Diary of a Rental Property

Diary of a Rental Property

J ScottPro Member
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Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes

I had a blast writing my Diary of a New Construction Project thread, and the feedback I got from that was great. So, I've decided to try another one...this time tracking and discussing the ongoing saga of a rental property that I'm in the process of buying, rehabbing and renting out.

A few details about this project and thread:

  • I'm not a professional landlord, and while I've had a couple rental properties in the past, they were all short-term and relatively turn-key (I didn't have to do much for the short time I owned them). This time, I'm looking to hold some properties longer-term, and the one I will be discussing in this thread will be my first longer-term property.
  • Because I expect this to be a longer-term hold, I expect this thread could continue for a quite a while. Obviously, I won't have stuff to post everyday (especially once the house is rehabbed and in service), but I'll try to follow-through for as long as possible, and hopefully until the end of the project, whenever that is.
  • I really have no idea what I'm doing when it comes to holding long-term rentals, so I'm guessing this thread will be more of a "what not to do" thread, as opposed to a "what to do" thread. That said, I'm open to all constructive critique, and hopefully advice, opinions and feedback I get in this thread will actually help me to be more successful.
  • I will, of course, post as much detail about the project as feasible, without risking giving away anything inappropriate about tenants, etc. I'll try to provide all documents, invoices, pictures, budgets, schedules and financials down-to-the-penny, so everyone will know just how well (or how badly) this project goes. Maybe we'll even get some insight into the "50% Rule" while tracking a real life project.
  • I have a partner on this project. It's a good friend of mine, and I'll likely be referring to him throughout the thread. Let's call him "Brian"...which makes sense, since that's his name.
  • This "diary" is going to start in the past, when I first found the house. I've been keeping notes in anticipation of starting this thread, and I imagine I'll be caught up to real-time in the next couple weeks. But, you'll notice that the dates on the first several posts will be in the past, and that's why.

Please feel free to ask any questions, provide any advice or give any opinions throughout the thread. I may not listen to all of them, but I always appreciate the feedback.

Now, on to the thread...

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Brandon TurnerPro Member
Investor · Maui, HI · Member since 2009 · 13k+ posts · 3k+ votes
12y

Looking forward to following along J! Now you are playing in my world! :)

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  • Real Estate Broker · Johns Creek, GA · Member since 2009 · 870 posts · 664 votes
    12y
    J Scott,

    Great thread! Looking forward to reading your posts.

    J, looking back do you have any regrets not holding many of your flips in Atlanta as a longer term buy and hold rental?

    How much more profitable would they have been for you if you still kept them today rather than flipping them?
  • Real Estate Broker · Johns Creek, GA · Member since 2009 · 870 posts · 664 votes
    12y

    J,

    I just contracted on my last new construction purchase and locked in my 30 year rate at 4.5% investor loan today for 60 days. Cash-on-cash return is right about 12% in an "A" school district neighborhood. In my area, it seems like builders are raising prices every week.

    After this purchase, I have no choice to either rehab and rent or find an empty lot in a desirable older subdivision and build a small 2200 SFR 4 bed / 2.5 bath and then rent it out. Looking to just pick up two more to add to my portfolio this year.

  • J ScottPro Member
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    Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes
    12y
    Originally posted by @Rob K.:
    The property taxes sound pretty low. Does Maryland have any type of homestead tax where it will go up now that it's not owner occupied, or will they stay that low?

    Hey Rob,

    Here is a breakdown of the property taxes for this property (you'll notice no homestead included). I'm actually hoping I can get the assessment (which is currently $83,800) lowered to closer to what I paid, so perhaps I can get this down even less.

  • J ScottPro Member
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    Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes
    12y
    Originally posted by @Rob K.:

    Do the other townhouses around there only have a bathroom on the second floor? In my area, they almost always have a half bath on the main floor. I'm surprised they built it that way in the 1970's.

    The units are all identical (about 240 units in the complex), the only difference being that some have finished basements The ones without finished basements are all 3/1 (no 1/2 bath on main floor); the ones with finished basements tend to have a full bath down there.

