Newbie Forced Rental

7 Replies

Hello All!!!

My name is Ace new to BP as of about a month ago. I have just been offered a new job in Columbus, OH and must move. Sadly I just purchased a home last May for a total purchase price of $81,900. As of today I have decided I would be better off renting instead of selling based on some advice of my Realtor that I would be upside down on the home. 

Below are my current payment info and some info on the home. 

Principal & Interest: 435.95

Hazard Ins: 63.50

Mortgage Ins: 27.67

County Tax: 78.97

Total: 606.09

Next is what I am going to charge for rent:

Total Payment: 609.09

Repairs (5%): 30.46

Vacancy (7%): 42.64

Property Management (10%): 60.91.....maybe

Trash: $25

Monthly Rent: $770 (Tenant pays Water, Electric, Gas)

Home is a 3 bedroom 1 bath with completely renovated with fenced in backyard. Median Avg Rent for area is $789...Using a calculator for my area this was rated as a fair amount. 

Next I will be creating a lease using Ohio Tenant Rights as reference and a move in/move out checklist.

How am I doing so far?? Any adjustments I need to make with the mortgage company or insurance before renting??

@Acesa Garrard   welcome to the site!

Your numbers for a rental look kind of slim and you were factoring your percentages on the PITI, not the rent. Here is what you may want to consider factoring:

PITI: 609.09

Repairs/CapEx (15%): $115.50

Vacancy (8.3%): $63.91

Property Management (10%): $77.00

Trash: $25

Monthly Rent: $770 (Tenant pays Water, Electric, Gas)

Cash flow before reserves:  $58.91

Cash flow after reserves (repairs/vacancy):  $-120.50

Some may say to set your repairs/CapEx reserve to be only 10%, but I like to operate assuming the worst and hoping for the best.

So, if you run into any issues and you only put $58.91 away each month, you'll wind up paying out of pocket.

Can you get the tenant to pay trash?  Can you set the rent any higher than $770 for your area?  If the median rent is $789, can you at least do $790? Even with these numbers you're going to be negative but it will mean going less negative than with your original plan.

Dawn Anastasi, Core Properties, LLC | http://www.coreprop.biz | Podcast Guest on Show #29

That rent sounds low considering the purchase price but very possible depending on the area.  I would call around to confirm that $770 is all you can get.  I have found that many rental income estimate calculators like zillow can be way off.  You may be pleasantly surprised with what rents in that area are going for.  Good luck and welcome to Columbus!

I would agree with both posts, and Grant is right about not trusting calculators to set your rent. You should call some people and get several actual rent figures for your area and then set the rent according to that.

Originally posted by @Grant Patmon :

That rent sounds low considering the purchase price but very possible depending on the area.  I would call around to confirm that $770 is all you can get.  I have found that many rental income estimate calculators like zillow can be way off.  You may be pleasantly surprised with what rents in that area are going for.  Good luck and welcome to Columbus!

 Thank you for the warm welcoming!!!

Originally posted by @Dawn Anastasi :

@Acesa Garrard  welcome to the site!

Your numbers for a rental look kind of slim and you were factoring your percentages on the PITI, not the rent. Here is what you may want to consider factoring:

PITI: 609.09

Repairs/CapEx (15%): $115.50

Vacancy (8.3%): $63.91

Property Management (10%): $77.00

Trash: $25

Monthly Rent: $770 (Tenant pays Water, Electric, Gas)

Cash flow before reserves:  $58.91

Cash flow after reserves (repairs/vacancy):  $-120.50

Some may say to set your repairs/CapEx reserve to be only 10%, but I like to operate assuming the worst and hoping for the best.

So, if you run into any issues and you only put $58.91 away each month, you'll wind up paying out of pocket.

Can you get the tenant to pay trash?  Can you set the rent any higher than $770 for your area?  If the median rent is $789, can you at least do $790? Even with these numbers you're going to be negative but it will mean going less negative than with your original plan.

 Thank you so much for the advice.

So what is the next step. Do I need to make any changes to my insurance since I will be renting it and not living in the home? Is it as simple as marketing the home and finding tenants?

If you want to manage it yourself then you should find a tenant screening company.  I suggest FABCO that is what I use here in columbus.  Its $25 a year.  Or find a property manager if you want to go that route.  If you decide to manage it yourself FABCO has a lease that you can use. I use theirs but have added quite a bit to make it my own.  What ever screening service you use just tell them that you are a Newb and they will walk you through what the heck you are looking at once you get a potential tenants results back.  They also have available to you tenant applications and all of that kind of stuff.  As far as marketing goes, use craigslist because it is free.  You can also market for free on Zillow, and Realtor .com.  Also check out Hotpads.com.  Most of my luck has come from a sign in the yard but I try to get as many applicants as possible so I can choose the best one.  When it comes to your insurance, Just call your insurance agent and tell them that you are converting the home to a rental it is an easy process.