Tell me about being a landlord

My wife’s parents moved to Charlotte last year. Unfortunately, the contract on their old house in Raleigh fell through just before closing. Now they’re stuck with two houses, one in Charlotte and one in Raleigh. They are having a very hard time selling the house in Raleigh. There are about 200 other houses for sale in their price range in their area. I’m thinking about suggesting that they lease out the Raleigh house with a property management company.

I see several advantages to this:
[ul][li]The rental income will cover their mortgage.[/li][li]The property managers would deal with the renters.[/li][li]The property managers would take care of service calls. (I think.)[/li][li]All their weekend trips to Raleigh to mow the lawn and other maintenance, should become deductible. (I think.)[/li][li]The property manager probably has other clients who would like to increase the number of investment properties they own, and should my In-laws decide they don’t like being landlords after all, the property manager might be able to hook them up. (I think).[/ul][/li]Just how far off-base am I? Might this be a good idea for a couple in their early sixties?

Even if the rental income only covered part of the mortgage, they’d be ahead. And why would they be mowing the lawn? I’d think the tenants would do that - but I’ve never rented a house.

If they can get a good property manager, I think it’s an excellent idea. That’s the trick - a good manager. We had one once that was a total waste of good oxygen - our fault for not doing more research. Anyway, I would recommend they go for it.

OK, I live in England but I’m guessing similar rules apply in the US:

Don’t do it
Don’t do it
Don’t do it

Unless you are a professional property speculator you are just going to run headlong into a shitstorm of regulations designed to protect tenants from rapacious landlords.

Bear in mind that all the regulations are heavily biased in favour of the tenants.

We’re so pissed off with our foray into “buy to let” properties that we’re selling up as soon as the current tenant’s lease is up.

First mistake was buying a second home before they sold the first one in this economy.

I would assume that Charlotte real estate market is a bit better than Raleigh. They might want to consider selling their Charlotte home and leasing a much smaller apartment or home in Charlotte until they can sell their Raleigh house. The ultimate goal is to sell the Raleigh house. If it’s under lease then it’s off the market. All of the advantages you list are full of very broad based assumptions.

If they get a good property management company, I think it could work out for them. If they don’t, their house will be destroyed and they will have trouble getting problem renters out of their house (and they won’t get much money from rent, because the problem renters will squat in the house while it takes them six months to have them legally evicted).

You have to be very careful about who you rent to, and you have to keep a very close eye on them to nip any problems in the bud. Being three hours away from their property means that they will have to have someone close to the house to take any emergency calls - tenants don’t care about the house. If they have a water leak or something, they don’t care that leaving it for days will cause massive damage. There has to be someone who will come in minutes to look after stuff.

Definitely check into NC landlord/tenant laws before making any move, to avoid some of the nightmares people have told about.

Are there any friends / neighbors that they keep in touch with, that would be willing to keep an eye out and report of any issues? Some property managers won’t do much to curb a bad tenant, as long as the rent is paid but if you have someone looking out for you locally, that would help.

MY answer it depends.

I would go with a property manager. Get referances. Talk to their clients. Check out some of the properties they are managing. Ask about what kind of tenant rights laws in their state. Some states treat landlords as slum lords and the poor tenants they should be protected no mater what they have done (Calif). Some states realise if the tenant is costing the landlord more money then they are paying in rent then the landlord is going to go out of business. I own property in Nevada. The rent is due on the 1st. ONe tenant had not paid at the begining of the month. On the 15th my property manager was able to evict him.

I get a statement every month from the management company. Showing rents paid and by who. Expences paid and copies of the bills. I check it every month. I have questioned several expences and had them corrected.

When you are a landlord you win some and you loose some. I have one long term tenant who has been in their unit for over 5 years, very little damage to their unit. Last month had a tenant do a midnight move out. The estimate to get the unit back up to shape $1100. And they were in the unit only 6 months.
The question is how much will your parents loose if they are forced to sell? What is the rental market like where the house is and what will it rent for. Remember about 20 to 30% of the rents will go for expences, and then there will be taxes and mortage payments. If your parents do not make too much money then trips back to check on the house can be expences they can write off. but if your parents are one of those “rich” land owners they will be limited on what they can write off or may not be able to write off any of it.