    Not sure if all were built without basements, and owners have updated over the years or if some came with finished basements. I'm a little surprised myself that there is no 1/2 bath standard on the main level.

  • J ScottPro Member
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    Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes
    12y
    Originally posted by @James Park:

    J, looking back do you have any regrets not holding many of your flips in Atlanta as a longer term buy and hold rental?

    How much more profitable would they have been for you if you still kept them today rather than flipping them?

    Regrets? Nope...I always try to make the best decisions I can at the time...even when in retrospect there could have been better decisions. So, I tend never to have regrets.

    That said, I'd have a lot more money if I would have held every single property I ever purchased. :-)

    I never expected that real estate in Cobb County (where I did most of my investing) would have jumped 30-50% in one year. If I had held everything through mid-2013 and sold everything last summer, I probably would have made an extra 50% on average for every deal I did.

    But, we did pretty well between 2008 and 2013, so I'm certainly not complaining...

  • Handyman · Philadelphia, PA · Member since 2013 · 23 posts · 3 votes
    12y

    hey@J Scott

    thanks for taking the time to do this. Its really helpful info especially for new investor like me. Also where can i find an analysis spreadsheet like yours?

  • J ScottPro Member
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    Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes
    12y
    Originally posted by @Raymond Martinez:
    hey@J Scott

    thanks for taking the time to do this. Its really helpful info especially for new investor like me. Also where can i find an analysis spreadsheet like yours?

    I posted a similar spreadsheet in the Fileplace a couple years ago...it should be there...

  • Real Estate Agent · Cranford, NJ · Member since 2011 · 149 posts · 54 votes
    12y

    Sweet! Best of luck @J Scott ! Welcome to the LL world. I'm in a similar position now with a home I hope to close on this week and may share the journey as well, except as an owner occupant! Should be fun.

  • Investor · DMV Maryland · Member since 2013 · 867 posts · 370 votes
    12y

    @J Scott

    J - what's your timeline you'd like to stick to do get the fixup done and are you finding construction costs to be comparable or higher than Atlanta (I can't image that around here they may actually be lower . . .)

    I'm not positive but I believe in MD that water must be in the LL name and then billed as part of rent. Please correct me if I'm wrong. Baltimore City can have ridiculously high water bills from what I've seen/read/heard . . not sure about the county . . .

  • J ScottPro Member
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    Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes
    12y
    Originally posted by @Christina R.:

    J - what's your timeline you'd like to stick to do get the fixup done and are you finding construction costs to be comparable or higher than Atlanta (I can't image that around here they may actually be lower . . .)

    I'm not positive but I believe in MD that water must be in the LL name and then billed as part of rent. Please correct me if I'm wrong. Baltimore City can have ridiculously high water bills from what I've seen/read/heard . . not sure about the county . . .

    Hey Christina -

    We're meeting contractors at the property tomorrow to start getting bids...we haven't yet gotten any prices, but I'm hoping we can find rental-grade contractors for similar to what we found in Atlanta (perhaps a bit more).

    As for water in the LL name, that's on my list of things to investigate, as I know that's the case in Baltimore City. I thought it was different in the county, but I could most certainly be wrong about that.

  • Nicole A.Pro Member
    Rental Property Investor · Baltimore County Maryland and Tampa Florida · Member since 2013 · 2k+ posts · 2k+ votes
    12y

    I have properties in the county and the water bills are indeed low. For example, my duplex is two 2-bedroom units and typically every quarter my bill is around $25. I have another almost identical duplex and its water bill too is around $25 per quarter. When I look up random water bills for properties in the City, they're usually in the hundreds...and I'm not sure why.

    Also, I just learned/realized that Gov. O'Malley's wife is a judge for Baltimore CITY....for rent court....I've heard a story or two about her stance on who she takes up for... Yikes...

