for several years, I expect to be the one suffering through the leaking roofs, and wonky water heaters and whatever exciting repair/maintenance that crops up initially. I've got a union electrician background and am pretty handy with a hammer and a pipe wrench. If there are time constraints or repairs like concrete work or hanging drywall (which I don't like to do) - I can use a phone and write a check.

As for the eventual rental conversion, I've managed large apartment complexes in the past and am well familiar with how exciting tenants can be.

I didn't think there was a rule of thumb for telling if a house had issues, but I thought there was a generally acceptable formula for yearly maintenance costs based on the age of the house (regardless of whether it was a rental or not). Just a rough formula/number to get an idea of how much at a minumum should be set aside for routine maintenance.

Thanks.

mhtruck

Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Print the post Back To Top
Author: mhtruck Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 124508 of 127261
Subject: Re: Rental Property Questions Date: 12/27/2012 8:34 AM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
Thanks for the link, IP

mhtruck

Print the post Back To Top
Author: reallyalldone Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 124509 of 127261
Subject: Re: Rental Property Questions Date: 12/27/2012 8:39 AM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 4
Both for personal residences and rental properties, I don't buy anything with less than 1.5 baths - I think it limits rentability and resale.

Print the post Back To Top
Author: Gingko100 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 124510 of 127261
Subject: Re: Rental Property Questions Date: 12/27/2012 9:24 AM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 1
What is PEI? Was that suppose to be P&I?
Whoops, yes. I didn't mean Prince Edward Island!

As for the eventual rental conversion, I've managed large apartment complexes in the past and am well familiar with how exciting tenants can be.
Sounds like you have the background then. Many people don't.

Print the post Back To Top
Author: inparadise Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 124511 of 127261
Subject: Re: Rental Property Questions Date: 12/27/2012 9:57 AM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 2
I use the third spreadsheet down on this list when looking at investment properties: http://www.mortgage-investments.com/resources/spreadsheet-do... It has some of those rules of thumb you are looking for, but is editable if you want more rigorous guidelines. Looks as though that website may have some good reading for you as well.

For tax decisions, this book has been helpful: http://www.nolo.com/products/every-landlords-tax-deduction-g... I got mine at Amazon for much cheaper and an older volume may give you some insight for down the road, but since you are not looking to rent the place out in 2013 I would wait to buy a more expensive current version. Nolo press also has many CA landlord books.

IP

Print the post Back To Top
Author: MetroChick Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 124512 of 127261
Subject: Re: Rental Property Questions Date: 12/27/2012 9:16 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 2
I didn't think there was a rule of thumb for telling if a house had issues, but I thought there was a generally acceptable formula for yearly maintenance costs based on the age of the house (regardless of whether it was a rental or not). Just a rough formula/number to get an idea of how much at a minumum should be set aside for routine maintenance.

What I read in "Homebuying for Dummies" type books is that one should expect to pay 1-3% of a home's value each year in maintenance costs. Since value *usually* goes up, that would mean maintenance costs would also go up as the home ages. The 1-3% probably depends on age of home, type of home (townhouse versus detached), and construction of home (example brick facing versus wood siding).

As far as rentals, for homes (not condo/apartments) I think 3 bedrooms is the "sweet spot" for attracting more highly desireable tenants - meaning, singles, couples, or small families. 2 bedrooms probably means you'll be highly limited in the number of potential renters who will consider your place, and 4 bedrooms means you're getting into families with more children - and children cause a lot of wear/tear on a place. IMO the most desireable tenants would be single women, a couple, single parent with 1 child or couple with 1 child. Less desireable are probably single men (you don't know who's going to be into partying) and couples with multiple children.

Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Print the post Back To Top
Author: CCinOC Big gold star, 5000 posts Top Recommended Fools Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 124513 of 127261
Subject: Re: Rental Property Questions Date: 12/28/2012 11:55 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 3
The end result was even though I have more debt than I’m happy with (from long term unemployment) mortgage brokers seem fine with it,

Maximum back end ratio (mortgage payment plus all your other debt) can't exceed 45% without pretty stiff compensating factors such as a fat bank account.

