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! :)

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  • Attorney · Brookhaven, GA · Member since 2013 · 26 posts · 26 votes
    12y

    And Carol is always right!!!

  • Rental Property Investor · Annapolis, MD · Member since 2014 · 214 posts · 140 votes
    12y

    @J Scott 

          Yes that is pretty typical with Sec 8 to wait in total of about 3-4 weeks. We do the same, just keep advertising and first come first take it if well qualified of course! Once it is approved by Housing,  

        When we do it, usually I make sure that the place gets inspected and if not passed at first, fix all small things immediately and have the inspector sign the documentation as soon as it is passed inspection, as Housing will start paying you from that day forward.  (even retroactively here in AA county)

  • Rental Property Investor · Annapolis, MD · Member since 2014 · 214 posts · 140 votes
    12y

    Here is the link where MBQ Baltimore allowed areas are listed:

    http://www.mbquadel.com/Portals/0/Downloads/Census%20Map.pdf

    Also a link where you can specifically look up property addresses.

    (not totally user friendly but is doable as it's got a link where you can put your address In and it will give you the code you need for the lookup.

    http://www.mbquadel.com/Portals/0/Downloads/Allowa...

  • Reisterstown, MD · Member since 2014 · 16 posts · 5 votes
    11y

    @J Scott

    Hello J,

    Sorry to dredge up an old topic but I was wondering if you would be willing to share what ended up happening on this rental.  With the property being in my backyard and an angle I have been thinking about, the free study from someone like yourself has my curiosity.  Thanks for sharing:)

  • J ScottPro Member
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    Investor · Sarasota, FL · Member since 2008 · 18k+ posts · 17k+ votes
    11y
    Originally posted by @Doug Ferguson:

    @J Scott

    Hello J,

    Sorry to dredge up an old topic but I was wondering if you would be willing to share what ended up happening on this rental.  With the property being in my backyard and an angle I have been thinking about, the free study from someone like yourself has my curiosity.  Thanks for sharing:)

    I've been lazy, and it's been sitting vacant for the past 8 months... 

    We've decided that we actually want to buy a bunch of rentals in 2015, but I've accepted the fact that I *really* don't want to manage them myself (as is obvious based on this property), so I'm interviewing a bunch of PMs over the next 2 weeks and whomever I hire will start by filling this vacancy.

    And yes, before anyone points it out, I know that I've thrown away about $5K this year by not just admitting early on that I should have hired a PM to start with...  :-)

  • Roy N.Pro Member
    Rental Property Investor · Fredericton, New Brunswick · Member since 2013 · 7k+ posts · 4k+ votes
    11y

    J. I'd never do that ... but I will snitch on you to @Dawn Anastasi ;-)

  • Reisterstown, MD · Member since 2014 · 16 posts · 5 votes
    11y

    Sorry J!  If I would have waited a couple more weeks you would have gotten away with it.  Thanks for the update though!

  • Investor · Peachtree Corners, GA · Member since 2014 · 1k+ posts · 1k+ votes
    11y

    Has your PM been able to find a tenant? 

  • J ScottPro Member
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    Investor · Sarasota, FL · Member since 2008 · 18k+ posts · 17k+ votes
    11y
    Originally posted by @Cal C.:

    Has your PM been able to find a tenant? 

     Good question...just sent them an email...  :-)

  • J ScottPro Member
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    Investor · Sarasota, FL · Member since 2008 · 18k+ posts · 17k+ votes
    11y
    Originally posted by @J Scott:
    Originally posted by @Cal C.:

    Has your PM been able to find a tenant? 

     Good question...just sent them an email...  :-)

    From my PM:

    "Just a quick update on the marketing of your property. We’ve had 2 applicants this past week, unfortunately, we had to turn both down due to credit issues, and one had a horrendous criminal background. Call volume is strong, and we have appointments scheduled through the weekend so we are hoping the weather does not get too bad."

  • Roy N.Pro Member
    Rental Property Investor · Fredericton, New Brunswick · Member since 2013 · 7k+ posts · 4k+ votes
    11y

    @J Scott 

    Tomorrow is the 1-yr anniversary of this thread .... perhaps this buy-and-hold thing isn't your best game ;-)

    Hopefully you have a tenant early in the week.

  • J ScottPro Member
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    Investor · Sarasota, FL · Member since 2008 · 18k+ posts · 17k+ votes
    11y
    Originally posted by @Roy N.:

    @J Scott 

    Tomorrow is the 1-yr anniversary of this thread .... perhaps this buy-and-hold thing isn't your best game ;-)

    Hopefully you have a tenant early in the week.

