Owning a Rental Property -- Good Investment or Nightmare?

[MickeySP]

Dh and I are getting ready to move to another state. We are trying to decide between selling our house or keeping it as a rental property.

After paying a Property Management company, our mortgage on the house, taxes & insurance into escrow, it looks like keeping our house as a Rental would net us $600 a month. Some of that (I'm estimating $150 of it), we'll probably need to put in savings against future repairs on the house, netting us $450 a month in profit.

Downsides:
The downpayment on a home in our new city will be drastically smaller (20% instead of ~60%)
Feels random and strange to own a rental property in a state where we have no connection, no family, etc

Upsides:
It's a good rental market, housing prices are expected to continue to rise steadily in our area for the next few years, and we are fortunate that we do not HAVE to sell before we can buy. DH thinks it's crazy to give up $450 in "easy" income. I'm a bit more wary of being so non-liquid, but I admit the idea of a rental income stream is very attractive . . .

What I'm really looking for though, are things I have not considered about the risks/rewards of owning a rental property. I figured there's no better place to go to find out the 100 things you are overlooking, or all the ways your idea is stupid, than the Dis!!

You say you are hiring a property manager? I would check their reputation 7 make sure they do more than just a credit check. My DF owned a few properties for the most part he had great tenants. The couple times he rented to friends of friends or even in one case a friends kid it was a nightmare. On one occasion he even had to engage a hazmat company & rent a dumpster - think hoarder.

 

[Callie]

The house across from my moms in a rental now....we can probably guess that they have destroyed the inside of the entire place with a ton of dogs running wild, and a daycare. Not to mention the way they upkeep the outside, and this is all with the landlord living a few blocks away.
Our other neighbors had to rent theirs since they couldn't sell it and it went south. Evicting the people took forever. They moved far away, and asked my mom to keep them updated on the situation. The damage done to the place in a few months was horrible. They ended up having to walk away from the house.

 

[Lynne M]

It was a nightmare for me. I couldn't sell my co-op right away when I moved out of state because of low property values, so I rented it out for several years. I did have an agent work with the renters and look after the place for me. The first few tenants were pretty pain-free, the last one was a disaster.

She was an absolute saint for the first two years. Had a good, responsible job as an office manager. Passed the co-op board interview with flying colors. Paid her rent early every single month. Took beautiful care of the place. The agent loved her. Then, she asked if it would be OK if she moved her boyfriend in. I said fine. Shortly after that, she just fell apart. Got heavily into drugs, and completely stopped paying rent. Would curse and call the agent obscene names when she'd call and ask for the rent. Said she didn't want to pay it anymore, and insisted that because she was only 23, she "didn't have to pay." Right. Refused to move out. We started proceedings to evict them. They just disappeared one day, after doing thousands of dollars worth of damage. Punched holes in the walls, damaged the carpets, destroyed every single appliance and the bathroom fixtures. I never got any of the money back for the damages or the lost rent, because by that time she'd been fired from her job, and you can't garnish wages when there aren't any wages.

I will never, ever rent to anyone again.

 

[barkley]

not sure if it's the same elsewhere but we've lived in areas where existing homes that were used as rentals didn't increase in value as much as owner occupied (even when the owner went to sell and threw a ton of money cleaning the place up). that might be something to check on w/realtors local to the property.

management companies-REALY research them, and make sure there's an iron clad provision in the contract w/the company that they MUST an inside/out full visual periodic inspection of the property to ensure it's use/condition-with them on the hook if they don't and long term damage is discovered.

a friend was SOOOOOOOO thankful her contract was written up this way-police raided the place and found that the high credit scoring/great background check tenants the management company had sworn by had made a bedroom into their own personal illegal grow room-apparently the management company hadn't done the periodic checks b/c when an evaluation of the property damages were completed it was discovered that the hardwood floors throughout the entire home that were very visibly warped (total loss) had to have been subjected to months and months of slow leakage from the indoor drip irrigation system the tenants installed. between replacing the floors, fumigation, wall/base board repairs, drywall (grow lights suspended from the cielings made big holes), paint.....tens upon tens of thousands in damage..........all of which the management company had to pay up on (so friend did not have to submit to homeowners and jack up the rates on both the rental and her then existing home-she opted to move back in when the repairs were done and get rid of the other home).

