Starter questions: Renting out my current primary house

Starter questions: Renting out my current primary house

Decatur, GA · Member since 2016 · 11 posts · 0 votes

Hi all,

First...wow there's a lot of information in this forum. There's so much info on there and the community is great. I'm trying to make it a habit to browse random forums everyday, rather than my random news sites so I can learn more.

So I have some newbie questions and hope to get some direction. I've read a bunch of forums, the book Landlording, the "How to Rent Your House" guide. I'd like to get some gaps filled.

My scenario: I've recently closed on a house ~40 minutes away so I can be closer to work. I currently live in Decatur, GA (30033 zip code) and by shear luck, bought my house as a short sale in 2012...so very near the bottom of the market. According to zillow my house has appreciated ~50% since and from what I see of other sold houses that's about right. 

My current mortgage is ~1275 including tax and insurance. I believe without homestead exemption it will add ~$60 to it. My house is a 4bedroom 3 baths - even though a lot of houses around me are that size, I do not see a lot of houses around me on the rental market of that size. Mostly 3 bedrooms (probably better bang for the buck from an investment stand point). Just extrapolating, rent I estimate I'd get ~$2k, zillow says $1975. 

My realtor, which I used to buy my current house and new house said she can help me rent it out. She's actually coming tomorrow to take a look at the house and suggest improvements. 

Why I rent to rent it out: I believe my area is growing (lots of new houses, new shopping centers) so there will be continued appreciation. Getting some basic cash flow. Getting experience in renting. I really like this neighborhood and my neighbors...maybe in the future I'll move back, or my parents take over the house if/when they move to Georgia. 

My questions:

1) I've had the intention to rent out the house, and she even says I should. What's her benefit? She has access to MLS to post my house and says it's all free of charge for me. When I sell it she banks on me going through her, and maybe my tenants need a realtor when they buy and hope they use her?

2) LLC. Naturally the house is currently under my name. I assume I need to get it into an LLC? How does that work?

3) Liability: My property is the standard .25 acres, but behind my house is another property of about 1-1.5 acre, but all I see are woods. Mosquito in Georgia is a given, especially with the woods. How responsible am I for mosquitos? I ask...because of all this Zika scare. There's a old swing set left by the previous owner - it's never been used as I dont' have kids, do I need to remove it for fear of liability? 

4) The house is built in 1974 - I fear I would get a tenant that expects it to operate like a house build in 2014. For example, the windows are the original single pane - some are hard to open, in winter the some of the storm windows get condensation, but I don't think I'd want to replace ~20 windows. All the bathroom vent fans look like they are original, thus old and not whisper quiet like the newer fans. Would that be a valid complaint, or just a fact of living in an older home? 

5) Management. Since my realtor is going to help me get tenants, the house is perfectly livable, I don't plan on using a property management company. Having said that, even though I can make minor repairs, if a pipes burst in the middle of the night besides turning off the main water valve I wouldn't know what else to do. How do I ensure I respond to issues by the tenants in a quick manner? i.e. furance breaks in the middle of winter. Home Warranty company? Have a list of on call contractors?

6) Speaking of pipe bursting...it's a common advice around here to drip your faucets when below freezing, otherwise your pipes burst. A neighbor down the street, who are renters, actually had the pipes burst. How do I ensure that is done? Put it in the contract? Remind the tenant in winter? If they burst would that be a repair the tenant pays? 

7) HVAC. My system uses one of those big filters that are only replaced every 3-6 months (not your standard 1" filters), and they cost like $30 a pop. Would you recommend I replace them myself, or buy filters to give it to tenant and they replace it, or tell the tenant they need to buy the filters and do it themselves? Or hire a HVAC maintenance company to come up and inspect every 6 months and replace them, and have the tenant replace it more frequently if they desire. They would need to go outside, and into a crawlspace on a slab.

8) Speaking of crawlspace...there's a few feet below ground. There's a sump pump and on the parts that is dirty/gravel. A mitigation company had installed the pump, tarp previously. There's half that's on a slab. On that half...whenever it rains in Georgia for like 2 weeks straight, some water will seep through the walls on the parts that's ~2 feet below ground. I have some neighbors that have it way worse...I don't see it as a problem since, the water is equivalent to like half a gallon of water poured all around and evaporates after it stops raining. Me personally, at one point I had cardboard boxes stored near the wall, which got damaged when it soaked up the water. Would this be an issue? Should I tell the tenant not to store stuff there. I have a metal storage rack there now to keep stuff off the ground - I could leave it with them? 

