General Landlording & Rental Properties
Market News & Data
General Info
Real Estate Strategies
Landlording & Rental Properties
Real Estate Professionals
Financial, Tax, & Legal
Real Estate Classifieds
Reviews & Feedback
Updated about 4 years ago, 08/31/2020
Dug Myself Into a Hole
Houston, TX. I decided to jump in and buy a house and now I feel like I have backed myself into a corner. I bought a single family house with a detached apartment for $250,000. I'm living in the apartment and renting the house. I am struggling to find tenants because they are uncomfortable with the landlord living on site. The mortgage with taxes and insurance are $2550 a month. I can get $2000 a month for rent. I would estimate my rent by myself would be $1000 a month. I've only owned the property for 6 months and the mortgage is killing me. I don't know if its worth it to keep or if I should sell and move on l. Would love to hear some opinions from the community!
Originally posted by @Account Closed:
Being my first post I didn't expect so many replies, thanks everyone I appreciate it a lot y'all are awesome! Most comments have been about the mortgage payment. I bought this before discovering BP but I wanted to dive in. I put 5% down and have a conventional 15 yr mortgage with a 3.375% rate at $1688 a month. TX property taxes are insane so my escrow is $847 a month. About $200 for insurance and $50 for HOA, rest is property tax. On top of that is $60 a month for PMI.
In this case I personally would reduce the rent price, get it rented, and use it to help pay off the property . I don’t think you necessarily did a bad thing with that mortgage, you probably just have the rent price a bit high.
Unfortunately most people renting single family homes want the whole property to themselves, so having you (or anyone else) live on site does bring down the rent value of the home. So reduce the price a little at a time, every week on Thursday, until you get a qualified renter.
I always prefer to do any price adjustments on a Thursday to get the property into the lists of weekend home shoppers.
@Kyle Fadness I’m originally from Houston, so I looked up your listing. You living in the garage apartment would be much more acceptable in the Heights or Midtown. I don’t think tenants are ready for this kind of arrangement in the Houston suburbs. I see you’ve priced it below comps, but you may have to discount it further as others have said. I found $1,600-$1,800/mth to be the right price in numerous Houston suburbs.
Not sure why the choice to do 15 yr but if you keep it I’d refi over 30 years to lower the payment
@Kyle Fadness First trick is to not tell people you are the owner. Second thing you can try is government housing voucher holders. If you have a good product, they should already be beating down your door.
@Account Closed I doubt that you the owner being on site is the one and only thing keeping tenants from renting. What are other opportunities for the property? What does rent look like for apartments in your area?
@Kyle Fadness a Property Manager may be a good bet, although eventually the tenant will find out. I think if you keep looking you'll find someone. If it bothers someone too much, they most likely are not the right tenant anyhow. I have had same situation but in a triple decker in Boston. Eventually we found a older couple who did not mind that we lives on-property. How are you marketing the house? It may be best to market both the House and the Apartment and see where it goes from there.
Originally posted by @Account Closed:
Houston, TX. I decided to jump in and buy a house and now I feel like I have backed myself into a corner. I bought a single family house with a detached apartment for $250,000. I'm living in the apartment and renting the house. I am struggling to find tenants because they are uncomfortable with the landlord living on site. The mortgage with taxes and insurance are $2550 a month. I can get $2000 a month for rent. I would estimate my rent by myself would be $1000 a month. I've only owned the property for 6 months and the mortgage is killing me. I don't know if its worth it to keep or if I should sell and move on l. Would love to hear some opinions from the community!
Kyle I want you to take a deep breath. Congratulations on buying a property. That was the easy part. You will forever be a problem solver aka real estate investor. The biggest thing I personally would do is double check what your monthly costs are after your tenants pay you 1600, 1800 or 2000. My first single family I was out 250 a month with one renter. I lived in the basement and eventually rented the entire thing out. I did it by renting a room at a time. I wouldn't hire a management company that's an added cost and if you are already tight on money that's not a smart move. House hacking is going to teach you a lot about being a landlord. It will also teach you about evaluating future deals and how fast rents can go up in your area. Also it will teach you how to fix things and understand people. Give it at least two years, you haven't even be able to see how your personal income taxes are going to be affected in a good way from this deal.
