All Forum Posts by: Zeb B.

I would estimate the average monthly bill and then add a monthly flat fee to their lease to cover the appropriate portion of the utility bills. I have a duplex with a shared water meter. The lower (bigger unit) pays a water/sewer flat fee of $75/month. The upper (smaller) unit pays $40 per month. When I do the lease renewals I look at the water bills and adjust the flat fees as appropriate. 

The fees are essentially part of their rent so I could charge whatever I negotiate with the tenant. I keep the utility fees fairly related to the cost of the utility bills, but I don't bicker about it they are a bit lower or higher than the average utility bill for the year.

I like to show utilities as a separate line item on the lease, so I can advertise the unit as $900 rent and then tell them there is a $75/month water fee elsewhere in the ad and during the inquiry/showing/lease process. I feel like a $900 unit with a $75 flat fee for water will sometimes look better in an ad than a $975 unit with "free" water but that is just a judgement call on my part.

For water I think the flat fee method works ok, because there is really not that much incentive to use up a ton of "free" water unless they are irrigating the lawn a ton. I manage my irrigation systems, so when there is a high water bill it's usually because a toilet is running and I get it fixed ASAP. For something like the electric bill flat fees can be more problematic. Electric heating and cooling can really increase the bill depending on how the tenants act. Running the heat in the winter with windows open might happen if you pay the electric bill. For those cases it might be worth paying for separate meters. 

If you are on a month to month lease, you could adjust the rent accordingly if the electric use gets out of hand.

Depends on your goals and how much time you have.

I own single family rental homes in nice neighborhoods. Not the best cash flow, but good tenants and not too many headaches. I had one house paid off and I ran the numbers on a spreadsheet to see if I should keep it with no mortgage, keep it and do a cash out refi, or sell it and use the proceeds for down payments on multiple properties.

Selling and buying several properties with financing would have been the most profitable, but it would have also required more effort up front (selling then buying/leasing several properties).

Continuing to own the property with no mortgage would have allowed me to get great cash flow, but the return on investment was low. In this case the rent is about $2,000/month, and I could have walked away with about $400,000 if I sold. Cash flow when the house was paid off was around $1700/month. Return on investment in the next year would have been whatever % the house increased in value plus the amount cashflow in the year minus any expenses/reserves I would expect to need for future capital expenses ($1700*12-$5000 saved for future capital expenses) / $400,000 = 3.8%. So if the house prices appreciated 10% in the next year, my return on investment would have been 10%+3.8% = 13.8%. Not bad but that is assuming house prices go up 10%. If house prices go up 3%, my return on investment would only be 3% + 3.8% = 6.8%. 

I like to make fairly conservative estimates of home price appreciation. I look for rentals where I project about a 20% ROI if the house appreciates 3% per year. To get to 20% ROI it's helpful to have financed properties because it is easier to get 20% profit out of one house if you have a smaller amount invested. In the example above, I did a cash out refinance and pulled out $330,000. Since I could have sold the house and walked away with $400,000, I left $70,000 invested in the house when I refinanced it and took $330,000 in cash out.

Now my mortgage/taxes/insurance costs me $1900 per month, the rent is $2000 per month so my cashflow is $100 per month, and in reality my cashflow in negative if I factor in expenses including saving a few hundred dollars a month for future big expenses like the roof. On the other hand, I have $330,000 to do other things with. The return on investment for the $70,000 I still have invested in the house much is higher: 

Total ROI=ROI from rent-expense+ROI from house price changes

Return on investment from rent - expenses = ($24,000/year rent * 12 - $14000 mortgage interest - $3600 taxes/insurance - $5,000 cap ex) / $70,000 invested in the house = 2%

Plus the return on investment if the house appreciates 10% ($40,000 on a $400,000 house) = 40,000/70,000 = 57% for a total ROI of 59%

Or if we assume the house appreciates 3% ($12,000) -> $12,000 / $70,000 = 17% plus the 2% ROI from the rent = 19%

In my case, I have other income sources right now and don't need the cash flow. My goal is building wealth long term. For me, keeping the $400,000 tied up owning the house free and clear and making 6.8% ROI did not seem attractive. I could probably make more money on average investing in an index fund and I wouldn't have to manage a rental.

I decided to pull cash out of the house, so I could make a higher ROI on the $70,000 I left invested in the house. I took the $330,000 and invested it elsewhere.