9) Lawn. As I mentioned, my area is quite wooded. There's no hope of growing grass in the back, actually none of my neighbors have a typical lawn backyard. Front yard, some neighbors are able to grow some, some aren't...really depends on which house has sun and which don't. I've never been able to grow any grass, and my neighbors who have been here for a while said all the previous owners were never able to as well, one went as far to invest in a sprinkler system...my front lawn is more like 1/4th of nothing (dirt...directly below where there are trees), 1/4th grass, 1/2 others. I don't expect my tenant to make a miracle of the front lawn, but do expect the grass/others/weeds to be mowed. Should I leave a lawn mower with the tenant? Pay for a service? Or leave it up to them... What about other things like shrubbery, and raking of leaves (which is a PITA). 

I know I wrote a lot, but wanted to give background to my questions. Thanks for your time! 

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Investor · Columbus, GA · Member since 2014 · 2k+ posts · 1k+ votes
10y

No, you don't need an LLC. You need insurance with good liability coverage, but the expense of an LLC is not warranted until you have something worth suing for.

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  • Investor · Columbus, GA · Member since 2014 · 2k+ posts · 1k+ votes
    10y

    QUestion 1 and 5 are related. Your realtor wants to help you rent it because there is typically a management fee of 10% of the rent amount. If QUestion 5 is true, then tell your realtor this now before they waste time working for free.  Zillow is not an accurate way to determine home value. If you want to sell it, your realtor can give you a much better opinion of value. If you are going to rent it out, do not make improvements. Repair everything, but don't add improvements. You may have heard that renters sometimes don't pay or cause damage. I didn't get through all of it, but those are my initial thoughts.

  • Real Estate Agent/Investor · Chicago, IL · Member since 2015 · 229 posts · 108 votes
    10y

    @Foley Ma As i'm sure your Realtor will let you know the Zestimate is more than likely way off of what you current market value really is. The problem with the zestimate is that it takes in account the history of sales form a very large time period so usually the numbers are quite a bit off. The Value of your home is really just what you and a seller will be willing to agree to but, it helps to see what recent home sales have been to give you an ideal of what the market is telling people their homes are worth. 

  • Investor · Columbus, GA · Member since 2014 · 2k+ posts · 1k+ votes
    10y

    No, you don't need an LLC. You need insurance with good liability coverage, but the expense of an LLC is not warranted until you have something worth suing for.

  • Bourne, MA · Member since 2016 · 7 posts · 1 vote
    10y
    I'm a total newbie with no properties yet but I would caution you run the numbers both ways. Have you calculated expenses to be sure your current property will cash flow? Do you have equity in the property? Wondering if it would make more sense to sell this house and buy one where he numbers work better. Just food for thought, good luck!
  • Investor, Realtor · Decatur, GA · Member since 2015 · 89 posts · 45 votes
    10y

    Hi Foley,  I know the area you're discussing. It is a fantastic area of growth that has some great rental cash flow. Keep in mind the business of being a landlord is challenging and unless you're prepared you might be in over your head. I mean this with the most respect, but the majority questions you're asking are trivial compared to some of the true issues you might face.  A good place to start is to consult with a few experts. I'm sure your realtor has great intentions but the people you should be seeking advise from is a lawyer, a property manager, and other experienced landlords. In my 10 years experience as a landlord these are some of the issues that I have had to learn the hard way.

    1) what is it that makes a tenant truly qualified? Finances are only a small portion of qualification

    2) how do you handle a tenant who stops paying rent two months into the lease and refuses to move out.

    3) when and how can you evict a tenant if necessary. 

    4) how do you handel a tenant who claims the house has mold. 

    5) what do you do when a tenant rescues 2 pit bulls and a German Shepherd and doesn't tell you.

    6) what do you do when a tenant leaves in the middle of the night after six months and leaves $5000 worth of damage?

    None of this is meant to scare you but these are all issues that should be taken seriously because they do happen. And it's best to be prepared for everything.

    Best of luck.

  • Decatur, GA · Member since 2016 · 11 posts · 0 votes
    10y

    @Jason Hern I appreciate your response, and agree that those are 'bigger problems'. I agree it's best to be prepared for everything, even the trivial questions I've asked. The reason why I don't ask the hard questions is because many of those you pose have been discussed in detail in these forums, books and blogs. 

    I haven't seen too many posts about trivial stuff (and I apologize if they have been discussed, but there is a lot of info on this forum to sift through) Even though I've directly asked trivial questions, received many responses, not many of the responses answer my questions directly (and respectfully, even your answer). My realtor herself has rental property, so she can probably answer my questions or point me somewhere, but I wanted to get involved in BP from the get go. 