This.

I have worked for a company that owns rental properties among other things for several years, and I have seen some horrific damage left by tenants. We have over 300 residential and commercial properties. I don’t want to get jumped on by a bunch of college students/parents of college students, but in general they have been the absolutely worst tenants we’ve had. They think nothing of trashing the place and then getting upset when they don’t get their deposits back and owe for damages. Most of them have no concept of personal responsibility and don’t think they’re responsible because it’s not their house.

Among the not all that uncommon:
[ul]
[li]writing on the doors and walls with permanent markers.[/li][li]punching holes in the walls with pool cues, fists, heads, small appliances[/li][li]leaving for the summer and turning off the electricity so they don’t have a bill anymore, since they plan on moving out at the end of July - but not cleaning out the fridge and freezer. That was disgusting and the appliance had to be replaced.[/li][li] repainting without landlord’s permission - badly in horrid colors.[/li][li]pets destroying wood facing, lawns, screens and mini-blinds.[/li][li]the kid who decided to take his target rifle and shoot up the duplex - both sides.[/li][li]the group that decided the garage was the perfect party room and decorated it accordingly, including painting the concrete floor- with accompanying damage.[/li][li]parking in the grass and running into porch and patio supports - sometimes bringing them down entirely and ruining the lawn.[/li][li] parties that were so big that the fire department came out to tell them they were violating fire code with that many people in their house. Neighbors weren’t too happy either.[/li][li]tossing bear caps in the garbage disposal and expecting that to not break it.[/li][/ul]

We’ve had to rewrite the lease to list things like this as explicit violations because apparently “Tenant will be responsible for any property damage that occurs during their lease term” isn’t good enough for Mommy’s Little Snowflake. We have an employee whose main main responsibility is filing in Smalls Claims Court and going to Court.

Other damages from otherwise sane looking people:
[ul]
[li]interior doors removed and left outside[/li][li]smoke detectors removed and damaged/lost[/li][li]stickers on doors/windows/walls[/li][li]carpets not vacuumed for the whole lease term[/li][li]bones in garbage disposal [/li][li]sneaking a pet in and then trying to deny when the evidence is everywhere in destruction and stench[/li][li]windows broken from them banging on them[/li][li]working on their car in the drive and not cleaning up the oil/radiator fluid spill[/li][li]leaving without giving notice and breaking their lease[/li][li]never cleaning the bathtub/shower. Gross after a year or more. Really gross.[/li][/ul]

Most of these are now individually listed as lease violations in the lease. What used to be 4 pages is now nearly 20 because people are idiots.
If they do decide to rent, some things to keep in mind:
[ul]
[li]Do NOT let the tenant apply the security deposit to the last month’s rent. It’s illegal in OK, but I don’t know about other places.[/li][li]In OK, Security Deposits are legally required to be put into a separate bank account from rental payments.[/li][li]Ask for first and last month’s rent PLUS a security deposit. It’s to cover the owner’s butt in case they decide to leave early. There is at least that one month’s cushion.[/li][li]Have the lease looked over by a lawyer and spell every little thing out. [/li][li]Have the tenant initial every page of the lease to show they read it. Otherwise you’ll get a whole lot of “What do you mean that’s in the lease?”[/li][li]Assess a late fee for late rent. Make it enough to make an impact. Ours is $100.00 after the 5th rent is due the 1st but they can pay without penalty until 5:00 on the 5th. No excuses for holidays, being out of town or weekends. If they know the office is closed on Sunday the 5th, or they’re going to be out of town when rent is due, they need to pay it before that. It isn’t rocket science, and I don’t know why it they act like it is.[/li][li]TAKE PICTURES at move in and move out. Burn them to CD and file them with the lease. This is the only way to get the costs of damages in some cases. They’ll be needed for court. You’ll be surprised how many people will look you in the eye and tell you that hole was in the floor the whole time or the carpet smelled like wet dog when they moved in. If a Property Management company is handling the rental, have them send the owners copies of the CDs AND the lease.[/li][li]If pets allowed, take a non-refundable pet fee, not a deposit.[/li][li]If you think that dog is too big for that house, or that more than 2 pets is too many, it is. [/li][li]Check references and the BBB on a Property Management company before they hire them. We had an out of town property managed by a company in that town and they didn’t collect the rent in a timely manner or charge late fees. They also didn’t handle routine maintenance. They did collect bids and call us if anything major was needed: replacing the AC compressor, rebuilding the fence after tornado.[/li][li]When a tenant is being checked in, have the person checking them go over the property with them, write down anything wrong and have them and the tenant sign it (and take pictures). Repeat at move out.[/li][li]Make sure the keys are imprinted with Do Not Duplicate so they can’t hand out a dozen copies that you’ll never get back.[/li][li]Charge a key deposit or expect to have to have the locks changed every time there’s tenant turn over. We charge $20.00 per key. We tend to get them all back.[/li][li]Run a credit check and ask for references for the rental application - personal, employment and previous landlords and CHECK THEM.[/li][/ul]

