Newbie here-Potential rental w/first house-A bit overwhelmed!

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Newbie here-Potential rental w/first house-A bit overwhelmed!

Whitney R.
New to Real Estate · Portland, OR · Member since 2016 · 20 posts · 4 votes

Hello all.  I hope I'm in the correct category.  If not, let me know.

I bought my first house in Oregon City, OR last fall. I found out I have to move out to the Newberg area for my work next fall or early 2019 and considering turning the house into a rental. It's a charming big old house with lots of updates and a really great location in the downtown OC area. My long-term goal has always to be a landlord but I was originally more interested in the STR biz, like Airbnb/vacation rentals..as I manage those for a living and love it. But STR are not allowed here in OC..at least not yet. I'm hoping one day it will but for now, it would have to be long-term renters..so probably less lucrative.

My concern is that rent in OC is not as high as some other areas nearby, such as Portland...so the rental fee would likely be only about $50-$100 more than my mortgage payment (my payment includes insurance/taxes, by the way..so I am accounting for that).   The home prices here in OC are appreciating..although it's anybody's guess of course how that will all play out in the future...so the house will only increase in value, I would expect.  

 Of course, option B is to sell it and, since I got a pretty good deal on it, I believe I'd either break even or get a little more back. I really prefer the rental option but don't want to be unwise about it.  I have already been told by my lender that I would be allowed to rent it out since it will have been one year of residing here and I am leaving the area. 

Can anyone offer me their thoughts as I begin to research my options?  Would the rental rate situation make this too risky?

Thanks!

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Nels Norquist
Real Estate Agent · West Linn, OR · Member since 2018 · 54 posts · 38 votes
8y

Hi Whitney. I live in west linn and bought our first rental in Canby, just south of OC. I have been surprised by the rental demand and price in Canby, I would think Oregon city would be pretty easy to rent. Our first tenants only lasted a little over 6 months, but we had the next tenants in the same day the first ones moved out, and they have been great. I had over 15 responses in a couple of days from a simple zillow add. I looked for a family with multiple incomes that could easily afford the rent. We do allow a dog, not my favorite, but seems like everyone has a pet. I feel cats can do more lasting damage to carpet, subfloor, just a personal feeling.

I think if you can cash flow a bit I would go for it. Especially if you have a savings already. I also work with a lender who can get you a pre-approval for your next house based on you renting out your current house.

Feel free to contact me if you have specific questions. Good luck!

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  • Sean McDonnell
    Real Estate Agent · Surf City, NC · Member since 2017 · 648 posts · 597 votes
    8y

    If you have a good hunch that your home will appreciate and you can at least break even on the mortgage, I say go for it. A recommendation would be to start setting some money aside now to build up your repairs/CapEx fund and then whatever extra you get from the rent, put it away for future repairs. Try renting it out for a year or two and if becomes too much of a burden and drain, sell it off. You already own the house which is the hardest part.

    The excitement and beauty of RE investing is that everything can be a risk, depending on who you ask.  Are you planning on managing it yourself?  

    0Reply
  • Whitney R.
    OP
    New to Real Estate · Portland, OR · Member since 2016 · 20 posts · 4 votes
    8y

    Yes..that's my plan.  I manage four 4-5 bedroom vacay rentals for some folks in Portland but I know that's a little different..esp since they aren't my houses and I can just call their maintenance guy if something goes wrong!  I'm mostly nervous about screening and getting the right kind of tenants.  Plus whether to allow dogs. Lots to consider!  

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  • Nels Norquist
    Real Estate Agent · West Linn, OR · Member since 2018 · 54 posts · 38 votes
    8y

    Hi Whitney. I live in west linn and bought our first rental in Canby, just south of OC. I have been surprised by the rental demand and price in Canby, I would think Oregon city would be pretty easy to rent. Our first tenants only lasted a little over 6 months, but we had the next tenants in the same day the first ones moved out, and they have been great. I had over 15 responses in a couple of days from a simple zillow add. I looked for a family with multiple incomes that could easily afford the rent. We do allow a dog, not my favorite, but seems like everyone has a pet. I feel cats can do more lasting damage to carpet, subfloor, just a personal feeling.

