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.
July 22, 2015
My brokerage account is held at TradeKing. Referral Bonus: Open an account, fund with $3,000 and place 3 trades within 90 days, we both get $50!
Investing Strategy:
1. I buy what I like.
2. I look for good dividends.
3. Keep costs low.
Update:
We had a great blip in February, one of our holdings decided to pay out a special dividend. A second stock split, which didn’t affect anything monetarily, but I get a temporary thrill seeing that we own “more” (only in absolute value but not more proportionally).
Thanks to the special dividend, this is our highest earning year in the way of dividends yet! Over $400. And it’s just all going back into stocks when I make our next purchase. The goal is that someday we’ll can live off the dividends from these holdings, which are just one part of my long-term plan and portfolio.
Reaping Dividends:
Update 1: Slow and Steady
May 4, 2015
People tend to make assumptions the second they hear that you own rental property and, for those who aren’t knowledgeable, many of those are wrong.
1. You’re rich. (Correlated: You will be rich tomorrow if you just got started today.)
2. You’re always making money, usually hand over fist.
3. It’s easy money, and profitable as hell.
4. Landlords can charge anything they want.
Obviously we’re not rich. Far from it. I certainly intend to be but this is one part of a long term plan to get there, this isn’t the end all be all.
The point is to make money but it’s not easy and not an overnight get rich quick scheme.
There is a risk and a truckload of expenses involved: I took on a mortgage, with all the associated home buying costs like closing costs, realtor fees, inspection and appraisal fees, and a higher interest rate because it’s not an owner occupied property.
And whether or not we have renters (aka income), I’m still responsible for all taxes, damages, repairs, and association or other fees every month. My profit is AFTER I pay all those bills, if anything is left.
Profit margin is dependent on two main factors: fixed expenses and rent. I’d love it if I could engineer a 50% profit margin but the only “control” I have is on the expense side. It’s down to what decisions I make when buying. The price point has to be low enough with a high enough property value so that when the mortgage and all the other costs are added up, they are less than the amount of rent I can charge. And I can only charge what the market will bear. If rents in the neighborhood or region are $1200/month for a 4 bedroom, 2 bath single family home, and I’m trying to charge $1500/month for a comparable property with no distinctive features worth $300 more per month, all because my expenses are $1400/month, guess who’s got 2 thumbs and is SOL?
Or say your expenses are lower and you can still make a small profit charging market rates – if you get hit with multiple repairs, month after month, even small ones, you’re still looking into an ever deepening hole.
You’d better have some slush fund saved to keep covering your expenses during times of vacancy, and any rental income budgeting sheet worth the paper it’s printed on includes a minimum assumed vacancy percentage, because just try crying to your bank about how you can’t pay this month because the rent was paid late or your property stood vacant.
Believe me, they’re just fine and dandy taking the house along with whatever money you’ve already sunk into it if you were fool enough to believe that you didn’t need to pony up more cash out of pocket from time to time.
I didn’t get into this intending to lose money but as an investor you have to know the basic risks you’re running, and yes, losing money is absolutely a real risk.
April 6, 2015
Once again, while I’d rather have the money in my pocket, the ability to be completely hands-off with some of the day to day, other than answering emails, has been exactly what we needed.
My hands have been rather full so I’ve only answered emails, or redirected phone calls, but not long after LB’s arrival, the property manager dealt with:
1. the expiration of our old tenant’s lease,
2. checking the property to ensure that clean-up was complete,
3. collecting final rent,
4. getting the previous renters to pay up the utilities they claimed were paid (but weren’t),
5. returning the remaining security deposit once all the outstanding payments were deducted,
6. scheduling all the inspections and servicing of repairs,
7. marketing and showing the place,
8. reviewing applications and running background checks,
9. getting the final lease signed with my approval.
Bonus: we both make a little bit more now that the rent has changed to be more in line with the market rate for equivalent rentals. Not showing a profit yet, of course, but it gets us closer.
