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June 25th, 2009:

thoughts on moving, part IV: I can’t be a landlord

Jun 25th, 2009
by Jim Reverend.
2 comments

The more I think about it the more I believe that being a landlord is going to be an absolute nightmare for me.

There is a big difference between buying and renting property for fun and profit, and renting a piece of property simply because you have no other way to get rid of it. The former is a perfect sound business model when done correctly and something I might try in the future. The second is a recipe for stress, frustration, and potential financial ruin.

I told the tenant to call me today and let me know if the offer we’d worked out was acceptable. I didn’t hear from him. I’m going to give him until midday tomorrow. If I hear from him by then, I’ll continue to entertain the idea of moving into an apartment now and leasing to him, but only have careful consideration of him and his situation, only if I can find a place to live I’m comfortable with, and only in such a way that my month rent is at least $500 cheaper than my mortgage. That way I have some wiggle room in all of this.

In the event that he doesn’t get back to me, I’ll try my hand in the market one more time. I’ll put my house up for sale at a fair and reasonable price based on what it should be worth and not what I can get for it thanks to all the foreclosures that recently swept through my neighborhood. If I manage to get a fair price for the house then so be it. Then I can consider buying another house in this neighborhood (or elsewhere) that is a bit smaller, probably one story, and that suits Celeste and I a little better.

And, in the event that that doesn’t work out either (which it’s highly likely that it wont) then we’ll just stay put for a few more years.

Because, really, I have no idea where Celeste and I will be in life in 2 to 3 years. She’ll be ready to start public school and I’ll certainly want to be in a house by then. I happen to already have a great house in a great neighborhood with great schools. If I happen to be somewhere else great by then, then that’s okay too.

And, if I do end up staying here, which is likely, then I’m going to make some lifestyle changes in regard to travel and employment to make my life easier and give Celeste and I more time together.

Your thoughts?

thoughts on moving, part III: being a landlord

Jun 25th, 2009
by Jim Reverend.
16 comments

(All of the input you guys are providing is really helping me to weigh this out and really see all the PROs and CONs. Thank you all, again and again. You are awesome.)

It seems that the two biggest CONs to moving are:

1. Living in an apartment
2. Being a landlord

Since I’ve worked out most of what living in an apartment will entail, I’d like to consider option 2 for a bit.

Being a landlord sucks. There are risks. The tenant could leave without paying rent — especially in this economy. They could trash the place. They could be very demanding of time or full of complaints. They could be late on rent. Lots of issues.

One thing that can really help is a rental management company.

This company locates and screen tenants (including background checks), collects rents, asses late fees, and performs evictions as needed. Additionally, they ensure that all laws are followed, and that the rental property is listed in databases if the current tenant should desire to vacate. They handle all maintenance requests and often work with volume repair providers to supply a discount in costs. They are well versed in what repairs a landlord is required to cover and insures the tenant pays for those that are his responsibility (a sock stuck in a toilet causing plumbing issues, for instance). A quick Google Search find a DFW company that would cost me $630 for each new tenant, plus $120/mo. Over the course of a year that’s $2070.

If the cost of maintenance is a concern, there are also companies that provide unlimited maintenance calls and all associated labor and most parts for a set annual fee plus a per visit cost. The per visit cost is passed in whole or in part on to the tenant and some risk is removed this way.

Of course, in the end, the financial risk is still mine. Assuming the tenants aren’t malicious or careless, presumably any expense I incur for repairs is something that would have broken anyway if I had been living there.

The bottom line.

Assuming I hire a management company to keep me safe and keep hassles low, after I factor in HOA dues and all of that, given my current mortgage payment and the rough estimate for monthly rent, here’s where I come out:

I’ll lose $200/mo.

I know that sounds horrible, and it is. I might be able to negotiate or refinance a little away from that, but, for the most part, that’s where I’m at. And that assumes my tenant doesn’t skip on rent or destroy anything that wouldn’t have broken if I had been living there.

Of course, even if my apartment rents for the same amount that my mortgage is I should recover that loss in savings. Of course, that’s all a guess based on anticipated utilities, fuel costs, and toll tag fees. But, it should be a pretty accurate guess.

So, given prior estimates and this new information, in the end I’ll be saving $100-200/mo over the cost of living in my house. And I’ll be gaining 4 to 6 hours a week in time. But will have the new financial risk that comes with being a landlord. Additionally, and not minimally, I have the costs of moving not once, but twice. And finally, I have the costs involved with leaning out my belonging to fit a smaller space, and then expanding again when I eventually move back into a house.

Your thoughts?