Leasing out a house

I have leased out a few single family residences. With just one, it is all highly dependent on (1) your property - it's age, state of deterioration, etc., and (2) your tenant(s).

Hiring a property management firm doesn't make a lot of sense, to me, with just 1 property. If you have absolutely zero time to devote to managing any issues that might pop up, then you have to find a company, but if you can set aside a few hours here and there every month, only if and as necessary in case something pops up, then don't give away more of your profit, imo.

A couple of notes about insurance. Your typical homeowner's insurance will change, and likely go up a bit in cost. Also, some people like to buy one of those additional home warranty insurance deals, where if an A/C breaks or something, you go through that company. I tried it, and it probably works for some, but I found it too cumbersome. I know someone who uses one and uses it well. The benefit is if something breaks, there is a set process whereby your tenant calls up the warranty/insurance company, who sets up a repair check-up, etc. and if the item is covered you don't have to come out of pocket. But as with all insurance, it is very difficult to navigate and of course there are a ton of exclusions, and even if something broke that isn't excluded, you can be sure the company will work to assume the item is not covered. Which is why you will hear a lot of people refer to those things as scams.

If you ultimately plan on selling your house, think about the term of the lease as it relates to when your tenant will move out and you can put the house on the market.

I am leasing a house right now that I've had leased for 2 years, but I wanted to leave myself an out to sell the property if the market improved, so the lease allows me to start marketing for a full sale the house in February 2013, which is perfectly timed for the spring selling season. The tenant negotiated an option to move out then as well, but he has two kids in school with him, so he won't. If my real estate agent says pretty definitively that we can get $x if we put the house on the market, then I can go ahead and do that. If not, I can work with the tenant to reup for another year.

Be wary of pets. I think it helps to allow it as you get more people looking, but limit the amount allowed and require a meaningful pet deposit. Pet's can do some damage.

Try and negotiate basically 100% of all costs passed through to the tenant. Utilities of course, but landscaping, regular maintenance, whatever. Typically with single family residences leases you won't be able to pass through property taxes or insurance, so be sure to calculate those as expenses netted against whatever you rent out for.

And on property taxes, technically once you move out you can no longer claim the property as your homestead... fyi.

Otherwise, again, try and judge your prospective tenant. If they look like slobs, they likely will be, and will f'up your property while also trying to get you to come out and fix a bunch of stuff all the time.

 

Make it look and smell presentable. First impressions are important. Our house we rent is simple enough that we have a simple lease and manage it ourselves. Of course, we have the perfect renters. They pay on time and he is a contractor. If they find any problems, we have him fix it and then he charges us. Works out great.

We weren't looking to turn a profit, just cover taxes, insurance and mortgage so we are able to rent it out at a premium price.

Find out what similar houses are leasing for so you aren't too out of whack either way. State clearly in the lease what utilities they are expected to pay and any other items (such as deposit) so that there is no confusion. Include a due date as well as a 'late date'.

 

With respect to what JayZ750 posted about appliance insurance. We use Home Service Plus (in Minnesota) and it works great. I think there is the same or similar plan in Houston. We pay around $25/month and it covers every appliance. When there were some A/C problems, not only did they fix it, they installed a new thermostat at no charge. As with any type of insurance, there will be times you think you are wasting your money. We were really appreciative of the plan a couple of years ago when there was multiple problems with the washing machine, problems with the A/C, refrigerator, furnace and a couple of other things.

It gives me peace of mind, but as JayZ750 indicated - to each his own.

 

^ sure, I noted it works great for many people. I know a lady who owns and rents out 6 or 7 houses and use a company and she's had to spend enough time on the p hone, but it is definitely working for her... think she's got a few new A/C units out of it, for example.

I did it on one house, and my tenant was getting confused and upset - an A/C went out for example late on a Friday night and basically she had to find her own A/C repair man that was not part of the "plan" that I then had to cover - and nothing was about to break in a major way so in my next property I leased I just decided to forego it.

In the end, I'd probably still save money with a plan - they're not super expensive a you note - but I just don't have time to deal with it really...

 

Use a management company to select the renter and deal with all the stuff about negotiating, paperwork, etc. You don't want to deal with talking to people or trying to get their money to you. I've seen plenty of "bad stuff" happen to people I know doing what you're wanting to do. Please trust me.

