Rental Income While Cruising

[Kenomac]

All great advice so far. One thing I'd like to add which others have eluded to, is that there's a big difference when the property is owned free and clear and one looks at the rental income as a monthly dividend or annuity payment... usually a great situation with fewer headaches.

BUT... If you depend on the rental income to make your mortgage payment... you're going to eventually get into a real mess when things go all wrong and the renters go deadbeat on you. Essentially, you can end up paying their monthly rent, utilities and for the damage they will cause during the eviction process which can last for over a year in some states. The deadbeats all know this, and use it to their advantage especially... if they have kids. In Massachusetts, it's become common for landlords to pay extortion money to get them out, which can be less costly then the legal process.

[hpeer]

Interesting, we have had small rental properties for some 20 years. We find the ones at a distance a PITA. thus our concern. That said, we no have a4 unit building and mostly rent to Penn Grad students or professors. Completely differnt clientele. What a huge difference.

Our mortgage will be up in 3 years, we will both have SS.

though a weird turn of fate our daughter owns a bit of the house. Also she wants to get into real estate as a career. She has the mind for it but I'm not so sure of the temperament, time will tell.

One idea I'm playing with, but Leary of, is making her the agent. Potentially a win win for all. But things can go Deep South with family financial arrangements. So I am cautious.

When she has her stuff together she is a force to be reckoned with. When she doesn't....she is a force beyond reckoning. Eventually she will be fine, I have complete faith in that, but it may be rocky for a while.

Not asking for advice on this just ruminating.

[hellosailor]

EB-
I'd suggest that you might want to try being a landlord before you try being an absentee landlord. Stick around for a year, use that time to try finding a good property manager and being a hands-off landlord. That way if things go bad, you can always step back in, and you can always stop by to see what's really going on.
You'll also need to be a good judge of people, to screen both your tenants and your manager(s) who in turn should be able to find all the contractors, etc. that you might need.

I have a friend who makes his living from real estate, some flips some rentals. You can expect odd phone calls like "I have ants in my kitchen". So? "The light bulb burned out." So? And that's even when you've had experience at picking tenants. Finding a good property manager will be critical, unless you love drama.

[belizesailor]

I too own a few rental properties...all very far away from me. You can't effectively manage a property remotely without a good PM. A bad PM can cost you lots of money. Hire a good PM or PM company.

[belizesailor]

Originally Posted by Kenomac

....

BUT... If you depend on the rental income to make your mortgage payment... you're going to eventually get into a real mess when things go all wrong and the renters go deadbeat on you. Essentially, you can end up paying their monthly rent, utilities and for the damage they will cause during the eviction process which can last for over a year in some states. The deadbeats all know this, and use it to their advantage especially... if they have kids. In Massachusetts, it's become common for landlords to pay extortion money to get them out, which can be less costly then the legal process.

All very true. My 2c:

Mortgage. If the property is heavily leveraged then it is not going to put much income, if any, in your pocket anyway so probably best to sell it. If it has relatively low leverage, say no more than 60% LTV, then it can cash flow. But its still not going to be as reliable as an income producing investment (bonds, annuities (YUK!), etc...) because...**** happens...bad tenants, major repairs, etc. A strong cash reserves position helps to smooth out these bumps.

Bad tenants can cost you dearly between lost revenue, legal expenses, and cleaning up the mess they inevitably leave behind (more lost revenue while doing this). A good lease application process, including background and credit checks can be very effective at weeding them out up front. The real dirt bags just typically go away when they see the background check authorization form. But if you are unfortunate enough to land one of these dirt bags be aware that they probably know the game better than you. Don't go in at a disadvantage and get played. This is one case where you will probably be better off to hire an attorney at the first sign of a problem. Also, don't cut tenants any slack, the bad ones are just testing you and will play it to the hilt...no partial rent payments, no slack on late fees, no slack on late rent...evict as aggressivley as legally possible and follow the law to the letter (the bad ones know the game and know when you've made a mistake).

Most of my real problem tenants have been single moms. Its hard not to be sympathetic and I've had PMs buy it hook line and sinker. Only to find out after the dust cleared that they've pulled this same routine many times at many other properties.

[ErBrown]

Originally Posted by Captain Bill

We rent our house out. We got a property manager who has a reputation as a no nonsense SOB. He handles all of the tenent interactions. We keep about a month's rent in an escrow account that he has access to for repairs. He came highly reommended by people we know whose property manages. He has power of attorney to sign leases, make repairs, eveictions, etc. He charges half of the first months rent and 10% per month. If you get a property manager make sure to check him out with his current customers and see what their experience has been. Our manager makes at least one visit to the property per quarter and we get checks directly deposited in our account at the beginning of the month. We had recommendations for ours from people who had used him for 5 years.

