Tell me about your experiences with investment/rental properties

In My Humble Opinion
1

My wife and I are are considering buying a small investment/rental property, perhaps in Florida. We’re thinking of starting quite small – we’ve seen houses and condos available around the Clearwater area for 50-60K – this way, if it doesn’t work out we won’t have risked a huge amount. We live in the DC area (and have owned a condo for about 5 years), so we’d need to have someone else manage the property, perhaps through AirBnB. We’re not sure if we’d want to rent it out long-term, or to vacationers (like with AirBnB), and we’re open to both.

Anyone with experience doing this in the US, or especially in FL? What do we need to keep in mind?

2

GET GOOD TENANTS. Check their references, their jobs, their credit, their police record, everything. Remember, your expenses are the same, even if you are not getting any rent. It can months to get non-paying tenants out.

I’d suggest hiring a property management company. They know the deal, and can expedite getting good tenants in and bad tenants out.

I worked in rental property management for 26 years.

3

Thanks! Do you have any experience/tips with vacation properties?

4

I’d say get a hefty deposit (but first check with your local law to see how much you can charge). Also a breakage deposit. And, if it’s legal, get all the rent paid up front, a written lease, and make sure to state how much notice they have to give to extend the lease (Oh, we’re not leaving tomorrow. We decided to stay an extra week).

5

Thanks. Do you have any experience with AirBnB?

6

No, I don’t. We did all the work ourselves.

So much depends on how good the tenants are. Going to court is time consuming and expensive. Getting good tenants is the key.

And make sure you put in writing that “Any illegal activity is grounds for immediate eviction.” It has held up in court.

7

A few thoughts:

Make sure you’re not relying on an optimistic estimate of the cash flow to stay afloat. Meaning, if you have no tenant for an extended period of time and/or need to sink in some money for repairs and the like, what does that do to your finances?

The rental market ebbs and flows (and within the broader market, some subsections get hot and cold) and you need to be able to withstand the worst in the short term (the short term being measured in years).

It’s always a temptation for someone living in a high real estate area to view low cost RE investments as steals, but there’s a reason things are priced the way they are, and you shouldn’t assume things will change for the better without good reason. (I myself own an investment property, but I bought it about 5 years ago when RE had spent the past several years collapsing, and I figured it was a good time to buy in. That is no longer the case today, and you need to take a much closer look now.)

[Be prepared to become a bit more conservative in your attitudes about landlord/tenants, rent control etc. :eek: :slight_smile: ]

8

Thanks. Is your investment property close to where you live? If not, what are your experiences with managing it? Have you rented long term or to vacationers?

9

It’s a couple of miles from my house. I would be afraid to buy something far away, not just because of management concerns, but (also) because I’m cautious about markets that I’m not that familiar with. In my case, the market is one that I’m extremely familiar with, I personally know people who live in that same development etc. etc.

Haven’t had a problem managing it. It’s not zero work - you have to deal with phone calls from tenants and then decide if it’s worth looking at yourself or just telling them to call such-and-such repair guy. But not a huge deal either - I’d say I get a call every couple of months, on average (I have a 2 apartment townhouse). When an apartment turns over it’s more of a pain in the neck.

Bottom line is it’s not like putting money into a mutual fund where you just sit back and await happy returns. But if done right it can work out very well.

10

I owned rental real estate for years (1997-2016), but never vacation properties, strictly houses that we rented to tenants.

Having tried it both ways, I HIGHLY recommend using a good property management company. They will do things for you like vet the tenants, answer the phone at midnight when the toilet is backed up, and have a roster of people on hand to handle repairs. They should also handle all routine maintenance for you, so that the property is kept in the proper condition, instead of lapsing into poor repair. Finally, they should know local laws and regulations, so that you do not inadvertently violate the same. Ending up on the wrong side of a real estate dispute with a tenant is a pain in the ass at best. If you are not going to be in the same town, I would say a good property manager is critical.

Make sure you can afford it when it is empty. My experience has been that by using a good property manager I have found good tenants who stayed for years. You cannot count on this. If you don’t have someone in there paying the bills, make sure you’ve got a fund in place that will cover the bills.

Make sure you can afford to maintain it. The property will need periodic repairs (sink, A/C, gutters, stove, etc) and periodic maintenance (paint, carpet, landscape). If you don’t do this, it will decrease in value, and you will also be able to get less and less rent (or no rent at all). Make sure you are prepared for a hit in the rent you see periodically (on occasion without budgeting for it). You also need to budget for needed maintenance on a regular basis.

Talk to a tax person and get their thoughts on how to best set up your situation. Your rental will have implications for you.

Talk to your insurance person and get their thoughts on the best way to insure yourself. We carried a rental policy on the rental property and a large umbrella policy to cover personal liability. It wasn’t expensive, but it seemed wise.

My final two cents: vacation rentals are tempting because you can often get more on a short term basis than you can with a regular rental. You will have additional costs (such as furnishing the unit and finding tenants). If you want to go the vacation rental route, look for an area where that unit could be easily shifted to a non-vacation unit should the need arise. An example might be a college town, where students could be a long term rental demographic should the economy tank.

