Tips for Someone Potentially Becoming a New Landlord (1 Viewer)

[Dezbelief]

My wife and I are buying a new home and deciding between selling or renting our current home.that is free and clear of any debt/mortgage. We are taking out a mortgage on the new house. Selling the old house would knock out 80% of the new mortgage. Renting out the old house and an additional house I own would pay the new mortgage with enough extra to cover Texas' high property taxes on both of the paid off properties. My wife wants to sell both properties which would pay off the mortgage on the new house. We have agreed on a one year trial on being landlords. Of course it's my idea so the wife doesn't want anything to do with it other than depositing rent money lol. I plan on making regular mortgage payments out of our regular income. I will setup a separate account to deposit rent money into and if all goes well make a second monthly mortgage payment and pay property taxes.


All properties are in the same city, three different neighborhoods all within 15 minutes of each other. The city has two small colleges with over 5,000 students combined. There is a military base with a population of 20,000. There is a shortage of rentals available and prices have gone up the last couple of years. The city is good about taking the long view on infrastructure and is generally a friendly place to live.

 

[Keerock]

20% Tops IMO

 

[BassNBrew]

My wife and I are buying a new home and deciding between selling or renting our current home.that is free and clear of any debt/mortgage. We are taking out a mortgage on the new house. Selling the old house would knock out 80% of the new mortgage. Renting out the old house and an additional house I own would pay the new mortgage with enough extra to cover Texas' high property taxes on the both paid off properties. My wife wants to sell both properties which would pay off the mortgage on the new house. We have agreed on a one year trial on being landlords. Of course it's my idea so the wife doesn't want anything to do with it other than depositing rent money lol. I plan on making regular mortgage payments out of our regular income. I will setup a separate account to deposit rent money into and if all goes well make a second monthly mortgage payment and pay property taxes.


All properties are in the same city, three different neighborhoods all within 15 minutes of each other. The city has two small colleges with over 5,000 students combined. There is a military base with a population of 20,000. There is a shortage of rentals available and prices have gone up the last couple of years. The city is good about taking the long view on infrastructure and is generally a friendly place to live.

Note that I'm biased, but if you don't want the hassles and can afford, find a very reputable property manager. For 8-10% you never have to take a call, show a property, and will likely get a better tenant. Also if you're a nice guy, this is an absolute must otherwise you'll eventually get taken advantage of.

Also also very pro your view point to hang onto an asset like that and making it work for you. I've worked with some owners that didn't have a dime in savings and twenty years later are sitting on a $500,000 asset totally funded by tenants.

If you do decided to sell you will have to have live there 2 or the last 5 years to avoid capital gains.

Feel free to PM me at any time with questions. I don't know Texas law but have been doing this for 23 years.

 

[Leroy Hoard]

My brother in law once owned several properties. His single word of advice to me: don't.

 

[BassNBrew]

My brother in law once owned several properties. His single word of advice to me: don't.

Interesting. If you know what you're doing it's probably the easiest way to build wealth for the average person.

 

[New Binky the Doormat]

key is doing a thorough job in the application process - don't be in a rush to get a tenant - make sure they are right for you

 

[Sabertooth]

I’ve got 9 units. They keep me pretty busy.

 

[Thorn]

My wife and I are buying a new home and deciding between selling or renting our current home.that is free and clear of any debt/mortgage. We are taking out a mortgage on the new house. Selling the old house would knock out 80% of the new mortgage. Renting out the old house and an additional house I own would pay the new mortgage with enough extra to cover Texas' high property taxes on the both paid off properties. My wife wants to sell both properties which would pay off the mortgage on the new house. We have agreed on a one year trial on being landlords. Of course it's my idea so the wife doesn't want anything to do with it other than depositing rent money lol. I plan on making regular mortgage payments out of our regular income. I will setup a separate account to deposit rent money into and if all goes well make a second monthly mortgage payment and pay property taxes.


All properties are in the same city, three different neighborhoods all within 15 minutes of each other. The city has two small colleges with over 5,000 students combined. There is a military base with a population of 20,000. There is a shortage of rentals available and prices have gone up the last couple of years. The city is good about taking the long view on infrastructure and is generally a friendly place to live.

Note that I'm biased, but if you don't want the hassles and can afford, find a very reputable property manager. For 8-10% you never have to take a call, show a property, and will likely get a better tenant. Also if you're a nice guy, this is an absolute must otherwise you'll eventually get taken advantage of.

Also also very pro your view point to hang onto an asset like that and making it work for you. I've worked with some owners that didn't have a dime in savings and twenty years later are sitting on a $500,000 asset totally funded by tenants.

