Trials and tribulations of being a landlord

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kevm14
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Joined: Wed Oct 23, 2013 10:28 pm

Re: Trials and tribulations of being a landlord

Post by kevm14 »

So I'm doing my taxes right now.

I can deduct mortgage interest, insurance, taxes, repairs, maintenance and so on.

Fun fact that I just thought of: Since I spent $1800 on tree maintenance, that is also deductible, which is like getting a ~35% discount because that expense was incurred while the house was being rented. So if you have expenses like that coming up, and are thinking about renting your property, be sure you can declare it as an expense while the property was being rented.

Accounting fun fact: After rental income, and all of the deductions I just mentioned, including amortized depreciation, my calculated net income was $-1,171. Would have been a gain if it wasn't for that big tree bill. Of course a 0 gain just means I am getting free mortgage payments.
kevm14
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Joined: Wed Oct 23, 2013 10:28 pm

Re: Trials and tribulations of being a landlord

Post by kevm14 »

Tenants just renewed early for another year (June to May). I kept their rent the same, much like I left it the same on the 2nd year for my first tenants. May 31st this year will mark the 3rd complete year I have rented the house. With good results.

They asked me an interesting question though: would I consider selling? Uh, yeah!

Sounds like it is still out in the 2019-2020 timeframe but this is highly encouraging. They will likely renew another lease in spring of 2019. Though the purchase could happen during that lease period which could be only 12-20 months from now depending. Obviously we'd cut out the realtor stuff...

I have no idea what they'd offer to pay but they have come to really like the house and the neighborhood. I would assume it's worth less than Zillow because there's so much activity, but much of the activity is on updated/remodeled homes so it skews the average upward. Today's Zestimate is $282,377 with a rent Zestimate of $1650. I am charging $1450. Monthly carrying cost (not including incidental/maintenance expenses) is around $1495.

As a refresher I paid $238k in ~Nov 2007. It hit a low of $192k Zestimate in April 2013 and has been climbing ever since. So ~18-24 months from now, I think $250-$275k is probably about where it should land. And that would cash in on quite a bit of equity.
dochielomn
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Re: Trials and tribulations of being a landlord

Post by dochielomn »

They asked me an interesting question though: would I consider selling?
Not that uncommon that a tenant would do renting with an intent to buy. Actually, the realtor I used to help me find a tenant has a clause in the contract that I signed with them that should my tenant wish to buy my condo that the realtor would get a percentage of it (the way it would typically work if I just listed the condo for sale).

For Zillow, obviously it's a tool/resource to use but it's the comparisons that will really give you a better idea of what price you should expect to get and how your property stacks up against them.

But either, if you bought for 238 and sell over it, then at least you made a profit from your initial investment. I don't think I will be able to say the same for my condo since I bought it in July or August of 2006 and then the market completely crashed a year later or so. At least for me, my value has crept back up to the general area of where my mortgage currently is, so if I can continue renting it and the school across the street from me gets turned into apartments (which I got notification that this could happen), then perhaps my value will still creep upwards and maybe my hit won't be so bad from the initial investment.
Bob
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Re: Trials and tribulations of being a landlord

Post by Bob »

I think the decision whether to sell is probably best based on what uses you have for the equity that you would be taking out and whether that would generate a better or more hassle free return than continuing to rent. It's also worth considering that the housing market is probably near another localized peak so if you were going to cash out, it's not a bad time to do so.
kevm14
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Re: Trials and tribulations of being a landlord

Post by kevm14 »

I know. I agree it is a localized peak. But at this point, my plan is to bet that values will still be higher ~2 years from now, even if it is only a little higher. The fact is, my tenants cannot currently afford to buy the house and presumably need a couple years to save up. We also haven't talked price. So I don't REALLY know the viability of this transaction. But I'd rather wait for them (while they continue to rent) and chance it, as opposed to choosing not to renew their lease and put the house on the open market (likely with a realtor).

I suspect some of the money will go directly into my current house. I don't have any elaborate investment strategy (or even a plan to add to my retirement investments).
Bob
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Re: Trials and tribulations of being a landlord

Post by Bob »

I think you just hit on a key point. If you can sell to your current tenants without a realtor, that will put an extra 6% in your pocket, not to mention whatever principal you pay down with their money between now and then. Also, the likelihood of them backing out of the sale is probably a lot lower than with the general population. I think waiting a couple years seems to be a wise move here.
kevm14
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Re: Trials and tribulations of being a landlord

Post by kevm14 »

Looks like I owe about $156k. In another year that will be down to $150k.

Basis = $238k - previously claimed depreciation (I claim a small amount per year on the building itself which won't amount to much) + expenses (can I use previously deducted expenses? hoping this cancels out the previously claimed depreciation). We want the basis as high as possible to show the least amount of profit to the gov't. Welcome to business accounting practices.

