I am about to become an accidental landlord in Dallas, TX. What do I do next?

15 Replies

My wife and I are in the process of purchasing our next home for primary residence, but we have not sold our current home. We are looking to rent our old house (located in 75212) but the home has no rental comps in the area. My questions are:

1.) Do we just set an arbitrary rent and see what we get?

2.) We don't want to manage the property. Do you know of any good property management companies in Dallas?

3.) Should we get a home warranty for repairs? Can we do that even if we (the owners) do not reside in the home?

4.) Where can I find out landlord regulations specific to my area?

Thanks for any assistance; we greatly appreciate it. 

AY

1. I plugged in your zip code to rentometer.com for a 3 bedroom and the median is about $900/month.

2. I don't own any rental property but the owner of DallasInvest.com is very active on BP and would be a good place to start.  You are probably looking at about a 10% monthly fee of your rent plus half or all of your first month's rent to find a tenant.

3. This seems to depend on your personal risk tolerance and how much of a cash reserve you are starting with.

4. You might want to reach out to your local REIA or contact someone who works for the city.

I've actually been doing some research on the Dallas rental market and it doesn't seem like a good rental market.  Would you please share the details for this property?  Property value, size, bedrooms, estimated rent, etc?

If you have a mortgage, Will your bank let you rent it out. Will they find out?

Don't rent a house you have a fondness for. If it gets torn up you will not recover.

Also it is probably to good a house for a rental.

Sell it and buy 2 or three cheaper houses to rent

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Last Q first, should be a landlords association, check with them. You public housing authority section 8 office will have a Tenant's Rights pamphlet or legal aid offices also pass out to many of those. You'll find tenant and landlord guidelines on the HUD web site as well. Understand discrimination issues, rent qualifications and application procedures.

Doubt you can get a warranty for rentals but you might, others may know about Tx.

Check on BP, your profile/home page, investors near you, you probably have a PM as a member.

Don't know the value of the home, initially you might ask a bit more than 1% a month, a 200K home might be 2,000 to 2200 a month, ball park, but it would be better to line up a PM first and have them price it.

I'll mention @John Chapman  

I think he's in your general area, he's an attorney and a landlord, a good contact and has contributed he a lot too.

Don't jump on the first PM you find, I'd ask John about what is common there with the agreements. :)

Since Bill pinged me I guess I'll chime in.

First, based on your questions, I think you should really reconsider becoming a landlord.  It takes  commitment and patience, even with a property manager.  If you're just doing it to tread water and not really excited about it, it will make your life miserable (tenants, repairs, etc.).  Not trying to be harsh, but this is just the reality of the business.

1.) Do we just set an arbitrary rent and see what we get?

Uh, no. You need to research what rents are going for in your area, given the size, amenities, and location. Look on Craigslist, Rentometer and Zillow. If you are going to use a property manager, they can pull rental comps from the MLS and tell you rents.

2.) We don't want to manage the property. Do you know of any good property management companies in Dallas?

Unfortunately, I don't.  I think it's kind of a waste of money when you're managing one or two properties.  You'll probably spend as much time managing the manager as you would the property.

3.) Should we get a home warranty for repairs? Can we do that even if we (the owners) do not reside in the home?

No, do not waste your money on a home warranty.  They are a ripoff.

4.) Where can I find out landlord regulations specific to my area?  I actually don't have any properties in Dallas proper, but I just took a quick look, and  it looks like there is a rental registration program.  (Learn something new every day.) Here's a link, and I would give them a call.  Most programs like this are pretty friendly and will tell you what you need.

http://dallascityhall.com/rentalregistration.html

You also want to make sure you are in compliance with the Property Code. There are rules regarding locks, smoke alarms, etc.  Here's a link to the provisions on residential tenancies.

http://www.statutes.legis.state.tx.us/Docs/PR/htm/...

You can choose to be an intentional landlord, not an accidental one. Change your mindset, put on the right hat and you could do very well. :-)

Also, do a search on BP and online for "renting out your home". Good luck!

