We're putting in an offer on a place this weekend and would like to keep our current place as a rental if our offer is accepted. We're total novices about renting. Do you recommend finding the tenants yourself? Realtor? Property management?

It's a townhome down the street from highland park high school. We've replaced all mechanicals and the hoa takes care of exterior maintenance, so I don't think it would be a huge headache but I don't want to be naive either. I'd also not like to leave money on the table with a property management company or realtor if it's not a huge headache to do ourselves.

What is your advice? If we do it ourselves, where do you post to find tenants and what is your screening process?

Thanks!

If it is in the same town you live in then go for it. We used Zillow for our first rental and it was pretty easy. Make sure you do background checks, employment history, income, rental history, Ect. Zillow has all of that. Look up comps in your area for rent rates so you price it right.

We self leased for many years and I've started using a realtor.

I think it is worth it for 1/2 of one month's rent plus you get MLS visibility.

Thanks. How did you determine comps? I can see what people are asking for rent on Zillow, but that doesn't necessarily mean that's what they're getting. And of course, these places are vacant right now for a reason.

As far as going the realtor route, say they find tenants for a 1 year lease and the realtor received 1/2 month commission. If the tenants renew their lease year after year, is the standard contract for the realtor to continue to receive the same commission each year they renew, or is it a one time thing?

My realtor helps me set the price and we set it a bit high but I'm willing to negotiate for the right tenant.

If you continue month to month there would be no charge, but I'm unsure of the charge to extend the lease a year. You could certainly ask. The realtor would have less expenses if it is not listed.

We looked at what was listed on Zillow to get an idea of what rents people were asking. We also have a friend in real estate that helped us set a price. If you list it to high you can always relist it at a lower rent.

Thanks for all the info. I think seasonality might be even more of a factor for our rental (entry level in HCOL, good school district) but I'm not certain. We'd need to do a couple of things after moving out though (paint, carpet upstairs).

I would never want to waste a realtor's time, but am also considering pricing to sell more aggressively and pricing to lease as well. It would seem that using a realtor that could market for both sale and lease would make sense in that scenario. Since our inclination is to rent, it would make sense for the sales price to be more aggressive. Are there any holes in my logic here?

I'd think the rents you see on zillow & neighborhood fb pages would be fairly accurate. People might negotiate a little, but probably not much in your neighborhood. People with kids want those Highland Park schools & singles/couples want the status.

You want a leasing agent or a management company?

The leasing agent will get you a tenant and that's it.

A Mgmt co will get the tenant, and then manage the property. This would cover any calls or issues, collecting rent, etc. The mgmt co will get an upfront fee, such as 1/2 of 1st month, and then a percentage of each month. My ex ran a mgmt co, and got 6% of the monthly rent. She handled everything for the owners, and had a negotiated limit for repairs before needing owner approval.

Have you crunched the numbers? Many people want to be landlords, but don't consider the financials of the property. Not sure how you can objectively evaluate the financials if you don't know the rent.

I've looked on every place available about what people are asking for rent and also looked at rental estimates on sites. A realtor is going to be sending me some actual data on rental rates today as well, which I will pour over. I believe I have a pretty good ballpark. As far as financials, the place is paid for so there is a wide margin before cost of upkeep, property tax, insurance, maintenance, yada yada yada exceeds rental income. Of course I consider the opportunity cost of where that equity could go as well, but I see it as diversification of assets that will hopefully appreciate well and have a monthly income. Nothing is set in stone, I'm doing my due diligence right now.

dubi said:

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My realtor helps me set the price and we set it a bit high but I'm willing to negotiate for the right tenant.

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We do the same thing except we set it LOWER so as to have the pick of the litter.

ag0207 said:

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Make sure you do background checks, employment history, income, rental history, Ect. Zillow has all of that.

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That's pretty neat, as I wasn't aware they offered that service.

Zillow Tenant Screening

Is anyone aware of something similar in the commercial realm? I don't do any residential rentals, but do lease some commercial properties that appeal to small businesses.

