Diary of a Rental Property

Diary of a Rental Property

J ScottPro Member
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Investor · Sarasota, FL · Member since 2008 · 18k+ posts · 17k+ votes

I had a blast writing my Diary of a New Construction Project thread, and the feedback I got from that was great. So, I've decided to try another one...this time tracking and discussing the ongoing saga of a rental property that I'm in the process of buying, rehabbing and renting out.

A few details about this project and thread:

  • I'm not a professional landlord, and while I've had a couple rental properties in the past, they were all short-term and relatively turn-key (I didn't have to do much for the short time I owned them). This time, I'm looking to hold some properties longer-term, and the one I will be discussing in this thread will be my first longer-term property.
  • Because I expect this to be a longer-term hold, I expect this thread could continue for a quite a while. Obviously, I won't have stuff to post everyday (especially once the house is rehabbed and in service), but I'll try to follow-through for as long as possible, and hopefully until the end of the project, whenever that is.
  • I really have no idea what I'm doing when it comes to holding long-term rentals, so I'm guessing this thread will be more of a "what not to do" thread, as opposed to a "what to do" thread. That said, I'm open to all constructive critique, and hopefully advice, opinions and feedback I get in this thread will actually help me to be more successful.
  • I will, of course, post as much detail about the project as feasible, without risking giving away anything inappropriate about tenants, etc. I'll try to provide all documents, invoices, pictures, budgets, schedules and financials down-to-the-penny, so everyone will know just how well (or how badly) this project goes. Maybe we'll even get some insight into the "50% Rule" while tracking a real life project.
  • I have a partner on this project. It's a good friend of mine, and I'll likely be referring to him throughout the thread. Let's call him "Brian"...which makes sense, since that's his name.
  • This "diary" is going to start in the past, when I first found the house. I've been keeping notes in anticipation of starting this thread, and I imagine I'll be caught up to real-time in the next couple weeks. But, you'll notice that the dates on the first several posts will be in the past, and that's why.

Please feel free to ask any questions, provide any advice or give any opinions throughout the thread. I may not listen to all of them, but I always appreciate the feedback.

Now, on to the thread...

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Brandon TurnerPro Member
Investor · Maui, HI · Member since 2009 · 13k+ posts · 3k+ votes
12y

Looking forward to following along J! Now you are playing in my world! :)

See this reply in the discussion

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  • J ScottPro Member
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    Investor · Sarasota, FL · Member since 2008 · 18k+ posts · 17k+ votes
    12y
    Originally posted by @Andre Q.:

    Congratulations on your deal.. Maryland has a lot of deals like this one.. I sent you some info from zillow that you might be interested in..You will not have a problem renting here. A lot of the apartments here are full and have people on a waiting list. People are renting rooms and it's a hit here in the city..So much opportunity here!!

    Ahhh...was confused who was sending me random Zillow listings the other day...

    For reference, I'm not looking to buy in the city...sticking the county these days...

  • Baltimore, MD · Member since 2013 · 34 posts · 6 votes
    12y

    OK..

  • J ScottPro Member
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    Investor · Sarasota, FL · Member since 2008 · 18k+ posts · 17k+ votes
    12y

    JANUARY 29, 2014: CRAZY COINCIDENCE

    Crazy story -- my partner and I called a few contractors to get some bids on the renovation work for this property. One of the calls we made was to a guy -- Jon -- who we found a couple weeks ago off Craigslist to do some sheetrock work in my partner's personal residence (which is 45 minutes from this rental house). Jon was to meet us at the rental property at 2pm.

    At 1:30pm, Jon calls to verify the address. He starts laughing and says that he's standing in a rehab he's working on, LITERALLY 300 yards away. Nearly identical townhouse (2 bedrooms instead of 3) and the owner of that one is an investor who specializes in HUD houses.

    He comes over to look at our place, and then we go over to take a look at the renovation he's doing on the one across the street. Unlike our plan, he's doing a good bit of work on the other house -- opening up the kitchen, putting in can lights and pendants, putting in granite, finishing the basement, etc. We asked him the rationale, and he said the investor does that in all his Section 8 houses. Apparently, he's found that if he makes the place really nice and screens his tenants well, they tend to take care of the place.

    Well, we're not convinced we should be doing a high-end renovation for Section 8, but the points were well taken, and my partner and I ultimately came to the conclusion that doing a little extra work (and spending some money on less destructible materials, like granite) was probably a good idea. The best part is that many of the upgrades we're now considering are not high-dollar, and I'm hopeful that our original $12K budget for the renovation is still in the ballpark.

    Anyway, in my next post, I'll lay out the Scope of Work for the renovations, along with our budget breakdown...