If you do decided to sell you will have to have live there 2 or the last 5 years to avoid capital gains.

Feel free to PM me at any time with questions. I don't know Texas law but have been doing this for 23 years.

Can I ask if you have any tips on how to find a good property manager? Seems like they are few and far between, and since they often own their own property as well, they treat others' as a second priority.

 

[Zow]

1. Talk to a property manager at least to get a sense of their fees and what headaches they'll cover for you.
2. Talk to an attorney in your area who handles evictions so you get a sense of how big of a headache that process may be.
3. Talk to a tax professional (e.g. your accountant) about any sort of potential tax implications and/or strategies associated with having rental properties.

 

[Dezbelief]

find a very reputable property manager. For 8-10%

Awesome, I was wondering what the going rate was. A property manager might well get me 6-10% higher rent essentially paying for itself .

If you do decided to sell you will have to have live there 2 or the last 5 years to avoid capital gains.

Thanks I was going to look that up.

 

[Long Ball Larry]

key is doing a thorough job in the application process - don't be in a rush to get a tenant - make sure they are right for you

agree with this. and also agree with getting a property manager. not sure that having a property manager will justify a higher rent to any potential tenant. it's really more to help the landlord than the tenant.

my wife looked into this company and was impressed though it didn't end up being a fit for us: https://www.rentmarble.com/

seems like a good and professional and cheaper way to do it potentially.

 

[El Floppo]

Don't bump your long-term good tenants' rent 50% out of the blue.

 

[Zegras11]

My brother in law once owned several properties. His single word of advice to me: don't.

Interesting. If you know what you're doing it's probably the easiest way to build wealth for the average person.

Started in 2002. By 12/26, should have $5mil in equity. We just went from having on-site manager for 17 years to full property management company. The manager we had last six years said he could handle a HUD site inspection, and then he didn't when we had one. Really liking the mgmt company so far. Helped us save $9k off insurance from last year already.

 

[Zegras11]

Talk to a tax professional (e.g. your accountant) about any sort of potential tax implications and/or strategies associated with having rental properties.

This is very important.
The IRS allows and you MUST take depreciation on the property (excluding Land) over 27.5 years.

I'm not a CPA, but you need to find out how much the DEPRECIATION allowance off sets the income you will be getting. If the INCOME is greater than the allowance, I would consider getting a mortgage so that the MORT INT EXP + DEPR EXP + MAINTENANCE EXP = INCOME for the year. This way, you won't have any taxes to pay on the income. There's a little more than that, but hopefully you get the point.

Use the money from the loans to pay down your house mortgage. I think you will save more on taxes this way.... but I could be wrong. I like to show a paper $25k loss (max IRS allows per yr) on my property to write off against my job income. ($85k income minus $110k DEPR allowance). Again talk to CPA as Property taxes are much different in Texas than most areas. TLDR, I'm getting that $85K per year tax free AND a paper loss of $25k.

ALWAYS let someone else pay your mortgage and build equity for you. Never sell unless you absolutely have to, or are trading up. 1031 exchanges are gold.

Also get each home in it's own LLC . Good Luck!

 

[BassNBrew]

Talk to a tax professional (e.g. your accountant) about any sort of potential tax implications and/or strategies associated with having rental properties.

This is very important.
The IRS allows and you MUST take depreciation on the property (excluding Land) over 27.5 years.

I'm not a CPA, but you need to find out how much the DEPRECIATION allowance off sets the income you will be getting. If the INCOME is greater than the allowance, I would consider getting a mortgage so that the MORT INT EXP + DEPR EXP + MAINTENANCE EXP = INCOME for the year. This way, you won't have any taxes to pay on the income. There's a little more than that, but hopefully you get the point.

Use the money from the loans to pay down your house mortgage. I think you will save more on taxes this way.... but I could be wrong. I like to show a paper $25k loss (max IRS allows per yr) on my property to write off against my job income. ($85k income minus $110k DEPR allowance). Again talk to CPA as Property taxes are much different in Texas than most areas. TLDR, I'm getting that $85K per year tax free AND a paper loss of $25k.

ALWAYS let someone else pay your mortgage and build equity for you. Never sell unless you absolutely have to, or are trading up. 1031 exchanges are gold.

Also get each home in it's own LLC . Good Luck!

