new landlord, with issues already, need help!!

14 Replies

Dear all,

I just got my first rental property rented out. They are moving in this coming Sat. Today, the agent called, telling me the tenant want me to install garage door opener and spinkler system. They signed the lease already without those, now they are asking for them and said they would sign 2 year lease if I install them. Should I do it? Also, another question, the rent is $1450, my mortgage is about $820, Tax is about $410 per month(yeahh, it's Texas), HOA+insurance is $90, cash flow is $130, does it sound like a good investment to you?

Thx a lot for your input!!

Nicole

Originally posted by "luckynicole":
the rent is $1450, my mortgage is about $820, Tax is about $410 per month(yeahh, it's Texas), HOA+insurance is $90, cash flow is $130,

Cash flow is only $130 if you got one of those great places that never needs repairs, requires no maintenance and is never vacant for even a day.

You might want to play around with the free property analysis tool over on the left side of the page to see how different repair/maintenance/vacancy rates affect your deal. Vacancy may be a very big problem for you, since the house costs you $1320 per month whether someone is in it or not.

When I read JUST THE TITLE of the post my first thought was; "show them you're in charge", but then I read the post! You're in a bit of a spot. $1300 is pushing upper end of "non-luxury" homes and those two things are kind of expected by the tenants you need to attract and keep.

I'd put the garage door opener in TODAY, they're a couple of hundred $ and a couple of hours to install. I'd also start reading up on installing a sprinkler system. I do see one problem though, your realtor is probably going to want (I'm sure it's in the contract!) more commission on any lease extension. It'll aslo lock you into to the same rent amount for two years! I'd still do it. My rentals problems decreased dramatically when I started to insist on minimum 2 year leases. I NEVER used realtors on rentals!!!

This is also why I sold ALL MY TEXAS rentals 10 years ago!

BTW, is this new construction by any chance?

What made you think $130/month is good cash flow?

all cash

$130 cash flow :violin: without setting aside money for maintenance, vacancies. You need to start saving for a rainy day. I can't get over taxes in TX, everyone says invest in TX because homes are cheap. The math never works for me. atleast you don't have to pay a heat bill if your property is vacant in the north. Tell the tenants to put that stuff in AND MAKE SURE IT GETS INSPECTED. tell them they can take it when their done. Most likely you might be able to offer them a price to leave it when they move out.

Thank you all so much for the quick reply, they are all very valuble to me.

Here is more detail about the house. It's a new construction house, with home warranty. The realtor didn't mention that she wanted more commision when she talked to me yesterday, but i will find it out today. I didn't want to use realtor at first by advertising online, but that didn't work out well, and i was really anxious to get it rented out, so we got a realtor, who brought a bit more traffic to the house and finally this tenant seems a fit.

Allcash, to answer ur question :What made you think $130/month is good cash flow? , here is my answer, i don't think it's really that good, it's just ok for me, but what attacts us more is that we can also take additional tax deductions, plus the tenant is buying the house for us. Do I sound right on this?

Thx a again!! I am learning everyday

Nicole

Nicole,

It is what it is. You've already bought the property. It isn't the best possible deal but hey it sounds like your first so congrats for jumping in. You should add on
[list]
-10% of your revenues as vacancy cost (turnover will run a few days/weeks a year most likely),
-10% for routine maintenance like broken windows, torn rug, painting during turnover..., and
-another 10-20% for long term maintenance stuff. With new construction you will be clear for the first five years (fingers crossed) but eventually it will need exterior painting, landscaping, a new boiler, new roof, new --insert something large and expensive--.
-plus advertising costs each year if you turn over tenants
[/list:u]

Also, I'd recommend ferreting away 3-6 months' rents as a safety for that rental in case you end up with a special assessment or an unexpected major repair. Without the reserve, any major mishap could put you into a position where you're forced to sell the property quickly. That would be bad for you. Many/most new landlords have no reserve; a fickle market can quickly push them into foreclosure or bankruptcy. Don't be one of those landlords.