  • Nicole A.Pro Member
    Rental Property Investor · Baltimore County Maryland and Tampa Florida · Member since 2013 · 2k+ posts · 2k+ votes
    12y

    I should add, though, because I just thought of this....the water-related fees in my yearly property taxes. I just looked them up on my two County properties:

    Property #1

    Sewer Service $398.75

    Storm Water Remediation Fee $21.00

    Water Distribution $98.11

    -----------------------------------------

    Property #2

    Sewer Service $505.34

    Storm Water Remediation Fee $21.00

    Water Distribution $98.11


    I looked up the tax bill of a random property in the City and did not see a break down like this. It simply said "state tax" and "city tax"...so I'm unsure.

    Even with this, I still feel like it's significantly cheaper in the County.

  • Investor · Vienna, VA · Member since 2011 · 158 posts · 45 votes
    12y

    I have a rental property in Maryland (Anne Arundel County), and your property can definitely be leined (sp?) if your tenant doesn't pay their water bill. Also, in my experience they will never cut the water off even if a tenant hasn't paid the bill for months. Fortunately, they do notify you if the bill is months overdue. However at that point it could be in the hundreds. Also, be careful about Section 8. Did it once and would never do it again. Our one section 8 tenant left us with a $1000 water bill (and the damage from the water leak they never told us about). ONce they have left and destroyed your property, you will never collect damages because they don't have any money. That $10,000 lesson did a number on the bottom line....

  • J ScottPro Member
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    Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes
    12y
    Originally posted by @Nicole A.:
    I should add, though, because I just thought of this....the water-related fees in my yearly property taxes. I just looked them up on my two County properties:

    Property #1

    Sewer Service $398.75

    Storm Water Remediation Fee $21.00

    Water Distribution $98.11

    -----------------------------------------

    Property #2

    Sewer Service $505.34

    Storm Water Remediation Fee $21.00

    Water Distribution $98.11

    Hey Nicole,

    Yup, notice the property tax listing I posted above in response to Rob's question...that stuff is all in there. Very weird...

  • J ScottPro Member
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    Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes
    12y
    Originally posted by @Tamara R.:
    Also, be careful about Section 8. Did it once and would never do it again. Our one section 8 tenant left us with a $1000 water bill (and the damage from the water leak they never told us about). ONce they have left and destroyed your property, you will never collect damages because they don't have any money. That $10,000 lesson did a number on the bottom line....

    Hey Tamara,

    Section 8 is definitely a double edged sword. I've been talking to a bunch of Section 8 landlords in this area over the past couple weeks and they've provided some good tips for mitigating any major issues...but still it's a concern!

  • Roy N.Pro Member
    Rental Property Investor · Fredericton, New Brunswick · Member since 2013 · 7k+ posts · 4k+ votes
    12y
    Originally posted by @Tamara R.:
    ....
    Also, be careful about Section 8. Did it once and would never do it again. Our one section 8 tenant left us with a $1000 water bill (and the damage from the water leak they never told us about). ONce they have left and destroyed your property, you will never collect damages because they don't have any money. That $10,000 lesson did a number on the bottom line....

    Tamara:

    You sure you weren't renting to students ;-)

    It's not just Section 8 (here: Social Housing) that can neglect your property, the ignorance and self-interest of youth can also be a challenge ... as can pets.

    We have found that how you set the tone and ground rules during the application process and signing of the lease and how routinely you visit the properties (we reserve the right for quarterly visits) makes the difference between having the odd small problem or major issues.

  • Investor · Southeast, MI · Member since 2012 · 2k+ posts · 1k+ votes
    12y
    Originally posted by @J Scott:
    Originally posted by @Rob K:
    The property taxes sound pretty low. Does Maryland have any type of homestead tax where it will go up now that it's not owner occupied, or will they stay that low?

    Hey Rob,

    Here is a breakdown of the property taxes for this property (you'll notice no homestead included). I'm actually hoping I can get the assessment (which is currently $83,800) lowered to closer to what I paid, so perhaps I can get this down even less.

    How are schools paid for, from the county tax portion? That bill is a lot lighter than around here. We have charges for the zoo, art institute, public buses, etc. It's ridiculous.

    Congrats on the new venture. I think you'll like getting perpetual checks instead of being on the treadmill every month. Hold and grow old!