 

[DisneyLover83]

We rented out our first home for 3 years after we moved away. It is always something, seriously, always. Your "$450" a month will get picked away at so fast.

We also owned a duplex as an investment property. The rent was lower, the tenants came and went and always left thousands of dollars of damage in their wake.

We will never be landlords again. It's just not worth it.

Edited to add: We sold both, obviously.

 

[RedAngie]

I inherited two houses from my parents. Their main house is now on the market, but their vacation home is being rented. I may want to eventually move there in a few years, which is why I'm not selling it now. Fortunately, the currents tenants have been very good the past two years, and they already indicated they'd like to renew the lease for another year when it expires in May. A real estate agency found the vetted the tenants.

I'm not really making all that much income; like others have posted, there's always some unexpected expenses. Yes, the rental income is declared on my taxes.

DH still owns a townhouse and he rents it out. His son is graduating from college this spring and the plan is for the son to live there when the current tenants leave in September.

About 25 years ago my parents bought a house in Punta Gorda, Florida, as an investment, but that was a disaster. The neighborhood started to go downhill, and there was a series of bad renters. They took a major loss when they finally unloaded the place.

 

[arminnie]

I had some hideous rental property situations in the early 80s. Rental values dropped by 50% while my adjustable mortgage (on one property) skyrocketed. It was a nightmare. I owed thousands of dollars a month in shortfalls while my income was dropping like a rock. I vowed never again to have an "investment" that required me to put money in each month.

But here I am again as landlord. I had a condo that I planned to live in the rest of my life. I over improved it. No way I could sell it without a $50,000 loss. But my neighbor needed to move to a first level apartment. She had lived in her previous apt. for 10 years. She is the most reliable tenant ever. I'd trust her with anything. I am charging her about $200 a month less in rent than I could get because she wants to live there the rest of her life - and I have no mortgage. Even with giving her a break on the rent my return on what I could have netted after a sale is still healthy.

 

[sukhakuli]

We've had one for years. Our mortgage on it is 1500/mo and we rent it for 1750/mo. That covers the property management, landscaping, and repairs completely. I think we made a little last year, but nothing to write home about. It's never gone more than a couple of weeks without renters, and we've never had any major issues. The property management does a drive by every 30 days, and a walk through every 6 months. So all in all, other people are paying for our home, so not a bad deal for us.

I'm thinking about selling it, though. I could take the cash out of it and buy a nice home outright near Disney World or on the gulf coast and use it as a vacation rental, and we could use it also. It feels like we'll get more out of it that way, since we get some enjoyment as well. As it stands, our rental property is in an area of the state I wouldn't be caught dead living in again, so it feels like we have a lot of money sunk into something completely useless.

 

[CF'er]

I am going to be renting a property for awhile until my son is in a position to move in and take it off my hands. I plan to use a property manager and am hoping for the best.

 

[IndyRnRfan]

If you can fix problems in the house yourself, it could be a good investment. If you have to contract everything out, there's a good chance you'll end up losing money. All it takes is one bad tenant and your 2,3,5 plus year profit goes right out the window. When I mean fix problems, I mean everything from replacing plumbing, electrical, etc... and you need to know what code is. If you can rent the house for a pretty high amount then you are less likely to have problem tenants. This in not a guarantee, ask me how I know. You will also need a very detailed contract and put in everything from notice of eviction, to repairs, bills, etc... Being detailed is you friend should you have to go to court.

 

[gottaluvPluto]

I'm assuming you didn't grant their demands?