Going to disagree with this. Much cheaper to buy a huge umbrella policy. For what I would pay to file an annual report each year with the state for One property,, I could get an additional $2 million in liability coverage for every property. Not only do you get the protection, you get the insurance company paying for you attorneys

 

[BassNBrew]

My wife and I are buying a new home and deciding between selling or renting our current home.that is free and clear of any debt/mortgage. We are taking out a mortgage on the new house. Selling the old house would knock out 80% of the new mortgage. Renting out the old house and an additional house I own would pay the new mortgage with enough extra to cover Texas' high property taxes on the both paid off properties. My wife wants to sell both properties which would pay off the mortgage on the new house. We have agreed on a one year trial on being landlords. Of course it's my idea so the wife doesn't want anything to do with it other than depositing rent money lol. I plan on making regular mortgage payments out of our regular income. I will setup a separate account to deposit rent money into and if all goes well make a second monthly mortgage payment and pay property taxes.


All properties are in the same city, three different neighborhoods all within 15 minutes of each other. The city has two small colleges with over 5,000 students combined. There is a military base with a population of 20,000. There is a shortage of rentals available and prices have gone up the last couple of years. The city is good about taking the long view on infrastructure and is generally a friendly place to live.

Note that I'm biased, but if you don't want the hassles and can afford, find a very reputable property manager. For 8-10% you never have to take a call, show a property, and will likely get a better tenant. Also if you're a nice guy, this is an absolute must otherwise you'll eventually get taken advantage of.

Also also very pro your view point to hang onto an asset like that and making it work for you. I've worked with some owners that didn't have a dime in savings and twenty years later are sitting on a $500,000 asset totally funded by tenants.

If you do decided to sell you will have to have live there 2 or the last 5 years to avoid capital gains.

Feel free to PM me at any time with questions. I don't know Texas law but have been doing this for 23 years.

Can I ask if you have any tips on how to find a good property manager? Seems like they are few and far between, and since they often own their own property as well, they treat others' as a second priority.

I'd look for someone who's primary business is property management and selling homes is secondary. When real estate slows you'll see a lot of real estate agents start doing property mgmt (in states where a real estate license is required to manage property). I would want them to have a large portfolio and years of experience.

First thing is to start making some calls and see who gets back to you in a timely manner. From there I would schedule a meeting and discuss some of these topics. https://www.ivygroupnc.com/property-management-faqs

 

[Zegras11]

Talk to a tax professional (e.g. your accountant) about any sort of potential tax implications and/or strategies associated with having rental properties.

This is very important.
The IRS allows and you MUST take depreciation on the property (excluding Land) over 27.5 years.

I'm not a CPA, but you need to find out how much the DEPRECIATION allowance off sets the income you will be getting. If the INCOME is greater than the allowance, I would consider getting a mortgage so that the MORT INT EXP + DEPR EXP + MAINTENANCE EXP = INCOME for the year. This way, you won't have any taxes to pay on the income. There's a little more than that, but hopefully you get the point.

Use the money from the loans to pay down your house mortgage. I think you will save more on taxes this way.... but I could be wrong. I like to show a paper $25k loss (max IRS allows per yr) on my property to write off against my job income. ($85k income minus $110k DEPR allowance). Again talk to CPA as Property taxes are much different in Texas than most areas. TLDR, I'm getting that $85K per year tax free AND a paper loss of $25k.

ALWAYS let someone else pay your mortgage and build equity for you. Never sell unless you absolutely have to, or are trading up. 1031 exchanges are gold.

Also get each home in it's own LLC . Good Luck!

Going to disagree with this. Much cheaper to buy a huge umbrella policy. For what I would pay to file an annual report each year with the state for One property,, I could get an additional $2 million in liability coverage for every property. Not only do you get the protection, you get the insurance company paying for you attorneys

I guess that would be here in Idaho where there is a one time like $100 LLC fee. No annual fees.

 

[BassNBrew]

Talk to a tax professional (e.g. your accountant) about any sort of potential tax implications and/or strategies associated with having rental properties.

This is very important.
The IRS allows and you MUST take depreciation on the property (excluding Land) over 27.5 years.

I'm not a CPA, but you need to find out how much the DEPRECIATION allowance off sets the income you will be getting. If the INCOME is greater than the allowance, I would consider getting a mortgage so that the MORT INT EXP + DEPR EXP + MAINTENANCE EXP = INCOME for the year. This way, you won't have any taxes to pay on the income. There's a little more than that, but hopefully you get the point.

Use the money from the loans to pay down your house mortgage. I think you will save more on taxes this way.... but I could be wrong. I like to show a paper $25k loss (max IRS allows per yr) on my property to write off against my job income. ($85k income minus $110k DEPR allowance). Again talk to CPA as Property taxes are much different in Texas than most areas. TLDR, I'm getting that $85K per year tax free AND a paper loss of $25k.

ALWAYS let someone else pay your mortgage and build equity for you. Never sell unless you absolutely have to, or are trading up. 1031 exchanges are gold.

