Hello all and I am a newbie

[Joe Leming]

Hello all,

My mother passed away on new years day and left me her house in the Verde Valley. It a small home, 873 sq. feet and fell into disrepair. It sits on a 1/4 acre lot in a beautiful neighborhood and as a lifelong employee, I really want something else to do with my life, and we want to build a bigger house on the lot in about 5 years when I retire. Until then, I want to rent it as I currently live and work in Las Vegas. My mother also got a reverse mortgage for some repairs needed years ago and now the balance is around $100K. The house is worth around $270K. My plan is to get a mortgage to pay the reverse, invest about $7k to make it rentable and have tenants pay the mortgage for 5 years until I retire, sell my house in Vegas and turn it into a dream retirement house. My plan going forward is to get an LLC because we may want to buy other properties in the future, protect ourselves rom liability and take advantage of tax laws. Specifically for this house, find a long term tenant to rent it without rent increases for 3-5 years, basically just to hold onto the property for our future plans, and not really make any money off of it. Our feeling is that by freezing the rent for tenants who are willing to sign a multi-year lease, it will increase the odds of finding one or two tenants over the next 5 years. If I was looking to rent a house, I would want to stay there for awhile since moving sucks, and if the landlord locks in the rent at a set amount for signing a 3 or 5 year lease, that would make my life easier. Since I live in another state, of course I would get a home warranty company to handle the things that go wrong in the middle of the night. As I said in the title, I am new to this, and if there is anything any of you experienced people see as a potential problem/suggestion, or can refer me to a good home warranty company, I would appreciate it. Oh, I do have a childhood friend that lives in the area to show the house, and be there for maintenance or to make sure repairs are being made and check on the house to make sure it's not being trashed.

Thanks in advance or any thoughts.

[Noah Corwick]

Quote from @Nathan Gesner:

Quote from @Joe Leming:

There are a lot of holes in your plan. 

1. Multi-year tenants are liars. They will sign a 5-year lease and then leave after two years, or maybe after three months. Even if they do stick around, they are more likely to become a pain in your backside, develop a sense of ownership, etc. It's better to stick to a one-year lease with renewals if they decide to stay. This also gives you the flexibility to increase rates.

2. Why are you afraid to make a profit? Property requires maintenance, taxes increase, insurance increases, things wear out, etc. You need money on hand to take care of the property, so don't short yourself. Rent it for market rate.

3. Home warranties are a money maker for the home warranty company. Do some research and you'll see they aren't worth the money.

4. I recommend you hire a professional property manager. Your friend may not know what he's doing and it could cause a lot more problems. Give it to a professional with a legal and financial interest to see you succeed.

I echo what Nathan said. 

You definitely will need a Property Manager. Even with a Home Warranty company, the likelihood of anyone answering or doing anything in the middle of the night is extremely low. A PM will be the middle person for all of this and make your life so much easier. 

I also would not lock yourself into a tenant for longer than 1 year. What if you get a horrible tenant? You'd be stuck with them for a long time and might have trouble collecting rent. You always have to think about your exit plan.