We told them that we would have to raise the rent to cover all their demands. So they said the house was fine for now. However, they would put in a request every few months to have something replaced and with a picture of what they wanted. We always asked if it was broken and sometimes the reply was yes. A repair man would go out and find out nothing was broken. We hired a property management after that happened a few times. It is worth the 10% to have them deal with the tenants.

 

[brockash]

Dh and I are getting ready to move to another state. We are trying to decide between selling our house or keeping it as a rental property.

After paying a Property Management company, our mortgage on the house, taxes & insurance into escrow, it looks like keeping our house as a Rental would net us $600 a month. Some of that (I'm estimating $150 of it), we'll probably need to put in savings against future repairs on the house, netting us $450 a month in profit.

Downsides:
The downpayment on a home in our new city will be drastically smaller (20% instead of ~60%)
Feels random and strange to own a rental property in a state where we have no connection, no family, etc

Upsides:
It's a good rental market, housing prices are expected to continue to rise steadily in our area for the next few years, and we are fortunate that we do not HAVE to sell before we can buy. DH thinks it's crazy to give up $450 in "easy" income. I'm a bit more wary of being so non-liquid, but I admit the idea of a rental income stream is very attractive . . .

What I'm really looking for though, are things I have not considered about the risks/rewards of owning a rental property. I figured there's no better place to go to find out the 100 things you are overlooking, or all the ways your idea is stupid, than the Dis!!

We did this for 10 years and it worked out okay. - Really we should have kept it longer since we went this route, however the property management company really went downhill towards the end which just made it such a hassle. The biggest issue is going to be that you have no connections to the area and are far away. -This was also our circumstance. If you have a good property management company though and you're in a growing area then yes it should be a pretty good investment.

 

[smiths02]

I wouldn't do it again...and we are 45 minutes from our rental. We did it because we could not sell, so we only lose a little every month instead of coming up with the $20K immediately to get rid of it.

We have had issues with the house (major water leak...and we had to put in a lot of time to get the contractor, etc. lined up and work with insurance). Our tenants have been okay, but constantly turn over, it seems. Our property manager has turned shady and is constantly late paying us...this is a nightmare.

If we were out of state, it would be even worse unless you find an AWESOME property manager and great tenants. Honestly, it gives me an ulcer. Having my money in a mutual fund with Vanguard or something, does not give me an ulcer...I have to do NOTHING.

That reminds me, time to ask property manager where the rent is again this month.

 

[Kathryn Merteuil]

I have heard horror stories about owning rental property. We have a friend who made a lot of money at it, but said you would be surprised at the way people will tear up a place. Not even talking about low end stuff. One instance that comes to mind is they rented out their former "home" because they had purchased another one. The tenants were supposed to be, "a low risk" (teacher/coach in the local school district). They did a tremendous amount of damage to the house. Stuff like tearing up the interior with kids and dogs. Driving into the garage door. Letting the water heater leak out and not telling the landlord for a long time. (If they had told him, it would have been fixed immediately at the landlord's expense of course) Instead the just let it do that for who knows how long causing all sorts of water damage. Eventually they just skipped town, ditching the lease moved a couple states away and that was the end of it. He said all you can do is just fix the damage and go on... it is never really worth pursuing somebody over that kind of stuff because it takes a lot more time and money than you will ever recover.

Another thing tenants seem to do is steal appliances when they move out. One even took the furnace out of the house. A lease seems to mean very little, many times people just move out whenever and that is the end of it. The recurring theme seems to be, it is more trouble to pursue them than it is to just cut your losses and call it a day.

 

[okeydokey]

You will have mortgages on two houses. You will be paying an interest payment on two places. I would use the proceeds on the old house to pay as little interest on the new house.

 

[dadtoagirl03]

I help my aging parents with my grandparents home they kept as a rental property. From my perspective nightmare and not something I'd ever do. I'm encouraging them to sell the house and spend the money on a nice trip or something they want.