Also get each home in it's own LLC . Good Luck!

Going to disagree with this. Much cheaper to buy a huge umbrella policy. For what I would pay to file an annual report each year with the state for One property,, I could get an additional $2 million in liability coverage for every property. Not only do you get the protection, you get the insurance company paying for you attorneys

I guess that would be here in Idaho where there is a one time like $100 LLC fee. No annual fees.

I can see that. Here in NC I think it's $200 a year or $203 if you do it online. I have one owner with 5 separate LLCs. For what he spends he could have $10 million in umbrella liability coverage.

One thing to keep in mind, if you have mortgage, you're taking a risk transferring title to an LLC. My understanding is that the bank could technically call the loan. Does it ever happen in reality...no. But as we found out after 2008, stuff changes

 

[Dezbelief]

Talk to a tax professional (e.g. your accountant) about any sort of potential tax implications and/or strategies associated with having rental properties.

This is very important.
The IRS allows and you MUST take depreciation on the property (excluding Land) over 27.5 years.

I'm not a CPA, but you need to find out how much the DEPRECIATION allowance off sets the income you will be getting. If the INCOME is greater than the allowance, I would consider getting a mortgage so that the MORT INT EXP + DEPR EXP + MAINTENANCE EXP = INCOME for the year. This way, you won't have any taxes to pay on the income. There's a little more than that, but hopefully you get the point.

Use the money from the loans to pay down your house mortgage. I think you will save more on taxes this way.... but I could be wrong. I like to show a paper $25k loss (max IRS allows per yr) on my property to write off against my job income. ($85k income minus $110k DEPR allowance). Again talk to CPA as Property taxes are much different in Texas than most areas. TLDR, I'm getting that $85K per year tax free AND a paper loss of $25k.

ALWAYS let someone else pay your mortgage and build equity for you. Never sell unless you absolutely have to, or are trading up. 1031 exchanges are gold.

Also get each home in it's own LLC . Good Luck!

Going to disagree with this. Much cheaper to buy a huge umbrella policy. For what I would pay to file an annual report each year with the state for One property,, I could get an additional $2 million in liability coverage for every property. Not only do you get the protection, you get the insurance company paying for you attorneys

I guess that would be here in Idaho where there is a one time like $100 LLC fee. No annual fees.

I can see that. Here in NC I think it's $200 a year or $203 if you do it online. I have one owner with 5 separate LLCs. For what he spends he could have $10 million in umbrella liability coverage.

One thing to keep in mind, if you have mortgage, you're taking a risk transferring title to an LLC. My understanding is that the bank could technically call the loan. Does it ever happen in reality...no. But as we found out after 2008, stuff changes

I googled the law in Texas. It costs a one time fee of $300.

​

Unlike most states, Texas does not require LLCs to file annual reports with the Secretary of State. However, LLCs must file annual franchise tax reports (see below

Anything under
$1,230,000 for reports due in 2022-2023
doesn't pay the 0.75% yearly franchise fee.



Umbrella Insurance in Texas
The first $1 million usually costs $300 per year or less, and additional $1 million increments can be as low as $100 per year.

 

[pollardsvision]

My wife and I are buying a new home and deciding between selling or renting our current home.that is free and clear of any debt/mortgage. We are taking out a mortgage on the new house. Selling the old house would knock out 80% of the new mortgage. Renting out the old house and an additional house I own would pay the new mortgage with enough extra to cover Texas' high property taxes on both of the paid off properties. My wife wants to sell both properties which would pay off the mortgage on the new house. We have agreed on a one year trial on being landlords. Of course it's my idea so the wife doesn't want anything to do with it other than depositing rent money lol. I plan on making regular mortgage payments out of our regular income. I will setup a separate account to deposit rent money into and if all goes well make a second monthly mortgage payment and pay property taxes.


All properties are in the same city, three different neighborhoods all within 15 minutes of each other. The city has two small colleges with over 5,000 students combined. There is a military base with a population of 20,000. There is a shortage of rentals available and prices have gone up the last couple of years. The city is good about taking the long view on infrastructure and is generally a friendly place to live.

Lots of people in here are and will help you with the business side of this.

If you don't get the bolded part worked out, only God can help you.

How dug in is she?

Was this a real solid, well discussed and heard discussion that landed on the one-year trial? or a "Fine, do whatever you want" agreement?

 

[bigbottom]

We did without a property manager for the 15 or so years we were landlords. But one thing that was critical for us was having a good, responsive handy man on call. Lots of people in this thread with way more experience than we have though, so take that with a grain of salt.