Print the post Back To Top
Author: CCinOC Big gold star, 5000 posts Top Recommended Fools Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 124514 of 127261
Subject: Re: Rental Property Questions Date: 12/28/2012 11:56 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 3
Houses cost more than rentals, period.

Correction: houses cost more than apartment units.

Print the post Back To Top
Author: CottonFields3 Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 124516 of 127261
Subject: Re: Rental Property Questions Date: 12/30/2012 8:36 AM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 7
Caveat: I do not propose to talk anyone into my way of handling these issues; am only giving my opinion and experience.
-----

...a generally acceptable formula for yearly maintenance costs based on the age of the house .. Just a rough formula/number to get an idea of how much at a minimum should be set aside for routine maintenance."

"...one should expect to pay 1-3% of a home's value each year in maintenance costs. ... The 1-3% probably depends on age of home, type of home (townhouse versus detached), and construction of home (example brick facing versus wood siding).
-----

I would up it to 5%. It's no problem to end up at year's end without having spent the entire 5%; it may be a problem to not have put enuf aside, just in case Murphy's Law plays out. Expect that it will.

There are a couple of things about your plan that sound good: 1) Living in the house for several years will give you the best education on the house - better than any other way I know; and 2) The fact that you have some construction/repair experience is a definitive plus.

Even for repairs for which you get someone else to do the work, you still have the background to know enuf to "supervise" the work, rather than someone w/no experience who must rely solely on the credibility, or not, of a contractor/tradesman.
-----

"From a rental stand point (ease of rental, maintenance costs), do you all have an opinion of 2 bed/1 bath, or 3 bed/2 bath?

"Both for personal residences and rental properties, I don't buy anything with less than 1.5 baths - I think it limits rentability and resale."

"As far as rentals, for homes (not condo/apartments) I think 3 bedrooms is the "sweet spot" for attracting more highly desireable tenants - meaning, singles, couples, or small families."
-----

You specifically said, "ease of rental, maintenance costs", so the obvious things to consider are: One bath = one toilet to clog, not two; 1-2 bedrooms versus 3, means [presumably] less square footage to maintain, and fewer inhabitants, which likely [but not necessarily] translates into less maintenance.

The ubiquitous influence is that one should invest in a 3 bed/2 bath house [rental or owner-occupied]. While there may be no debate that one will have more buyers/renters in the market for the 3 bed/2 bath house versus the 2 bed/1 bath house, I haven't bought into that thesis for dictating my rental purchases.

I have three rentals, all about 100 yrs old, one has 2 bed/1 bath, the other two are 1 bed/1 bath. Everyone - Everyone! - has cautioned me to observe the prevailing belief that I'll be cutting myself off at the foot to invest in a 2-bed - and heaven forbid!, a 1-bed house. Again, no argument about where lies the larger market. Still, there is a market [albeit smaller] for 1 and 2-bed houses. For me, it's - so what?, that I'm marketing to a smaller group. What I know is: Mine is a quality house, deserving a quality tenant.

For rental property, the best thing I know of to hedge against a bad tenant, is a good [1 year] lease. I did a lot of research before drafting mine [which is 3 pages]; A quality tenant doesn't mind signing a 'you've-got-to-be-responsible-or-else' lease. Also [as when selling], when renting have the house in tip-top shape. Shabby-condition house will [likely] not attract the best tenant. [But Geez, there are no guarantees against getting a bum tenant.]

If I were planning what you are - to buy a house and live in it for several years then rent it - I would buy the house that suits me. But I'm not like most people. For me, it's just as much about the quality and design of the rehab, as it is about the investment potential. My satisfaction comes from improving a piece of property; the bonus is the [future] investment income.