    I think if you can cash flow a bit I would go for it. Especially if you have a savings already. I also work with a lender who can get you a pre-approval for your next house based on you renting out your current house.

    Feel free to contact me if you have specific questions. Good luck!

    1Reply
  • Whitney R.
    OP
    New to Real Estate · Portland, OR · Member since 2016 · 20 posts · 4 votes
    8y

    Thanks so much, Nels!  That's so great to hear.  That is surprising to hear how busy Canby is with rentals. I guess I was assuming it was slow here because I had called about a few rentals I saw listed, just to feel them out, and they had no pending applicants....but I guess it could have been that they hadn't received any qualified applicants, perhaps.  I'll definitely contact you if I have questions. 

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  • Thomas S.
    Member since 2016 · 13k+ posts · 12k+ votes
    8y

    Based on the number you have provided it will have negative cash flow. Expenses on a SFH generally run in the range of 50% so with only $100 over mortgage payments you will be deep into negative cash flow. The property is a turkey as a rental.

    If you want to speculate on appreciation and hope the markets do not turn you might get lucky. I would not look at this property as a investment. 

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  • Whitney R.
    OP
    New to Real Estate · Portland, OR · Member since 2016 · 20 posts · 4 votes
    8y

    Thomas...thanks for the reply. So, how much more should I be charging to make it worthwhile?  $300 more than mortgage? What’s the minimum in your opinion? 

    And what expenses are you referring to? Do you mean vacancy rate and normal maintenance? 

    Thanks...

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  • Thomas S.
    Member since 2016 · 13k+ posts · 12k+ votes
    8y

    Vacancy, legal, accounting, advertising, screening, property management, utilities when vacant, routine maintenance, turn over costs, cap expenses, insurance, etc. Generally they will run in the range of 50% of your rental income. 

    Generally your target monthly rent should be a minimum 1% of the total value of the property. Ideally you would shoot for as high as possible 2% being the golden number.

    If you want to be a investor you will need to spend a few months researching finances, income properties, investing etc.

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  • Anthony Dooley
    Investor · Columbus, GA · Member since 2014 · 2k+ posts · 1k+ votes
    8y

    SELL! SELL! SELL! Put it on the market with a good agent, not your cousin, about 90 days before you will move. Based on what you stated, it will not provide enough cash flow to be a good rental. You purchased it at market price and will rent it at market price, which equals zero cash flow. Sell it and buy a rental below market price and rent it out at full market price.

    1Reply
  • Whitney R.
    OP
    New to Real Estate · Portland, OR · Member since 2016 · 20 posts · 4 votes
    8y

    Thanks for the quick reply. Well I’ll be managing the property so that’s all set. Didn’t realize the list was so long and would eat up 50 percent. Legal an ongoing expense? I’m assuming that’s a one-time fee? It all sounds high to me but I’m here to learn..so it’s something for me to investigate. I know I’d never rent it for 1 percent but I’d be thrilled if I could! 

    I’d just hate to sell this house and then see value continue to climb..as they have been. But of course that’s the gamble. 

    Hmm..it’s a tough call! I really appreciate the advice!

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  • Naftali Tolibas
    Tucson, AZ · Member since 2017 · 96 posts · 58 votes
    8y

    I second @Anthony Dooley. If you think you can rent it and only net $100 before reserves, you're one pipe break away from a nightmare. Don't put yourself at risk, and play it safe.

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  • Anthony Dooley
    Investor · Columbus, GA · Member since 2014 · 2k+ posts · 1k+ votes
    8y

    @Whitney R. you can do what you want, it's your life, but I'm telling you $50-$100 over your mortgage is not going to cover one plumber visit or one HVAC repair. If the property value climbs, great! God bless the new owner. If termites infest the house, great it's the new owner's problem. This is not a good investment my friend. What is the rate of return on this? Have you even done the math? You would make more in the stock market than on rent from this deal. Free advice may be what you pay for it, but I know what I'm talking about.