Thanks.

Jason C. said:

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dubi said:

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My realtor helps me set the price and we set it a bit high but I'm willing to negotiate for the right tenant.

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We do the same thing except we set it LOWER so as to have the pick of the litter.

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I've seen this as it's rather smart in bringing a bigger pool of applicants and you can find that right one. But also, rent growth is going to be picking up here as we head towards next spring given value increases we've seen this year and you're limiting yourself with lower rents. The best strategy IMO is to set the lease at market and see what you can get tenant wise.

Don't be Afraid to screen tenants. Dig deep. Call former landlords, etc. lots of tenants are going to be the same (respectful to the house and pay on time) but you gotta screen and make them jump through a few hoops to keep the fluff out.

We use mysmartmove.com to screen It costs them $40 per applicant over 18. So for a couple to qualify, it's $80 & if they know they can't pass, they don't apply. Kind of pre-weeds thru the applications.

I still think that in Highland Park, the going rate will be easy to get.

Here's some more food for thought. General rental rule is monthly rent should equal 1% of property value. For example, if you have a $200,000 property, it should earn $2,000 monthly rent. With townhomes, this is especially a challenge because the gigantic monthly maintenance fee is generally not passed to tenants. This rule is difficult to achieve unless you have a low value property (say, $75,000) that you can rent for 1%+.

I don't know your area but sounds like it's a prime spot to be. I carefully evaluate Return on Equity and Return on Cash Invested for my properties. Your ROE is going to be low because your equity is so high. Might consider a cash-out refinance, if your credit can bear this along with your new mortgage, to get your equity down so your ROE is higher. See the BRRR discussion on this board. You acknowledge the equity tied-up in your existing property, make sure that equity is worth it for you.

Here's a horror story, so you don't repeat what I did (this was a tough financial lesson for me). I moved out of my primary residence, 4-bedroom, 3-bath, 3,100 square foot west Houston house. Rented it for $2,150 to an expat from the U.K. He leaves town, turns heater OFF, Houston freezes, pipes burst, $45,000 in wall, cabinet, and floor damage claimed on my insurance. He just ups and moves (sues me a year later to return his security deposit, which I never did). I make repairs and sell the house for $345,000. I was no where close to the 1%. I had plenty equity in the house, but the numbers were dumb and I paid a hefty price to learn the hard way.

2nd moral of the story... Just because you do a background check and see your tenant makes $350,000 per year doesn't mean that he's not a jackass and will sue you over a $2,150 security deposit you retain because he flooded your house. Yes. A constable came to my house and served me. Also yes, I've bought an investment property since that debacle and am at 30% ROE (AirBNB, not a traditional rental).

Thanks for the response. We certainly have a lot to consider. Another driver or motivation for leasing that is perhaps just now crystallizing, is that if we did sell our townhome we'd have to decide what to do with the proceeds. It doesn't feel like a great idea to throw all of it into the stock market today, interest rates seems too low to just pay down principal on a new house, and deals on properties in North Texas seem few and far between (I've done the work looking). I might be more confused now than before, but hopefully the right decision will be clear when the time comes.

Aggiemike96 said:

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. Rented it for $2,150 to an expat from the U.K. He leaves town, turns heater OFF, Houston freezes, pipes burst, $45,000 in wall, cabinet, and floor damage claimed on my insurance. He just ups and moves (sues me a year later to return his security deposit, which I never did).

2nd moral of the story... Just because you do a background check and see your tenant makes $350,000 per year doesn't mean that he's not a jackass and will sue you over a $2,150 security deposit you retain because he flooded your house. Yes. A constable came to my house and served me. Also yes, I've bought an investment property since that debacle and am at 30% ROE (AirBNB, not a traditional rental).

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What did the court say?

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what to do with the proceeds.

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You hit the nail on the head right there. We sold 2 properties this year. We weren't planning on selling either & neither were on the market but the offers were insane, so we did.