Frankly, I’m surprised my boss is still in the rental business. It’s terrible for his blood pressure.

Every word of Arden’s post is gospel - I’m changing my answer to, don’t do it. Just sell the house for whatever you can get for it and be done with it.

Yeah, Arden is spot on about college students. I have a (shorter) story. I’ve always been a conscientious renter, and especially so back then because my mom had co-signed on my lease. When I was a junior, I started renting one of those units where the common room is shared but each bedroom has an individual lease (it was all I could afford). I lived there for nearly 2 years without incident while the complex rotated out various roommates (and spent one summer in the place by myself when they couldn’t fill the vacant rooms, that was heavenly).

But then, in my last semester there, they moved in 2 second-semester freshman (who had been kicked out of the dorms :rolleyes:). I spent most of the time in my room as usual, doing homework and playing WoW, while they nailed up empty beer boxes on the living room wall and burned enormous holes in the living room carpet with a gigantic hookah. And because it was the common area, I got stuck paying for a third of the damage I didn’t cause (if not for the damage they caused, I would have gotten back my entire deposit–my room was sparkling). It was a super-duper lame experience.

College undergrads, especially males, are the worst possible rental demographic. They’re “on their own” for the first time, but aren’t paying for it. Often loans (of which they have no true grasp, yet) and their parents are footing the majority (if not all) of the bill. So they don’t need to work for any of their money, and gain no sense of fiscal responsibility. Even a young single person who didn’t go to college (and is working a real job to pay rent) would take better care of the property on average, because they’re working for their money. Sometimes smart kids are the dumbest ones :frowning:

If your parents must rent, then they should get a local mgmt company and familiarize themselves with the basics of tenant law. They should also do a cost/benefit analysis to see if it would be worth it to lease the place out, and plan what to do in a worst-case scenario. Becoming dependent on rental income is not a very good idea in some states, because the eviction process can take multiple months from start to finish. Then, not only are they out a few thousand in rent, but they have to pay for repairs when the vindictive broke assholes trash the house. It’s a risk, however you look at it.

There was a database error and it double posted this. disregard this post!

I was just in a similar position in the UK - it’s a difficult decision. We bought at the peak of the market in Edinburgh, have moved away and needed to sell (at a loss) or rent it out. We sold it last week for a 15% loss, just had no appetite for the hassle of renting it out through an agency. And that’s with quality tennants on tap, as well (it’s a nice part of Edinburgh). Guess I’m not cut out to be a landlord.

If I was in my 60s like the OPs in laws it might be a different story. Really need to get the crystal ball out for where the property market is going in your location - can it pick up or is it fucked for ten years? Also if the folks own the old house outright (so presumably have one mortgage on the new place) then that’s clearly a different story to having two mortgages on the go.

My inlaws are in the same boat in Charlotte (well, actually in SC) and they haven’t even bought a home in their new city. Charlotte was hit hard and there are tons of homes on the market, and many more in delinquency. I think it’s wrong to assume that purchasing a second home before the first one sold. They may actually have a lower monthly mortgage than what they’d be throwing away in rent.

