Being a Landlord

If you missed our post on our diversified real estate holdings (sounds so grown up to call them that, huh?), here’s a quick catch up on our little rental duplex.

20120805-163231.jpgWe bought our duplex in 2010 for $50K and immediately put about $8K and 6 months of weekend sweat equity into it to bring it up to rentable standards. (We’re not trying to be slumlords, here.) The duplex has two units, each of which are ~900 sqft 2 bed/2 bath units with full kitchens and laundry facilities. It’s located about 15 minutes from the local university, and about 25 minutes from our house, sitting in a nice-ish rental heavy area of town.

We don’t have a property manager for our rental units. We do most of the repairs and maintenance and property management on our property ourselves, and occasionally find ourselves helping out with the property management on the duplex that Mr. PoP’s parents also own in the same neighborhood. So, since we’re “active” investors in this “passive income stream” – what do we actually do?

 

How we make good money by being good landlords: (click to tweet)

1. Get Good Renters. Easier said than done. Our ideal renters are quiet-ish college students who have mommy and daddy still willing to cosign since their credit history is short. So how do we find them?

  • Craigslist is practically useless around here, no offense to those that use Craigslist to search for places (we’ve both done that before buying our house). Overwhelmingly Craigslist-ers are trying to move in without paying a security deposit, or stand us up for appointments to check it out. But we still post on their to make sure we’re getting good (free) advertising coverage; it just takes a bit more work to find the diamonds in the rough of Craigslist callers.
  • Advertising with flyers on the college campus actually works – we paper all the departments and dorms with bright orange flyers, making sure we get places like the honors college and laundry facilities. There’s nothing that makes a student want to move off campus more than the ability for them to do their laundry in their home and not drag it to a laundromat.
  • Referrals are amazing. Whenever we have a unit available, we offer between 1/3 and 1/2 of a month’s rent to all of our current renters as a referral bonus when a 1-year lease is signed. Our most recent referral offer was for $250, and that’s good money to the college kids around here, so you can bet they told all their friends they knew a place was available.

2. Hold Their Hands A Little When They Move In. Because of how we like our renters (young with mommy or daddy to back them) sometimes it’s the first time any of them have to do things like set up utilities, start paying bills, and write checks.

  • Almost half of our renters make mistakes when filling out some of their first checks. They write the amount on the wrong line, leave our names off the check, forget to sign it. You name it, we’ve seen it by now. But, we show them the error, and get another check from them. We don’t charge them a fee the frst time; they’re still learning this stuff.
  • Have a good relationship with your renters. Mr. Pop does the handy-man work, the lawn work, and is always available on moving-day. For college kids, signing a lease can be a big deal, and a little scary, so we’ve found its a good idea to have a strong relationship with our tenants, and make sure they know we appreciate them keeping our rental units clean and un-damaged. Its easier to pay late rent to a faceless corporation than it is to stiff your friend who happens to also be your landlord.

3. Be On Site And Available.

  • Mr PoP is generally at the property about once a week, taking care of the lawn, so the renters know he is always available if something goes wrong. We’d much rather hear about a leaking faucet when it starts than find lots of water damage when they move out.
  • When we’re out of town, we give the renters phone numbers of other people to call if they can’t reach us and something needs to be addressed immediately.

4. Have A Sizeable Cash Cushion

  • You don’t have the option to postpone repairs. With renters, you have a contractual obligation to provide upkeep on the unit so that it remains in the condition they rented it in. If the washing machine or the AC dies, as we had both happen in a single month this year, you absolutely have a contractual obligation to get them working again ASAP. And doing so means having enough money on hand that you don’t have to mess around and can just get the job done.

So yeah, being a landlord the way we do it isn’t a walk in the park. We could hire a property manager, but for starters, they would take a cut off the top, and we’re willing to work a bit for the money. (We think of this as our “side hustle” of sorts. More importantly, though, a property manager has very little skin in the game. They’re not going to go the extra mile to make sure you have renters who will treat the place with care and always pay on time. They’re also not inclined to get you the best prices if they ever need to outsource repairs on your behalf. If something breaks, they’re more likely to hire their buddy who gives them a referral fee than they are a highly respected and recommended contractor. Why pay extra for that kind of service?

 

Have you ever been a landlord? What’s your experience been like? If you were a renter, what were some of the things you did or didn’t like about your landlord or apartment upkeep?

 

 

45 comments to Being a Landlord

  • Thanks for the tips! We are in the process of buying our first house (inspection tonight) and in the basement there is a studio apartment setup (with their own walkout so the space is seperated). We will be home owners and landlords in just a few short months, so I like posts that discuss renters and rental property.

    How did you get a property for only $50k? I know there is some out there, but only requiring $6k of work? Sounds like you got a great deal!