If you need the cash flow now because you don't have as much other income coming in, you may decide to buy fewer properties with less financing. If you don't need the monthly income now, you would probably get a better long term ROI by buying more properties with financing.

I had PMI dropped off of a conventional mortgage on my primary residence in the past. Make sure to check with your lender about the specific rules and process that you will have to follow. Some types of mortgages (i.e. FHA loans) do not allow PMI to be removed. If removing PMI is allowed, the process is not always as simple as it should be. Lenders don't benefit from you cancelling the PMI so they don't make it easier than they have to. In my case I paid down the mortgage a bit ahead of schedule to get under 80% Loan to Value based on the original purchase price. The lender then made me pay a few hundred dollars to a realtor they selected for the realtor to provide an "opinion of value" that said the house had not decreased in value since I purchased it.

If you are hoping to use the equity you have gained from the house appreciating to cancel the PMI, I would guess the lender would require your loan to be seasoned for a while before they would even consider it. If they allow removing the PMI based on the new market value, the lender will also probably make you pay for an appraisal to establish the new value.

If you are eligible to have the PMI removed I would definitely pursue getting it removed, assuming you will recoup the cost of the appraisal with the savings from the monthly PMI payments you no longer need to make. PMI only protects the lender, there's no benefit to you.

I would not expect the process to change your property taxes. Your local government is already factoring in the appreciating value of your house when they put together your next tax bill.

Regardless of your loan type you could refinance to a new loan without PMI. Refinancing to cancel your PMI probably doesn't make sense right now given how much rates have increased over the last year and the other costs associated with refinancing.

@Don Konipol Any specific way you market to grad students?

That's a good point @Jon Martin Part of the motivation for furnishing the apartment was to prevent banging it up moving furniture in and out (it's not easy to get big furniture around the tight corners). 

I think I am going to steer clear of the student market and stay focused on short term rentals and month to month rentals to professionals/retirees/traveling scholars for now.

I think the renting to students would be pretty comparable to what I could earn over non-summer months as a short term rental. I might have to lower the rate a bit to attract non-student month to month renters. One advantage to student renters is that some would be happy for their lease to end in May, right when the short term market enters the busy season.

I just finished adding a 2 bedroom basement (Garden Level) apartment to my house. We are 2 blocks from a large college campus in a town that is also a popular vacation destination. We posted the unit on Airbnb and Vrbo for July and August and have booking have been pretty good so far.

I am debating whether to continue doing the short term rental strategy in the colder months, or to switch to renting the apartment by the month from September - May. The motivation would be to have less management to do during the parts of the year when STR bookings will probably slow down a bit.

Since we are close to campus I'm getting inquiries from college students. Renting to college students from September to May and then doing short term rentals in the summer would probably give my the best income from the apartment, but I have no experience in the student rental market. All of my other properties are single family houses rented long term to professionals.

Since this apartment is brand new, and I live in the upper two floors of the house, I'm worried about potential damage and noise.  

Anyone have tips or ideas? I should I hold out for non-student monthly tenants? Stick with the short term rental market through the winter? Ideas on how to find an above average student renter?

Thanks @Andrew Postell

It sounds like keeping my wife on the title makes the most sense in our situation, so that the income from the property will help her qualify for future loans.

I bought a Single Family Rental in November 2021 and I am happy with that purchase. Recent mortgage rate increases and continued lack of inventory make it unlikely I will buy again soon. I am now focusing on building an ADU on a property I already own.

If only one spouse will be a borrower on the mortgage for a property, is there any benefit from a financing perspective for both spouses to be listed as an owner on the title?

My spouse and I currently own 6 single family rental properties, a duplex and our primary residence which is will be 3 units when we are done remodeling it. We have conventional, 30 year fixed rate mortgages on all of our properties. 

Each of us owns 4 of the properties with the title solely in our own name (we have a umbrella insurance policy and have not set up any LLCs.) We do not have any mortgages in both of our names, each of us is the only borrower listed on the mortgage for the properties that we own.

We are currently doing a cash out refinance on one of our single family family rentals to fund our remodel. I know that there are benefits for conventional mortgages to be in only one person's name. That way the limit of 10 conventional mortgages will allow us to buy 20 properties between the two of us rather being limited to 10 if we take the mortgages out jointly.

If I take the mortgage on the property we are refinancing in my name only, would it be a good idea to keep my wife listed as an owner on the title? I am thinking that would allow my wife to use the income from that property to improve her debt to income ratio which will help her qualify for a mortgage on another property in the future. Any disadvantages to both of us being on the title?