    1Reply
  • Whitney R.
    OP
    New to Real Estate · Portland, OR · Member since 2016 · 20 posts · 4 votes
    8y
    Originally posted by @Anthony Dooley:

    @Whitney R. you can do what you want, it's your life, but I'm telling you $50-$100 over your mortgage is not going to cover one plumber visit or one HVAC repair. If the property value climbs, great! God bless the new owner. If termites infest the house, great it's the new owner's problem. This is not a good investment my friend. What is the rate of return on this? Have you even done the math? You would make more in the stock market than on rent from this deal. Free advice may be what you pay for it, but I know what I'm talking about.

    I’m beyond grateful to receive feedback from those who know, like yourself!  It took me two years and  countless offers in this ridiculous market here in the Portland area to get this house! I got lucky because the sellers were desperate because they had a pending house and the buyer of this one fell thru and I was in the right place at the right time. So, I got a great house for a good deal but it is 1900s, so definitely not a low-maintenance house by any means!  It’s hard to let go of something that was so hard to get and knowing I have to Jump out there again and start from scratch. But I also don’t want to end up in some kind of money pit either. So, I really appreciate the info and the advice. It’s why I came here so...even though it’s not what I wanted to hear, I am definitely going to take it to heart. Thanks again.

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  • Steve Moody
    Portland, OR · Member since 2008 · 123 posts · 73 votes
    8y

    @Whitney R. did you run your numbers through the calculator? 

    https://www.biggerpockets.com/buy-and-hold-calcula...

    I'm with the others that say this is probably not worth it. Unless there are certain circumstances that make it too hard to sell for you (i.e. you might have to move back in a year or two) but go into it knowing that you'll be losing money. It wouldn't be an investment it would be a way to hold on to your property (and it'll cost you). 

    I'm curious why your work would force you to move 20 miles away, and how that would force you to sell the house you love? it's not the best commute, but it might be worth it if you like where you live, and there's a chance that you'll need to come back. If you get sick of the drive you can always sell it in a year or two and have more money to buy a place in Newberg (plus maybe a rental there too) 

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  • Whitney R.
    OP
    New to Real Estate · Portland, OR · Member since 2016 · 20 posts · 4 votes
    8y
    Originally posted by @Steve Moody:

    @Whitney R. did you run your numbers through the calculator? 

    https://www.biggerpockets.com/buy-and-hold-calcula...

    I'm with the others that say this is probably not worth it. Unless there are certain circumstances that make it too hard to sell for you (i.e. you might have to move back in a year or two) but go into it knowing that you'll be losing money. It wouldn't be an investment it would be a way to hold on to your property (and it'll cost you). 

    I'm curious why your work would force you to move 20 miles away, and how that would force you to sell the house you love? it's not the best commute, but it might be worth it if you like where you live, and there's a chance that you'll need to come back. If you get sick of the drive you can always sell it in a year or two and have more money to buy a place in Newberg (plus maybe a rental there too) 

    Hey Steve,

    Thanks for the advice!  I have not run the numbers via that link but I will.  I am moving to manage some rentals there (not mine)..and I also happen to love that area, so I'm okay with leaving this area and the house.  I just preferred the plan of owning property here because it's very close to Portland, which will likely always be strong here as far as RE and rentals.  Traffic here is some of the worst in the country, so a 20-mile commute here can take over your life.  Been there, done that. No thanks..and that was only a 10-mile daily one-way commute and it just about killed me!  

    I have to say that I don't yet have a clear number yet as far as what I can actually charge for rent..so it might be higher than I am assuming.  If this house was in Portland, I know for sure I could ask 4-500 over my mortgage payment...but I'm only making an assumption with my place based on comps I've seen.  Although my house is unique and larger than most 3-bedrooms here..plus it has an office which many don't. So, I might be assuming a lower rent number than is reality.  But everyone here has given me a lot to think about, which I appreciate!  

