Owning a Rental to Supplement Income

[RunnerGirl78]

My husband and I each have stable jobs, but with the average 3% per year pay increases, we're only keeping up with inflation. We live in San Diego and are thinking of purchasing a condo in a few months to use as a rental property. This would be new for us, so I wanted to see if there was anyone else out there looking to do the same (or someone who has recently done this!) to get some advice on what you've heard, where a good place to learn more, etc. is. Thanks!

[bjl584]

I've looked into this and have read a few books on the subject, but I never pursued it beyond that. There is a lot to consider to do this the right way. Purchase price, legal issues, terms and conditions, estimated rents and payments, maintance and upkeep, etc. There are many good books available on how to get started with this, there are also most likely many real estate clubs in your area that you can find if you search the internet. I'm still thinking about getting involved with this, but I have a few debts that I need to pay down first, plus I'm in the middle of studying for my MBA, so time is a luxury these days.

[mom-from-missouri]

I have a rental. I don't make that much on it. It rents for $800 a month. My payment on it is almost $300 a month. IRS told me to save out %10 each month for federal taxes, then I also will have state taxes (you have to claim the entire amount the renters pay as income-even though part of it goes back into the rental). Then there is the real estate taxes, owners insurance and liability insurance. FYI, you pay a higher rate of insurance if you have a fireplace, pool or hot tub. I can't rent to more than 2 non related persons without a rate increase (I think they figure if I rent to a family they are more responsible than if I rent to 3 or 4 single "party potential" types). I also put about $75 a month into my "repair" fund, and have had to use it several times. I figured once I am coming out ahead around $97 a month. Oh--the county that my house is in, has silly rules-the property has a metal storage shed on it--which is considered "portable" since it was not "built on site" so I have to pay personal property taxes on it--same as a mobil home or automobile...so I am also paying school, library, hospital taxes again on the shed!.....I don't even live there, I live 100 miles away in a different county....
Repairs, mileage and interest I can deduct off my taxes.

[Ima saver]

I had 3 rentals and I would not do that again if the houses were free. I wound up selling all three for much less than I paid for them. My husband was always having to go and fix things and they left the houses in a big mess.

[Hot dog]

I have a rental not by choice at first. It is my old house didn't sell when we moved. It has been about 8 months and it is ok so far we only make about 300 more which pays the extra loan on the new house cause I didn't have quite enough for 20%. However we have not had to pay our taxes yet I am hoping it doesn't make us have to pay for our taxes and we will still get a lot back I hope i am not being to naive about this

[Ima saver]

I can see you viewpoint hot dog, you have to rent cause you have 2 house payments. We bought our houses with the idea that someone else would make the payments and someday we would own them free and clear. That didn't happen. Then we moved out of state and things got worse. People broke in and lived there for free. I even had to pay their water bill for a year. I lost over 20,000 on that house and that was 20 years ago.

[ren]

Runner, I'd be real careful of renting a condo. Aside from the normal mortgage, maintenance, insurance and taxes, most condos seem to have a pretty hefty monthly association fees. Also, I know some places have rules about how many units can be rented out at a time, so if the condo you buy is in a building that has already hit its limit, you may have no way to rent it out.

I think San Diego has a Craigslist; you may want to see how much units similar to what you want to buy rent for before you start looking. If it's not enough to cover everything (with a 30 year fixed mortgage, because if you get an ARM or an interest-only and set rent off of that, you won't be able to double your rent when the payment adjusts), you're going to be worse off than you were.

[vishenda]

I assist investors with this type of thing and they all have 1 common bit of advice. Only purchase what you can keep an eye on yourself. There are many that use management companies and I am not knocking them but I can only say that the investors I work with all manage their own properties...and these are Orange County Cal investors some of whom have 89 rental units in Orange County.

It is an awesome source for supplemental income and the current market is yielding opportunities for those in the position to take advantage of them. As far as inflation...you are in one of the best markets for overall appreciation and if you are buying with long term objectives should do well.