    • We’ll write more about how we got our duplex for $50K in future posts, but part of it is that our county was considered to be one of the epicenters of the housing bubble bursting. (In 2009, NYT was running articles profiling our county and the housing crash almost weekly.) That $50K duplex sold for ~$250K about 5 years earlier, and had some renovations done to update one of the units.

      The other part is that we have been able to spread out some capital expenses that others might have done all when they first bought it. It was $8K in raw materials, plus a LOT of manual labor on our part just to get it rented. But since then it’s been about $5K more in expenses (most of that is the one AC unit), and we expect in the next 3-5 years to have another $10K in capital expenses (the other AC unit will die, too – plus the roof will need to be replaced). But we were able to spread those capital expenses out over time, to cushion the initial blow.

  • We also have two rental homes and I totally agree with your post. It’s definitely a good idea to have a good relationship with them. Most of the people we have rented to have been great- with only a few bad apples. Overall, it’s been a good experience.

  • Good article! How much do you think is a reasonable price for a property manager? I’ve heard anywhere from 8% to 15%.

    • John – I think it depends a lot on the area. My sister paid around 12% to a property manager to rent a single family home in Phoenix. The thing is, the unit would sit vacant for 5 months or more between renters as the property manager wasn’t all that motivated. I think the problem with property managers is less the cost and more how bad they can be. They can make all sorts of mistakes that you are on the hook for.

  • CF

    We have a rental condo in East Vancouver which we rent out to a working/student couple. So far so good! I am incredibly jealous of your $50k duplex though. We paid $250k for our condo…

  • H

    YES! I am jealous of your $50K duplex, too! That’s amazing! And sounds like it’s also in a great location. I would love to own a rental in a college town but around here, it will be around $250-$300K. Love this post by the way. We’re in the process of buying a short sale home for my home biz but the next house we buy (hopefully in 2-3 yrs) will be a rental.

  • You bought a duplex for $50K? I want to move where you are! Those are some great tips, which I’ll definitely keep in mind when I eventually become a landlord in the future :)

  • Honestly, I don’t ever think I want to be a LL! So much stress, so much risk, and as a renter in Auckland, I hate EVERYTHING about the clusterf*** that is the rental market here.

    • haha, I think the rental markets depend so much from market to market. The one here is pretty friendly to small-time renters like us who might have just a few units, so it works out pretty well. Sorry you’re in the middle of such a cluster =)

  • My bf’s family owns a rental house downtown. His grandmother bought it after several years after she moved to Canada. The whole family has lived in it at one point or another and they have the rented the main floor and upstairs. So the house is essentially being paid for. They are currently in the process of doing some renos to update it and make it more liveable for students. That already seems like a headache enough, let alone being a landlord.

    One of my landlords from when I was a student lived about a hour away, so whenever something was wrong with the house, it took forever for him to fix it. Having your landlord on-site and available is a big bonus and so much more convenient!

    • That stinks that your landlord was an hour away. And he didn’t have anyone nearby to cover if it was an urgent issue? That’s pretty much what we do for Mr PoP’s parents. They still live up north for most of the year, so if there’s an issue with their property when they’re up there, their tenants can call us to work it out quicker.

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  • That is a great tip about posting flyer at the laundromat. We don’t have a college here, but who wouldn’t rather live somewhere with a washer/dryer? We are going to go the property manager route with our first property. We live in a really small town, so I think I know the one we’ll be using well enought to know they will do a good job. When I’m able to work part time, things might change, but we just have no time right now. It’s nice to see someone have good things to say about being a landlord. I’ve heard all kinds of horror stories when we tell people what we are doing.

    • Yeah – the flyers are old school but work! Especially when we make the bright orange and have the precut tabs to rip off with our phone number.

      I’ll be curious to hear how you like your property manager and how much they charge… here I have heard a mix of awful and expensive and wonderful and reasonable.

