Baltimore: New Landlord Info

[Kurtis Green]

Good Afternoon BP,

I have begun the process to learn and develop real estate investment strategies, and am interested in starting with rental properties in the Baltimore area. I was hoping that anyone that has become a landlord in Baltimore would be able to share their experiences with the process. Mostly interested in costs and processes of registering a rental property, obtaining/maintaining lead certs,  or any other cost or challenges that an inexperienced potential landlord may overlook before jumping in.

Any information that could be provided would be greatly appreciated. Thanks and looking forward to your responses.

[Rich Baer]

@Kurtis Green

      Be glad to help you. Message me.

         Rich Baer, Esq.

[Ned Carey]

@Kurtis Green In Baltimore city you need to register with the city any non owner occupied property $30 a year (unless there is a vacant house notice n the property then it is $130 a year) renew every Sept. Baltimorehousing.org.  should have info.  Do this at 417 E Fayette st 1st floor in the permit dept.

I don't know if Baltimore county requires a registration but they do require an inspection of all rentals. 

You must register with the state any rental built before 1978 with the Maryland Dept of the Environment for lead. You also need a Lead Certificate before renting. This you have a private lead inspector do for you.

There are lots of expense many new investors miss. Check the 50% rule here for an  idea about them.

[Emery Green]

Ned Carey are you referring to a 50% rule listed somewhere on this forum or the BP website, or is this something that is specific to Baltimore?

[Kurtis Green]

@Ned Carey Thanks for your input! 

A couple of follow up questions:

1) Are inspections completed by a city inspector or a 3rd party and are there any expenses associated with that? or is that basically tied into the rental registration fee?

2) Do you happen to have a ball park idea of what it costs to have a house inspected and Lead Certificate issued (pending there is no lead abatement required)?

@Emery Green I believe Ned is referring to the general rule of thumb when it comes to operating expenses for rental properties regardless of location. This is pulled straight from BP:

The 50% rule is nothing more than the fact that throughout the United States, operating expenses run 45% to 50% of the gross rents for rental properties. Operating expenses include all the expenses that are associated with operating your rental business, but DO NOT include the mortgage payment (Principal and Interest).

So outside of the mortgage you have to consider property tax, insurance, ground rent, misc repair, etc...

[Russell Brazil]

@Emery Green The 50% @Ned Carey is referring to is a general rule that 50% of the rent of a property will go towards the operating expenses of the property like paying for lead certificates, repairs etc.  The 50% rule is just a ball park figure that will hold up very well in some markets, and some not at all. It probably is about right for the Baltimore market.  

I personally find that it works pretty well for very cheap properties....but not so much for expensive properties.

[Mike Williams]

A couple of follow up answers:

1) Are inspections completed by a city inspector or a 3rd party and are there any expenses associated with that? or is that basically tied into the rental registration fee? Housing inspections are only needed for Section 8 rentals in Baltimore City.

Maryland’s Reduction of Lead Risk in Housing law requires owners of rental properties built before 1978 to register their units with Maryland Department of the Environment (MDE), this requires a Lead Paint Inspection by a licensed 3rd party. See costs in answer to #2.

2) Do you happen to have a ball park idea of what it costs to have a house inspected and Lead Certificate issued (pending there is no lead abatement required)? Inspection alone costs around $250-300, if lead paint is found the remediation can add much more. There are multiple levels of certification depending on how much remediation you choose to do, each certification level comes with corresponding requirements for routine re-certifications. In other words, a full lead free certificate means you basically never have to get a re-inspection, whereas a "modified reduction" certificate requires re-inspection annually and/or at each tenant turnover. So another $250. Google "MDE lead paint" for more info. But to get to full lead free status may require expensive work. Best to request a property's lead paint status before purchase assuming it has one so you know going in what you are dealing with. Hope this helps.

Thanks,

[Christina R.]

Start attending some local meetups and networking with individuals in the city.  www.meetup.com/bwimeetup has a lot of B'more city investors that attend.  There are also various other meetups around.  Lead is a huge issue in Baltimore.  Personally I want lead-free on my rentals so I buy properties that are crap and need a lot of work but I know that going in.  I get my properties shot with the XRF (or XFR?) gun prior to work starting; then I know exactly where the lead is and where it has to come out/be encapsulated.  I have a person to recommend if you go that route. 

[Account Closed]

@Kurtis Green  in summary.......

ihttps://www.youtube.com/watch?v=o1tj2zJ2Wvg

[Ned Carey]

@Emery Green I was referring to the rule often talked about here on BP as Mike and Russel said

@Russell Brazil you said you didn't think the 50% rule applied as well to more expensive homes. I am curious if you think it is higher or lower on them? 

@Kurtis Green Baltimore city does not require inspections. You simply register your property with them..  Lead inspections are required by the state and yes a third party dos them, Leadtech or LeadProbe are two examples. If you rent to section 8 tenants then section 8 does an inspection. there  employees do it and there is no cost to you for it.

[Russell Brazil]

Originally posted by @Ned Carey:

@Emery Green 

you said you didn't think the 50% rule applied as well to more expensive homes. I am curious if you think it is higher or lower on them?

I'd say it is considerably less on more expensive properties (In general, there are always exceptions)

Take my two single family rentals in Silver Spring. They rent for $2600 a month each. If I was spending $1300 a month on expenses on them, then something has gone drastically wrong.

My contention is that as you move up in price, the percentage of the rent that goes towards expenses, repairs and even cap ex becomes a smaller percentage of rent. Take a 1200ish square foot house in say Baltimore that needs a new roof, and the property is worth $50k. That roof may cost $5,000 or 10% of the total value of the house. Now take a similar size house in Rockville that is worth $500k. Now the roof will cost $5,000 but only be 1% of the total value of the property.

I'm using hypothetical numbers that allow for easy math, but I think the idea is understandable.  Though rents do not increase at the same rate as the increase in property value. 

Now some expenses will remain proportional to the rents (property management) and some remain proportional to the properties values (insurance, taxes). Cap ex will go up  some as nicer finishes are needed with more expensive properties, but won't keep pace proportionally, as many things have a ceiling on the cost (like roofs) and repairs certainly shouldn't keep pace ( replacing a toilet will have similar costs regardless of property value)

[Ian Barnes]

I think everyone forgot about one inspection called occupancy inspection.  If your house hasn't been lived in for more than 6 months and is considered abandoned, you must have an occupancy inspection by the city after you pulled your permits of course.