Not having to deal with that stuff and a screaming newborn? That’s absolutely worth the percentage off the top. Much like renting is not a waste of money because you’re getting a place to live without financial risk, hiring a property manager was the right choice for us. PiC has zero interest in this whole venture, beyond an academic one, so it’s entirely on me. Having someone deal with the hands-on work of owning a rental has made it possible.
Extra bonus: they organized all the income and expenses that they handled in a statement for me, reducing the amount of time and work I had to put into organizing our tax documents. Whew!
February 9, 2015
Bah, I knew that I’d have to renew the home warranty but that crept up on me really fast. Part of a warranty did come with the purchase of the house so that was an unexpected boon but I’m still not happy to part with a big chunk of money.
The alternative, though…!
My property manager recommended picking up a basic, plus 7-star plan, plus washer/dryer/fridge, to cover all the bases from the company they consider the best: Home Security of America evidently actually covers claims and uses reputable contractors.
Not to be confused with American Home Shield, the previous warranty company, and reputed to be an absolutely horrible company according to both my prop manager and Steph. That report is not hard to believe, incidentally. AHS was called to complete some minor repairs two months ago and they’re still dragging their feet. Boy, am I glad I changed away from them before we had anything serious happen.
HSA offers either a monthly or annual billing plan. I’d normally just do the billing plan to spread out the costs but chose to pay the full year in one go. I honestly don’t remember why but let’s pretend it was a good reason.
HSA even recently set up an online claims site. I much prefer to do everything online, especially so there is an easily accessible record and so I don’t have to talk to people for routine tasks, so that’s another point for HSA. Their price is a bit higher but I’d rather pay an insignificantly higher cost for assured better service. I’ve come a long way in my journey from being a tightwad to making wiser long term choices!
January 16, 2015
Thanks to the Cuba announcement causing the market to dip, I had just enough cash set aside to buy *nearly* 100 shares of something before the end of 2014.
That was a bit of a milestone since my very humble 10 share purchase beginnings. I could have transferred more money in to make it an even 100 shares but we had agreed on a certain amount for purchasing 2014 stock and I didn’t want to go back on that or take the few days to wait for a transfer and have the prices go right back up. I only keep cash sitting idle in the account when I’m waiting to make a purchase.
Note: I’m not into timing the market, it’s just that I didn’t have a timeline on buying, this stock dropped below my optimal buy price, so I went with it.
I picked our buy last year, so in the name of fairness I went with PiC’s preference. My turn this year! And I won’t necessarily wait for Christmas proper. Christmas can come early, after all! 🙂
January 5, 2015
I was reviewing the Investment House paperwork, vaguely remembering that I’ve got an old home warranty on the place and that it’d be good to make sure I renew that in time.
Good darn thing I did!
Old Warranty was expiring in a month’s time. Meanwhile, looking at a quote for the New Warranty company (the one my property manager works with and recommends as being reliable payers), I discovered that a new policy with them would only come into force 2 weeks after they received payment.
The timing on that would have been really annoying if something broke down that would have been covered and I’d missed that crucial detail.
Aside from that, though – there were things from the home inspection that were noted as being broken. Nothing was critical but the tenants were so balky about the inspection and walk-throughs that it completely slipped my mind that I’d wanted to fix those items.
I’m going to have some of the repairs arranged before the warranty is up. I’m sure it’s going to be a bit of an inconvenience to the tenants, but it makes more sense to me to have everything in good working order when it’ll still be covered for a base service fee. Otherwise, the new warranty won’t cover it and then the whole cost may be coming out of their security deposit because it was broken during their tenancy, they never reported or fixed it themselves, and tried to keep us from seeing it during the inspection.
Some of the items may have to anyway, but I don’t feel the need to wait and keep their whole deposit if I can deal with the problem now.
Would you find that unreasonable? As a previous tenant myself, I can certainly understand being annoyed by some scheduling inconveniences, but I’d prefer that over having to pay for the cost myself.