Rental Property : Looking for suggestions

**Ima saver** · 12-27-2010, 12:55 PM

I had 3 rentals when I was younger. I wish I had never gone that route. The renters called constantly wanting something fixed that they had broken. I wound up selling all 3 places for much less than I paid for them. Good renters are hard to find.

**gpoitras** · 12-27-2010, 03:47 PM

That's one thing that I have to consider, bad renters. Not to say that ALL military renters are good renters but all Majors come through Ft. Leavenworth for a year for part of their career track. Seeing that most majors have been in around 10 - 14 years, they are likely to need 3 or 4 bedrooms. I've thought about trying to get a property manager that specifically caters to them, but on the other hand, having a renter move in and out, every year is going to cause additional wear and tear, and a need for extra cosmetic repair.

**disneysteve** · 12-27-2010, 04:01 PM

I don't think your numbers are necessarily strong enough to support owning the rental house and affording your next residence (a rental, I assume). What if your rental house ends up vacant for a month or two? Will you be able to afford carrying two households? I don't think so. You've got a baby due in a few months which is going to both drop your income due to wife cutting hours and increase your expenses. I'm also concerned that you earn nearly 100K and only have 3K in savings.

I'd also like to see a better breakdown of your budget. The gas/groceries number sounds high but it depends how much is gas and how much is groceries. If you drive a ton of miles, it might not be so out of line. And what is included in "spending?"

**krantcents** · 12-27-2010, 04:12 PM

Originally posted by gpoitras View Post

2 years ago when my wife and I moved to Kansas City (Military assignment) we bought a new home for 240k. There's still one empty lot on our street but our home is the 2nd cheapest on the street, with the low selling for 190k and the high of 330k. We took out a VA loan, 0 down, 5% for 30 years and our mortgage payment is $1554 / month.

We will be moving somewhere in 2 years and I'd like to keep the home as a rental property, possibly to benefit from later in life such as my kids college or something along those lines. My kids are young, 2 years old and one is due in March.

I've been trying to find other homes in the neighborhood which are rentals and I've found one. While our home is a 4/3/3 2800 sq ft, completely finished, the rental home I found is renting for $1900 and is a 4/2/3 2600 sq ft and about 3 years older.

The property manager I'm looking at charges 10% of the rent each month and recommends a home warranty through AB May for about $500 per year w/ $60 service calls.

Our financial situation is alright.

Combined 2010 Net income was 96k.
Projected 2011 Net income is 84k (wife dropping some hours to stay home more with kids)
Monthly expenses are about 5k per month broken down as follows:

Mortgage Tax / Insurance: $1554
Utilities (12 month avg): $205
Investments (Roth/401k/TSP):$900
Insurances (Auto / Other): $131
Cell phone / Cable / Net: $175
Gas / Groceries: $875
Spending: $575
Child Care: $380
Christmas 2011: $165

Both vehicles are paid off and we have no credit card debt, secured or unsecured loans aside from our mortgage.

We have 3k in savings.

In 2 years, I feel confident that I can get at least $1800 - 2000 per month in rent.

My current balance on the home is somewhere around 238,500. I've thought about refinancing for a rate in the high 3's at 15 years but I'd hate to run myself too thin. When we move, my wife (an BSN / RN) will not have a job right off until she applies / interviews etc. By the time we have to move, I'd expect to have 15k in savings. I'm looking for some second opinions on my plan to use our home as a rental property.

As a former landlord, I have some concern because you will not be local. Therefore, you will need professional management or someone to look after the property. There is a cost and risk associated with that choice. If I were you, I would wait 18 months to make a better decision. If the real estate market is better and you can break even or a small loss, I would suggest you sell.

**mdcrim** · 12-27-2010, 04:21 PM

I wouldn't do it. It sounds like you may have some equity in the house (?-hard to say with the range of houses for sale in your neighborhood) but your rent will barely cover your expenses, once the management fees come into play. Even with a management company, you still have to make decisions regarding your property. And to do this long distance won't be fun. It can take a month to get new tenants in so you'd have to take that into consideration as well. I would only keep the house if your rental payments would give you a nice income in addition to covering the expenses and, in this circumstance, it won't. I wouldn't even consider potential future appreciation, given the state of the housing market for the past few years.

**gpoitras** · 12-27-2010, 07:16 PM

Steve,

Here's a further breakdown.

Gas / Groceries : $875 which breaks down to $575/month in groceries and $300 in fuel. I drive a 06 Honda Civic and my wife an 07 Honda Pilot. Each of us drive 45 miles round trip to work. 5 days per week for me and 3 days per week for my wife. I don't have a good count for annual mileage. We don't do a lot of putzing around town and things are close by. This is sometimes offset by driving up to Iowa to visit family, usually $45 in excess fuel expenses. We do this once every other month.

75% of our groceries are bought at the military commissary so there's a bit of a savings there. The other 25% are bought locally with a 5% military discount. I've collected receipts for a while and have this to the minimum. Any meals where we plan to have company, is something we budget additionally for.

Spending: $575. I don't like having an excess of categories in out budget so I group a few things in here. It covers us going out to eat once per month, buying lunches when we don't bring one from home on work days. It covers the incidentals and my wife usually buys a few clothing items for the baby. I get multiple clothing allowances from work and should my wife want to go buy some clothes, I set aside money from my travel per diem...this alone is an extra $400 / month in essentially...income but I don't include it anywhere since it's not reliable. Sometimes I spend it all, sometimes I eat subway $5 footlongs.

Savings: 3k. We've finished up paying our vehicles off and credit card and for quite a while had our 1k EF, we're now working to get our 6 months worth of expenses built up.

Starting in June, my wife's income will drop and our combined Net will be about 84k. Prior to taking into account the expenses associated with the new baby, we're looking at having about $2200 in excess after bills have been paid and budgeting is done.

I'm estimating about $460/month in increase expenses with the new baby. Breaking that down even further..

Increased daycare expenses: $205
Increased grocery bill: $75
Diapers/wipes: $80
Increase in spending: $100

Without a doubt I will need to enlist the services of a property manager.

Income: $1900
Expenses
Management Fee: $180
Mortgage: $1555
Lawn Service: $100
Home Warranty: $42
HOA Dues: $15
Total Expenses: $1877

On paper it looks like I'd be breaking even although I know there will be repairs that come up along the way.

I guess I'm looking at this from the standpoint that the home is located in an area that is growing and expanding, desirable school district, very low crime rate, close to multiple highways and 2 shopping areas. My wife has family in Kansas City where we'd like to come back too. When I say come back too, I mean we will have to move away but plan to try to come back in 5 years for another assignment here. Should that happen it will be my last military assignment, which means I can retire from the military. We've talked about staying in the area, but nothing concrete since I have 8 years left still. I'd just hate to sell, and when it comes time to buy again, the market is the opposite of where it is right now and interest rates are up again.
Should I have to support two households at the same time, I feel confident we can do that, as long as my wife has "a" job. I see it as something that could pay off down the road but understand the risks I'm exposing myself too.

My two biggest fears are horrible tenants...where things end up in court, and a major repair. The repair issue is mitigated by the home being built in 2009, but, anything is possible.

I just want to make sure I look at all the options, and make an informed decision.

Rental Property : Looking for suggestions