Keep property and become a landlord, or sell

[Mackenzie Click-Mickelson]

lord-that's not being a landlord, that's being a parent!

That's pretty common. It usually applies to guests of the homeowners as well who are say on common HOA property. For example guests of homeowners in my neighborhood at the neighborhood pool are the responsibility of the homeowner to ensure they adhere to the rules. Things like liquor rules, glass rules, operating hours, etc.

This is what ours says in relation to renting:



This was the case too at our rental house although the 6 month part was not part of it.

 

[china mom]

I would most likely not hold onto the house in New Jersey due to the tenant friendly laws and would prefer not to hold a rental property in an HOA. That said, I am up to four rental properties right now (1 short term rental and three long term rentals) and I am always on the hunt for the next good deal.

I do not make a large annual profit, in fact, I took a large loss in 2021. But I am playing the long game. Other people are paying off my houses. My only regret is starting so late in life. Between some newer purchases and a refinance, I wont have the houses paid off until I am 85 (If I hold them that long) BUT, once they are paid off, I will see an annual net income of $100K based on todays rents - which of course will be higher by then.

In the time I have had these properties, I have gained a conservative $600K in equity so far. So, worst case scenario, I could dump them, pay a chunk in capital gains and still have enough cash to purchase a house mortgage free to live in.

Is there risk? Yes. I have had some not so great years. But you gotta take risks to get rewards.

I held one short term rental for 19 years that operated at a slight annual loss but when I sold it, I had a $90K profit. So, I am wiling to hold house for net zero annual in exchange for capital gains. The trick is to determine if it will bring in enough rent to pay for itself and VERY IMPORTANT - know you have the cash reserves to cover annual loses such as periods of inoccupancy, major repairs and tenant turnover.

One popular formula is that half of your rental income should account for operating costs such as management fees, taxes, repairs, turnovers etc and the other half should cover your mortgage. This means that if a house would rent out for $2,000/mo, your mortgage should not be more that $1,000/mo - and this is just to break even. So, consider what your mortgage is and what the area's average rental rate is to help you decide.

BTW, I did self manage for a while but decided my time is more valuable to me (plus one of my properties is out of state) so I use property managers for all my properties. Rental properties do not take up much of my time. I spend about 30 minutes a month reviewing statements.

 

[GAN]

I am curious to get an opinion, and perhaps the good and the ugly about becoming a landlord. I currently own a 2B2BA condo in a very nice town in NJ. My DH and I will be consolidating to one household after my youngest graduates from HS in 2023. There are definitely positives and negatives with deciding whether to just outright sell my property and not keep roots in a town i've lived in for almost 20 years, or keep the property and become a landlord.

These are the pros and cons I can think of off the bat:

Pro to sell - Make a good profit (over $100K after paying off mortgage), not have to worry about renters and dealing with those issues (though I have a very strict HOA which should help if there is an issue), things breaking, fixing major repairs like my old HVAC, etc.

Cons - Rents are high so each month I could profit $600 after expenses, could sell property later on (5+ years) for a better profit, keep a fallback place for my children to stay in if ever needed, i'm attached to the condo (sentimental value).

Thanks in advance for any push in either direction!

Unless you "need" the money, I'd keep it and rent it out. Besides, all your Cons are positives! Property(especially in a nice area) never really loses value over time and the biggest thing for me; it gives your children a fallback if they ever need a place and gives them financial stability. If you want to minimize the headaches, just hire a rental agent to handle the management.

 

[barkley]

If you want to minimize the headaches, just hire a rental agent to handle the management.

fully research any potential company and make sure there is bonding and financial consequences for their failure to do regular, documented (with photos) in person internal and external inspections of the property. a friend's home was destroyed to the tune of the low 6 figures due to a tenant. the damage could have been caught and minimized had the property management company done what their contract called for but they were only doing drive-by's and since the exterior looked well kept up and no one would answer the door the one time per mandated period they would show they just blew it off. luckily friend had those provisions in her contract-that management company had to pay for essentially redoing the entire interior of a larger home (and cover the lost rental income for the months on end it took to get the work done and a new certificate of occupancy issued by the city).

 

[Laugh O. Grams]

How would being in an HOA help in this situation? Wouldn't they come after the owner (you) if there is an issue?

Personally, I would sell. $600/month renting would take more than 13 years to match the $100K you get from selling. But that doesn't take into account major repairs and possible painting and carpet replacement after tenants leave. And that's assuming you would have a tenant every month. And rents may be high now, but what about 6 months or a year from now?

Agreed. Never again

We moved out of state & decided to keep our property & rent it out. It was a large home in a gated community in south Florida & we hired a property management company to handle setting rent, finding tenants, doing background checks, etc. Figured it'd be no muss, no fuss, easy money. The rent was high, so you'd assume you'd be getting someone who could afford nicer things & would respect our property. Well, our first tenants were fine, but our second made our lives a real drag. Turns out because we were listed as owners of the property, our HOA would contact us every time there was the slightest issue with the property. Trash cans in the street? We get a letter & threat of a fine. Garage door open overnight? Letter & threat of fine. Loud music? We'd get the call. The second tenants ended up being hoarders & absolutely trashed the inside of the house. Junk everywhere, from floor to ceiling, & to call their living conditions foul was an extreme understatement. After their lease ran out, we took our lumps, sold the property as is & moved on with our lives. Unless you're doing it as an occupation, being a landlord leaves a ton to be desired. We'd never do it again under any circumstances

 

[tasha99]

We rented out our old house in 2000 and it was a nightmare. Three tenants in a row were just terrible--and notice that we had 3 consecutive tenants, since no one completed their lease. First one was the cream of the crop--he just wanted his rent cut $200/mo after living there a couple months. Wish we'd accommodated him, but we couldn't afford it. Second tenant ran up the utilities and left without paying. We ultimately had to pay them. Plus, she left the place a disaster. Third tenant didn't pay rent and sold drugs out of the house. We kept getting calls from our neighbors about that. When we finally got her to leave, she stole all the appliances, the faucets, and my chandelier. It wasn't even worth suing her since we were in Hawaii, and she had no money anyway. NEVER again!

 

[ashutoshwalia]

I once owned rental property. The tenant is solely responsible for your experience. You'll be OK if you get a nice one. The challenge is locating a decent one.