My in-laws are reluctantly listing their home here for lease as there are plenty of previous homeowners that are now renting out of necessity. I’m not sure a credit check is going to be all that helpful. Once your home has been foreclosed on because you’ve lost your job and the bank won’t refinance, where are you supposed to go? How many renters are going to have stellar credit at this point?

Arden Ranger is right. That said, being a landlord doesn’t HAVE to be a nightmare. I own a condo that I lived in for years before buying a house with my GF. Its near being paid off and the rent makes it (almost) break-even proposition. With the economy the way it is what would I do with the money I’d make on the sale? Invest it in real estate? I haven’t to deal much with damage by tenants but I’m always amazed by the way people can live. Complete pigs, some of them.

THAT said, I’m going through eviction proceedings (non-payment of rent) with my current tenants. It looks like I’ll be eating at least one months rent (unpaid), maybe another month while I clean/paint/repair/advertise etc. A lot of it is tax deductible so that takes some of the sting out but not all. The eviction itself has been pretty easy so far. They have to be out by Saturday or the Sheriffs will put them out. I don’t know how difficult it would have been for something other than non-payment of rent.

Are there any military bases in your area? If so, contact the base housing office and they will hook you up with a web site specifically for military personnel. I plan on advertising with them with the hopes of getting a career person or officer. Second hand info is that there are less likely to become a problem since the may be repercussions with their CO. YMMV.

Good idea!!! Raleigh doesn’t have a huge military population (at least it didn’t while I lived in NC), the nearest big bases were Fort Bragg, Camp Lejeune, Seymour Johnson, etc., none of which are an easy commute to Raleigh. Possibly I’m forgetting some that are closer?

However, this info might be useful for others in a similar situation. One house on our street was rented for years to military families before the owners decided they were tired of being long-distance landlords (as in, 6,000 miles away!).

No, it doesn’t have to be a nightmare certainly. For all that we have have had some lovely tenants. Never late on their rent, keep their unit tidy and neat, maintain their yard, don’t call us when a lightbulb or battery needs changing. A lot take care of minor maintenance issues themselves.

As for credit checks, it’s one thing to have defaulted on a $1,200.00 a month mortgage or even to have defaulted on your $75.000.00 student loans in this economy. It’s quite another to have judgement against you for unpaid rent from previous landlords, a history of bounced checks and drug related criminal records. We absolutely won’t rent to anyone listed as a sex offender or who has been convicted for a violent crime or for manufacturing or dealing drugs. Most of our properties are in family oriented residential areas and near schools.

Depends on your lease. I had a landlord in college who just upped the rent by twenty bucks a month and mowed it himself to avoid the inevitable college kids who won’t mow. My other landlords didn’t mow. You could probably write the lease either way.

Please tell me how having a second 30 year obligation is better than a month to month obligation? And if the current pricing with mortgage rates is cheaper than renting, then they would be renting something to big for them to afford while having an existing mortgage on another home. When you can’t sell your first home and you don’t have the liquidity to cover 2 mortgages, there is never a reason the strategy of going ahead and closing on the 2nd home before the first one is sold makes sense.

Our lease offers lawn care as an option on our house rentals. Duplexes and apartment complexes have it included in the rent. We do the duplex lawns so that they are both done the same way at the same time.

Of course, if you don’t mow your lawn and we get a letter from the city or the Homeowner’s Association about it, we’ll come out and do it, but we will charge $100.00 for it. More if it is one of the larger, more exclusive properties.

Because despite there being a glut of homes on the market, rental prices in the Charlotte area are still quite high. If you’ve got good credit and a decent income, you may very well qualify for an interest rate that would put you into a mortgage with monthly payments significantly lower than rental rates. Additionally, you start building equity in your home sooner than if you rent while trying to sell your previous home, especially if it takes longer because the market isn’t ripe for sellers. If you can rent the home easier than sell it, it seems like it would be more beneficial under normal circumstances to offset the mortgage with rental income until you can sell your house in a better market.

You’re jumping to conclusions. The OP didn’t say they didn’t have the liquidity for two mortgages. But who wants to sit on an empty property that they may potentially be able to eke out an income to offset the expense of maintaining a mortgage they’re evidently stuck with for the time being?