New landlord, any tips?

Question

Just joined the forum. I currently have one rental property. 2 bedroom/1 bath in Indiana. Rent for 850 a month, brings in about 400 dollars a month in cash flow. I just bought a second property, 3 bedroom/2 bath. on a different side of town. I am hoping to rent this one for about 1050 a month, for about 500 dollars in cash flow a month. I put 25 percent down and get 30 yr mortgages. Property insurance is between 800-900 a year. I try to buy houses I would actually want to live in, in decent neighborhoods that are close to the major interstates. Any tips for the beginner? Anything you see wrong with the above? Biggest problem so far has been getting financing for non owner occupied properties.

Any help or comments are appreciated

Thank you

Any help or comments are appreciated

Thank you

Jerry W. · Answer

@Gabe Gordon Welcome to BP.  it looks like you are off to a great start.  BP has a great article on how to rent your property.  I think even experienced landlords should read it.  You have already received great advice here but I will give mine also.  First be very picky who you put in.  Do not get desperate and ignore your criteria.  It is better to let a rental set empty a month or 2 than take a substandard tenant.  Try for long term tenants.  Turnover is your biggest expense.  You have to touch up paint replace flooring, pay the utilities yourself, etc.  Always keep a nest egg to carry you through bad times.  you WILL have problem times.  The roof needs replaced, the sewer line needs replaced, the water tap starts leaking out in the street.   (yes I have had every one of these).  keep at least $5K set aside for these emergencies.  Keep high liability insurance.  when you hear your tenant fell going down the steps and broke her hip, the $50K liability policy looks pretty flimsy, the $500K policy looks like a really good deal.

If you have gotten the same advice twice or more it's because it is so important.

Your best friends can be a handyman, and accountant, and occasionally a lawyer.  Good luck.

Andriy Boychuk · Answer

I set aside of the gross income each month following

• 12% - maintenance
• 10% - vacancy
• 15% - property management

I manage property by myself and I do not plan to have property manager soon. However, I want to develop a habit to set aside money for property manager in case I can not manage the property anymore.

Paul Timmins · Answer

@Gabe Gordon

Make sure you are setting aside $ for capital improvements.

At some point you will grow to where you will want a property manager. You are missing out on info advice and deals by not associating now. Go to IREM.org search for several ARM certified property managers. Call them get into conversations with them. Ask them what parts of the city they like and dislike and why. What do they see them selling for and what are expenses by category per unit. Is it possible to get their group rate for insurance on your properties. Do they know any properties coming up for sale.

See if your tenants qualify under Affordable Housing guidelines this is not Section 8 but allows them access to free new fridge insulation doors windows etc. Connect with the local Affordable Housing Office to see local and regional programs.

Focus on expense reduction. Around here we can get 5 yr interest free energy loans to upgrade heating and hot water systems. Every expense dollar you save goes into your pocket and creates equity in your property.

Remember as you save that 10% gets smaller and smaller. There is no benefit to sleeping with the golden plunger.

Good luck

Paul

Marcia Maynard · Answer

Delve into Bigger Pockets.  Listen to the pod casts, read the articles, use the search feature to find answers to your questions as you go, post your own forum questions if you can't find the answer, share your experience and knowledge with others.

Develop a business plan, including mission, vision and values.  Create an effective marketing statement.

Family relationships are important to maintain.  Make sure your loved ones are on board with you, either as a partner in the business or as a cheerleaders!

Best wishes!

Simon Campbell · Answer

One problem that catches many new landlords is a lack of capital reserves. It can be really tempting to pocket all of the monthly cash flow. But this can cause major financial difficulties when large ticket items like the furnace, floor coverings or the roof need to be replaced. Setting aside 5%-10% of the gross income each month will help reduce the risk of having to refinance to cover these repairs.

Jonna Weber · Answer

Great start Gabe!  I'm with you in finding places that you would be willing to move in to.  Biggest tip I would say is be very  thorough in screening when you sign on your tenants (in that price point I would think you have lots of interest) and go for long term tenants if possible.  After you experience the time and effort that a tenant turnover can take - you'll be all about those long term tenants. :)  I don't think you mentioned if are using a property manager - so if you are, that would carry over to being very selective in who you choose as your property manager.

Congratulations - that is exciting!

Simon Campbell · Answer

From everything that I have read, the 50% rule does not include property maintenance. It also does not include any mortgage payments. It is true that the general rule of thumb is that a property is profitable if it has a net income of $100 per unit/per month. It does not seem like much, but this is the minimum for profitability. A good investor may be able to find properties that exceed that or they are able to cut costs to improve their return. But...never even consider a property that cannot cash flow using the 50% rule.

Gabe G. · Answer

Cuong,

You are right, with the 50 percent rule. My numbers were for gross cash flow.

I understand the 50 percent rule, but also understand that it includes approximately 10 percent for management fee, I will be self managing and also understand a lot of that is vacancies/turnover and plan to limit that as much as possible. I understand the 50 percent rule. But my question is if the 50 percent rule could not be lowered somewhat by (self managing etc) why would we invest in rentals? Because that would mean even good deals only bring a net cash flow of 100 a month or so, you would need 50 rentals, just to make a decent living. I believe my rental next year(because I was able to lower property taxes) should gross cash flow closer to 500 a month, and am looking for the same on my new one.

Keep the tips coming.

Love this forum

Michael B. · Answer

I'll add my advice -- but the 2 best bits of advice are already given. Get your reserves in place and screen the tenants well.

The one additional piece of advice I'll add is go to the house regularly. I replace the furnace filter every other month just so I can walk through on a regular basis. I also fix things that I could have somebody else do for that reason. I try to visit every house every month so I can see that it's not being abused.

Cuong Le · Answer

@Gabe Gordon Congrats on the new properties and encourage you to keep going. Quickly using the 50% rule, $850/2 = $425 and there is no way your mortgage is $25. How are you coming up with the cash flows?

Suggestions that has helped us as a landlord: Walk through the entire lease agreement with your tenant to make sure they fully understand especially when/where rent is due and what is considered an emergency repair. Fire, flood and blood is an easy way to put it for them.

What @Jerry W. said about being patient on screening tenants is so true. If you have a clean and functional property and priced it right, you will find the right tenant.

If possible, try to incorporate your capital expenses into your numbers as you analyze the deal before submitting the offer. If the numbers work, you'll fix the needed major items (ie roof, water heater, AC) up front minimizing your maintenance calls down the line. If not, save aside capital expenditure for these items in case they crap out on you.

In the end, never stop learning, connect with others (adding a profile picture helps with this) and have fun along the way.

New landlord, any tips?

Most Popular Reply