  • Swimmy44

    Thought you might want to know our experience. We bought our first home, a nice 4 y/o house 25 years ago in Western MA with an eye to renting out half of it. It was a duplex and we moved into one side – the apartments were close to mirror immage. Being near several colleges, we never had trouble finding tenants – at the time, never students and never lawyers (too litigious). Our key questions for every applicant (besides Do you have a job?) were: Do you smoke tobacco? Do you own a vacuum cleaner? the appropriate answers were No and Yes – that eliminated almost all people you might not want living next door to you in a side by side duplex! We had few problems and low turnover, about every three years when most folks looked elsewhere to purchase their own home. Not everyone was ideal but no one was outrageously bad. Our worst problem was a couple who had a baby who grew into a toddler. They thought that “No” was a dirty word and lived by this. When they left, they left their security deposit behind as well as MANY indelible magic marker stains on our wooden beams (post and beam home) plus grape juice stains all over the carpet – not to mention other stuff done by the toddler run wild. They built a home down the road and split up before they completed their move out and in! From this experience, we decided NO MORE KIDS (sad but necessary) and renovated the 2 BR duplex into a 1 BR apartment on one floor. It was a beautiful rental, large LR/kitchen, large private deck, ample parking, private washer/dryer and miles of acreage and wooded trails to hike or run or cross country ski. The reno cost $34K and out of that we got no more kids next door plus the whole second floor (and an extra bathroom) for ourselves – YEAH!!!! When we moved out 4 years ago, I figured we earned $168K rent from that place minus the renovation cost over 22 years. The reno cost more due to putting in a new bathroom, renovating the bathroom we accessed plus we adding hardwood floors to our “new” second floor additon. We also added an oil furnace – we were heating the previous ten years with twin wood furnaces – challenging but it was time for a change. We also lost six months rent during work (a one man show by a carpenter who took it on as his winter job) but after the mess, we were happy for the break. Our next two tenants remained for 1 year, then 8 years. Fast forward to a surprise move cross country to the San Francisco Bay area – we are doing the same thing here – living in a large single family home into which we transformed the finished basement into a small rental unit – which of course rents for much more than the place in the woods due to this being a high cost of living area. Life is good, we are solvent, we paid off our first home and flipped it for the one in which we now live. Privacy ain’t all it’s cracked up to be – being solvent adds value to our lifestyle. We are not rich, we work as civil servants – but anyone can stay out of debt and live right if they are willing to change their American dream a tad.

    • Thanks for sharing your landlording experience! We looked at houses with rental units attached when we were buying the house we live in now, but were outbid on them and ended up living in a single family home (which we love, so no real harm there). But we still wanted a rental unit, went out and got one of those when we could get the money together.
      I’m so glad you had such a great landlording experience – and glad that it helps with extra income since I know civil servant income isn’t always sky-high.
      $168K over 22 years is definitely not chump change. Those renters probably paid for a good chunk of your house!

  • Awesome post. I’m going to be trying to get a duplex as a rental property this spring. I’m definitely going to keep this bookmarked for when that time comes! Do you have any tips on how you actually screen for good tenants.

    • Thanks! Good luck with your search for a rental property. Keep an eye out now – ours took about 9 months to finally buy!

      As for screening tenants, Mr. PoP does most of that. He’s pretty picky and meets each of them himself, and requires meeting all of the occupants, not just one. We have a pretty basic screening questionnaire and if they want to opt out of the credit check, they need to have a parent co-sign (since we get mostly college students). The only other thing that is unusual, but kindof a “duh” is that we actually call their jobs and references. So many times people request references but never call, but we actually do. So far that’s never hurt a prospective tenant as Mr. PoP’s got pretty good instincts; it mostly served to reinforce that these were good responsible, hardworking kids.

  • swimmy44

    We always ask “Do you own a vacuum cleaner?” and “Do you smoke tobacco?” when we interview tenants – we have found that a Yes and No answer to these two questions (in that order!) eliminates most people we would not want in our apartment. And yes, we have them fill out a standard questionaire, no lease required, just a 30 day escape clause. We have had more problems with leases and our area is loaded with renters looking for reasonable rentals with reliable landlords. Since we fixed up the apartment, we have had no problem keeping the place rented.

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  • I’ve got a question. Do college students make good tenants? I’ve heard horrible stories of seemingly nice college students who end up destroying properties. By the way I got a rental whom I rented to an athlete. NEVER rent to an ATHLETE. They think they rule the world and if you say anything against them they will threaten litigation.
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    • swimmy44

      It depends – not sure about athletes but college students in ones and twos should be fine – I wouldn’t rent to them if I were not nearby and monitoring the place – you never know how people will behave – I never wanted to rent to young people but I did, and they were extremely responsible. It involved quite a bit of guidance and teaching at times but nice kids are fun to educate and supervise – I rented to a 19 y/o girl and her boyfriend who was 24 – she was 19 going on 35 and he was 24 going on 15 but she kept him in line until they broke up and both left. If the students are getting $$ from parents, you would need to speak to the parents about how reliable is the income stream. If they are working, get job references. No lease needed, just a 30 day escape clause for both sides.

      • Totally agree, we speak with the parents, the job, and even previous landlords or RAs if they lived in the dorm.

        Swimmy – You don’t do a lease? Just month-to-month from the start?

    • I think students can be as good of tenants as any other people. Our current tenants are all college students, and they keep the place immaculate, and have even asked permission before putting a tack in the wall to hang a calendar. Not saying every college student is the same, but you screen them the way you would for anyone else. So far, we like college students the best for the price range we rent to. Might not be the same if we were renting a place for $3K/month and they tried to stack 6 people in it to make it affordable, though.

