Renting out my house to get started. Use a property Mgt. service?

Question

My wife and I want to get started in real estate investing and we have little/no money to get started. We have been in our current home for 1 year and are now able to move out into a small apartment and rent our house. It's a nice house in a nice neighborhood...I think we can make $2-3oo over the payment. Is it a good idea to allow a property management company to handle things for us as we are just starting out? They want $400 to get started and 10% a month. I am working 2 jobs to maintain our current situation and have no personal time to commit to land lording as of yet and no experience. I would like to ask it anyone has dealt with the management company before but I suspect they are members on this site..? Any advice would be helpful, thanks

Account Closed · Answer

Oh, and your original question: from what you say about how busy you are, I would get a property management company.

Account Closed · Answer

@Dennis Standers So you'll be buying the small apartment in order to rent out your house or you'll be renting the small apartment to be able to move out the house and rent it out? I'm not clear on this.

If you'll be buying the small apartment and you've run the numbers carefully that you'll actually be making money rather than losing money - then this is an option. If you'll be renting the small apartment - I wouldn't do it. You've only lived in your current house a year. If you're able to make an additional payments on your mortgage (and the bank allows you to prepay your mortgage without charge) to build equity, I would rather do this.

Don't stretch yourself too thin financially. When you run your numbers to figure out if you make a profit or not, you need to factor in vacancy costs. What happens if a tenant moves out and it takes a month or two to get a new tenant in. Will you be able to factor in that expense and be able to make the mortgage payments.

Just some thoughts.

Elizabeth Colegrove · Answer

@Dennis Standers

My husbands active duty military so we have a very transient career. We got started by buying a personal house and renting it out when we left. It let us get our foot in the door. We self manage even across the county. It can be slightly difficult but overall has saved us a ton of money from management fees plus we have never had to keep it empty. I have always been able to rent it quicker and keep it rented.

I am also downsizing when my husband leaves for deployment. So I totally understand where you are coming from and have done it/ doing it now myself.

A few thoughts about your plan

*If you are going to have a manager doing it, you need to hold that carrying cost

*2 months vacancy is along time, I personally have never had one because I show it while I am still in the house

*USDA is not possible because it is for first time home buyers

*you can only have one FHA loan, so if you already have it than you are no longer able

*conventional 5% is probably what you will be able to get, so you will need to save up 5%

*once your house shows up on your taxes it will help with debt to equity

Let me know if I can help. This is a huge part of niche and success. You might also enjoy my website where I talk about this strategy more in-depth.

Dennis Standers · Answer

Thanks Joe, I would love to do just that very thing. New to all this and we have no money to put down. Should we just go through the procedure that we went through to buy this property? Go through a realtor and find the property and try for USDA no down? Struggling now to pay my bills, we thought better to rent first and get cash to go FHA or other ave.? Any thoughts or other way to buy a duplex? PM says they could rent my house in 2 months.

Joe Fairless · Answer

@dennis

@Dennis Standers I admire your approach. Some people might not be willing to do this. I would look into buying a duplex (vs. renting an apt) and live in one side and rent the other. That way your approach keeps snowballing instead of stopping at one.

Paul Ewing · Answer

I don't think there is anything wrong with renting the house to others and downsizing to an apartment.  I am in a similar situation.  We live in a $30k doublewide while renting out the $150k house I bought a couple years ago because we are happy where we are and it was going to be a pain to move.  The rent we get is almost three times the mortgage payment and we will have it paid off in another four years.  That said, you need to make sure you have enough cash reserves like others have said to be able to handle a few months of double housing payments if you have a problem tenant.

Kathleen Leary · Answer

Another consideration (all money matters aside!) in favor of a management company is that you have an emotional investment in your home. It's very hard to see a stranger in "your" house not taking care of it as you would. You may be tempted to be overly picky as to wear-&-tear damage, prone to micro-managing, etc. It is hard to step back & be objective.

Using an impartial outsider (PM) could make the transition much smoother & remove you from the day-to-day drama.

George P. · Answer

this is trouble in the making. you have to work two jobs just to maintain what you have, you have no experience, yet will have to work extra hard to pay the PM each month.

what happens when you pick a bad tenant. and trust me, the PM's do not pick perfect tenants each time. so you pick a bad tenant and by the time you evict, it will be 2 months (at least). you will be paying both, the house and the apt?

you are walking on thin ice with no savings/money and venturing out in the RE business. if you had some savings to back you up, that would still be risky.

Dennis Standers · Answer

Thanks Wendy, We will be renting the apartment. We need to downsize our situation paying less in rent/house payments and utilities. We also want to get started in real estate and have no money for down payments on a mulit family to live in. Just looking to have someone pay my mortgage and make a little $ and save big time renting a 1 bd apt. To get $ ahead.