Good luck
Jeff

Nicole;

Having had rentals from '78-'97 or so is what makes me say $130/month isn't great! For one thing ONE MONTH of vacancy wipes that out. Doing the make ready yourself when it's vacant, or paying someone else means it either cost you a month of vacancy or most of the $1300.

For some strange reason in Harris County lenders tend to OVERESCROW for taxes the first year, and then the taxes will be real low when the bill comes because it will have been taxed as a vacant lot, which means they'll cut your escrow in the second year, then jump it way up again in the third year. This is what comes from having computers calculate things.

Nicole also wrote;

what attacts us more is that we can also take additional tax deductions,
.

I realize that there is some "extra" depreciation available for gulf coast counties due to Hurricane Katrina, but "tax deductions", PLEASE. To get a TWENTY FIVE CENT tax deduction you pay ONE DOLLAR to either the BANK or the COUNTY TAX COLLECTOR. I can get the same deduction by giving a dollar to my church or favorite charity and I don't have to listen to people complain about a lack of sprinkler or grog door opener.

all cash

If your tenants rented the house it was "open and obvious'' there was no sprinkler system. First, their water bill will go way up...then they'll be distressed and want to move Second, sprinkler systems have their own maintenance problems.. I'm curing problems with a 6 zone system that sprays too much on the house and forced water into the back laundry room.
(Who's going to maintain the system?). Also, once a year we are required to do a $45 back flow prevention test. If you have someone else install it -- just try and get them to come out if a head is broken. Who's cutting the lawn? If it's tenants, they'll be running over the heads because we all know they use mowers that scalp the grass (and the sprinkler heads)

If your tenants want all those amenities they should have bought not rented.

Originally posted by Mach:
$130 cash flow :violin: without setting aside money for maintenance, vacancies. You need to start saving for a rainy day. I can't get over taxes in TX, everyone says invest in TX because homes are cheap. The math never works for me. atleast you don't have to pay a heat bill if your property is vacant in the north. Tell the tenants to put that stuff in AND MAKE SURE IT GETS INSPECTED. tell them they can take it when their done. Most likely you might be able to offer them a price to leave it when they move out.

Renting in Texas is great, also anything a tenant installs in the house is to remain with the house when they move out, even a smoke detector.

Put the garage door opener in, but not the sprinkler system as for reasons already listed.

get out of the deal as soon as you can, 130 a month cashflow is going to kill your pocket in the long run.

Josh,

Is is possible in computer programming to have the date of the post flash after a period of time. For instance, if the post is more than a year old, or has been inactive for a year, when opened the date flashes.

I know its' just easier to make a habit of checking the date before reading the post, but why do I keep not doing it?!

Eventhough the post is old, I'll chime in with something my mother (a long-time LL) taught me:

When a tenant asks for something, the first word out of your mouth should be no. In certain circumstances an "I'll think about" is ok. Never get pinned into an immediate answer. I sometimes use the "I have to run it by...my husband, accountant, contractor, etc. Don't get pushed around. I have a new tenant now that keeps asking for new stuff. No.

Buy them a hose and tell them to do things 'low-tech'! and the garage door will be good exercise for them. You aren't making any money on this property and they already signed the lease.

You can tell them you will give them their choice of the garage door or the sprinklers after their first year with no late payments. They get the other after their 2nd year!

When my tenants ask for something that wasn't there when they rented the place, I tell them they must have my contractor install it/buy it/maintain it (if it's something I would allow).

The lease states he is the only one who can work on the property. He gets $40 an hour plus materials. They don't ask twice.

Aaron, I like your incentive plan though!

HECK NO! A 2 year lease is not a blessing. Tell them you would be happy to ad the items if they would be willing to pay more monthly. Tell them they are more than welcome to install them on their own provided the work is done to code, and it stays upon leaving. Also put in writing that the work in no way is to be considered part of rent.
On a positive note, congrats on a good deal! I personally like month to month, you have much more control. Single family homes rent very quickly!
Have you considered doing a rent to own on the home? Nice down payment, no repairs, and more monthly, plus if you do it right, a nice pay day at the end. ( Just gotta check Texas laws, I know they have certain rules on owner finance) Good Luck!! :mrgreen: