Rental Property
Do any of you own rental houses in the Knoxville area? I’d be interested to hear your experiences, including legal issues. Where do you get a good lease agreement? How do you run a credit check? What about lawn maintenance (do renters mow)? What is maintenance like (is wear and tear accelerated)? Do you allow renters to paint the walls? Pet deposits? How do you check on the house while renters are in it to make sure they aren’t destroying it?
November 8th, 2004 at 9:43 am
You can download a good lease agreement on line. Renters should mow, but major lawn stuff falls on you.
My question for you is how old is the property you plan on renting? If the property is older than 10 years, sell it instead of renting. Unless the property is paid for and you don’t have a mortgage, you’re probably only pocketing a few hundred bucks a month profit. All it takes in one air conditioner or one pipe to break, and you’re out one or more years’ profits.
however, if the property is between the 3 – 10 year mark, odds are you’re OK.
That’s my opinion.
November 8th, 2004 at 10:17 am
It’s an almost completely remodeled old house, so most major ticket items have already been replaced. A/C unit is only 7 years old, etc. Only major issues are about $1200 worth of electical updates. We’re not so much looking to profit as we are to get out of a house quickly that will be difficult to sell, but could be gaining us some equity.
November 8th, 2004 at 10:33 am
Honestly, i’d try to sell it. But take that for what it’s worth. You can go to office depot and get one of those legal document software cds for rental agreements. Or I could find one and send it to you.
Or a google would probably turn some up to. If nothing else, get a lawyer 🙂
November 8th, 2004 at 11:35 am
MX5, I highly recommend John T. Reed’s book, How to Manage Residential Property for Maximum Cash Flow and Resale Value. He addresses all of those issues and more.
November 8th, 2004 at 11:48 am
We rented our Knoxville house for about 15 years after moving to FL. It worked out pretty well for
us. A good way to build equity on someone else’s dime. We’re thinking about getting back in to it.
With interest rates where they are, my math says $100K in a house that rents for $700 or $800 a
month delivers a lot better return on a CD, even after maintenance, depreciation, and expenses.
Yes, renters will trash your place. Expect to replace the carpet (with cheap stuff) every two or
three years.
Yes, you should require a pet deposit. But allowing pets puts you at a competitive advantage. You
expect to replace the carpet after every moveout, though. Some landlords just put in hardwood if
they allow pets.
Yes, renters should mow the yard and keep it up to a reasonable standard. Don’t expect any fancy
landscaping or gardens to survive, though. Some landlords provide lawn service and just add it to
the rent, but that puts you at a competitive disadvantage.
Yes, renters can paint and decorate any way they want as long as they don’t make any permanent or
structural changes. Expect to re-paint anyway after every moveout (and probably some other stuff,
see above re. carpet).
Yes, stuff will depreciate a little faster, more due to neglect than abuse. Factor that in to the
rent and keep an eye on things. If you are capable of doing some of the maintenance work yourself,
that helps maximize your profits.
Yes, you have the right to inspect your property. But your renters have a right and an expectation
of privacy, so be respectful of that.
Some other tips.
If you are paying PMI, pay your loan down enough to get rid of it. It’s money into a black hole that
will eat in to or eliminate your profits.
Interest is still deductible if you still have a mortgage (and you itemize). You can also deduct
depreciation, and (I believe) some (most?) maintenance and upkeep, so there are some good tax
advantages to offset the rental income. But be careful because you will have to figure depreciation
in as a lower cost basis (and therefore higher profit) for capital gains purposes if/when you sell
the place.
The best advice I can give is to get someone to manage it for you. We did that after a couple of
years of unbelievable hassels (of course, we were remote). It cuts in to your profits, but
eliminates having to deal with idiots and all the sob stories. Most large realtors offer this
service. Usually you pay one month’s rent plus 10% of the monthly rent after that as commmission.
(You should have a clause that if the renter doesn’t stay at least four or six months you don’t have
to pay the one month’s rent to re-rent it). They take care of everything including advertising and
renting, handling the lease, collections, scheduling maintenance and repairs and billing you, and
(heaven-forbid) evictions. And did I mention you never have to deal with idiots.
November 8th, 2004 at 2:39 pm
Thanks for the detailed info SKB. Just talked to a realty management company and it was exactly as you described: one month + 10%. That’s a small price to pay to not have to manage it. That works out to just over two month’s rent, which is kind of what I was expecting anyway.
November 8th, 2004 at 7:07 pm
P.S….dont forget about insurance (I was an agent, now I’m an underwriter). I have seen some pretty shitty policies issued for ppl like you who will do about anything to get a house rented out. Make sure your agent doesnt F$%^ you over and write you a “cheap” policy. Make the agent do an estimator based on the reconstruction cost…not how much its worth!!!(ask your agent if they use the Marshall-Swift and Boech estimator tool). Make sure you have endorsements built in the policy to pay you what you would lose in rent if the house burned down/nat disaster etc…dont forget about the liability as well. Unless you have your primary home ins company write your rental dwelling you may or may not be covered if a liability claim arises (think about one of your renters falling down the front steps and sueing your ass because you didnt have a hand rail…or your steps were falling apart)…take out a minimum 300k or higher on liability…hell, buy an umbrella policy for 1 million…they are cheap and will cover you for your primary home/auto and rental dwelling. worried about price?…carry a high deductible…1k, 1500 or even 2500…if you are somewhat debt free then carry higher deductibles=lower ins rate…and will force you to pay for small claims out of your own pocket instead of filing numerous petty claims that will get your ass non-renewed! Trust me, there are a lot of “local good ole boy” agents who will write you a shit policy with minimums re rebuilding cost/loss of use/rental etc just to get commissions.