  • Love reading about your being a landlord experiences. It seems like owning property and renting it out is a good way to increase your networth (maybe it’s even better to buy a house to rent than to own for your own housing purposes?) It seems like hiring a property manager isn’t worth it, so either you do it your way or it’s better to avoid rental property. Have you had any horror tenants or have they all been good since they’re honors students?
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    • Our worst tenants were our first ones – we started the least mid-semester and didn’t get students. They were a blue-collar couple who the place was a struggle for them to reach financially when they were both working, but when one had health problems, it was a real struggle since he missed work. We had a couple of payments a few days late or paying half at the start of the month, half in the middle. We let them out of the lease early partly to help them out since it was too hard for them to keep up the bills, but it also helped us get the renewal closer to the college’s semester schedule.

      They were the worst, but it wasn’t like they destroyed the place. Everything was clean and taken care of, they were just stretched too thin and it was annoying to have to chase them for money. Mr. PoP screens tenants really well – and I think him being there every couple of weeks for yard work makes a big difference in how our tenants treat the place.

      • swimmy44

        Sorry I was not prompted for your question – yes just month to month. We check references, if young folks, students or working, we don’t do a credit check since they are unlikely to have credit – we do ask for bank info, character, landlord and employment references. Rent is paid in cash by the month, and if we change our mind or they do, we ask for 30 days notice. We want no paper trail this time around – I’ve done it both ways and right now, this works better for us. We do take a month’s security which is banked in escrow. When people leave, I say to clean the place so it’s spotless like you found it or expect us to take $$ from the security to have it cleaned – I’m done cleaning other people’s dirt. This time around, we are asking for clean kitchen and bathroom only, and are replacing old carpeting with hardwood – it does clean up OK but this time, I’m not sure we can get it spotless – no one’s fault although the tenant had a dog (with permission) – but in our pretty dangerous city, we believe we owe them something for the burglar deterrent – dogs seem to be more of a deterrent than alarms – the bad guys go on to the next house – so we had our upstairs snarling barker and their downstairs pit bull (a real sweetie but people fear them). We have one hard and fast rule – no tobacco smoking inside or outside the property – first, I absolutely can’t stand the smoke, smoking often symbolizes additional bad habits and poor health, and most smokers have some mental illness either very minor or more serious and also know other smokers. Our worst tenants were a couple to whom “No” was a dirty word – after they had a child, they allowed the toddler to do a lot of expensive damage which was not even close to be covered by the security – like writing on the post and beam home lovely wooden floor beams with magic marker that had to be removed by sanding, spilling grape juice everywhere and not cleaning it up, etc. After that, no more children – we renovated the unit, made the apartment smaller, and rented to singles only – everything worked out just fine.

  • I’d like to hear what you do to check out the renters. Do you contract a service to run their credit (which one and how much does it cost?). Do you call referrals? What do you require upfront (security deposite, first and last month’s rent?)?

    We’re buying a rental soon, so this is a subject of great interest to me.

    Thanks!
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  • [...] The folks at Planting Our Pennies relate a personal story with What It’s Like To Be Landlord [...]

  • Tara

    Do you use the on the site credit checks for your co-signers? I live in NYC (the land where renters have to pay non-refundable “realtors fees” equal to one month’s rent to get an apartment) and I had a realtor check my credit on the spot on her smart phone which my fiancee and I had to pay for. We passed of course, but I more remembered it for its convenience.

    In NYC, laws favor tenants much more over landlords, and because of this, it’s very hard to kick out a non-paying tenant (can easily take 6 months or longer). Because of this, I see so many more requirements up-front for an apartment here: first and last months rent plus one-month’s rent deposit (in addition to the tenant-paid realtors fee), a credit check, recent paystub, references, etc. Have you ever had to go to extremes like that to get good tenants? My sister lives in Atlanta, near an all girl’s college and she just started renting out her duplex and I get paranoid for her because of how it is here. I’m just curious if you’ve had to deal with the court system over a tenant or if your experiences have turned out ok.

    • We have credit checks for the parents that co-sign (we like to rent to college students and generally have at least 1 parent co-sign since the students have such short credit histories).

      We’ve had fairly good luck getting tenants, and the fact that the place is near a university helps. We target students who are looking to get off campus without being in a crazy dorm-like apartment building. So far the worst thing one of them has done is get a cat without asking first. The irony is that we would have allowed it without a problem.

  • [...] bright orange sign on the dryer reminding me to do so. (We like orange paper for honey-do lists and finding rental tenants, [...]

  • [...] to prove that it wasn’t all bad, Mr. PoP showed the duplex and found some great new tenants that look to be a great fit, so we’ll have no gap in renters (win!) and we managed to score a [...]

  • [...] handing off the investment to a property management company, we’re in there actively ourselves finding new tenants, and DIY-ing as much of the maintenance and repairs as we [...]

  • […] made me think back to the PoP’s duplex. These folks also rent their duplex for around $1400, but they paid an incredible $50,000 for theirs. It astounds me that someone is paying almost 5x as […]

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