New investor question on first rental unit

14 Replies

Hey Everyone,

I just purchased and close in late August on my first rental in a suburb of Allentown, PA and have a few questions if anyone is willing to give their input. Overview: SFH 3BR 1.1BA, 14x20 unfinished attic with staircase (peak is about 6'-6.5', nice yard and parking for 3 cars in the back, it has a 8x10 storage shed and an outhouse looking shed on property. Oil for heat and window a/c. Plan on renting with tenant paying all utilities. Purchased at $145k, Appraisal $148k. Used a Heloc on my primary residence for DP and light rehab <$3k. Target rent $1500-1650

Oil tank has 1/4 in it to start.  How do you normally charge back oil and should I fill it to start tenant off?

Property has a lawn to upkeep.  Do you purchase a mower for tenant even though they are responsible to maintaining lawncare?

Window a/c: Do I purchase window a/c for tenant and then they maintain or let them provide?

Tenant will be paying all utilities and after talking with the borough the water, sewer and trash bill will be approximately $125/month.  How do you charge the tenant this on top of mortgage?  Do I charge a utilities fee monthly?

Attic: what do I do with this? It's a big enough area to finish the room ($5k-$6k) but ceiling height isn't high enough to make it a legal bedroom. Do I just leave it go and let tenant use as storage or finish the room and reappraise the house in the future to pull some of my HELOC money out?

Lastly, the yard has a nice 8x10 fairly new storage shed on it.  Is anyone charging additional rent for this as storage ($25-50/month)?

Thank you!

Is the oil tank above or below ground? I would fill it to start them off and then let them take over after that. If tenant is responsible for lawn care (not a good idea in my opinion), they can figure it out, but I highly recommend doing lawn care as the owner. Window AC is up to you. If you close in August and lease for September 1, you might not even need them and can leave to tenant for next Spring. If tenant is paying all utilities you would just add that on, but they need to know that or just add to rent 125/month and say it's included, which feels better, but also makes it look like higher rent. I would not play with the attic because it would take a lot for you to earn that rehab amount back since it doesn't add a ton of value to a rental that is already a 3, 1.1. I would not charge for an existing shed in the backyard.

Where is this property located? Each "suburb" of Allentown can be vastly different in terms of rents and the quality of tenants.

Oil is the same as other utilities, have them pay for it. Measure it when they move in and expect it to be at that level or above when they move out. I wouldn't provide a mower or window A/Cs, just more things you'd be responsible for upkeep on. Tho some may argue about the window units because of the potential damage when installing them. Trash is usually on the owner in this area, but water/sewer you can just bill back to tenants after the bill comes in.

I would just build the shed into your rent and not try charging them extra for it. If you had a garage, they sometimes can get added for an extra fee depending on the property layout. I wouldn't bother with the attic but again is area dependant. 

Originally posted by @Charlie Cooper :

Where is this property located? Each "suburb" of Allentown can be vastly different in terms of rents and the quality of tenants.

Oil is the same as other utilities, have them pay for it. Measure it when they move in and expect it to be at that level or above when they move out. I wouldn't provide a mower or window A/Cs, just more things you'd be responsible for upkeep on. Tho some may argue about the window units because of the potential damage when installing them. Trash is usually on the owner in this area, but water/sewer you can just bill back to tenants after the bill comes in.

I would just build the shed into your rent and not try charging them extra for it. If you had a garage, they sometimes can get added for an extra fee depending on the property layout. I wouldn't bother with the attic but again is area dependant. 

 Basically all of this.

Except on SFH's I bill back everything, including trash.

Attic it depends if you can raise the rent or not. Depends on the area. In center city Allentown I would.

@David L Miller overall I agree with what the other posters say.

In terms of the lawn, I'd handle the lawn upkeep and factor it into the rent. This could save you heartache and a landscaping bill after the tenant leaves. I've seen long term renters that don't know what they're doing in one of my property's neighborhoods and the lawn looks terrible after a year of poor care.

My opinion is to not touch the attic, in this case it doesn't seem beneficial for the investment (although the extra space is nice). I wanted to chime in on this because I have an unfinished attic space and did a bunch of research on the topic. I decided I'll be finishing it, but different from yours it will add 400-500 Sq ft in official living space and a bedroom because the ceiling goes up to 8ft. I'm looking at the additional room & sq ft to give big ROI once refinancing.

Hi @David L Miller , congrats on the investment, there is some good advice above regarding the lawn, AC unit, and attic space (leave it as storage if it isn't eligible as a legal bedroom).  

I would get the oil tank filled on a routine basis and then bill that back to the tenants.  If they let the tank run dry, it can cause significant damage to the heating system because the dried up oil gunks everything up for lack of a better description.  Fogel's Oil Service is in our area and can put the property on a routine fill schedule, that way the system doesn't run dry and there is incremental billing every quarter instead of one large hit over the winter months, so easier for tenants to budget accordingly.

Also, I'd recommend keeping the Water/Sewer in your name and then billing the tenant back.  Those are lien-able utilities, so if the tenant isn't paying, the water authority can place a lien on the property or at a minimum have you stuck with a large bill to avoid it.  When you receive the quarterly bill, forward a copy along to the tenant.

Storage shed I wouldn't bill separately, but build a bit into the rent for it.... too many separate expenses may overwhelm tenants, but for a SFH heating and Water/Sewer expenses are expected in our area... good luck!

Hi David,

I use Tracy at Lot 74 Property Management to manage our twin purchase in Bethlehem, and she's been a godsend. Most of the responses you've received have been in line with her thoughts on best practices, so you're in good hands.

Our purchase came with window AC units so I had her handyman secure them and make sure they were draining properly. It goes in the lease that they are not to be removed.

Lot 74 does quarterly inspections, and I'll ask the inspector to check them along with the oil tank level. When it's below a quarter tank, I'll have it filled and they'll bill the tenant.

We also have a storage shed in the back yard and don't charge extra for it. What if you charge extra and the tenant decides they don't want it? I'd rather have it included as value. Lot's of small value add ons help keep the tenant happy, and hopefully they'll stay for many years.

With todays work at home hybrid, an office (or playroom/TV room) in the attic would be a nice feature. Work the numbers and see what kind of ROI you'll receive. If you're going to finish it, now's the time.

Good luck!

My property management company bills everything back to the tenant. I would not provide window AC units.

I am also debating finishing an attic space for a rental right now, we are planning to refinance however I am not sure how much value a finished attic (that is also not a legal bedroom) would add.

These are all great questions. I am also just getting started and there are many things like these I never thought about until now. Thank you all for providing guidance to us newbies!