My personal preference is to have a stable, long-term renter in place, rather than fuss with vacation renters. Income is steadier and chance of damages is lower.

11

Re insurance, you should be aware that rates are generally a lot higher than for your own home, and many companies don’t even offer insurance on rentals altogether.

I know some people who own vacation rentals in FL, and who vacation there themselves on occasion.

12

FWIW, my properties were in CA and OR. I was able to get rental property insurance easily through State Farm.

13

Unless you want to use a place in Florida, I wouldn’t get something that far from home for an “investment” or to rely on for income. That’s fine if you want a vacation home to use, and pimp it out once in a while to help diffuse costs.

You want an income property? Get one across the street, or down the road. You can keep an eye on it, and any management you have/need. When things go wrong, you are available to protect your investment. You will be more familiar with local laws, requirements and market.

I say this from family experience. Rental income has kept my family going for 45 years. My folks had condos and small houses all over the damn place that they would use for vacations, and they were all a pain in the ass. Management hassles, horrible HOAs, restrictive laws (California, I’m lookin’ at you!) and none of those ever really turned a profit (until they got sold or traded).

The bread and butter were the local apartment or single-family units with stable tenants. Provided a good steady income, were within a half-hour drive when problems came up, and still keeps my phoney operation above water to this day.

Get yourself a nice little duplex in town, manage it yourself and keep cashing those rent checks!

14

If it is a condo, understand that many condo associations ("COA"s) have rules against buying them to rent. You may be required to actually live there for a year, or at least to own it and leave it empty for a year before you’re permitted to rent it out. Or maybe the waiting period will be 2 or 3 years.

COAs also may have rules against vacation rentals. IOW, you’re allowed to rent your place to exactly one tenant per 12 month period. So if you do a 2-week vacation rental your property is gonna sit vacant the next 50 weeks. It also means that if a tenant signs a 1 year lease then flakes and moves away after 8 months you’ll be sitting vacant for the next 4 months.

Many COAs require the owner place a significant cash deposit with the COA prior to renting out the unit. As in several thousand dollars worth of significant. Far in excess of what you can hope to obtain as a security deposit from your tenant. That money is usually held in a non-interest bearing account for as long as the unit is not owner-occupied.

If these sorts of COA rules are in place they have the force of law here in Florida. And there are plenty of attorneys who specialize in enforcing COA rules. Every board of directors has theirs on speed dial. I’m on the board of my condo and I sure do.

You’ll also find the rules generally say that you’ll be required to pay for any attorney fees, court costs, etc., that we rack up enforcing your compliance with the rules.

Last of all we routinely place liens on your unit for any such fees or penalties. By law our liens come ahead of almost all other claimants and cannot be discharged in bankruptcy. We *will *get paid.

If you’re looking at a house rather than a condo understand that a sizeable fraction of houses in Florida are within Homeowners Associations = HOAs. The details of the laws are separate from COAs, but broadly parallel. So all these obstacles to renting *may *apply to detached single family houses too.
All the above is not universal. But it is very common. If you intend to buy a property as a rental investment ensure your local agent is checking this stuff and ensure you’ve read all the COA bylaws and, ideally, have met & discussed your plans with the COA Board before you buy. Not after.
As a personal observation, you can usually recognize the buildings where there are no obstacles to renting out and most units are owned by investors. The way to tell is easy: the place is falling apart. Every dollar spent on upkeep eats into the profits of the investors. So they pack the board, keep fees low, and skip any and all maintenance.

15

Thanks for all the input so far!

16

And when you find them, treat them with respect and don’t jerk them around. If your property is for sale, tell them up front that they might not renew the lease depending on the market. And if you anticipate needing the property for your mother in law, tell them up front your may have to pull the rug out from under them on short notice.

17

And if the house is empty for more than ‘x’ number of days, you have to let the insurance company know so they can charge you more. I don’t know how many days (maybe 60) but I didn’t know that when I lost a tenant a few months before I moved back in. The water tank sprung a leak and the water went into the carpet. When I moved back in I wondered what the brown things were in the dining room, but it turned out to be mushrooms.

My insurance company didn’t raise a stink about it, but my property manager told me I was lucky. I learned to have a checklist for the property manager to do when a tenant left which included turn off utilities to the house and drain the tank.

Amusingly, the plumber I called showed up with four friends, folding chairs and beer. Someone’s kid was having a birthday party and they just wanted to get the hell away from that. Only charged me $40 for an emergency call on a Sunday.

18

Just chiming in, we recently moved into a condo and the rules strictly forbid using it as a AirB&B.

19

Thanks. This is good to know – we’ve been noticing on RE sites like Redfin that many or most condos have a minimum lease-length, meaning no AirBnB.

20

We’ve broadened our search for low-priced (~75K and under) homes beyond just Florida – any tips on how to choose the best location? There’s nothing in the immediate (DC suburbs) area that we could afford, but if we go a little further out into VA, like the Richmond area, there look to be plenty available in our price range.