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> Becoming a landlord, Pros and cons

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Sweet like a lem...
post 05/02/2013, 07:40 PM
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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

This post has been edited by ForsakenTruth: 05/02/2013, 07:48 PM
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Juki
post 05/02/2013, 08:01 PM
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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.


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luke's mummu
post 05/02/2013, 08:03 PM
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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.
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SeaPrincess
post 05/02/2013, 08:13 PM
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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.
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Sweet like a lem...
post 05/02/2013, 08:14 PM
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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.

This post has been edited by ForsakenTruth: 05/02/2013, 08:15 PM
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Ireckon
post 05/02/2013, 08:20 PM
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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.
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BetteBoop
post 05/02/2013, 08:21 PM
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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.
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JRA
post 05/02/2013, 08:21 PM
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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
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Jellyblush
post 05/02/2013, 08:24 PM
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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.

This post has been edited by Chelli: 06/02/2013, 09:28 AM
Reason for edit: Removed oversized signature
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JRA
post 05/02/2013, 08:26 PM
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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.
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