  • Surveyor · Arlington, VA · Member since 2012 · 8 posts · 2 votes
    12y

    Hi J:

    Thank you for starting this thread.

    I have not been up that way, I stay in Virginia, but I would investigate further the idea of going higher end. This area in general DC/Balt is very transient and renters are very demanding. DC in particular has a lot of rental inventory so competition is brutal. IMHO, I recommend you invert the problem and find the reasons why you should not go higher end, vs finding reasons why should do a lower end rehab. Think about it, that property next door is competition and there are probably dozens like it.

    just my 2 cents

    Luis

  • Investor · DMV Maryland · Member since 2013 · 867 posts · 370 votes
    12y

    @J Scott

    J - Your conversation with your Jon confirms what Denise told me when we walked properties in November in an area that she invests in that I'm very interesting in picking up rentals in . . . she puts Allure flooring in (I think it's a laminate; it looks like a genuine hardwood and is apparently pretty indestructible) and she almost always does a granite counter and SS appliances.

    I'd personally never put SS appliances in a rental, period. I don't think the cost is justified just because of the cosmetic upkeep required with SS - it's a high maintenance item. I can't mentally wrap my head around damaging a SS fridge but I'm sure many renters wouldn't care at all about nicks, etc. Black appliances work fine against any color scheme as well. But I plan to spring for the granite countertop because of durability and the "wow" factor. And then screen the tenant like crazy.

    From all accounts I've heard from active Baltimore investors, Section 8 in Baltimore are extremely picky because they can be - they are used to seeing higher end touches in friends' places and come to expect the same.

    I think I saved an email on a local place that does granite 'scraps' - etc., you may be able to get the size you need at a very good price that keeps your 12K goal intact or very close to it. Let me know if you want the info.

  • J ScottPro Member
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    Investor · Sarasota, FL · Member since 2008 · 18k+ posts · 17k+ votes
    12y

    Thanks Christina!

    And would love the info for your granite supplier...

  • Dallas, TX · Member since 2011 · 308 posts · 59 votes
    12y

    I'm looking forward to following this one. A couple questions:

    1. In your analysis, you make assumptions about being able to get more rent for adding a 1/2 bath or finishing the basement. While this obviously has an effect in the open market, are you sure it applies to S8? Where I am S8 rent is based on the number of bedrooms and varies by zip code. As far as I know (and I could be wrong), things like sqft, bathrooms, granite counters have no effect.

    2. I'll preface this by saying I'm not nearly as experienced as you, but I'm a bit skeptical about the return on replacing the cabinets, countertops, and redoing the bathroom. They look perfectly fine and functional in the pictures.

  • J ScottPro Member
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    Investor · Sarasota, FL · Member since 2008 · 18k+ posts · 17k+ votes
    12y
    Originally posted by @Bryce Y.:
    I'm looking forward to following this one. A couple questions:

    1. In your analysis, you make assumptions about being able to get more rent for adding a 1/2 bath or finishing the basement. While this obviously has an effect in the open market, are you sure it applies to S8? Where I am S8 rent is based on the number of bedrooms and varies by zip code. As far as I know (and I could be wrong), things like sqft, bathrooms, granite counters have no effect.

    2. I'll preface this by saying I'm not nearly as experienced as you, but I'm a bit skeptical about the return on replacing the cabinets, countertops, and redoing the bathroom. They look perfectly fine and functional in the pictures.

    Hey Bryce,

    1. I don't believe that Section 8 will pay more based on the extra 1/2 bath or the partially finished basement. That said, there is a decent amount of competition for Section 8 tenants in this area, and I believe it's more likely I'll be able to get a tenant willing to pay the maximum that Section 8 will allow given these upgrades.

    2. Like #1, the issue here are the units I'll be competing against. The cabinets, countertops and bathroom are substantially outdated and in pretty rough shape. I think I'd be hard pressed to get the rent I want to get without an upgrade. As an example, here are a couple kitchen pictures from the most recent property in this neighborhood to have rented to a section 8 tenant for a price comparable to what I'll be asking:

    The rest of the house is completed updated as well. If this is what I'm competing with (and I've seen a couple others indicating it is), without doing a full cosmetic remodel, I believe it's unlikely I'll command the rent I'm asking.

  • Investor · DMV Maryland · Member since 2013 · 867 posts · 370 votes
    12y

    @J Scott

    I would love to know what your wife thinks about the white cabinets in a rental!

    (I sent you the granite info via email.)