    I'm still not sure I understand how owning property in a hot area is an unwise move but that's why I'm here..to learn more about all this.  If I could Airbnb this place, it would be a whole different conversation and I'd be more confident. 

    Thanks again!

    0Reply
  • Account Closed
    Rental Property Investor · Portland, OR · Member since 2015 · 338 posts · 332 votes
    8y

    Whitney, I'd take out of area responses with a grain of salt. I've been a landlord in Portland for a few years and I'm also an interior designer. If you want to message me, I can let you know what you might get in rent, and ways you could add value. For example, it sounds like you've actually got a "4 bedroom." 

    OC is only going to appreciate once the waterfall project is done, and more millenials make babies and can't afford Portland/don't want to send their kids to PPS. 

    Also, are you sure STRs are *illegal* in OC? In the city of Portland people just need a permit. And depending on zoning, you could convert it to a proper BnB. 

    Selling now may not be the best choice for taxes. If you own it for 2 years as your official primary residence (where your driver's license and voting is registered, oh and where you officially live, of course), you'll qualify for the capital gains exemption up to $250k when you sell.

    Sometimes just having another pair of eyes helps to uncover your options. Feel free to message me the address and some images. I'm not a PM or Realtor so I've got nothing to gain, just want to help if I can.

    1Reply
  • Lisa Thoele
    Investor · Newberg, OR · Member since 2012 · 161 posts · 82 votes
    8y

    I agree with @Dani Z. I think OC - especially the downtown area - is going to be super hot as the riverfront development happens.  It is of course a long time off - but I think once its done it will be really difficult to afford anything in the downtown OC area.  If you are looking for a long term play, and can afford to hold on to it, I think its worth considering.  

    1Reply
  • Robert Klisak
    Oregon City, OR · Member since 2014 · 25 posts · 10 votes
    8y

    Keep it for sure if you can. ADU's are also an option in OC if you're looking to increase cash flow and can afford to add one.

    Good luck!

    0Reply
  • Whitney R.
    OP
    New to Real Estate · Portland, OR · Member since 2016 · 20 posts · 4 votes
    8y
    Originally posted by @Robert Klisak:

    Keep it for sure if you can. ADU's are also an option in OC if you're looking to increase cash flow and can afford to add one.

    Good luck!

    Hey Robert! I thought short-term rentals were not allowed in OC? Am I mistaken? I do know you can apply for a bed and breakfast permit but it costs $1k for filing fee and 3k for approval screening process...and even after all that, no guarantee of approval. I doubt all the OC hosts paid 4K! But STR option would be the most lucrative..especially since I know how to run them.

    Thanks!

    0Reply
  • Whitney R.
    OP
    New to Real Estate · Portland, OR · Member since 2016 · 20 posts · 4 votes
    8y
    Originally posted by @Account Closed:

    Whitney, I'd take out of area responses with a grain of salt. I've been a landlord in Portland for a few years and I'm also an interior designer. If you want to message me, I can let you know what you might get in rent, and ways you could add value. For example, it sounds like you've actually got a "4 bedroom." 

    OC is only going to appreciate once the waterfall project is done, and more millenials make babies and can't afford Portland/don't want to send their kids to PPS. 

    Also, are you sure STRs are *illegal* in OC? In the city of Portland people just need a permit. And depending on zoning, you could convert it to a proper BnB. 

    Selling now may not be the best choice for taxes. If you own it for 2 years as your official primary residence (where your driver's license and voting is registered, oh and where you officially live, of course), you'll qualify for the capital gains exemption up to $250k when you sell.

    Sometimes just having another pair of eyes helps to uncover your options. Feel free to message me the address and some images. I'm not a PM or Realtor so I've got nothing to gain, just want to help if I can.

    Thanks so much! I’d love to speak with you about it further and get your thoughts! I’ll message you this week.  

    Take care...

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