  • J ScottPro Member
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    Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes
    12y
    Originally posted by @Rob K.:

    How are schools paid for, from the county tax portion? That bill is a lot lighter than around here. We have charges for the zoo, art institute, public buses, etc. It's ridiculous.

    Congrats on the new venture. I think you'll like getting perpetual checks instead of being on the treadmill every month. Hold and grow old!

    The checks will be great...the phone calls won't be... :-)

    And yes, we'll eventually farm out to a PM company, but I'm a little too much of a control freak to start out that way... :-)

    As for school taxes, I presume they come from the county portion, though I don't know for certain.

  • J ScottPro Member
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    Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes
    12y

    REHAB ESTIMATE

    In my last post, I laid out the various scenarios for renovation and rental rates. As of right now, I'm leaning towards Scenario #2, which would be a cosmetic renovation plus adding a half bath on the main floor (where the kitchen pantry current is). This would make the house a 3/1.5 and I believe we could probably rent to a retail tenant for about $1150 and to a Section 8 tenant for about $1275.

    Here is the rehab estimate for the renovation in that scenario (CLICK ONCE OR TWICE TO ENLARGE):

    Once we close on the property, we'll get contractors in and start getting bids -- given that this will be our first rehab in Maryland, I have absolutely no idea if my estimates are close or not...

  • Real Estate Investor · Atlanta, GA · Member since 2013 · 18 posts · 6 votes
    12y

    My wife and I are starting out here in Atlanta, mostly flips, but will eventually be looking into long term investments.

    From what I recall reading, @J Scott you started out here in Atlanta and I was wondering if those rehab estimates are from your experience here in Atlanta. We've got a really great friend of ours who is a contractor but aren't sure what his going rates are yet... it would be nice to know ahead of time what to generally expect in our local area.

    Thanks for the excellent post as always, we'll be following throughout!

  • J ScottPro Member
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    Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes
    12y
    Originally posted by @Bryce Robbins:

    From what I recall reading, @J Scott you started out here in Atlanta and I was wondering if those rehab estimates are from your experience here in Atlanta. We've got a really great friend of ours who is a contractor but aren't sure what his going rates are yet... it would be nice to know ahead of time what to generally expect in our local area.

    Hey Bryce,

    Yes and no. Those rates are about what I'd pay in Atlanta, but they're what I'd expect to pay for flip quality repairs, not rental quality. For example, the $1500 for painting would get me a 3-color paint scheme in Atlanta (ceiling, walls, trim)...for this house, I'm expecting a 2-color paint scheme (ceiling/walls and trim).

    I'm guessing that labor prices here are about 20% more than Atlanta, but I haven't verified that yet.

  • Roy N.Pro Member
    Rental Property Investor · Fredericton, New Brunswick · Member since 2013 · 7k+ posts · 4k+ votes
    12y

    Rule of thumb #36:

    As you move north, so does the cost of labour and services.

    Holds for both North America and Europe ;-)

  • J ScottPro Member
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    Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes
    12y
    Originally posted by @Roy N.:

    Rule of thumb #36:

    As you move north, so does the cost of labour and services.

    Holds for both North America and Europe ;-)

    I make this point often, and it's so true...

    It's also true with material costs, for the most part. Most international freight comes in through southern (and oftentimes eastern) ports, and the interstate shipping costs tend to increase as you go north and west.

  • J ScottPro Member
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    Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes
    12y

    JANUARY 22, 2014: CLOSING

    We closed on the property this afternoon...here is the settlement statement from the closing (CLICK TO ENLARGE):

    Btw, it appears the wholesaler made $3000 on the deal (very happy for her!)...

  • Baltimore, MD · Member since 2013 · 34 posts · 6 votes
    12y

    Hello J,

    Congratulations on your deal.. Maryland has a lot of deals like this one.. I sent you some info from zillow that you might be interested in..You will not have a problem renting here. A lot of the apartments here are full and have people on a waiting list. People are renting rooms and it's a hit here in the city..So much opportunity here!!

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