    Actually, that's what I love about this!  When I first started my website many years ago, nearly every project I did resulted in lots of mistakes -- making for some great blog posts and education for my readers.  After doing a bunch of projects, though, I wasn't making the basic mistakes anymore, and what I was writing was much less interesting (in my opinion)...

    But, with this thread, I get to show off my mistakes once again!  Hopefully there will be some great lessons for everyone...especially me...

    Btw, on the bright side, when we finished the rehab, we had about $20K in equity on the property, so even though I haven't done anything with it for a year, in some respects, my return is still good... 

    How's that for trying to justify my mistakes?  :-)

  • Engineering Consultant, Investor · Seattle, WA · Member since 2013 · 213 posts · 61 votes
    11y

    @J Scott I love your attitude toward mistakes you made. And than you for sharing them with us!

  • J ScottPro Member
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    Investor · Sarasota, FL · Member since 2008 · 18k+ posts · 17k+ votes
    11y

    Just a quick update...

    No tenant yet.  Got my monthly P&L from the PM company -- they don't charge when the unit is vacant, but there were two credits for tenant applications that were denied.  So, on the bright side, they're getting applications and they're not just recommending putting in the first applicant that comes along.  I give them credit for that...

  • Rental Property Investor · Annapolis, MD · Member since 2014 · 214 posts · 140 votes
    11y

    @J Scott have your Pm listed the property at the local HA and MBQ office?

    If not than you might want to consider doing it.  We have a Sec 8 tenant and an MBQ tenant in our properties, that are somehow too "odd" for market tenants and these tenants have been in the unit for over 6 years with zero vacancies with very close to market rents......

    Good luck to you!

  • J ScottPro Member
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    Investor · Sarasota, FL · Member since 2008 · 18k+ posts · 17k+ votes
    11y
    Originally posted by @Val Csontos:

    @J Scott have your Pm listed the property at the local HA and MBQ office?

    If not than you might want to consider doing it.  We have a Sec 8 tenant and an MBQ tenant in our properties, that are somehow too "odd" for market tenants and these tenants have been in the unit for over 6 years with zero vacancies with very close to market rents......

    Good luck to you!

     Hey Val -

    It's on GoSection8.com, but I don't know if they listed it at the offices specifically.  That's a great question, and I'm going to follow-up with the PM today!

  • Investor · Southeast, MI · Member since 2012 · 2k+ posts · 1k+ votes
    11y
    Originally posted by @J Scott:

    I've found that site to be less than worthless (at least in my area). Rentlinx is a great site.

    As far as the PM rejecting applicants, I've found that many of them rely on a credit score, which doesn't always tell the entire story. I had a PM in the past and they had a minimum credit score which disqualified a lot of good tenants. I actually prefer people with bad credit, but a good rental history. The tenants with good credit will just buy something and move.

  • J ScottPro Member
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    Investor · Sarasota, FL · Member since 2008 · 18k+ posts · 17k+ votes
    11y
    Originally posted by @Rob K.:
    I've found that site to be less than worthless (at least in my area). Rentlinx is a great site.

    As far as the PM rejecting applicants, I've found that many of them rely on a credit score, which doesn't always tell the entire story. I had a PM in the past and they had a minimum credit score which disqualified a lot of good tenants. I actually prefer people with bad credit, but a good rental history. The tenants with good credit will just buy something and move.

    Thanks for the tip, Rob!

    Turns out the two candidates who were turned down both had criminal histories...so that's why they were denied...they were Section 8, so credit wasn't a factor...

  • Vendor · NY, NY · Member since 2009 · 175 posts · 52 votes
    11y
    Originally posted by @Rob K.:
    Originally posted by @J Scott:

    I've found that site to be less than worthless (at least in my area). Rentlinx is a great site.

    As far as the PM rejecting applicants, I've found that many of them rely on a credit score, which doesn't always tell the entire story. I had a PM in the past and they had a minimum credit score which disqualified a lot of good tenants. I actually prefer people with bad credit, but a good rental history. The tenants with good credit will just buy something and move.

     Credit scores are truly bizarre, actually, and I Don't even think most PMs/LandLords even really understand them. For example when we get a report to provide to a PM, there are like 40 (yes, 40), different models of credit scores we can choose to provide. The most common is FICO Classic 04, but others use FICO Classic 08, and then of course the proprietary ones used by the bureaus (TU has VantageScore, for example). Because the models are so different, the exact same stats can produce wild fluctuations in the score depending on the model.