 

[Dezbelief]

My wife and I are buying a new home and deciding between selling or renting our current home.that is free and clear of any debt/mortgage. We are taking out a mortgage on the new house. Selling the old house would knock out 80% of the new mortgage. Renting out the old house and an additional house I own would pay the new mortgage with enough extra to cover Texas' high property taxes on both of the paid off properties. My wife wants to sell both properties which would pay off the mortgage on the new house. We have agreed on a one year trial on being landlords. Of course it's my idea so the wife doesn't want anything to do with it other than depositing rent money lol. I plan on making regular mortgage payments out of our regular income. I will setup a separate account to deposit rent money into and if all goes well make a second monthly mortgage payment and pay property taxes.


All properties are in the same city, three different neighborhoods all within 15 minutes of each other. The city has two small colleges with over 5,000 students combined. There is a military base with a population of 20,000. There is a shortage of rentals available and prices have gone up the last couple of years. The city is good about taking the long view on infrastructure and is generally a friendly place to live.

Lots of people in here are and will help you with the business side of this.

If you don't get the bolded part worked out, only God can help you.

How dug in is she?

Was this a real solid, well discussed and heard discussion that landed on the one-year trial? or a "Fine, do whatever you want" agreement?

Valentine's morning started with a bang She's on board, we've discussed what we're updating on the current house for renting vs selling. We've also discussed a couple potential renters, but none so far feel exactly right. The other property she gives me her opinion but doesn't get upset when I do the exact opposite. We are in a community property state so it's half hers, I brought it into the marriage. It was a house I had bought for my dad, it was paid off before we were married. He has since passed. Currently I have a rent free cousin in it, but he's got job offer in South Texas he's taking in a couple weeks. With the new home purchase on the horizon he understands money is going to tighten up and I need that house to be an asset and not a liability.

 

[Dezbelief]

We did without a property manager for the 15 or so years we were landlords. But one thing that was critical for us was having a good, responsive handy man on call. Lots of people in this thread with way more experience than we have though, so take that with a grain of salt.

My best friend is a jack of all trades. I'm handy, but he gets anything done. I pay him cash when he's going beyond what a good friend would do for some pizza and beer. He has already told me he's there for whatever I need. He helped my wife's family get my FIL's house on the market after my FIL passed. He gutted a bathroom and put it back together and remediated old termite damage. He's good at plumbing, but I do pony up for an electrician when one is needed.

 

[Buckna]

Good property managers do exist but can be hard to find and a bit like tenants, they may start out great but can turn into a nightmare later. Make sure to ask lots of questions, I can send you some if you want. That list linked above is actually pretty good and has some good content and things to think about, some managers have lots of hidden fees, markup maintenance and other “services” and it covers a lot of that. I have heard more than one story of property managers that make more money on fees than they do their cut of the rent. Some will lock you into an exclusive agent agreement that’s costly to terminate or requires you to use them to sell the property for example. Don’t get me wrong, there are good ones and they make life much easier for those that don’t have the time or don’t want to do it themselves, just be sure you monitor the property manager ongoing just like you would tenants.

I self manage and while that is the predominant route most mom and pop landlords take it’s not for everybody (last stats I heard I think roughly 60% of all rentals in my state are mom and pops and 80% of those self manage.) Screening is key for tenants and not taking the first Tom, ****, or Harry that comes along. There are lots of free resources and paid content on the internet to learn the many different pieces. I’d stay away from anyone charging more than a nominal fee though as the real estate game is notoriously filled with charlatans, scam artists, and professional seminar teachers that just want to take your money. With some patience, knowledge building, and networking you can often separate out the good and those worth the money from those just trying to sell you something. I highly recommend joining your local chapter of the Real Estate Investor’s Association (REIA) to get advice and meet like minded people. There are tons of other good meetups and groups out there you can attend but be careful as they can attract the sharks that prey on newbies. You’ll learn quick that anyone bragging about how many doors they own or how quickly they made money, or you can be just like them for a 15k mentoring fee, etc. is probably someone you want to stay far away from. Your local REIA chapter usually safeguards or tries to teach their members from that to some extent. Talk to some other folks and investors and often they will let you know about other good meetings or resources.

Aside from that, it can be an amazing wealth-builder but just have your eyes open to potential risks and know that it’s usually not a cake-walk for most people. One last thing I’ll say is always have more cash/dry powder/liquidity available than you think you need. That will help you get through the growing pains and the mistakes that inevitably happen and make it easier to get back on the horse so to speak. While I self-manage, I have a W2 and a flexible job where I can drop things and go check on a house if needed which helps immensely. And I’ve definitely made my fair share of mistakes learning as I’ve gone.