    About the dogs, funny enough a house down the street from me is a rental...the tenant was breeding pitbulls illegally. One of them ran out bit someone and their dog. I've been following the responses on Next Door so have an idea of what would be involved.

    @Nick Doria - @Katie Barlow My realtor will start the process with me in look at the house again (she hasn't seen it in 3 years) and calculating the cash flow. I've judged the rental rate based on a 2 houses within 1 mile of me. There is one for rent that is newer than mine with 1 less bath for $2150, and another that is older and with 1 less bedroom and 1 less bathroom than mine for $1650. So it gives me a rough ball park of slightly less than $2k. A similar house on my street just got under contract. Asking price was $330k. I don't know the selling price yet, but it went under contract in than 2 weeks. I got my house for $215k.

    @Anthony Dooley Thanks for your reply - how would you judge 'something worth suing for'. I have ~$100k in equity in the house, 2 older cars (mine and my wife's), 7 years of  401k, roth ira. 

    @Katie Barlow

  • investor · McDonough, GA · Member since 2015 · 230 posts · 77 votes
    10y

    @Foley Ma

    1. What's in it for the agent? I'm guessing future income. The agent could sell your house now for a fee and possibly never see you again. Or, the agent could help place a tenant for a fee. When that tenant moves out, you will probably call the agent again to find another tenant, and so on and so on. My property manager charges 1 month's rent to place a tenant. He could earn a few thousand dollars selling my home now or earn $800 to $1000 every time he finds me a tenant.

    2. LLC? Do you have assets to protect? A lot of money in the bank? I don't. I only have 1 rental property so it's just in my name. After I get a few more properties and some money in the bank I will figure out the LLC.

    3. Bugs are not my problem. It's in my lease that the tenant is responsible for pest control. I am responsible for rodents like mice or squirrels in the attic. I do get termite inspections though because my property has had them before.

    I would get rid of the swing set, then you aren't liable for anything. If it's metal you can probably post it on craigslist as "free metal, you must remove". People drive around my neighborhood sometimes looking for metal. If the tenant wants to install their own swingset, I would allow it. I don't see how I could be held liable for something they installed.

    4. Windows. I just spent about $2500 replacing all of my windows. My rental house was built in 1988 and had the same problems as yours. They were painted shut and difficult to open. Plus, I think painted windows look horrible. They were single pane with condensation all over them. They were drafty. The glaze was cracked and I was concerned about glass falling out, which would definitely result in a tenant calling. I was able to find all 10 of my windows on the shelf at Lowes. I replaced them myself. They look amazing! instant curb appeal and makes a great selling feature to potential tenants. My new windows are double pane, which should be more efficient. I heard on one of the BP podcasts that if the tenant saves money on utilities then they will have more money to pay you rent! Obviously, I did not put the best quality windows in the rental, but a decent quality. The first 2 years the house was rented I worried about the windows constantly. Then I replaced them in-between tenants last summer. It's worth the money I spent just to not ever have to think about them. 

  • investor · McDonough, GA · Member since 2015 · 230 posts · 77 votes
    10y

    @Foley Ma

    5. I am always quick to respond to the tenants. It may take me a few days to get to the repair, depending on what it is, but I always keep them up to date on the situation. I talk to a lot of friends and other people I meet about how bad their landlords are. They report things over and over to the landlords and never get the issues fixed. Some have a hard time getting in touch with their landlords. I don't have a lot of cash laying around but I have credit cards if I need them. If my tenant is without heat or water because of something wrong with the house, I will act immediately. I had an ice maker go out before and it took me a week or so to fix it. I ordered one online and let the tenant know about it. When I got there to replace it, they had a bag of ice in the freezer so it wasn't a big deal. I personally wouldn't waste money on a home warranty for a rental, but that's me.

    6. I had my house completely re-plumbed a couple years ago. It's on a slab so they had to go through the attic. I get nervous every winter. I don't tell my tenants anything about letting faucets drip. The water company will sometimes put notices on the bills, and I hear people taking about it on the news sometimes. Maybe they will get the info through one of those places. If a pipe bursts then I assume it is my responsibility to fix the property, but I have no intention of replacing their stuff. They should have renters insurance for that. If a pipe did break, I don't see how you could ever prove that the tenant did or did not let the faucets drip. They could just lie and say they had them dripping.

    7. HVAC. I think if you want your filters replaced then you better do it yourself, or pay an HVAC company to do it for it. I don't depend on the tenant to do things like that. Most probably won't do it. I change my own HVAC filters and I clean my own gutters. I am protecting my investment. Plus, my HVAC is inside the home. When I go inside to change the filters, I can take a look around at the place. 

