Give me one tip you wish you could tell yourself prior to owning your first rental property.

I am very close to finally having a rental of my own and I'm just kind of in a daze with how fast things have gone and haven't really had much time to sit and reflect. Looking forward to hearing some wisdom, lessons learned and tips.on what to do and what NOT to do.

Know your rental market well enough to be confident in what it will rent for before buying.

Fear InoculAg said:

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If it doesn't rent out immediately, don't freak out, even if you have to eat a few months of mortgage payments. You will make far more money in the long run waiting for a tenant than you will if you get impatient and flip it.

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This

Just rented our first residential rent home last month. My advice is list it for more than you think you should. Also, get control of whiny/high maintenance tenants early on.

Get The Book on Rental Property Investing from Bigger Pockets if you haven't already. Lots of good information about how to stay in compliance with Fair Housing laws.

94chem said:

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Rent isn't worth very much. Paying yourself a little equity and watching the property appreciate is worth a lot.

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Last year I earned the most in price appreciation, and next was the tax write-off, and THEN next was net rents.(ya i'm not good at this business but I'm learning)

Learning how to maximize tax benefits is definitely something I am interested in. My guy said I wouldn't see too much benefit on the place because of our income. Does that sound correct?

Sea Speed said:

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Learning how to maximize tax benefits is definitely something I am interested in. My guy said I wouldn't see too much benefit on the place because of our income. Does that sound correct?

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You can't claim a net loss if your expenses (interest, taxes, insurance, maintenance/expenses, and depreciation) exceed your rent, IF you are married and have > $150,000 AGI. HOWEVER, I THINK you can carry a net loss forward indefinitely, so that if your rent increases, or if you acquire another rental that operates at a net positive, you can use that net positive to offset the losses. In other words, you can't deduct more than you make if you make over $150,000/year.

If this sounds like a rip-off, it is. It's a way for the wealthy people who dominate real estate to tell the middle class to stay in their lane. In the early years of a rental, even if you can carry forward losses, it can be very difficult to take those losses. The system favors high capital companies/people/lawyers who have multiple sources of passive income.

I include lawyers because the income exception doesn't apply to them, I think, since they can act as real estate brokers, and are therefore considered real estate professionals - a nice perk that results from most legislators being lawyers. But I digress...

Please correct any errors I've made. I'm not a tax professional, and the rules are very arbitrary and rife with conflicts of interest.

There's a limit on how much passive losses you can take each year and you can't use any of it to offset W2 income, just rental gains or some other passive gains. If it's full time, it can be active losses which offset other active gains.

The wealthy that you speak of don't have any W2 income to speak of.

Brilliant

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Good renters have value. A LOT of value.

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This x 1,000,000. Here are some examples. We now have 17 tenants. (Only one that we are not crazy about, but she's on a month to month now, so eventually that will resolve itself via one of us giving notice.)

One is young, has an OK but not high paying job & we have never raised her. She's in a duplex & she keeps her place spotless. We *might* try to raise her $25-50 next year but we're OK if we don't. If she left, we'd go up $100/month but it would be empty for 2-3 months while we waited for another qualified tenant, so it really doesn't make sense for us if that would make her look elsewhere. $300-600/year more doesn't seem worth it.

We have a divorced Dad in one house (we know both he & his ex) - they have 3 boys & are supporting 2 households now. We let him in under market when they divorced because it was close to their Mom's house & have slowly raised him in the 4 years he's been there. He's still a little under, but the house could use some cosmetic interior work & he never complains. Also, the next door neighbor is a local beer distributor, has a man cave garage that might be a problem for a new tenant. He loves it, so he can stay however long he wants. (2 months for pay off!)

We've had the same tenant in one house since we bought it 5 years ago & we have recouped our full investment (purchase price & renovations) - she is probably $150-200 under market but, again, her house is probably cleaner than ours and she's a dream tenant.

When people leave we always go up to market rate or a little higher. Our 4-plex turns over the most often (one bedrooms that cater more toward younger, more transient kids) but it, too, is fully recouped, so we don't go crazy on raising over there, but usually do with each vacancy.

All this to say, if you get a good one do your best to keep them!

Yep.

When Covid hit we had a tenant family who both lost their jobs. We dropped the lease down about $500 for three months so they could get themselves through it. They essentially paid our mortgage. When they both got back to work they called and said they could again afford full rent.

Now they are loyal tenants who treat the home like they own it. They have elementary school kids and told us they want to stay there until the kids graduate.

I will never get them to full market value but I also don't have to worry about anything happening.

Don't get emotional in the tenant selection process. Get through all the "no's" in order to find the best "yes."

W/ our first rental we had a couple pay the deposit then 2 days before move in tried to back out. We let them out but kept the deposit since they cost us time in finding a new tenant.

W/ our second rental we had several people who were "definitely" going to apply, then didn't. Don't waste time chasing these people down. Don't try to convince people to sign. Get the house ready. List it. Show it. Don't bother with flaky people or bend over backwards to meet their schedule. Make it available during the times you want to show it.

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W/ our second rental we had several people who were "definitely" going to apply, then didn't.

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We hear that a lot, but since we require every applicant over 18 to do an online credit/background/eviction check, if they know they won't pass, they aren't going to pay the $40/fee.

Would you come off of the rent price any if what seems to be a great tenant on paper said they would sign a 2 year lease? I can see the pros and cons of both sides. For this exercise, assume they will be a good tenant.

If they have been my tenant for a while and I really liked them then yes I'd be willing to do that

If I knew they'd be a good tenant I would. Not sure how you'd ever really know that without prior experience with them though. So overall, I'd lean no.

Sea Speed said:

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Would you come off of the rent price any if what seems to be a great tenant on paper said they would sign a 2 year lease? I can see the pros and cons of both sides. For this exercise, assume they will be a good tenant.

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With inflation what it is I would not.
In our current market I would go up on a two year lease or tie the second years rate to an increase determined by the CPI.

Thats a great point. 2 years is definitely a long time. Thanks for your input.

Mine always costs me at-least a months rent to turn it over maybe 2-3 with the realtors cut and general maintenance. My places rent for about 2800 per month, so I need to believe I'll be able to raise the rent about 300 a month to pass on a 2 year lease

We signed a 2 year lease and hope for a third when the time comes around for renewal. Rent similar to yours.

1. Switch to apartments of more than four units as fast as you can. It's really not that much harder but it is way more efficient and you have way more control over your properties valuations.
2. If you're a softy, fire yourself as the property manager and pay somebody else 10% for the hassle.
3. If you are a property manager underwrite every property with a 10% property management expense. Your time has value. Your investment must cover this.
4. Put every deal through a spreadsheet and make sure you understand concepts like unlevered yield on cost and IRR. Math is always your friend when deciding to buy some thing or not.
5. Buy appreciating areas. Census data tells you were population is growing and other market data can tell you average purchase price divided by rent to get to yield. Buying out of state isn't nearly as complicated or scary as one might think it is. A good asset an area with appreciation tail winds can bail you out of bad decisions or turn a single into a grand slam.

Some real pro advice in this thread

For me, I like the higher quality of stable renter we can get in our markets in a 3/2 or 3/1.5 … I'll probably keep buying them for rentals until I kick the bucket

Make sure neighbors have your property manager's business email and feel free to contact if they see something becoming a nuisance (too many animals, to many cars, etc.)

Always provide a quality rental a little under market value as noted above. We were able to do this a lot more when we started paying cash for our houses and didn't have mortgage pressure to perform. One turnaround and waiting for a highly qualified applicant will lose you a year's worth of $80 / month raise