 

[Turn the Page]

I'm not a landlord but I am a renter and dear lord I can't wait to move out. We have rather lackadasical landlords and from a renters perspective, I would think being a good landlord is a tight rope walk. I can understand wanting to check in on the property with a walk through every month but I have had that before and it is annoying as all get out. We currently have the flip side where the owners never check on the place. They aren't real good at fixing things either.

The home is more than 40 years old and hasn't been taken care of. The owners built it themselves and while some things are of good quality some things are not. Last winter both the furnace and the water heater went out. The furnace went out during a polar vortex and it was -35 degrees outside. Let me tell you how much fun THAT was. Anyway, both repairmen sent said the furnace and water heater respectively were about 20 years old, hadn't been taken care of, and were on their last legs and really should be replaced. They were not replaced, the owners wanted to use spit and glue to keep them running. We were on pins and needles all winter expecting them to die again but somehow they didn't. The latest was a roof leak appeared a few weeks ago and is dripping water in between the outter and inner wall so while there is water staining and some warping on the ceiling it is not dripping into the house itself but you can see warping on the wall. I called the landlord and reported it and they sent someone out to shovel snow off the roof thinking that was the problem. She called back later asking if that fixed the problem. I said I didn't know as it wasn't dripping in the house per se, it was dripping behind the wall so I couldn't tell if that stopped the leak or not but there was visible damage to the wall but they don't seem inclined to fix it.

When I told the landlord we were in the process of buying a house and planned to move out soon she mentioned her mother in law may move back in (technically it's the mother in laws house) and I commented to DH how long he predicted it would take to fix the wall and replace the kitchen window that was supposed to be replaced when we moved in two years ago.

Another fun thing was this house has very VERY little storage space. There is a huge two car detached garage crammed full of the mother in laws stuff. We were told when we moved in that as soon as the snow melts they were going to move a bunch of stuff out of the garage and throw a wall up so we could use half of the garage for storage. Two years later guess who still has plastic bins of Christmas decorations in the dining room?

Come on appraisal, come through fast.

 

[barkley]

we've only rented a home once (about 10 months in-between selling our prior/purchasing our current), and it was within the same city we had sold in so when we arranged the rental terms with the homeowner we asked if she would mind if we (at our own cost) just had the same lawn service guy we had always used take care of the rental property's yard. landlord had no issue with it-just reminded us of what the minimum standards of upkeep were. we went ahead with it and after a few months the landlord called us to remark that her landscaping had never looked so good-and asked what we were paying each month. it was next to nothing (maybe $30-$50 for mowing, some spraying, minor trimming...). she was shocked it could be done so cheaply and went on to tell us about the $$$ she'd had to put out repairing the landscaping after prior tenants had moved out. when we gave notice she asked for our lawn guy's name/number b/c she was going to hire him on herself and just bundle the cost into the rent for future tenants. I think this is a great way to go (and it's a good way to have someone doing a visual exterior inspection of yards/patios on a regular basis).

same place-a month after we moved in the hvac conked out. landlord was flabbergasted-it was only a few years old. come to find out the previous 3 year long tenant NEVER ONCE changed the filter. landlord assumed it had been done ("she was a great tenant, kept the house spotless, paid on time....."). not only did the hvac require major repairs-all the duct work had to be pulled out and replaced (think of what a soda straw looks like when you're trying to drink a THICK milkshake-all collapsed into itself) to the tune of a few thousand dollars. landlord lesson learned-create a list of even the most basic routine maintenance a renter needs to do-and review it w/the tenant (then check those areas during routine inspections).


same place again-it wasn't an older home but it wasn't brand spanking new either so it would have periodic issues with electric, plumbing, built in appliances. if something went wrong we couldn't easily resolve we would call the landlord who would arrange/pay for it. she commented at one point that she was appreciative that we only called in 'true repairs' and explained her frustration with other tenants who would call in constantly only to have her send someone out/pay a chunk of change only to learn it was the tenant not knowing how to operate the appliance/something easy to fix w/a reset button or flipping the breaker switch. we suggested she look into the type of home warranty product we had on our prior home-it wasn't a fancy plan but it covered basic systems and appliances-cost maybe $500 a year w/a $50 fee for every service call. told her we knew other landlords who had them and made it a provision in their rental contract wherein if the landlord called the company out on the tenant's request and it wasn't a valid issue (operator error/reset button not reset....) the tenant was on the hook for the fee. landlords we knew that did this saw a big decrease in frivolous repair requests once the tenant had to pay out of pocket $50 once or twice. unless a landlord lives locally to their rental and is capable of doing repairs, a home warranty policy could be a good investment.