If sale - basis is a positive number, I owe capital gains on that portion. Still, rough numbers, that's only $4,800 in taxes if capital gains is 15% on a $270k sale and a $238k basis. Which would be a cool $115k. Well minus attorney fees and whatever else I might be forgetting. But still, that would be pretty sweet. My mid-term goal was always to walk away with ~$100k and I think that is on track. Best case of course is to show a loss on paper and still walk away with big bucks. This is totally legitimate and one of those things people gloss over when criticizing how businesses do accounting.

The ideal economic situation, of course, is when the property value over time goes up while the principle is paid down. That's when waiting pays off and I am hoping that's roughly my situation (it has been so far).

In a declining market, waiting doesn't really buy anything, except you may lose overall based on the time value of money. Or you wait a REALLY long time for it to come around again. And with real estate, it always will, more or less like the stock market.
kevm14
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Re: Trials and tribulations of being a landlord

Post by kevm14 »

Saving this for later.

https://www.zillow.com/rental-manager/r ... z-renters/

30 minutes on this....maybe the recommendation is to provide vape juice dispensers all over the house or something.
kevm14
Posts: 15201
Joined: Wed Oct 23, 2013 10:28 pm

Re: Trials and tribulations of being a landlord

Post by kevm14 »

https://www.amitree.com/resources/real- ... g-process/

Preparing to sell. Will post quick summary of what this situation is looking like. But this is sure an awesome time to sell.

Tenants have expressed interest for a while. Things got a little more serious last spring/summer but other than asking my parents if they'd want to buy the house or live in it, they declined. I passed this along to my tenants. They said they needed to do some due diligence stuff like talk to a realtor friend of the family, size up the cost and practicality of doing some updates/expansion and figuring out their finances. This dragged well past the fall and into 2021. Finally with the market insane, we got more serious. I shifted from "I hope they keep renting" to "I hope they buy it but if they don't I can probably sell easily to someone else, so let's move this gig along."

I think they've been working on their finances and I believe are in a place to buy, and for a price that I'm willing to sell it for. I think they have a general idea of the kinds of things they want to do (finish the basement, etc.) but that won't stop them from moving forward. This seems reasonable.

I've been keeping up on maintenance and have fixed many things here and there. But they've expressed concern about some things and in a surprise to me, decided to order a home inspection a couple weeks back. The results were pretty good. While some things appear on it that were on my 2007 report, I made the explicit point that 14 years hasn't caused any further degradation. Originally I offered to throw in a new driveway but this was dumb as they actually don't want this. So I said, OK, I'll take care of some items on the inspection report that you are concerned about. We went through the list of things and we ended up prioritizing 3 things:
- Replace leaky furnace gas shutoff valve (done, $11 in parts)
- Fix foundation crack that is causing some water to pool in the basement sometimes. This is in progress and should only cost around $675 for up to 8 feet of crack and is guaranteed for 10 years, fully transferable. This is scheduled for 3/24.
- Fix the electrical service cable, and add a drip loop. Contacted a local electrician (guy down the street actually) and he quoted me $350 and another $100 if the meter box is too rusty to reuse. This is scheduled for 3/15.

So I'm doing pretty well here and these costs are very manageable. Actually I'm ahead because the driveway was probably going to be around $3000 so this is only 1/3rd of that. To be honest I shouldn't have to do any of this in today's market but I'm willing to spend a grand because I think it shows good will and absolute worst case, these are improvements that literally knock 3 things off of their inspection report which would probably appear on anyone's inspection report.

You might ask why I ever offered the driveway. Well I thought it would be a deal sweetener to get them over the hump. Turns out the market/rates did that. Plus they realize that each rent check is a waste and could be building equity. Yeah, I agree. I argued that the reason I wanted to offer the driveway and not the other stuff is because I already had a guy I was going to call and just get it done. Plus I thought they'd like that. I said having to find contractors, getting estimates and dealing with all of that is one of my least favorite things to do. It turns out I did well on both things so far (and did a DIY for the other thing, just like 95% of the other maintenance I've done on this house).

For a price, I'll just say I took the current market value and subtracted a 5% realtor commission. The price is very similar to the price I was talking about in 2018 a couple posts up. Could I eek more out? Maybe. But I'm ready for a hassle-free transaction.

I think the next step is to start drawing up the paperwork but I'll update when I have something new to say.
kevm14
Posts: 15201
Joined: Wed Oct 23, 2013 10:28 pm

Re: Trials and tribulations of being a landlord

Post by kevm14 »

New electrical service is done.
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Looks like a new meter box was required. So I guess the bill will be $450. Haven't heard anything but I think I am expecting an electronic invoice to my e-mail.
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