Home Details:

3/2.5/2 

2491 sq ft

Tax appraisal $145,790

Purchased for $132,000 in 2011

$118,000 balance

http://www.zillow.com/homedetails/3507-Jenny-Dale-Dr-Dallas-TX-75212/89365670_zpid/

The numbers from rentometer compared with you debt servicing + insurance costs means your rent would probably cover your PITI but with none left to pay for maintenance, vacancy, management, or CapEx. And after all that, what you're left with is your cash flow. In other words, based on the info that I have here (which isn't much, and I don't know the local market at all, so take with a grain of salt), this doesn't look like a good candidate as a rental property. 

Is it an area you expect to see significant appreciation? Is there any reason why you don't want to sell and reallocate your equity? Is there anything special about your house that would potentially allow you to ask for more rent?

@JT Spangler  I would not mind selling it. We were thinking of renting it till next summer when homes sell faster but I agree that this would not be a good rental property. I will reconsider selling it now and using the equity to start investing. Thanks for the advice and knowledge guys. I really appreciate it. 

@Albert Yamoah   Yeah, if you only want to have it occupied until sales pick up in the spring, I don't know if I'd rent it. Renters are likely to do more damage than any profit you might clear would fix. I'd probably just carry it for a few months and then list when the sales start heating up. 

In the meantime, if your area will support it, you could consider doing something like airbnb.com short term rentals. In my area (Nashville), a house your size will rent for easily $150/night on the weekend.

"Purchased for $132,000 in 2011

$118,000 balance"

What do you have it listed for today and what are sold comps selling for in a span of 30 days??

This minus resale costs will give you an idea of any equity you may have.

What does the house look like?? Is it old and outdated on the inside?? If so renters will just wear it down a little more. If it's really nice then they could do over 10k damage and basically with rent of 900 you are hardly breaking even on rent coming in so would be even worse off this way. You would have to do additional repairs and then get them out if they didn't work out and would have lost rent as well.

I haven't owned residential in years and I can't stand it. I like my life knowing I am not going to get  a call with all the drama. Commercial tenants are much better but you have to have big bucks to get into it with the down payment so many investors buy the single family houses.

Some people are not meant to rent to residential tenants and all it entails. There are plenty of other avenues of real estate investing that do not involve that drama.

Seems like chopping it down in list price and selling quick and enjoying the holidays might be an answer. 

@Joel Owens  thanks for the advice. I never thought of it in that light. It's a 2008 two story home in an area that is actively developing. It's really hard to find comps in this area because few similar homes have recently sold, but I'll speak with my realtor about it. 

@JT Spangler  It probably would be better to sit on it for a few months. That airbnb idea may be the thing to do. 

Thanks again to both you guys. 

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A related question/issue. 

I began as an "accidental landlord," but it was purposeful.  I bought a place I knew I could rent out when I moved.  That place has been rented for 3 years, averaging about +$300/mo. I hadn't planned on doing the same thing again, so I did not consider potential rent when I bought this place, but an opportunity for a new residence at a really good price has come up, so I'm thinking about whether to sell or rent this place.

Right now, it looks like market rent for my current residence would give me a break ever or slight negative monthly cash-flow before any major ("unexpected") expenses.  The furnace and roof are new, so I'm not worried about those big two.  I have cash to cover the spread and any other expenses indefinitely.  I'm getting about $500/mo in equity in the mortgage payment, so if you add that to the numbers, I'm between +400 and 600/mo before big expenses. 

My feeling is that I don't mind taking the short-term negative cash-flow.  It is less money per month than I put in retirement accounts, and that $100-200 is immediately worth $500+appreciation in equity.  The mortgage on it is 3.5%, so I have a hard time paying back that basically free money.

On the other hand, I could sell, take that 100k from the sale and the cash I would have used to cover the spread, and buy two more properties that are better rentals.  

What do people think?

If you're going to go the airbnb route, there are some thinks you'll need to keep in mind. You will need to furnish your house, and clean your house between guests. It's more work, for potentially more income. 

While there are no listings in your zipcode, there are 262 listings across Dallas. Of those listings, there are 19 3 bedroom listings. For those listings, the average nightly rate is $285, and the vacancy rate is 64%.