Thanks Captain Bill, this is what we had in mind. We're not expecting to fund our cruising of the rental, but a little extra cash will be a nice bonus. The real goal here is to have an escape route if SHTF or we decide (for some unimaginable reason) that crusing is not the life for us.

If you don't mind me asking, what percentage does someone like that take. Seems like 10% is common but we're more worried about getting the right person. Also, I really like the escrow idea, helps limit the exposure.

Thanks

Please keep em comin folks

[ErBrown]

Originally Posted by gypsy wanderer

One interesting thing in her case was that she sold all her lower income properties and consolidated down to fewer high end rentals. Way less hassles. Some of her tenants have been in her properties for a decade or more.
D.

This is our hope as well. Our place isn't super fancy and we didn't pay a crazy amount for it when we bought it...but do to location and view the rent will be relatively high. Not that we expect it to be problem free, but with deposits included we're hoping it will be enough of an incentive to prevent the really bad stories.

[Rocketman]

Most managment companys charge somewhere between 50 to 100 percent of the first months rent for finding the tenent, then 10 to 15 percent after. In many states the deposit must be put into escrow by law. I have scene some management companys charge up to 50% for short term rentals, which would include the turn around. Short term meening a week to a month.

Be aware that all management companys charge for mantaince, clean up, painting and service calls on top of there normal fee. You need to find out what they normally charge for let's say a leaking pipe, or clogged toilet.

[ErBrown]

Originally Posted by hellosailor

EB-
I'd suggest that you might want to try being a landlord before you try being an absentee landlord. Stick around for a year, use that time to try finding a good property manager and being a hands-off landlord. That way if things go bad, you can always step back in, and you can always stop by to see what's really going on.
You'll also need to be a good judge of people, to screen both your tenants and your manager(s) who in turn should be able to find all the contractors, etc. that you might need.
.

Funny you should mention that HS, but our current plan is to try living in the house full time and if that works out to start renting the condo, for exactly the reasons you mentioned. We're trying to make a slow move into cruising, just sold our old Mastercraft Wakeboard boat and are planning to use that $ to buy our second boat and start getting in some weekend sailing on the gulf...baby steps.

Appreciate the recommendation.

[phairest]

I want to be a liveaboard in the next few years, but currently own a condo, so have been thinking about this as well and researching. This probably varies by state, but in TX at least it seems like there's a distinction between boarder vs tenant and their related rights; landlords that have the former also have less restrictions to deal with. Gotta run, tbc...

[BandB]

The quality of management companies varies but a good management company can do things you can't possibly do from distance. It starts with selecting tenants. They can screen including face to face. Then it's keep on top of things, repairs and maintenance, rent payments. Evictions are a nightmare in most locations but selecting the right tenants and good communications can reduce the risk. One added benefit of a good management company is they already have lists of dependable vendors. In fact what they save you there can be significant.

If you choose to rent it as a vacation home, then best get someone who specializes in that as well. There is work to be done between every renter. Sometimes it just requires a normal cleaning. Other times it can require much more. Plus they keep the listing updated with a calendar if they use a site like vrbo, collect payments and charge any damages against tenant's deposits.

[capngeo]

Originally Posted by Skippy

kept a dog indoors and used the spare bedroom as a litter box and more.

I think they rented from me too!

As others said, pick your tenants wisely! I ALWAYS make sure I pick the tenants personally regardless of where I have to come from to do it. My favorite trick is to have a very ambiguous question on the application… and no space for them to list their phone number. BUT always insist on “current address”.

This gives me the excuse to show up unannounced at their current place… If there are cars on blocks, holes in the walls and animal leavings on the floor, their app gets shredded; if immaculate then they get a lease!

[skipmac]

Originally Posted by capngeo

I think they rented from me too!

As others said, pick your tenants wisely! I ALWAYS make sure I pick the tenants personally regardless of where I have to come from to do it. My favorite trick is to have a very ambiguous question on the application… and no space for them to list their phone number. BUT always insist on “current address”.

This gives me the excuse to show up unannounced at their current place… If there are cars on blocks, holes in the walls and animal leavings on the floor, their app gets shredded; if immaculate then they get a lease!

I like your trick. Current address and maybe current landlord as well. What do you do if the applicant is moving in from out of town.

