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Becoming a landlord
Pros and cons


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#1 Feral like a Lemon

Posted 05 February 2013 - 07:40 PM

Just a quick question for property owners: Is it better sell or better to rent out your existing property? The property is a decent size on a quiet dirt road. Close to schools, IGA, bus route and walking trails. We are not sure whether it would be better to have cash in hand or have a portfolio.

If you have an investment property is it better to bring in a property manager or is it simple enough to manage yourself?

TIA

Edited by ForsakenTruth, 05 February 2013 - 07:48 PM.


#2 Juki

Posted 05 February 2013 - 08:01 PM

Ask yourself the following to work out if you should keep it or rent it:
  
-Can you afford to keep the property if it isn't being rented for an extended period of time or god forbid you get a bad set of tenants?
    
-Can you afford to maintain it when things go wrong?

-Can you afford rates, real estate fees and repairs when tenants move on?

-Have you spoken to an accountant to work out what is most tax effective for you?

-Can you afford the appropriate insurance i.e. landlord's insurance, life insurance to cover the debt that you hold so that your family isn't left high and dry if something happens.

-If renting it out, I would get some real estate agents to come through and give you an approximate of how much it would make per week and what percentage they would charge for their services.

-If you choose to sell, if offered in your area, look for websites that make the real estate tender for your business, no sale no fee and fixed commission if you can get it.




#3 luke's mummu

Posted 05 February 2013 - 08:03 PM

I would definitely get a real estate agent in to manage. We had my Dad managing our investment unit and got stung big time. Supposedly a single mum of 6 who had just gotten divorced and sold their home so no rent references at all. (we have been told by a neighbour that this story was not the truth). Left owing nearly $1,000 in rent (ontop of us taking the bond) and left furniture behind (we were so lucky she agreed to go).

Then we got a real estate agent in who immediately increased the rent by $20 a week which covered his fees. And no more problems with people not paying rent.

I would recommend good landlords insurance and shop around for the best deal on real estate fees.

#4 SeaPrincess

Posted 05 February 2013 - 08:13 PM

In our experience, renting our own home hasn't been a good investment. We rented ours out when we moved for DH's job, so we do intend to move back in eventually, but the return isn't great - we have a good chunk of equity and it's still not paying for itself. If I was buying an investment property, I'd want a better return - lower value property, higher rent.

I would get some property managers in to value it.  Then work out what your actual income would be for a year based only on rent and their fees.  Work out roughly what the interest payments will be for a year and compare the amounts.  Then factor in council and water rates, building and landlord insurance, which you must have.  See how those figures add up.  If you're still considering it, think about additional costs of any maintenance that might be required, or the possibility of it being vacant.

Definitely have a property manager.  If you have a good one, you should never have an issue - they know how to properly screen tenants, check references, etc, and it makes the whole thing completely impersonal for both the tenant and the landlord.  And if there are any issues, they know the procedures to follow and will go to tribunal.  For me, the cost of our property manager is worth the money spent.

#5 Feral like a Lemon

Posted 05 February 2013 - 08:14 PM

Great responses LM, SP and Juki - you've given me much to think about. My primary concern is the the age of the house. I'm thinking it might not be worth keeping when there's so much that potentially can go wrong.
Many thanks for taking the time to reply.

Edited by ForsakenTruth, 05 February 2013 - 08:15 PM.


#6 Ireckon

Posted 05 February 2013 - 08:20 PM

We rented out our previous place rather than sell.

We have brilliant tenants, they treat the place better than we ever did, so in that aspect, we are very lucky.

HOWEVER

It is hard being responsible for the every day home care and maintenance for another family. Things I don't doubt we need to be responsible for as LL, but when the hot water goes on the blink and you need to find funds ASAP to get it sorted, we find that tough. We do have a small cash buffer, but not a huge amount, and right now, it feels like every other month something is breaking that we need to fix, so the buffer is really being hacked away at. Plus they have also asked for a new a/c, new stove top and a few other things. I live for the day we sell the place. Me personally? I am not cut out to be a LL. I would rather invest in some other asset.

Some people love it though.

#7 BetteBoop

Posted 05 February 2013 - 08:21 PM

No, to property managers. They charge a lot for doing next to nothing. Most lessors I've known who have been burnt by bad tenants have an agent managing their property.