  • investor · McDonough, GA · Member since 2015 · 230 posts · 77 votes
    10y

    @Foley Ma

    8. I think I would put a lock on the crawlspace door. The tenants don't need to be under the house. Problem solved. Make sure you inspect under there though if we get a lot of rain in GA. You want to make sure the sump is working or the water is evaporating. You don't need mold. 

    9. My tenant is responsible for the lawn. It's in the lease that it must be cut every 2 weeks. I would not leave any lawn equipment for the tenant. If they break it, you're gonna have to fix it or replace it. If they break their own, it's not your problem. I usually drive by my rental at least once a month and make sure the yard is being cared for. I don't stop at the house, I just drive by it. If I was going to provide lawn care service then I would raise the rent to cover the cost. 

    On a side note, I have areas in my back yard that are covered in monkey grass. No regular grass will grow there. Monkey grass will grow anywhere and its hard to get rid of. Green monkey grass looks better than dirt. I cut it like regular grass with my lawnmower.

  • Investor · Columbus, GA · Member since 2014 · 2k+ posts · 1k+ votes
    10y

    The purpose of an LLC is to protect your assets. If you do not have substantial assets for someone to come after in a lawsuit, then having liability coverage is sufficient.

  • Decatur, GA · Member since 2016 · 11 posts · 0 votes
    10y

    @Account ClosedThank you very very much for your time and response! I thought a few people would answer a few here and there but thank you for answering all, and thoroughly. You make a lot of great points. 

    After dwelling on my questions, I realized one of my cousins has rental property, I have 2 friends that are property managers, 1 current coworker who manages a few properties himself, and a former coworker who had a dozen section 8 housing. So I'll pick their brains as well.

    I spoke to my cousin, who lives in LA and has a few properties in Vegas. He goes through a property management company. Living so far from his properties, property management is the way to go. But then I asked him about pests, and A.C. filter and he has no idea what goes on in the house. Go figure...For the lawn he also has on the lease that the tenant takes care of it, or the property management companies does it. 

    I guess for pests, that's not view as 'protecting your investment'? Since you also live in Georgia...the bugs seem to scurry inside for the winter. I guess they are more of a nuisance and won't damage the house. I also get termite inspections and have a termite bond, I guess I should carry that forward. 

    $2500 for all the windows - that's awesome. My house is 2 stories so I'd have to think twice about doing that myself. I scraped off a bunch of paint, so out of 22 windows only 4 don't open (and I wouldn't open those 4 particular ones anyways, based on where they are). 

    To everyone who has replied, thanks again. 

  • investor · McDonough, GA · Member since 2015 · 230 posts · 77 votes
    10y

    @Foley Ma

    The replacement windows I used are installed from the inside. You only need to get on a ladder and get to the outside of the window to caulk and paint. I painted the trim around the windows because I was painting the whole exterior while in-between tenants. Replacement windows are not that difficult. There are some good Youtube videos on them.

    I use a property management company for my rental house. I just do all the repairs and maintenance myself. I wrote a blog about it so I'm not gonna go into a lot of details. He charges 1 month's rent to place the tenant. He charges 6% of the monthly rent to collect the rent and deposit it into my account. I pretty much never deal with the tenants, unless I'm at the property. They contact the property manager for everything. If there is a repair to be made, then my property manager calls me. I can chose to fix it or he will send someone. Currently, I do all of the repairs and maintenance. I like to know what it going on at my property. It also saves me money. 

    I like to have the property manager to help cover me legally and to guide me along. I've only been a landlord for 3 years so I've still got a lot to learn. I like to run things by him before I make any moves just to get his opinion. Also, if he calls me about a repair or tenant complaint, and I don't know how fast I should respond, I ask him. Maybe you should start out the first couple of years with a property manager. It helps take some stress off of me. Takes away that fear of not knowing what to do. Just have them contact you before they do any work and give you the choice of fixing it yourself or hiring your own contractor.

  • Architect · Papillion, NE · Member since 2015 · 1k+ posts · 840 votes
    10y

    @Foley Ma

    HVAC...

    My rental has similar filter system as well.  I change it out every 6 months for them.  If they want to change it more often its up to them.  I have a yearly serving contract for 2 cleanings (~$170) which allows me into the place to see if everything is ok inside.  I figured the tenants wouldn't replace at the cost of $30 but then again its the same changing it out monthly.

    You may want to consider a property manager due to distance away.

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