 

I would clean it up a bit. How much is up to you and the leasing market. But I'd rather spend a little money and clean it up and if there is great demand for the house, get a higher monthly rate. I cleaned up my last property a bit and ended up getting like 30% higher than I was asking for on a monthly basis as I had 3 people bidding.

In my experience, absolutely

I don't have a great answer here, as my tenants have been obviously of high quality given their personal financial situations, etc. My current tenant is actually a large financial institution that is renting the place on behalf of an employee they relocated to Houston.

There are fairly standard lease contracts that most start with. Form there, just adjust to anything specific to your situation. It doesn't sound like you're using a realtor? If you are, the realtor should help. A realtor is not a lawyer of course, but a good experienced realtor should definitely help. Alternatively, a realtor will take as fee your first month rent.

I don't but am able to per the lease. I don't for the quality of tenant reasons I noted, but if you are concerned about your tenants in any way, I would. But in either case, as the owner of the property, you should definitely have a bunch of rights to inspect your own property as necessary.

 

I've been leasing my former bachelor pad for about 3 years now and I use a management company. Like JayZ says, to each his own. But for me, they've been a saving grace.

I live in Kingwood and my house is off 290, so I just don't have time to be a fulltime landlord and come plunge the toilet every time the tenant takes a dump. My management company takes care of everything, all I do is cash the rent checks. I don't even have to do that, they direct deposit them into my account every month.

They take 5% off the top every month, but that comes out to about $13/week which is less than my wife spends on Starbucks and more than worth it (to me) for not having to do ANYTHING. I have NO INTEREST in being a landlord.

I'm only breaking even every month if you take taxes and insurance into account, but just having someone else pay down my mortgage is actually coming out ahead in the long run. Equity is a beautiful thing.

FYI, there are management companies that just screen renters for you. My folks own several properties and always find renters that way, then take over landlord duties themselves once the renter is in place. That's a nice happy medium if you don't want to pay a property manager every month.

Good luck.

 

http://zingpm.com/

 

subscribing to this thread. great info. thanks everyone. My house is also in the market now for rent.

 

I'm leasing out my house right now. The house is in Houston and I'm living in Austin now, but so far it hasn't been too big of a hassle for us to manage ourselves. The house was built in 2008, so it doesn't have many problems. The few problems there have been, I've contacted a handyman to have him coordinate with the tenants for repair, and then I pay him afterwards. We used a realtor when we leased our house out and she handled the background check part of it and getting the paperwork together.

I'm actually losing a little money at the moment on it, but their lease is up in December so I'll probably have to up it a little then. Losing the homestead exemption did suck and was a surprise, but I was able to get the appraisal lowered this year so it should even out. Someone also told me that you're not allowed to claim property taxes when you file your income taxes if it's not your primary residence...I'm not sure that is true though.

 

So who pays for the repairs when you use a property management company like this. Do they make the repair and then take it out of the rent? Do you have to approve before they make repairs?

 

Eh, I don't put much stock into internet reviews (except for Amazon). Most people like me who are happy with their service aren't going to bother reviewing them on Google. That being said, there are a TON of management companies out there, so I'm sure many of them are better and many are worse.

I don't think that's true. At least my accountant doesn't, because I'm pretty sure she was able to write it off for me last year. Not 100% sure though.

Exactly. If it's less than $100, they just fix it but if it's more, they let me know and give me the option of using their contractor or bidding it out. I used to bid stuff out but their contractor would always have the best bid so I just started using him exclusively. He's great, he sends me before and after pics and always throws in little things for free.

First year was tough because it's an old house but the last few years have been better since pretty much everything has been fixed/upgraded now.

 

If y'all want to see our rental agreement that we had our renters sign, drop me an email through the board and I will send you a copy.

 

You pick up your rental income and all of your rental expenses (including property taxes) on Schedule E of your tax return. In addition to property taxes you get things like interest, insurance and repairs. You also get to depreciate the house which most times gives you a loss for tax purposes, depending on your income level you may or may not get to take that loss (if you don't it carries forward until you have income on the property).

 

did you guys buy a rental property insurance or change it from residential to rental property insurance? thanks.

 

We switched ours from Homeowners to Rental property through State Farm.