Thursday, July 10, 2008

Rentals as NonPassive Income - Being a Landlord

An article over at Passive Family Income inspired me to write a little about being a landlord. When my ex and I were married we had two rental properties - a house with three units and our house (the one I now live in) that has two units. My ex handled most, if not all, of the tenant problems. I assisted with cleaning and updating of the apartments between renters and doing yard work on both properties. I also helped him by creating flyers (we always had an "info box" in front of the house between tenants) and once and a great while meeting perspective renters at the property and showing them around.

My ex now lives in the three unit. As of July 1st, I took over the two unit. This will be my first time being a landlord on my own. For people thinking about being a landlord there are some really great things about it... but there are also problems.

Three Good Things About Being a Landlord

1. The obvious advantage is the income. When the three unit was completely rented it paid for itself and then some, so we had an investment property that was building equity, without our hard earned dollars going into it. In my two unit the tenant pays $550 a month, which goes directly to the mortgage.*

2. Good renters can improve your property. My ex had a renter who wanted to take over a weedy patch behind the house and turn it into a garden. How nice is that?

3. If the renter is in a owner occupied home, (like mine) you have a built in "eye" on your property. I would have no hesitation asking my renter to pick up my mail or keep a general eye on the place while I was gone on vacation. She has my cell phone number and would call if there were ever any problems.

Six Bad Things About Being a Landlord

1. Maintenance problems. This is the big obvious drawback, not only are you responsible for your own property, you are responsible for theirs. The day I moved in the tenant came down and told me that her toilet is having problems. That's something I am going to need to work on in the next week. Anything goes wrong - you are responsible for it, and I would really only recommend being a landlord to someone who is fairly handy, or who has the disposable income to hire a handyman.

2. Noise. If you have an owner occupied rental like mine, you will be hearing your tenant - and they will be hearing you! I am constantly aware of making noise at night - running the washing machine too late and so on. For a night owl like me, that is kind of hard. I hear her as well, I know when she comes home and when she leaves. Occasionally I can hear her tv in my bedroom. It's something I wouldn't have thought about before I became a landlord.

3. Tenants eventually move out. When they do, you may be left with a month (or more!) without a renter - which will significantly hurt your bottom line. I am lucky, when I moved in, my ex had already gotten a tenant who wanted a year lease. That means I should have someone until May. However, leases have been broken before.

4. When the tenants move out you will most likely have some out of pocket expenses. I am a firm believer in good apartments = good tenants. If you act like a slumlord you will get slummy renters. Offer a good apartment, get good renters. When a tenant moves out, this is a time to look through the place for improvements that can be made, walls that need painting, faucets that need fixing, etc. No matter how well a former tenant cleans, there are still going to be little things you can fix to make the place nice for the next person. Even if you choose not to do a darn thing - you will still have expenses. Advertising the apartment can run money, as well as covering the utility bills while you are sans renter.

5. Speaking of utility bills... renters use utilities and you will have to decide how to handle that. If you are renting a house, perhaps the renter will pay for everything, but when you are renting apartments it gets trickier. Water is typically not included in rental fees, so you will have to take that into consideration. On my house the tenant and I have different electrical meters, but we share gas meters. I also have to have a larger trash cart than I would need if it was just me. It is certainly all things to consider.

6. The last fear, and it is a big one, is bad tenants. Knock on wood, I've never had to deal with one. I am not going to write about it, because I am sure you can imagine the nightmare that can be.

I'm not saying it isn't worth it, but I would recommend putting a lot of thought into it before you leap. I would also highly recommend getting the advice of a lawyer and asking them to help you write up the lease.

* This $550, does not count towards the $900 more I need a month to make my bills. Or rather I should say the $900 is after the $550 is paid.

Photo by Bohman.

1 comment:

passivefamilyincome said...

Thanks for the link and your advice on rental properties. It really helps to see what real-life experiences people who rent deal with. My wife and I are actually going to start renting out a room in our house to my brother-in-law. It should be interesting.