The guy that owns the rental next door to me has his own system. He prices his rentals about 10% below the competition so he always gets a lot of applicants when one of his houses comes up for rent. So he usually a chance to pick and choose. Even though he gets a little less each month he claims it saves him money in the long run since his houses don't stay vacant long and he generally has good tenants that pay on time and don't trash the house.

But he got burned by a real pro last year. Single women with one daughter, applied. She was well dressed, good story, good references including a letter on a law firm's letterhead that checked out with a phone call. Whole thing turned out to be a fraud. She moved in with a couple of adult daughters, one with several kids, a house full of cats, piled junk all over the front yard and had a constant stream of noisy visitors at all hours. Stopped paying rent after the first month, stayed 6 months and moved out 2 days before the police showed up with an eviction notice and warrants for one of the daughters and one of the boyfriends.

But that's the horror story. I think the guy said this is only the second time he's ever had a problem and he has about 15 houses.

[phairest]

Back to my boarder vs tenant convo...

From what I've read it seems that a boarder has very limited rights compared to a tenant. Everything I've read indicates that a boarder can be put out immediately when their money runs out, or at the outside with as much notice as they pay for at a time, and one can do so for any reason. On the other hand, you must have some legally valid reason to evict a tenant, and they must be given notice upon notice and are a living hell to forcibly evict, probably wrecking the property also and definitely costing you in unpaid rent while the process drags. Also, when initially choosing, it seems an owner has a lot less restrictions with boarders; e.g. it's illegal to screen tenants based on whether or not they have kids and whatever else, but with boarders anything goes. It's also an attractive option to me because it lets me keep "a foot on land" for storage/visiting, and if my sailing venture goes all to hell I have a fallback.

There are cons as well of course- boarder rent would almost certainly be less than if one rented out the entire property for exclusive use. And the boarder could potentially steal/wreck the owner's stuff in the dwelling, but that could be covered by my HO or a required renters insurance policy for them. And maybe other things I haven't thought of...??

[BandB]

Originally Posted by phairest

Back to my boarder vs tenant convo...

From what I've read it seems that a boarder has very limited rights compared to a tenant. Everything I've read indicates that a boarder can be put out immediately when their money runs out, or at the outside with as much notice as they pay for at a time, and one can do so for any reason. On the other hand, you must have some legally valid reason to evict a tenant, and they must be given notice upon notice and are a living hell to forcibly evict, probably wrecking the property also and definitely costing you in unpaid rent while the process drags. Also, when initially choosing, it seems an owner has a lot less restrictions with boarders; e.g. it's illegal to screen tenants based on whether or not they have kids and whatever else, but with boarders anything goes. It's also an attractive option to me because it lets me keep "a foot on land" for storage/visiting, and if my sailing venture goes all to hell I have a fallback.

There are cons as well of course- boarder rent would almost certainly be less than if one rented out the entire property for exclusive use. And the boarder could potentially steal/wreck the owner's stuff in the dwelling, but that could be covered by my HO or a required renters insurance policy for them. And maybe other things I haven't thought of...??

I'm assuming by a boarder you're meaning someone who gets partial use of the property. Regardless, in most areas, you're making poor assumptions in regard to their rights. The process of kicking them out is also very difficult. This is similar to someone taking in a roommate or allowing a boyfriend or girlfriend to move in. Once someone has lived there a certain time, typically 2 weeks but sometimes longer, then that's their home (not owned but where they live) and they have quite a few rights. In many areas it's the exact same eviction procedures as a renter. In other areas it's slightly easier. But once you let someone in your house, you just better have chosen carefully.

Before you rent, talk to a real estate attorney in your area about what the laws are. One reason I say that is if you don't know the laws and you don't follow them, then often you give up a lot of rights. For instance, you have a renter, boarder or anyone living there who has a key. You have a disagreement, tell them to leave, change the locks. Illegal eviction and you lose many rights as a result. And likely lose in court. Another example is failure to properly return deposit and send accounting for any retained in set legal period of your area. In some states that results in as much as triple damages and you'd not only have to return the deposit, regardless of the damage, but three times the deposit. Now other states aren't that harsh.

People renting one unit or even just a few get into trouble all the time by not knowing good procedures and/or the laws involved. Often they rent rooms or apartments within their home when they can't even legally do that. If you rented illegally, you'll never collect in court. Court can't enforce an illegal contract.

This isn't to scare one from renting. It can be very worthwhile. Just I'd recommend if you're absentee, you get a professional to handle things for you. If they do their job well, you may think it's wasted money. But that's because the real benefit is the problems avoided.