    One thing about the bathrooms - I believe that for Section 8 in Baltimore, if you have to walk through a bedroom to get to a bathroom, then that bedroom is not counted as a bedroom, it's a den (or can be marketed as something like that). In this TH you just purchased , because it's not one of those 1900s rowhomes in the city, that should not be an issue but just for future reference should you find yourself getting involved with those "real" Baltimore townhomes (ha!) , this type of layout is all over the place. Then adding that add'l bathroom almost becomes a must if you want to be able to rent out as a 3 bedroom to command more rent.

  • J ScottPro Member
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    Investor · Sarasota, FL · Member since 2008 · 18k+ posts · 17k+ votes
    12y
    Originally posted by @Christina R.:
    @J Scott

    I would love to know what your wife thinks about the white cabinets in a rental!

    (I sent you the granite info via email.)

    One thing about the bathrooms - I believe that for Section 8 in Baltimore, if you have to walk through a bedroom to get to a bathroom, then that bedroom is not counted as a bedroom, it's a den (or can be marketed as something like that). In this TH you just purchased , because it's not one of those 1900s rowhomes in the city, that should not be an issue but just for future reference should you find yourself getting involved with those "real" Baltimore townhomes (ha!) , this type of layout is all over the place. Then adding that add'l bathroom almost becomes a must if you want to be able to rent out as a 3 bedroom to command more rent.

    Christina -

    Great info...and very interesting...thanks! I'll keep that in mind when looking at townhouses and row houses in the future...

    As for the white cabinets, my wife actually commented about that -- the landlord better hope the tenant stays for a long time, because those will almost certain need to be replaced when the tenant leaves! We'll be going with the natural wood look to facilitate repairs... :)

  • J ScottPro Member
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    Investor · Sarasota, FL · Member since 2008 · 18k+ posts · 17k+ votes
    12y

    LANDLORD INSURANCE

    On the day of closing, we put a landlord policy in effect for the property. Annual premium is: $593.80.

    Here are the two declarations pages (click to enlarge):

  • Roy N.Pro Member
    Rental Property Investor · Fredericton, New Brunswick · Member since 2013 · 7k+ posts · 4k+ votes
    12y

    @J Scott

    That's a low premium given the $500 deductible. What is the extent of loss of rent coverage?

  • J ScottPro Member
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    Investor · Sarasota, FL · Member since 2008 · 18k+ posts · 17k+ votes
    12y
    Originally posted by @Roy N.:
    @J Scott

    That's a low premium given the $500 deductible. What is the extent of loss of rent coverage?

    12 months...here's an excerpt from the policy:

  • Rental Property Investor · Phoenix/Lima, Arizona/OH · Member since 2012 · 4k+ posts · 4k+ votes
    12y

    @J Scott

    Rental property - what a sin? For you doubly so...:) Haven't you met

    @Brandon Turner and didn't he tell you all of the joys of our existence. Is this a mid-life crisis J? Can I help - I practice amateur counseling at very reasonable prices (Brandon is my most notorious client...he is a mess, but I am working on it).

    I am not sure how recent this post is, but I love it! Makes me itch to go do a flip :)

  • J ScottPro Member
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    Investor · Sarasota, FL · Member since 2008 · 18k+ posts · 17k+ votes
    12y
    Originally posted by @Ben Leybovich:
    @J Scott
    Rental property - what a sin? For you doubly so...:) Haven't you met

    @Brandon Turner and didn't he tell you all of the joys of our existence. Is this a mid-life crisis J? Can I help - I practice amateur counseling at very reasonable prices (Brandon is my most notorious client...he is a mess, but I am working on it).

    I am not sure how recent this post is, but I love it! Makes me itch to go do a flip :)

    I keep telling my little boys, "You have to try new things..." and I figure I should take my own advice once in a while... :-)

    Plus, with @Brandon Turner mentoring me (he just doesn't know it yet), what could go wrong!?!!?

  • Rental Property Investor · Phoenix/Lima, Arizona/OH · Member since 2012 · 4k+ posts · 4k+ votes
    12y

    @J Scott

    I have one thing to say to you in reference to @Brandon Turner

    mentoring you - words of my ancestors - Oy Vey :)

    For your sake, I may need to step up my intensity with Brandon. Message me you tel. number - let's chat. It's time I think.

  • Dallas, TX · Member since 2013 · 31 posts · 3 votes
    12y

    @J Scott

    I am in Reisterstown until Tuesday morning, would love to see what you are doing...

  • J ScottPro Member
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    Investor · Sarasota, FL · Member since 2008 · 18k+ posts · 17k+ votes
    12y
    Originally posted by @Akiva L.:
    @J Scott

    I am in Reisterstown until Tuesday morning, would love to see what you are doing...