[Apologize for such long-windedness, but...] Another issue Everyone! has cautioned me against, is my choosing to use all high-quality materials for rehab. For example, when I last [gutted entirely &] put porcelain tile floor and shower in one rental, folks said, "But it's a rental...Use linoleum...", etc. For me, I'm not so much renovating a "rental" as I am renovating a "house"; It may be a rental today, but I may decide/need to put it up for sale tomorrow, in which case I want it to be on the market as a quality house, not just rental/income property.

Just my $0.02; Hope it helps.

Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Print the post Back To Top
Author: mhtruck Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 124517 of 127261
Subject: Re: Rental Property Questions Date: 12/30/2012 11:25 AM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
Thanks, everyone. You guys and gals are great and gave me exactly what I was looking for. I really appreciate your thoughts and your time to respond. Thanks for the link, Inparadise; I definately neeed to spend some time there reading.

CCincOC, my back end ratio is good and well below 45%. All my numbers work for buying. I just wanted to be able to consider some ideas or run some rough numbers with the eventual rental conversion in mind at the outset of the buying process rather than 5 years after I bought a house.

Thanks again.

mhtruck

Print the post Back To Top
Author: CCinOC Big gold star, 5000 posts Top Recommended Fools Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 124518 of 127261
Subject: Re: Rental Property Questions Date: 12/31/2012 3:40 AM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 4
For rental property, the best thing I know of to hedge against a bad tenant, is a good [1 year] lease. I did a lot of research before drafting mine [which is 3 pages]; A quality tenant doesn't mind signing a 'you've-got-to-be-responsible-or-else' lease.

Or else what? Depending on the county, many landlord-tenant laws are very pro-tenant. In California, for example, it takes practically an act of Congress to evict a bad tenant and then what do you have? A broken lease and little chance of suing for damages. Oh, you can sue alright, just don't expect to collect on your judgment without a lot of exhausting effort.

Here's a discussion about this topic.

http://www.biggerpockets.com/forums/52/topics/33970-landlord...

Print the post Back To Top
Author: Zumba Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 124519 of 127261
Subject: Re: Rental Property Questions Date: 12/31/2012 9:52 AM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 1
I live in the Washington, DC area, and difference in landlord vs. tenant rights in Washington, Virginia and Maryland is amazing and makes being a landlord much more attractive in Virginia.

In DC and Maryland, the law is much more stacked in favor of the tenant. In Virginia, for example, if a tenant stops paying you can have them evicted with only five days notice. In DC and Maryland it's much more complicated.

Paul

Print the post Back To Top
Author: jrdown Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 124520 of 127261
Subject: Re: Rental Property Questions Date: 12/31/2012 2:41 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 1
Here in California you must give a "3 day notice to pay or quit" if they are late in their rent. Then, if they don't pay, you must give them either a 30-day notice or 60-day notice. If the tenant has been there up to one year then a 30-day will suffice. If the tenant has been there a year and a day (or more) then a 60-day notice is required. Of course, during that time the tenant may not pay you at all but you still have to wait. After the 60 days you can set up a court appearance but you won't be getting in right away. The tenant may not move either. It can be a huge mess for the landlord in this state.


Robyn

Print the post Back To Top
Author: CCinOC Big gold star, 5000 posts Top Recommended Fools Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 124521 of 127261
Subject: Re: Rental Property Questions Date: 1/2/2013 2:08 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 3
Here's the law in Los Angeles County. I suggest the OP bone up on landlord-tenant laws in the county of the subject property.

30-, 60- and 90-day notices to move

http://www.dca.lacounty.gov/tsLandlordNotices.htm

Print the post Back To Top
Author: xtn Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 124522 of 127261
Subject: Re: Rental Property Questions Date: 1/4/2013 2:40 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 12
One bath = one toilet to clog, not two;

One bath = "We need you over hear NOW!"
Two baths = "Okay, we'll see you in the morning."

Print the post Back To Top
UnThreaded | Threaded | Whole Thread (19) | Ignore Thread Prev Thread | Next Thread
Advertisement