I've managed my properties for 10 years now and had 1 problem tenant in that time. You assess people's income/circumstances and check their references. That's your best protection.

However, you need to consider a few things before using your home as a rental. For example, if you keep this house rather than sell it, is the mortgage on your own home going to be bigger? Would you use the proceeds of the sale to pay down your mortgage?

If yes, sell the rental house. The first objective of any money making strategy is to get debt on your PPOR down as this is dead money (ie not tax deductible).

Secondly, have you paid much off the principal of the loan? And if so, is the property going to be negatively geared?

If not, you won't be getting the best tax concessions and renting it out may not be the best strategy.

#8 JRA

Posted 05 February 2013 - 08:21 PM

Are you prepared to deal with a  nightmare a rental or tenant can be?

A house is not an asset that can be liquidized easily is another point to remember

#9 Jellyblush

Posted 05 February 2013 - 08:24 PM

Without a doubt have a good property manager. Make sure you meet a few and get a feel for them. As a pp said, they'll possibly attract a higher rent for you anyway and therefore pay for themselves.

As to whether it's worth it - crunch ALL the numbers then see an accountant to help you crunch them again. Rent, agency fees, rates, water, landlord insurance, building insurance, 3 months vacancy set aside and the same for urgent repairs.

Edited by Chelli, 06 February 2013 - 09:28 AM.
Removed oversized signature


#10 JRA

Posted 05 February 2013 - 08:26 PM

Also talk to an accountant, if you are taking out a loan to buy your new property you can't claim that as a deduction but if you not paying a loan for the investment property you are probably really not doing wise things tax wise.

#11 Monket

Posted 05 February 2013 - 08:33 PM

Sell, sell, sell!!!  We rented out our house and we just want to get rid of it.  We have great tenants and a great property manager but every month there is something that needs to be paid....trees lopped, light fittings, aircon servicing, etc, etc, etc.  The house was renovated just before we moved so everything is new but there is still maintenance.  The recent storms also had us on edge all weekend just waiting for a phone call telling us the roof had blown off!  Not worth the stress IMO.

#12 Shanski

Posted 05 February 2013 - 08:36 PM

In my personal experience being a landlord cost me a bucket load of money (read $12k) so I would highly advise against it unless you are planning to move back into your house after a set period of time. This was our plan but after our very bad tenant left us with such a huge bill we decided to sell up and move away from the area.

We lost money from the tenant not paying rent for approx 4 months as this is how long it took to evict her. Plus the damages we had to repair - carpet, paint, walls and other bits and pieces from tenant

We had a property manager who did not do her job correctly so we were not covered by insurance.

Be warned - being a landlord can be very expensive both dollar wise and stress wise.

You need to have funds available to do major repairs at the drop of a hat - i.e replace a hot water system or replace an airconditioner. you will also need a large contingency fund for ongoing repairs and maintenance as you are a landlord and the tenant expects every broken thing repaired ASAP. And when you are a landlord things always seem to break or need repairing all at the same time.

Also be prepared to have most things go in favour of the tenant despite it being right or just in your eyes. Tenants are very protected.

If you do decide to lease out your house, use a property manager, ALWAYS have a signed lease and NEVER EVER go month by month on a lease as you will not be covered by insurance (lesson learnt the very hard and expensive way).



#13 JRA

Posted 05 February 2013 - 08:36 PM

MOonket: I understand what you say. Things that we would live with of course a tenant doesn't. A house with a tenant needs to be a lot better maintained than your own house, so the niggly light needs to be fixed etc


#14 mez70

Posted 05 February 2013 - 08:58 PM

The other thing to keep in mind is A: getting financial advice but also we were faced with a similar situation a few years ago and were were advised to sell, and then used the proceeds to buy another IP if that was what we were interested in doing as the were tax implications and things that you could deduct on an IP were not  claimable for a set time if the property had been your primary residence.. cant remember all the fine details as the house were were in was aging and was going to need "work" to become a good rental.. New Oven, New Shower Screen and some other age related stuff so they actually said we were better to sell. The person who purchased the property was an investor as well so they took it on knowing what needed to be done..

Depending on cash flow selling and buying a diff property could be a better option as from memory you don't get hit with Capital Gains tax when it is your primary residence as well..