You might need to share your apartment with a long term renter or airbnb it for a short term renter. Again me personally I wouldn't have bought something with an HOA because that's money not going into my pocket. I also would have waited to put 20% down. The only time it makes sense to put less than 20% down is when the real estate market crashes. Because you can buy an owner occupied property with a low down payment loan. Then refiance out of it once the market comes back into a conventional loan. Your interest rate is great so done refinance your current mortgage. Live and learn.
@Kyle Fadness
Hello
You could use a property manager and tenants would just assume your renting as well. Or a onsite super. You could say your the property manager. It’s technically not fibbing.
Some times I’ll introduce myself to my tenants as the property manager. My wife’s the boss anyway.
Good luck
@Alecia Ashby
LLC would work. Don't do a Corp because you're losing the tax benefit of real estate if you own through a corporation (unless it's an S corporation)
Originally posted by @Bill B.:
they aren’t. But on a $250k property insurance should be max $600? ($50/mo) and property taxes very very max $2400 (More likely $1600?) just for round numbers ($200/mo)
So you’ve got $1200 plus $250 for Taxes and insurance is $1450/mo. Waaay short of $2500/mo. Someone’s stealing a thousand a month, more if he put any money down.
This is Texas where there is no income tax and they have to make it up somehow. The last house I owned in Texas was in Montgomery County, 45 minutes drive north of Houston. I had a 3000sf house, property tax was $9000 per year, HOA was $600 and home and car insurance was another killer. I was living in a good school district; that's where your troubles begin.
@Account Closed Tell them you're the caretaker and keep your distance - let them have the yard and privacy. I agree with others, get it rented, get some money coming in. Those Texas property taxes are another mortgage payment in themselves.
A refi to 30 year would be prudent as well, and if you can afford the 20% down, awesome things happen - lower interest rate, lower repayments and no PMI. Even if you have to borrow the $50K from elsewhere.
As others said your payment is bonkers and you can tell people you work for the "LLC" that owns the building so nobody knows you are the actual owner and change the county records too so your name isn't on there.
I've had a few properties in the area and it is possibly you can go the AirBNB route since you are close enough to check on things after because the big thing with that is you have to keep the house clean. We've had similar properties cash flow $4,000/mo and more but you never know for sure.
It's price. House hacking is a thing....it works, and the owner lives there. All those people that "need their privacy" would still turn it down at 500 per month? Really? There us a number that gets a renter in there this month, whether it works with your mortgage is the question.
Have you thought of moving out and renting apartment to someone else as well? Or have someone else show the house. The tenants don’t need to know that you are the landlord and that you are living there.
@Kyle Fadness
Could you give us the details of the financials? Taxes, rent per unit, loan terms.. etc? Does the property cash flow well if you had two tenants there and you rented for yourself elsewhere? did you try opening up your property to section 8? Have you done any value add to the house since you bought it? Do not give up. You haven’t failed this one yet. I am pretty new in real estate but I believe in it sooo much and I know that in most cases there is always an opportunity and a way to make it work. :)
@Kyle Fadness
I'm no expert, but according to every BP podcast I've listened to: Anytime you can't attract tenants, drop the price. It seems you've eaten 6mo of mortgage by yourself. You can always try to raise the price once the next tenant leaves. Even if you are a bleeding a little bit of cash every month by doing dropping the rent, it would still be less than a vacant property.
Also, as I have heard other people say already, don't say you are the landlord.
I don't believe the decision to sell is as simple as not getting the cashflow you initially suggested, so you should sell. Rents tend to go up over the long-term and so do prices (conditions apply). If you are in an area with favorable population growth then it is reasonable to assume appeciation of ~3% (2% for inflation + 1%) or more annually. It is also reasonable to assume that your rents will go up about 3% a year.
If you factor in principal paydown and that 3% reasonable appreciation in rent and property value would you still see a positive gain to your net worth over time? That is how I would look at it personally, but maybe I am just biased because I live in CA where it often is a requirement to take more factors than just cashflow into account when making investment decisions.
@Michael King
Thanks for the clarification. I made my comment without any assumption because I am well aware of TX outrageous property taxes.
It's cool you said you lived in Montgomery county, I currently live here as well, by the mention of your description it's most likely the same place, the Woodlands.