The first was already a rental so we did a 1031 & bought 2 other houses + had enough left for part of a third one.

The second was our homestead but we don't need that for a new residence - we've retired & moved to our lake house. Timing sucked on that sale but we couldn't turn it down. You are right - there is no good place to put the money. Our returns in the stock market have been great since we started seriously back in 2010 or so and we don't want to put any more in. and we've invested in about as many rentals as we care to deal with.

Way back in my single days..... I rented a great garage apartment on Emerson for years. Your area is fantastic.

jamotoe1 said:

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Thanks for the response. We certainly have a lot to consider. Another driver or motivation for leasing that is perhaps just now crystallizing, is that if we did sell our townhome we'd have to decide what to do with the proceeds. It doesn't feel like a great idea to throw all of it into the stock market today, interest rates seems too low to just pay down principal on a new house, and deals on properties in North Texas seem few and far between (I've done the work looking). I might be more confused now than before, but hopefully the right decision will be clear when the time comes.

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Either way you slice and dice it, be mindful of what Congress is looking to do with these Tax Hikes and the potential impact on Capital Gains being bumped from 20% to 25%+.

I have 3 rental properties, and I watch these 3 things:

1) Taxable Income = Rent - (property taxes + interest + insurance + HOA expenses + maintenance + depreciation). Note that depreciation = roughly 1/27th of what you paid for the house, plus any upgrades you made to it. If you have receipts for any big ticket permanent things you did to the house, add them to this cost basis. Note that if you sell the house, the total amount depreciated becomes taxable if you hang on to the money and don't buy another property "right away."

2) Net cash = Rent - (PITI + HOA expenses + maintenance)

3) Equity and appreciation

If 2) is less than zero, you really want 1) to be less than zero. If you can keep 1) and 2) around zero for several years, you can still make really good unrealized gains on 3). Then as you increase rent, you can start making a little on 2) as well, and maybe start owing some taxes.

DadAG10 said:

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Aggiemike96 said:

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. Rented it for $2,150 to an expat from the U.K. He leaves town, turns heater OFF, Houston freezes, pipes burst, $45,000 in wall, cabinet, and floor damage claimed on my insurance. He just ups and moves (sues me a year later to return his security deposit, which I never did).

2nd moral of the story... Just because you do a background check and see your tenant makes $350,000 per year doesn't mean that he's not a jackass and will sue you over a $2,150 security deposit you retain because he flooded your house. Yes. A constable came to my house and served me. Also yes, I've bought an investment property since that debacle and am at 30% ROE (AirBNB, not a traditional rental).

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What did the court say?

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This situation was such a disaster. We (lawyer and I) counter-sued and he agreed to dismiss his suit if we did.

The tough lesson learned is that people will never do the "right thing". The idiot claimed that it was my fault the pipes froze. Really, moron??? I lived in that house for 15 years and never had a pipe burst. No other house in the neighborhood had a pipe burst during that freeze. What's the ONE difference at the time? He turned the heater OFF. He was irrational and impossible to talk to, so I lawyered up pretty much right after it happened (before he returned to the States). He had renter's insurance, but refused to initiate a claim!!! Mind boggling.

OP, you mentioned what to do with the proceeds if you decide to sell (or cash-out refinance). Buy another property! Schwack Schwack does exactly that...buys another and another. My goal is to have 10 investment properties when I retire and use that cash-flow to supplement cash from other sources (primarily 401k and IRAs).

There are discussions on this board about beach/vacation properties. The user "Premium" has a beach house they purchased a few years ago and is grossing $100,000 in rent income this year. Even a modest 12% cash return would be $1,000 cash a month. There are tax consequences to all of this and I'd encourage a conversation with your tax advisor.

I'm certainly considering all options, but those amazing cash flow opportunities you hear people talking about SEEM to be quite scarce if you're buying at this moment in time. Especially as a first time landlord. I'd love to be proven wrong though.