#15 AbbottProofFence

Posted 06 February 2013 - 01:43 AM

We rented out our old house for about 18 months a few years ago before selling it because it was just not worth the stress and by the time we paid for insurance, maintenance, property manager fees etc, we decided to sell because we were barely breaking even on the place, let alone making money. So we sold it & put the money towards a better home in our new area because DH settled with the new job we relocated for.

#16 Feral like a Lemon

Posted 06 February 2013 - 06:17 AM

Thanks for the responses one and all. I think we are 99% convinced selling will be the better option.

#17 Pearlberry

Posted 06 February 2013 - 06:34 AM

I'm a fan of renting it out and defiantly get a property manager.

One more thing to consider is whether you are able to handle seeing any damage to your old home . If you are going to get upset about general damage from ordinary tennents, then I would sell.

#18 Chchgirl

Posted 06 February 2013 - 06:36 AM

Sell! As per previous posters, I would never again rent out my own house, even short term. Just not worth it..only did it for a short time and sold one last year..

#19 Bart.

Posted 06 February 2013 - 06:47 AM

I have spent the last 7 months (and many more to come) repairing the damage a tenant did to our property.  It took a month just to clean the garbage off the site.  Mind you, we've also taken the opportunity to refurbish and upgrade the house and we'll be charging double the rent once it's completed, giving us a small income (after tax).  It'll also increase the equity in the house by about $100K, so in our case, financially it's better to fix and rent... for now.  Also, we'll be charging a higher rate that'll lessen the chance of getting a destructive tenant.

I totally understand people who invest in stocks instead.  It's a much less stressful option.  In saying that, however, it is harder to 'renovate' stocks as such and double your equity in six months.

ETA:  Although, renovating is only possible if the house is old to begin with.

Edited by Bart., 06 February 2013 - 06:54 AM.


#20 Holidayromp

Posted 06 February 2013 - 07:14 AM

You need advice of a financial planner before embarking on the journey that it is to be a landlord.  Plus as pps mentioned you need excellent cashflow.  Also you need to be in it for the long term there is nothing worse for tenants to be promised living long term in a property only to be turfed out out when year's lease is up or have to go through the headache of being in a rental property that is for sale  It is not fair on the tenant and you could end up shelling out more money than income.

Also use a broker when researching your LL insurance as most are not worth the paper they are written on.

An investment property should be a small part of ones investment portfolio not the only part IYKWIM.

#21 B.feral3

Posted 06 February 2013 - 07:40 AM

If I had my time again I would NOT have purchased property as an investment. Tenants have been the bane of my existence and cause for sleepless nights, stress, worry and financial loss.

The house is also a money pit. Honestly, WTF do they do over there. We are constantly needing to have plumbers, electricians, handy men and more around to do maintenance, constantly. In 9 years in my own home, which is a lot lot older, we've only needed a plumber ONCE and that was DH's fault for putting cat litter down the toilet.

One time I had to pay for an electrician after hours because the tenants toaster tripped the safety switch and according to the property manager it wasn't safe, fair or reasonable for her to go to the box and flick the switch back on herself. That cost me $180. I argued and argued and according to LJ Hooker, tenants fault, my problem. Also, the house is so cluttered in their you can barely move apparently. (I've not seen it myself.) So it's not surprising she has mice. (There have never been mice in the property in the prior 6 years to her moving in.) Not only do I have to pay for the traps and pest control, I had to pay $400 when the mouse ate though the air conditioning wiring and another $140 when it chewed the dishwasher pipe.

One lot of tenants stopped paying rent 2.5 months before they moved out and there was nothing we could do about it. Because they had kids and on CL and had no where else to go, judge decided that DH and I were a charity and they could stay. Then when they left the place was a disaster. There was even human faeces spread up the walls. I kid you not.

I am over being a landlord like you wouldn't BELIEVE. Selling right now would see us loose about 80k so we're just holding tight.

Edited by Bek+3, 06 February 2013 - 07:45 AM.


#22 Satay Chicken

Posted 06 February 2013 - 07:53 AM

We were thinking of doing this, rent out our current home to keep our foot in the market then rent somewhere else for a while.
What put me off most was that I have such an attachement to my current place and the thought of someone else living in it and trashing it was just too much worry.  Best option for us would be to sell out current place, hold the cash then buy when we are ready again...  
Good luck

#23 BetteBoop

Posted 06 February 2013 - 08:12 AM

QUOTE (Bek+3 @ 06/02/2013, 07:40 AM) <{POST_SNAPBACK}>
If I had my time again I would NOT have purchased property as an investment. Tenants have been the bane of my existence and cause for sleepless nights, stress, worry and financial loss.

