All Forum Posts by: Robert Smith

Hi all, 

I'm seeking some additional advice from those with financial & real estate knowledge regarding what to do with 2 properties I own due to my long-term goals.

My Long-Term Goal: Have no debt (including in my real estate portfolio), so that I can have more control and freedom when it comes to when and where I work. I also want to have at least 1-2 rental properties just to have some passive income in the real estate space. 

My Situation:
Currently, all my debt is paid off (i.e. credit cards, cars, etc.) except the 2 properties I own (1 primary residence (Property A), and the other is being rented (Property B)). When it comes to real estate investing, I have switched gears and have been leaning more toward the Dave Ramey approach of having my properties completely paid off due to my risk tolerance. 

Later this year I will soon be living in a non-US country and will be forced to look into remote work (to keep this post shorter, I won't get into details). 

The Properties

For my rental property, I've done most of the work thus far (rehab, repairs, tenant interviews, etc.) and have concerns about managing the property remotely since my contact list of reputable contractors is not complete (meaning I have a contact for any area of a home that may need to be repaired). I'm currently also looking into property management (PM) but have read those can be nightmares as well,  however, I'm actively starting to look just in case I need to go that route and there is a highly rated PM near my area. 

Once I move back to the US, I will likely never live in Property A again and have considered accelerating my long-term goal by selling Property A this year to completely pay off Property B (the rental). In short, Property A is larger and has a higher repair cost due to the high-quality materials than Property B, and in my opinion, Property A is not suitable to be a rental if you want to reduce the upkeep cost and turn around time for a new tenant.

Both properties are located in good locations (close to schools) and I have rented out Property A before but due to property damage from the tenants, and the high cost of materials and custom features of the home, we decided not to re-rent this property and make it our primary resident. Property B we have successfully rented several times (~5 different tenants) and the property is not as complex and has slightly lower quality (but reliable) materials used. 

My Question:
Keeping the information above in mind, what would you recommend I do? Should I hang on to both properties, sell both if I have little experience managing properties from another country, hire a property manager, sell property A to pay off property B but hang onto property B for passive income...etc.?

Thanks for taking the time to read this. I tried to edit it as much as possible to keep the initial post as short as possible. 

Properties Information:

Property A (primary residence) 
Loan Balance: $194k
Net Profit If Sold: $150k (from Zillow)
Built: 2002
Additional Info: Needs several small-medium costing repairs before I feel it is ready for a tenant again, and probably 1-2 large expenses that will occur within the next 3-5 years due to the age of the home and the last time they were replaced (i.e. roof, appliances, AC unit, etc.)

Property B (rental property) 
Monthly Gross Income: $1850
Monthly Net Income: $630
Loan Balance: $155k
Net Profit If Sold: $155k (from Zillow)
Built: 2002
Additional Info: Recently rehabbed and shouldn't have too many major capital expenses for the next 3-6 years.

Thanks everyone. I definitely agree regarding the fear/emotional aspect playing a huge factor in my decision and lack of experience when it comes to selling and what may cause a buyer to become non-interested in a property.

I know if I get the right tenant which so far I have been lucky enough to do, these concerns are no longer an issue. The garage is not a health or structural issue and I always point that out during open house viewings so there are no surprises, so I can deal with that being a manual process long term, but I do need to have the air quality checked in the unfinished basement so that if a potential tenant ever did bring up that point, I will already have inspection info present or know what avenues to take if a new inspection is required.

My situation:

Renovated a home purchased for about $166k back in 2018, and for the most part, it looks like a better home, but there were some issues discovered that I didn't notice during the inspection phase. Those large issues being the following:

1. The basement that is mostly underground is unfinished and the house sits on the side of a hill, so when it rains, the water builds up around a few areas and eventually over time will penetrate the concrete blocks in the basement causing mold to grow on the wall and make the Drylok start to peel in the areas that have the moisture issue. I've received 3 quotes to correct this problem, this will cost $11k-$15k to fix (they will basically drill small holes at the bottom of the basement to allow the built-up water behind the wall come into the basement, and then create a trench in the basement along the wall so the water goes to a sump pit, and then let the sump pump pump the water out of the basement to the backyard away from the house...)

