Real Estate Investing #11: principles, maintenance, and budgeting
September 14, 2015
Linda made a good point about how some landlords, slumlords, use their rental properties to generate tax losses to offset their gains in other areas of their net worth.
Call me foolish but I’m not ok with that idea. Even if I’m going to have to pay more in taxes each year because I’m showing a profit on paper, I’d rather find some other way to even out that tax bill than to let my property where actual humans live go to shambles. I’ve been on the other end of that stick and it sucks.
Even though some of the rundown at the other house is due to Dad’s inability to keep up with all the house maintenance, a lot of it is long term stuff that the owner of the property should be tending.
Chatting to a long time homeowner friend, she’d expect most of the wear and tear to be paid for by the homeowner / LL: carpet, paint, drapery. That was an interesting thought. While I’m willing to budget for it, as a renter, we never had a refresh or cleaning of anything of these things that we didn’t pay for under normal wear and tear. We’re not going to vacuum for the renter but we will do a carpet cleaning between renters and replace it if need be in say, 20 years? That’s the normal life span of good carpet, I think.
I provide and maintain all the major appliances, which isn’t actually a normal thing in my experience renting in California, but it is for the rental area. Would you also expect that other stuff as well?
My current plan is to save all the income from at least the first five years to pay for expected major repairs and unexpected anything else that’s not covered by the warranty.
You sound like a good landlord! I don’t think I could ever be one. Too much incentive to cheap out on repairs (which makes me feel squicky as a person).
I’m trying! I’m doing this for money, obviously, but I don’t want to become someone I wouldn’t respect in the process.
Our current rental property is a townhome where the outside is owned by the HOA. Which means we don’t have to care for the roof or the siding. We project our maintenance/capital improvement spending will be around $2K per year with less spending these early years, and more in the future. We also keep the appliances in excellent working order (they are much nicer than our own), though we have specified that the washer/dryer is not actually part of the lease agreement (these can often take 2-3 weeks to get properly repaired and we don’t want to have to compensate our renters for that even though we will in fact get them repaired should they break).
We try to be extremely prompt in all maintenance requests, but we believe that carpet and drapes and stuff should be well cared for by our renters (vacummed regularly, not stained, etc.).
We will clean those between renters, but beyond that typical maintenance (such as trying to remove odors or stains), we would take from the deductible.
So when you exclude the washer/dryer, you’re basically disclaiming official responsibility for them even if you plan on dealing with the repairs? That’s a good thing to know, I should review the paperwork and confirm whether that’s the case for ours because I can’t remember now.
I’m also budgeting $2K/year but that should probably be more now to account for any roof repairs.
Thanks for weighing in!
The last place I rented long term was 3 years. The landlord paid for:New dishwasher as ours broke the week we moved in, and the cost of having a heater fixed. We were in a 4-plex, and everyone got new windows and sliding glass doors at about year 2. We were told the previous tenants got new carpet when they moved in, so they just shampooed it. We replaced really crappy drapery with fancy shmancy blinds, we replaced the all sink taps and shower head to something that didn’t come straight out of the 40s, and felt it was worth it to leave for his next renters.
Our current landlord does yard maintenance with a service, which is good because we don’t have a lawn mower. They have asked us to keep up the flowers, etc, but not demanded we keep the lawn green which would bust us out for paying for the water. They have basically told us to do what we feel with the house, however, when we moved in, we didn’t have a garbage disposal, and only paid for half if it (and it wasn’t one WE got to pick, so – cheap). Frankly i feel that’s a pretty necessary item in a “modern” kitchen, but whatever.
When the plumbing totally backed up before Thanksgiving, we were concerned that it was our fault, and therefore a huge plumber’s bill was coming our way. When Drain-0 didn’t take care of it, the bathtub backed up, and we were forced into 1 flush a DAY, (and we had guests over), we called them. Turns out a 58 year old house has small pipes, and stuff builds up over time. They didn’t back charge us at all. We had some freak windstorms in April that blew down part of the fence that opened part of our backyard to a public walkway. they came out immediately. in the rain, and put up a new fence. No charges.
The landlords do an annual inspection on all their properties to make sure there’s no shenanigans. This year’s inspection coincided with them also refinancing their mortgage, and they brought an appraiser with them. This happened after giving us notice they were raising our rent a very small amount. They concluded we were awesome tenants and taking very good care of the place. We’re still paying the extra increase, though. Seems we weren’t *that* wonderful. In a fit of passive aggressive BS, I picked up some (two sheets of) Circus Stamps. Guess who the only people we send out checks to is? heh. They won’t even get it.
This is very helpful! Thanks!
It just occurred to me that it’s possible there was another reason for the increase in rent: covering any increase on their side. Our HOA kicked up the rate another $20/month and that’s something that would be passed on to a renter, I think, since they’re the ones actually benefiting from the HOA’s amenities … such as they are.
I am no expert–we own a house that our son and two roommates rent–but I believe that depreciation of the house itself accounts for much of the tax lass. You are required to claim that depreciation–and to pay a flat rate tax of 25% of depreciation when you sell WHETHER or NOT you claimed the depreciation. Tax loss can also come from doing repairs (this is deduction) and depreciation of things like water heaters. So you can be a good landlord and still come up with a loss.
I do claim the depreciation but I hadn’t read up on flat rate depreciation tax, thanks for mentioning that and the depreciation of big items – that wasn’t something I’d included in my calculations.
Never had any place have any type of work done to it, ever. Only repairs if something broke (and not even always then…) In house hunting we occasionally found ‘fresh coat of paint’ but really that means jack shit.
Apartments here typically come with whiteware (appliances) but other types of dwellings (the majority) do not. Buying and selling fridges and washing machines over the years has been a real PITA as we move from places that do / don’t have them, either because the house came with or because flatmates already had those items.
The state of rentals there have me appalled and are part of my impetus for finding a way to be a good LL, even at some cost to my bottom line, and still make enough that it’s worth the work. I wish I could afford NZ rental property and do the same there :/