The house is also a money pit. Honestly, WTF do they do over there. We are constantly needing to have plumbers, electricians, handy men and more around to do maintenance, constantly. In 9 years in my own home, which is a lot lot older, we've only needed a plumber ONCE and that was DH's fault for putting cat litter down the toilet.

One time I had to pay for an electrician after hours because the tenants toaster tripped the safety switch and according to the property manager it wasn't safe, fair or reasonable for her to go to the box and flick the switch back on herself. That cost me $180. I argued and argued and according to LJ Hooker, tenants fault, my problem. Also, the house is so cluttered in their you can barely move apparently. (I've not seen it myself.) So it's not surprising she has mice. (There have never been mice in the property in the prior 6 years to her moving in.) Not only do I have to pay for the traps and pest control, I had to pay $400 when the mouse ate though the air conditioning wiring and another $140 when it chewed the dishwasher pipe.

One lot of tenants stopped paying rent 2.5 months before they moved out and there was nothing we could do about it. Because they had kids and on CL and had no where else to go, judge decided that DH and I were a charity and they could stay. Then when they left the place was a disaster. There was even human faeces spread up the walls. I kid you not.

I am over being a landlord like you wouldn't BELIEVE. Selling right now would see us loose about 80k so we're just holding tight.


Bek+3, it sounds like most of your hassles were caused by a terrible property manager. There is no way I would have paid that call out fee. Her toaster, her problem.

Also, mice during the tenancy wouldn't be my responsibility. Pest control at the beginning and end of tenancy might be a requirement of the lessor but not during (unless there's a mouse plague).

I spend very little on my investment property because I have good tenants who look after it. If you can manage that, an investment property is a piece of cake.

#24 Phascogale

Posted 06 February 2013 - 09:03 AM

QUOTE
The other thing to keep in mind is A: getting financial advice but also we were faced with a similar situation a few years ago and were were advised to sell, and then used the proceeds to buy another IP if that was what we were interested in doing as the were tax implications and things that you could deduct on an IP were not claimable for a set time if the property had been your primary residence.. cant remember all the fine details as the house were were in was aging and was going to need "work" to become a good rental..
This was the case with us.  Our circumstances were that we weren't sure we weren't going to come back to the area so didn't want to sell to start off with.  

In the end we rented the place out for 12 months before we sold it.  We did replace the carpets before we moved out but couldn't claim it back.  It was a catch 22.  The carpets weren't really in a fit state to rent out (we were going to replace them that year anyway) so ended up doing it in cheap carpet.  Looked good but very quickly decided that I didn't like it - patterned and loop pile - so getting rid of the house was a blessing in disguise.  We also knew the house would sell faster with nicer carpet than old stained carpet.  The worst part was the 18 month old kitchen that we had put in that I loved (there was never any plan to move but our circumstances changed).

Also selling with tenants was a PITA.  The tenants were great.  They were lucky in the way the house sold in a week so not lots of open for inspections but consequently we didn't get as much as we probably would've had we been in the house so took a bit of a loss on that.

Even though we had good tenants it was stressful.  If something went wrong we weren't able to check it out because we live hours away from the house so had to pay someone to come out.  I lost the sentimental attachment to the house quite quickly but you could see that they didn't care about the garden etc so that helped in devaluing the house a little.

#25 emnut

Posted 06 February 2013 - 09:19 AM

QUOTE (Bek+3 @ 06/02/2013, 08:40 AM) <{POST_SNAPBACK}>
One time I had to pay for an electrician after hours because the tenants toaster tripped the safety switch and according to the property manager it wasn't safe, fair or reasonable for her to go to the box and flick the switch back on herself. That cost me $180. I argued and argued and according to LJ Hooker, tenants fault, my problem. Also, the house is so cluttered in their you can barely move apparently. (I've not seen it myself.) So it's not surprising she has mice. (There have never been mice in the property in the prior 6 years to her moving in.) Not only do I have to pay for the traps and pest control, I had to pay $400 when the mouse ate though the air conditioning wiring and another $140 when it chewed the dishwasher pipe.


if you have the same property manager you need a new one




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