I've been renting out my condo for 3+ years. I want to get a sense of whether I'm "doing it right" or if I should just sell it when the lease is up next summer, or ...
- Located in a poorer Seattle neighborhood
- I'm currently renting it out for $1900
- but spending $1318 on HOA + Mortgage + Insurance every month
- for an income of $582.
- Maintenance costs have been minimal and I do most of the repairs myself -- over the last 3 years I've spend $500 on maintenance.
- Zillow's rental zestimate is $2500/mo but IMO this seems high I think I could get $2200 in the open market but the tenant is ideal in many ways (stable, no complaints, does have a pet though) -- I do increase rent every year though
- The Zestimate on the place is $470k but that seems high, it can probably sell for $420k. I have $102k left on the mortgage.
Strictly speaking my cap rate seems low in this case 12*582/420 = 1.6%. If I were to sell the place and pull out my $290k in equity and reinvest in treasuries with 3% return I'd get ~9k/yr vs my current income of <7k/yr -- and I would obviously not dump it all in treasuries.
The caveat is that the property itself has grown a lot in value over the last year (13% per Zillow -- which seems pretty great considering the leverage due to mortgage.) Another consideration is that I also have many other of my assets in the stock market so this provides some nice diversification and I also hope to one day to get more invested in real estate and this helps me keep my foot in the water -- though I haven't had a chance to learn and do as much as I wanted to because of work/family obligations.
Another side question is whether I should form an LLC for this property. My research indicates that it brings relatively little value for just one property, but maybe a worthwhile exercise for the future?
I welcome any thoughts / ideas / feedback.
You've got a good solid tenant...increase the rent a little each yer...chances are they know they are getting a steal at $1,900/mo and they won't want to rock the boat..................However.............You mentioned the area of Seattle it's in and I undertsand Seattle is starting to get like the Bay Area when it comes to protecting tenants.....Check out Section 8 in your area and see what they pay in your area.....If you find out they will pay between 2200 to 2500 per month you may want to give STRONG consideration to that. You can even screen the potential tenants to say NO ANIMALS allowed....Not. No Pets allowed...No Animals allowed (Read between the lines in case someone tries to slide by with a certain type of "animal"...that is used for support.....emotionally.....If you're able to get an extra $3,600 to $7,200 per month and not have any animals in your rental...it may be worth getting into.
Full Disclosure,,.. I am in no way saying not to rent to someone with an ESA..........Evaluate ALL tenant applicants equally and if one is a better choice for you over the other then you made a business decision based on sound principals.
I'm not a lawyer (but I have been chased by one while riding in an ambulance)
I do have 3 rental properties in seattle and vicinity though I'm in early stages of shuffling some things around. I've considered the LLC thing myself but afaict to be effective it seems to mean:
1) you cannot do any work on the property yourself nor interact with the tenants yourself (showing, leasing, etc).
2) you must hold periodic, and regular "board" meetings (you, your banker, accountant, laywer, etc) and keep appropriate records. (not sure of actual terminology) to build a track record that it is being run as a business.
3) you should keep the property mortgaged to the hilt so the net worth of the LLC is zero.
You (like me) are small and hands-on (and have a lot of equity) it sounds like. I've chosen for now to forgo an LLC, but I am carrying plenty of insurance, and (hopefully) the correct kind. That means an actual landlord's policy on the rental property (if you have a homeowners policy, change it quick) AND umbrella liability coverage policy on everything you have. The minimum on the umbrella should be your net worth (assuming you aren't bill gates) or $1M whatever is more. If you are being sued the plaintiffs could go after not just what you are worth now, but your future earnings as well so keep that in mind. Insurance is cheap when you think about it.
The bigger question: what are you gonna do after you sell?