[Ima saver]

I bought a condo and rented it once. The assoc. did not pay the water bill half the time and the water was turned off a lot. It made it difficult to rent out.

[Aleta]

Living in South Florida is difficult now because our property taxes and homeowners is throught the roof. My neighbor got his renewal and it's $4,000 more. We didn't even have a hurricane.

[RunnerGirl78]

Thank you all SO much for the comments and advice...this is a lot to think about and I had no idea about all the "rules" - I'll need to check into any potential rental limits, family requirements, etc. Thank you all again!

[QueenOphelia]

In NYC most decent (read: financially stable and in desireable locations) condos/coops don't allow subletting anymore. I would never buy property in a downscale neighborhood as you will attract a less than desireable tenant. Who needs the headaches (see IMA SAVER's saga )??

[bjl584]

Originally Posted by Aleta

Living in South Florida is difficult now because our property taxes and homeowners is throught the roof. My neighbor got his renewal and it's $4,000 more. We didn't even have a hurricane.

That's crazy. I pay $650 for property tax annually (3 bedroom house w/two car detached garage on 5 acres, and pay $300 annually for homeowners insurance.

[Aleta]

We have some people here that are paying from 8,000 to 10,000 a year in property taxes. We would love to move, but because of our tax base of being in the house for 13 years now is cheaper than moving. We would have to pay taxes on a stepped up basis. Most people cannot move because of this. I would love to move closer to my son to help them. They're having their first child and they're over an hour and 15 minutes away and we at this time can't justify paying more for taxes and insurance right now when we are some 8 years away from retirement.

[Hot dog]

I hope I haven't done the wrong thing by renewing the lease. I just keep hoping it will be worth it when it is a source of income when we retire if we decide to keep it that long. It is a nice house the houses are just not selling right now so we thought we'd just keep renting since they have been paying on time every month. The only expense so far is that the dryer went up. It was one someone had given us and somebody else gave us another so that was a blessing.

[34saving]

In most cases having a rental makes your income tax bill lower. (Of course that's because you're not making much money . . . .) Usually the depreciation on the unit/property taxes/maintenance expenses/"down time" from when the unit isn't rented/etc. will counteract any income claimed and you'll be ahead tax-wise.

I agree that you need to be a "hands on" landlord. Even good tenants need some help and accountability. ("What do you mean you have to turn off the outside water before winter comes?" -- okay, that probably doesn't apply to your area, but there must be some earthquake equilvalent )

Nationwide the condo market is really tricky right now (lots of overbuilding). I'm not an expert in your area, so maybe it's okay where you are, but make sure you know your stuff!

[Aleta]

The only thing that you can do is to save some money to the side. I have a rental and I put away 5% of the monthly rent income. Anyway, you need to have some kind of cushion in case your house would be vacant for a month. Something else that I do is to take a video of the house before I rent. You can use a newspaper with the date and headlines on it. That way you can prove what condition your rental was in before the new tenants moved in. Always check the AC Filters and make sure that they are changing them regularly. It will save you on your repair bills.

[vsjhoc]

Has anyone had experience renting out commercial property (office space, warehouse), as opposed to residential (condo, house, etc.)?

[TBH]

I've thought about this too but I've realized I really don't know enough about it, and I'm not handy enough to fix stuff myself, so I think it's not the right time. Also, I could probably scrape together the money for a down payment but only at the expense of other, more important savings goals.

The most likely scenario where we'd become landlords is if we moved out of our house for some reason (to move to another city, to trade up, whatever). Our house would make a great rental because we could cover the mortgage easily with the going rent rates, and still have a cushion to pay for repairs, taxes, vacancies, etc. I don't think I'd care too much about having positive cash flow from the rent. I'd be satisfied if it paid for itself and if it was slowly appreciating in value and slowly paying down my mortgage.