1. The next large issue is my 2 door garage openers can only be operated manually due to previous owner damage, and after 4-5 quotes, due to some other complications with the garage area design, the manual operation seems the most practical now due to cost and other limitations if I attempted to try to get it fixed.

So my concern with the sump pump is, I do not think many people have those in my area, and if I were to sell the house in the future, it may be a potential reason some un-educated buyers may decide not to buy the home if they see one in the basement. I also have not had an air test performed, and not sure if any spores from the mold growth will cause health issues down the road for my tenants. I'm in the process of trying to get this done soon to eliminate that concern.

My issue with the garage is, most houses in my sub-dividson have fully functional garages, so I would like to use this property as a lesson's learned and take the projected $80k that I may make on this home if I do sell it and use that money to invest in another property that is in better condition when the market is better for buyers 1-2 years down the road.

I will also potentially be moving away (over 8 hours away) from this area in about 2 years, so another reason I'm looking to maybe sell since it can be hard to find great property managers.

Anyway, this is my first rental property, so I just wanted to pick the brains of others since I have a limited small view of things and maybe missing the big picture on why I should hang on to it.

Note, I have been lucky enough to have 2 different tenants rent this home out since I renovated it, but after moving out, they love the house but did mention dislikes about the garage doors and basements when we asked for things they would recommend for improvement.

Thanks!

@Nathan G.

10-4, and thanks for sharing your experience and wisdom.

@Nathan G.

Great points.

I suppose my thinking is similar to if I was running a company and understanding that if my employees are happier to be at work, chances are the majority will be more motivated to perform even better than expected thus helping the company succeed (I.e better health benefits, onsite food options, weekly employee recognition, free coffee, onsite free gym access during breaks/lunch, etc.).

I know none of these items are required and there is a chance some may try to take advantage, but I would think it should improve the overall employee morale.

So this may be the wrong approach to take with rentals, but just giving insight of where the idea was inspired from.

Thanks for sharing.

I know your lease agreement should list what happens if the tenant does not take of a property or damages something, but I'm curious what some of you have thought up to add an extra incentive to motivate tenants to take care of the property? 

Also, what are some additional things you check for on the front end to rule out possible tenants that may not care for a property or cause more issues? I'm aware of calling previous landlords if the tenant list them, and employers, etc., but just trying to see if anyone is applying a new/different approach that has proven successful?

I have a property that has 2 garage doors that need to be repaired and can only be opened manually by hand at the moment. One of the garage doors is no longer usable and we just leave it closed and have a pad lock on the door so the tenant does not try to use it.

After getting several garage companies to come review the system and give quotes, many have suggested that due to a support beam that was installed after the home was installed, a typical garage door opener will not work, and due to the layout of the garage doors, a jack shaft system will also not work.

The only solution left that one company gave was to reduce the opening of the garage door to 6' 6". My concern is that, by reducing the garage opening, that will reduce the amount of car types that can fit into the garage. In your opinion, is it worth repairing the garage, and how much would it decrease how much we could probably charge for rent by not having automatic garage doors?

Thanks

I know this is probably a question for a lawyer, but figured I'd try to start here to get some general feedback regarding this question. I'm curious if it is legal for a landlord in the state of TN to charge a tenant an additional months worth of rent as liquidation damages if they break the lease early? I've seen it mentioned in some lease agreements, but not sure if it's actually legal or will hold up in court. 

I cannot tell but they did use 4x4 posts and have them submerged underground so I would imagine there may be concrete poured around the pressure treated post underground. 

I think what some of the others mentioned is what I’ll probably end up doing and trying to repair it as it may take more work and energy trying to take it down and scraping the wood. 

I have a single family rental property that is 3 bedroom 2.5 bath that is in a neighborhood that attracts a lot of families with kids. There is a Wooden play set in the backyard that needs to be repaired, but I am trying to make sure it is worth investing money into (with the price of lumber, I estimate it may take $100-$200 to repair)?

I see it as an additional perk for the property, but just wanted to double check the opinions of others here.