 

[smiths02]

I listen to Dave Ramsey and one thing he always frames this is: If you sold the house at a profit right now...what would you do with the profit? Would you go buy a rental property in another state?
This is basically what you are asking yourself.

 

[Lilacs4Me]

Yeah...flip side here, too. It was the opposite for us - we were fine and our landlord was hot mess! LOL He was nice enough, but had absolutely no idea what he had gotten himself into. He pertty much told us to move in and make it our own - paiint, decorate, etc. He really wanted us to love it so much that we would buy it. We rented for 3 years when we first moved to our new state. We rented from a couple who had decided to move "back home" to the other side of the state with their two baby boys. We had already owned two homes, and were just using this house as a starting point to recover financially (from the midwest economy debacle of 2008-2010) and make sure we really loved our new neighborhood before buying.

We did so much to that house -

fixed plumbing
replaced/repaired electrical wiring
installed ceiling fans and new light fixtures
exterminated an ant nest that was built by a million ants in the wall socket of the washer/dryer and kept shorting out the dryer
replaced the carpeting and tile in the living room and entry
fixed sewer drain in basement when it would flood whenever there was a hard rain (typical in our neighborhood)
had the city come out and replace the line from the street to the house on the water meter when it started to leak in the basement family room
re-planted grass seed the first year because we moved in in Feb after a record snowfall and didn't see that nobody had done any fall cleanup the year before and all the grass was dead
relandscaped the front yard for the same reason
bought a window AC unit after the central air failed twice. The first summer the landlord tried to recharge it. The 2nd summer, we didn't even bother asking.

At first, we would tell the landlord what was going on, and after a while, it was just easier to do it ourselves and tell him later. We knew they were already losing money on the house so we felt bad nickel and diming him for anything we could fix for a nominal amt. (DH is very good with electrical and plumbing, and we did the tile and carpet ourselves - the tile was all cracked and ugly before we moved in, and the carpet was buckled and really worn/old, but it was our choice to replace it so we didn't ask for money).

The house was fine for the 3 years, but the layout was terrible. We could never have anyone over because the living room and kitchen were so small, only 5-6 people at a time could fit! And it was a split-level house, so everything was so choppy and broken up. So we didn't buy it and started to look for something else. We gave 2 months notice that we would not renew the lease. They put the house on the market and from day one there was a steady stream of people walking through, which we had to deal with while we were finishing up the school year and trying to pack to move.

They were several weeks late giving us back our deposit, then when I finally called, they said that they woudl have it in two weeks when the guy got paid (Ummm, it was supposed to be in ESCROW for the past 3 years!!!) and that everything was fine except for the $250 deduction they would be taking for having to repaint DD's bedroom (we had painted it the 2nd year were were there in pink and green). I went balistic! I emailed them that we had done everything they asked of us and more - and that we saved them thousands of dollars by not running to them with every little problem and just fixing things ourselves. That the water damage that we prevented ALONE saved them untold amounts of money, and I was very disappointed that they would charge us for repainting her room when we did the walk-through together two months ago and they never mentioned it, not to mention they said in the beginning that they wanted us to paint/decorate/etc and make the house our own. And further, if they HAD mentioned they needed the room painted, we could have repainted it ourselves for $50 bucks!

Within minutes, his response was: "You are right. No charge for the painting. We will get your check to you in full asap. Thank you for everything you have done and for how well you took care of the house."

Made me never want to be the RENTER again!!! LOL