Need Ideas about Primary

[Todd Lightfoot]

So my current primary home is in a nice neighborhood with homes that would rent from 2200 to 2400. We have only live in this home for just over a year and when we bought it we knew this would not be our forever home. We have been looking to get into the rental business and thought why not buy another primary and rent the current house. Our current mortgage is 1400 with taxes and insurance, so it would cash flow. Our goal was to just buy a rental since our mortgage broker said he could lend with only 15% down on a rental. So not sure which way to go with this.

[Jon Holdman]

You put tenants in there and they are going to break things.  Take a good look right before you sign that first lease because it will NEVER look that good again.  Further, just because a furnace or whatever is brand new doesn't mean it won't need servicing.  Even further, things WILL wear out down the road, so you need to be budgeting money for those future repairs right now.

Ahh the hopes and dreams of new landlords everywhere.   No, its not a lot cheaper here in the US.  You might have a really good year where your expense are limited to the taxes and insurance.  Or, you might have a horrible year where your expenses are greater than the rent.  I've had both.  And a chunk of that 50% rule of thumb is for a property manager and if you self manage you earn that portion.  But you WILL have ongoing expenses in addition to taxes and insurance that eat into the rent.   Be aware that you will need a new insurance policy when you rent it out, and that policy will be significantly more expensive than your current homeowners policy.

The "if" in this sentence is the wrong word.  The correct word is "when".  If you rent then and then decide to sell, you will have significant expense to get it back to a sellable state.  Every time you turn over the property you WILL have make ready expense to get it ready for the next tenant.  Most tenants don't "trash" a house and cause tens of thousands of dollars of damages.  That is a real possibility, though, and you must accept that if you want to be a landlord.  But things you think might last 10 years or more if it was your residence, flooring in particular, will last only a few years in a rental.  The IRS considers flooring a five year depreciation item.  Judges around here will disallow any deduction from security deposits for carpets over three years old.  So, you need to just plan on replacing flooring on a 3-5 year schedule unless you have a really great tenant who stays a long time.

If you go into the landlord business with realistic expectations and enough cash to cover a hiccup (i.e., six months rent in cash reserves) you will do OK.  If you go in with a highly optimistic view, like you write in the post I'm quoting, you'll be back here in a few years saying "help, my tenant is a month late on the rent, the place is a mess, the mortgage payment is past due and I don't have money for an eviction."