    Hey Akiva,

    Unfortunately, with the heavy snow they're calling for today, I don't imagine I'll be up at the property before tomorrow morning...sorry about that!

  • Investor · Southeast, MI · Member since 2012 · 2k+ posts · 1k+ votes
    12y

    @J Scott I've never purchased a condo, but don't the monthly fees cover the insurance as well? I see that you only have $300K in liability. I think that's the max that Allstate will do, but it's pretty low. Does the complex have a liability policy as well?

  • J ScottPro Member
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    Investor · Sarasota, FL · Member since 2008 · 18k+ posts · 17k+ votes
    12y
    Originally posted by @Rob K.:
    @J Scott I've never purchased a condo, but don't the monthly fees cover the insurance as well? I see that you only have $300K in liability. I think that's the max that Allstate will do, but it's pretty low. Does the complex have a liability policy as well?

    Hey Rob,

    I don't know if the condo policy covers liability or not. While $300K is relatively low, once we've accumulated a few rentals, we'll get a commercial liability policy for the LLC -- with just one unit, the cost of the commercial liability policy doesn't make sense.

    The big point to consider is that we plan to refi much of our cash out of this property once it's rented out, and given that this is the only asset of the LLC, the LLC will essentially have no equity at that point...so our exposure will essentially be nothing. As we add properties and gain equity, the liability policy will obviously be more important.

  • J ScottPro Member
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    Investor · Sarasota, FL · Member since 2008 · 18k+ posts · 17k+ votes
    12y

    SCOPE OF WORK / BUDGET

    Based on the discussions I've had with a couple other landlords in the area, we've decided to do a bit extra work on the property than we originally planned. Our original budget was $12,000 and with finishing out part of the basement, adding the 1/2 bath and opening up the kitchen just a bit, our budget has increased to $18,000.

    Much of the work would have to be done anyway -- renovating the full bath, upgrades to electrical, replacing the cabinets/countertops, fixing up the flooring, etc. The extra stuff will hopefully allow us to command top of the market rent.

    I should make a note right now to check back in a year and discuss whether the decision to increase the rehab was a good one or not. While I'm comfortable with the decision, part thinks we may be over-improving...and part of me thinks we're doing the right thing. I guess we'll see.

    Here are the SOW and preliminary budget:

  • Roy N.Pro Member
    Rental Property Investor · Fredericton, New Brunswick · Member since 2013 · 7k+ posts · 4k+ votes
    12y

    @J Scott

    -in your washrooms, I would encourage you to go with low flow fixtures - have a look at the MAP test results before selecting toilets. Delta makes a low-flow (1.5gpm) shower - available with a single lever mixer, or one with a separate temperature control {I recommend the former for a rental, the latter for your own home} - which has worked very well for us ... tenants never complain. There may even be rebates from the local or state governments or utilities for going low flow.

    - I would also recommend LED lighting ... especially for your dome lights in hallways, bedrooms, etc. HomeDepot carries a line that are $20 - $30 per light (less if you have volume discounts), are as bright as two incandescent 60w bulbs - but only consume 4w, and {best of all} there are no light bulbs to be changed or stolen {light bulb theft is a surprisingly big thing in our student rentals}.

  • Wholesaler · Easley, SC · Member since 2010 · 340 posts · 249 votes
    12y

    Something to be aware of on the liability. From what I understand there have been some successful lawsuits were the LLC was sued but also the property manager for neglect. If a sharp lawyer can show that as the property manager you neglected that loose handrail etc then they can sue you directly effectively piercing the corporate entity. I am not a lawyer nor pretend to be one but would like to hear if anyone has any experience or know of a specific case where this has happened.

    Thanks for starting another one of these threads J. Can't wait to see how this one progresses.

  • Investor · DMV Maryland · Member since 2013 · 867 posts · 370 votes
    12y

    @J Scott

    Thanks for posting the SOW and your material/labor cost estimate. Good info to know going forward for that area of Baltimore. You may have addressed this already but are you managing this yourself or using a GC?

  • J ScottPro Member
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    Investor · Sarasota, FL · Member since 2008 · 18k+ posts · 17k+ votes
    12y
    Originally posted by @Christina R.:
    @J Scott

    Thanks for posting the SOW and your material/labor cost estimate. Good info to know going forward for that area of Baltimore. You may have addressed this already but are you managing this yourself or using a GC?

    Hey Christina,

    Just to be clear, these estimates aren't based on real bids...they are just numbers I'm guessing at until I can get some bids. So, I may be low or high on these...I don't yet know!

    As for using a GC, a couple of the contractors I've spoken with also plan to manage the renovations, but I would still oversee everything.

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