Backstory: I own a condo in a mid-sized city. I am trying to sell the place, but I haven’t had any luck yet. The development is not on the HUD-approved list, so a buyer would have to (1) pay cash or (2) obtain a conventional mortgage. Accordingly, several offers from potential buyers have fallen through. I’m not using an agent (yet).
The condo has been on the market for a little over three months. I’m moving to another city about five hours away in September. I have no choice but to move away, so staying isn’t an option.
No fewer than two dozen people have emailed me asking whether I’d be willing to rent the condo. I live in a city with several colleges and universities, so undergraduates and graduate students are always looking for housing.
My former upstairs neighbor rents his unit. He gets $1095/mo. for a unit identical to mine. My mortgage payment is about $700/mo. HOA fee is about $150/mo.
My questions: what should I know before becoming a landlord? Is it a really, really bad idea? Has anyone been in this situation before?
When a potential renter comes to you, get his last 2 places of residence. It is very likely if he is a pain in the ass, the present landlord will give you great reviews hoping to make him your problem. The landlord, 2 places back has no stake and is more likely to give an honest appraisal.
IME, owning rental property that far a way is problematical. You’re certainly not going to make any money on it.
You’re already spending $850/mo, excluding taxes. Let’s say $900/mo with taxes. That gives you $200/mo over your fixed costs.
But wait, there’s more. What do you do when they call at 3am on Saturday and the toilet has exploded? You’re gonna have to pay an emergency call for a plumber - there goes the extra for the last 2 months. That sort of thing.
If you’re just trying to cover the mortgage (or most of it) until you can sell, it might be worth it. Discuss it with your RE agent. There are downsides - it’s much harder to show/sell tenanted property.
Look into local property management companies. They’ll probably cost you all of that $200 per month, but you won’t go crazy trying to deal with issues long distance.
Yes, you have to find someone who can manage the rental property in your absence. I’d recommend contacting local real estate companies for advice on where you can find a resource for professional management. It will cost you, but the alternative can be very painful for you should any rental issues arise. Consider this advice from someone who learned the hard way.
Something else to consider before you become a landlord is you better know both landlord and tenant’s rights. Many people in the situation your in do not realize there are so many laws and rights your tenant(s) have. Violating their rights may cost you hunderds or thousands of dollars in and out of court. You must decide if it’s worth it based on the limited amount of profit you may make vs. losing that profit legally resolving future problems.
Is $850 a month your all inclusive cost? You might be missing some things like taxes or something else. I think the biggest consideration is the general condition of the complex and the type of people it attracts. Are you on the hook if a building needs a new roof? Are the people that live there, umm, a little on the trashy side on just a mix of students, young professionals, and older people? The damage risk varies substantially with who is likely to rent from you and you can’t truly discriminate on which renters you will accept.
I just bought a condo in a nice complex. I will probably live there for a couple of years but I think it is a reasonable investment property even now based on roughly the same cost versus rent differential you are describing. The complex is well maintained with a good mix of people and the units are nice but not fancy at all and they are all interchangeable. If anything breaks, you can just go to Home Depot and get a replacement part off the shelf which limits both hassle and cost. If I did rent it it, I wouldn’t expect to make any real money off of one unit while it is being rented. However, it would be an asset of mine that should pay for itself and be worth real money when the mortgage is paid off and I can pick my time to sell.
ETA - The other important question is how vibrant the rental market is in your area. You will lose money fast if you have it sit empty for a month or four. If that isn’t going to be an issue because of a large student population or something, that is a major plus in favor of keeping it. Selling has its downsides as well. You will lose rent money while it is being sold and you have to pay a thousands to the real estate company to sell it. That pays for a lot of repairs and a few hassles on its own.
If you had been using an agent, you really might have already sold the property. You’ll certainly need one if you have to move before selling. An agent will be able to pre-qualify buyers, and list your property more aggressively than you can on your own. Is it even MLS-listed now? You are far less likely to have deals fall through if you use an agent. The couple of percentage points they will take as a fee is totally worth it.
Your condo association most likely has a limit in its by-laws as to the percentage of units allowed as rentals. If the building is already at that percentage, you won’t be able to rent your unit, anyway. Get an agent and get the place sold.
I didn’t hear where OP said she lived far off-site. If not, you certainly do not need to hire a property manager – my sister owns my condo and I rent from her, paying (in this market) a large overpercentage of her mortage plus HOA fees, plus utilities, which is (in this market), more than she can get otherwise, which is why she rents it me. She’ll never make any profit on her condo unless she sells it (not likely, judging by the estate of real prices in this area), and by virtue of us being related, she can come over any time and see if I fucked up the place or trust I’ll do repairs myself on plumbing, basic electrical, and so forth. If you have a good person with good references, you might get the same deal. I sweeten the pot by paying her lump sum months ahead of time, so she can earn interest or have some mad money if her hubby goes AWOL or something.
If you live far away, hire a firm to take care of the property – I know personally several who’ve done this, and, of course, it costs, but you won’t have to deal with jack shit, AFAIU.