Either way, thanks for your input.
@Kyle Fadness maybe rent rooms out. These type renters would be more open to having other people around. Also u would be able to monitor your property.
Hi Kyle. First, it sounds like you can't afford a property manager. You need to handle this on your own. Also, of course you have to disclose to them you are the owner. They will figure it out soon enough and feel you are dishonest if you didn't tell them up front. I would strongly advise always having an honest relationship.
Now, on your current home, add in maybe $200/month--for maintenance--making your payment $2700.
Next, think about if you were to sell the current house and rent something you could afford, what would your pricepoint be (i.e. what would you be able to afford), and what would that look like--an apartment, a 2/1 house, etc.? Can you afford maybe $1000? Can you find something comparable right now on Zillow in your neighborhood for that pricepoint? Let's use $1000 as your target personal payment.
If you can make that $1000 payment--the hypothetical rent payment--towards your current home, you need to rent the current place for a minimum of $1700. Try listing it at $1700 and be sure to list it as an apartment/duplex etc so people are prepared for the duplex situation. When they come to view it and see how big it is and the yard, they will be pleasantly surprised and more likely to jump, especially at that pricepoint.
Not to beat a dead horse, I agree with most of the observations in this thread. My relationship with Tenants in a commercial office 21 unit property I owned became more and more difficult when the word spread that I was the owner of the LLC that owned the property. Further, tenants will challenge an owner with nit-picky things once the cat is out of the bag. Two things I learned as I added residential investment property to my business pursuits. 1) don't buy where there are HOA fees if at all possible. 2) Find your local real estate investor association (my central Florida REIA dues are $200 annually). There is alot of available resources, counsel, forms, meet-ups available. Well worth the time and dollar investments. I will never self manage again no matter the size of the property - just budget a PM.
@Kyle Fadness maybe find a renter for your house and move into an apartment?
Well, since you already own the house, have the 15 year mortgage with a high payment, and have a vacancy, some of this advice isn't realistic. I'd say your top priority is the obvious one, get it rented!
Drop the price, as pretty much everyone has said. Anything will rent or sell at the right price point. In the long run, you're far better off renting for under market than having a long term vacancy. But this is a lesson you are learning the hard way, so just process it and plan accordingly.
Now, logistically, something is wrong. No well priced rental would be vacant for that long. So, first, get your new ads going with the lower price. When you talk to people, be professional. Don't sound too desperate, as that vibe will leak through and might scare people off since you're next door. I suspect that this may have occurred already. No body wants to live next to a weird landlord. I'm not saying you're weird, but a management company is arms length, you are not, and you're right next door. That might be off putting. If you can't shake the vibe, then a PM will save you money in the long run. Also a Realtor might list it for a flat, one time placement fee, no costs if they don't get the tenant.
Assess or reassess these things: Are you marketing online? Do you have good photos? Is your place cleaned up and desirable to live in? No bad smells or deferred maintenance. It should show beautifully, with all repairs done, and be spotless inside and out. Tenants are also put off when you've got a list of excuses-- "I meant to fix those screens" or " That grease spot doesn't come out."
Originally posted by @Herly C.:
@Michael King
Thanks for the clarification. I made my comment without any assumption because I am well aware of TX outrageous property taxes.
It's cool you said you lived in Montgomery county, I currently live here as well, by the mention of your description it's most likely the same place, the Woodlands.
Either way, thanks for your input.
No worries Herly. I was in Crown Oaks and familiar with The Woodlands, which is all a nicer part of Houston. I was directing my comment more on others who appeared baffled by the odd numbers. Unfortunately, as we both know, those taxes are exorbitant. I actually left Houston for 2 reasons - first we had just completed a 1000sf extension on our home and while I knew the property taxes would go up (from a manageable $5K), I wasn't prepared for $9K. I had just lost my high dollar job at the time, and knew it was time to leave that beautiful home as I could no longer afford it.
And secondly I got a job offer in St. Louis where I could spend more time with my family. So, buh bye Houston.
Have a great day mate.
@Kyle Fadness is it possible to market the property to those looking to rent a house AND a smaller unit (ie someone with a parent who wants privacy) or perhaps rent out bedrooms in the main house thus nullifying the garage apartment issue?