    What's more important is to look at the report, too, even though it takes more time:

    1. Any recent bankruptcies, collection items (and a lot of people are more forgiving of medical related debt)?
    2. Are bills typically paid on time?
    3. how many open credit accounts, what type, for how long?

    This is part of what the credit score is trying to do for you, but let's say you have a $50 collection item from Verizon - it will ding you for this, even if all your other bills are paid. So it's best to look over the whole thing to get the full picture. 

    1. J ScottPro Member
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      Investor · Sarasota, FL · Member since 2008 · 18k+ posts · 17k+ votes
      11y

      Here we are a year after buying the place, and thanks to my unwillingness to hire a professional PM sooner, we're just now getting the place rented...

      I talked to my PM yesterday, and we have tenants moving in next weekend -- one year lease at $1450/month.

      We're currently all-in (all cash) at just under $80K. I expect about 60% of gross income to go rent loss, expenses and capex (HOA costs drive this above average), so the $1450/month should result in about $7000 in cash flow. That puts our CoC at about 9%.

      I plan to refi, and given the terms I expect (portfolio loan), I expect that CoC to jump to about 15% -- though I won't have much invested at that point so it's not that important.

    2. Investor · Peachtree Corners, GA · Member since 2014 · 1k+ posts · 1k+ votes
      11y

      @J Scott Congratulations on getting a tenant!  I hope they stay until your boys are out of HS.  

    3. Roy N.Pro Member
      Rental Property Investor · Fredericton, New Brunswick · Member since 2013 · 7k+ posts · 4k+ votes
      11y

      @J Scott 

      Glad to see you have a tenant ... that 8-10 months of lost revenue is going to take a while to recapture ... but we've all been there once ... at least.

    4. J ScottPro Member
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      Investor · Sarasota, FL · Member since 2008 · 18k+ posts · 17k+ votes
      11y
      Originally posted by @Roy N.:

      @J Scott 

      Glad to see you have a tenant ... that 8-10 months of lost revenue is going to take a while to recapture ... but we've all been there once ... at least.

      I prefer to think that the first tenant was going to trash the place and have to be evicted...so, I actually saved a lot of money!!!  ;-)

    5. Investor · DMV Maryland · Member since 2013 · 867 posts · 370 votes
      11y
      Originally posted by @J Scott:

      Here we are a year after buying the place, and thanks to my unwillingness to hire a professional PM sooner, we're just now getting the place rented...

      Wow, I sure hope J doesn't wait this long on his next city rental....

    6. J ScottPro Member
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      Investor · Sarasota, FL · Member since 2008 · 18k+ posts · 17k+ votes
      11y

      Here we are, 6 months after our first tenant moved in, so I thought I'd provide an update...

      Keep in mind that this is six months worth of data, so the numbers are absolutely meaningless (for example, I've paid a 12-month tax bill in that six months).  But, I plan to provide updates long-term, so I'll put the numbers down here for future reference...

      Okay, here goes:

      - Tenants moved in 6 months ago (February 23, I believe).

      - Property is being managed by a professional management company, so I've been completely hands off, other than getting monthly statements and having to take one phone call and one email about a maintenance issue.  So, at least so far, it's been completely passive on my end.

      - Tenants are paying $1450/month in rent, and so far, it appears that the rent has been paid by the 3rd of the month every month.

      - The one maintenance issue was an HVAC blower motor that needed replacing and they also found that the condenser was low on freon at the time.  The charge was higher than I would have paid with my own HVAC contractor, but the issue came up at a time when I was out of town, so I let the PM handle it and paid a little more.

      That's about it...

      Here are the numbers since the tenant has moved in...these are actual expenses, not pro-rated...so, for example, if I don't list an insurance cost, that's because I didn't have a bill during this period, not that I didn't have insurance...  :-)

      As a reminder, I spent $61K on the purchase and $18K on getting it into service (total asset value of $79,374).  We don't currently have a loan against this one, though that's a consideration in the next 6 months.

      The few things that skew the returns down for this short period of time are the one month of rental income I paid the PM, the one year of property taxes I paid, the one year of State personal property taxes paid and the utility bill for the period prior to the tenant moving in.  

      I expect the 12-month numbers to be more reflective of longer-term ROI trends.

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