Bought our first one. Long term tenants, I know both of them. Was close to being debt free, and this darn thing popped up... Did you form an LLC? I have heard both arguments. I have been told I needed one, also been told it isnt necessary. Who drafted your contract? Feel free to share yours with me, and I would be obliged to pay for it if need be. How do you handle late payment? My initial thought was to have rent at a predetermined amount, and create a discount for on time payment (vs a late payment penalty). Please feel free to bounce ideas around. I have been around rentals my whole life, part of my family has had them long term... my whole interest in them was that I purchased at a pre inflated price, and I am projecting real estate to make another climb in a couple years. I may hold onto it long term, it may be a 3-5 year thing. Thank you in advance to all suggestions and feedback!
Thank for the heads up yes I own some, I have sold all SFD (single family dwellings) as 20 and 21 they offered me more $$$ than worth How are you financing? What is your cap rate? What is cash on cash return? You need a good accountant this is a business
I'm a fan of single family rentals but it's been tough to buy in the recent market, although not a bad time to sell a few. I wouldn't count on the tenants staying. I've had people move in, who I figured would be there forever based on the amount of stuff they brought in, only to move out at the 11 month mark. It wasn't a bad thing in this case. They paid the balance of their lease and I had the house re-rented in 2 weeks. See if the utility companies in your area have accommodations for automatic transfer back to your name. It saves you the "reconnection" fee, but more importantly, keeps your pipes from freezing if the heat gets shut off. Have the tenant be responsible for lawn mowing and snow removal with the stipulation the grass never get taller than a certain height. The village I own property in is 6". If it exceeds that height the grass will be cut by a landscape company and total will be deducted from the security deposit. I have a clause in the lease that states the security deposit will be maintained at $xxx, so they would basically be paying for the landscape company to mow. BTW, I've never had to do this. See if there is a real estate investor club in your area. It's a great resource for ideas and getting a heads up on the families that tend to be disrespectful of the landlord's properties as they move around the area. Rent is due on the 1st with penalties accrued after 5 days. I have a $20/day for a max of $200 dollars. After that, I state the eviction process will be started. In reality, this can be tweaked on a case by case basis, but it's best to have something firm in writing. Also, 2 weeks late, unless it's due to a short term hardship, is a firm indicator the tenant might be in over their head financially. I try to buy properties that are in decent areas, in good repair, with an immediate positive cash flow. I sold a few in 2020 and am currently holding 2, while waiting for the market to flip back to a buyers market. Other than the occasional dripping faucet, loose drawer front or tripped breaker, it's been a great way to build a nest-egg and teach my kiddo DIY stuff.
I agree with everything Casper said. You both are in Ohio; so you are aware your late fees would be illegal in Vermont. Where I live properties that are in decent area in good repair start at 300k; so are not cash flow positive. Why I sold SFDs I like duplex triplexes and quads; side by side. Condo style 1-4 units are residential 5 units plus commercial completely different stay away until ready.. real assets in high inflation periods increase rapidly then stop for a decade
Ohio has some pretty tenant friendly laws, but late fees aren't one of them. The other thing is pet deposits are not required to be refunded.
Casper I want doubting you; I meant to add it as a plus for local club/advisor group, you mentioned. Here, towns can enact local ordinances also. buying a man a meal; and listening taking notes; is a good idea;
I didn't take it as doubt, I was posting for Carbine. Ohio can be a pain to evict people. I have a buddy who had several rough (think slum-lord) units. If tenants started sliding on payments, he would offer to rent a moving van and get a storage locker for 2 months, provided they would leave in a prompt manner. He found it to be cheaper than the eviction process, less damage to the property since they felt they made the decision and they usually took most of their junk since they had room.
I don't see why you wouldn't put the rental(s) in a LLC and then run all finances for it through the LLC. A LLC per rental is probably the route I would go personally. Might be a pain to manage but it would offer you better protection down the road if something were to happen. I listened to a podcast awhile ago and that had a CPA on from a very large company. He actually recommended putting vehicles that are solely used for the business in their own LLC. I have a LLC for my beef business. It was super simple to setup with the state and it cost $99 through the state to get it setup. There are lots of companies that sucker people into paying exorbitant fees into opening a LLC. My CFP told me to get a LLC after I started my part time business. He essentially told me I could lose everything I've worked for over the last X years if I didn't separate my business from my personal finances. He has a bunch of rentals, I could ask him how he does his. He has a CPA that works for him, so I'm sure everything is setup so if something happened it wouldn't jeopardize his personal finances or the finances from his other businesses.
I have 3 rentals. Two 3/2 and one 3/1 single family houses. I bought a "boiler plate" lease agreement and scanned it to have an electronic copy. I created an application as well. I do not charge application fees but I do use them to weed through applicants. It's not overly intrusive and I do not ask for SSN or DL unless they want to provide them. Basically, it serves as a verification to what they tell me and a tool to justify denial if need be for lying, including lying by "omission". For late payment, I have something very similar to what Casper posted, however, I have yet to enforce it. The only people that were habitually late I got rid of and the ones that are currently late I'm in the process of getting rid of, although they pay on time when I ask them..which you shouldn't have to do. I'm simply going to cancel their month to month lease and give them (minimum) 30 days. I would not discount "on time" payment. On time means anywhere from the 1st-5th here. You don't receive discounts from your bank for making your mortgage payment on time nor do you from the utilities companies. Think about it... paying rent is the absolute MINIMUM they have to do to be a decent tenant. Do NOT try to be friends with them. That doesn't mean be rude but do not engage yourself in conversations where you learn about them on a personal level. Also, learn about your rights as a property owner and don't be afraid of empty threats from people who feel they're entitled to inhabit your property. For example, a lot of people will pull the FHA/HUD or "discrimination" card for disabilities, emotional support animals, etc. You do NOT have to rent to someone just because they have a doctor's note for their emotional support peacock. If you 1) have less than 4 rentals and 2) are not using the services of a realtor you can deny them all you want as it does not apply to you in this scenario. Do NOT use the services of a realtor once you start advertising. You will get calls from them saying they have a client, etc. Do not fall for it. It's not hard to rent a house out. Look for who would make a good neighbor, make at least 2.5X the rent, have stable income, etc. I automatically disqualify anyone who is a "content creator" or starts with sob stories of any kind. You can learn a lot from social media if you can find them. Once I accept an application I do a background and credit check. I set the score for a minimum of 620. There are no debtors prisons in this country so if you never get paid back for damage/back rent you can at least persuade them to rethink screwing you by preserving their credit score. Do NOT fall for the "I have bad credit and need a private landlord for me and my 8 kids GOD BLESS!!!" BS. These people will screw you, there's no shortage of fools who will give them a chance. The BG/Credit check costs me $30 per person 18 and older (yes...you NEED to do this on EVERYONE 18 and older who will be in the house). If everything comes back clean, as it should based on meeting them and the application/references, I refund the fees for this on the first months rent. I would also caution against making promises or obligations that will come back to haunt you. For example, do not provide services such as yard mowing. I can assure you that no matter how much you do to cater to your tenants, most will still hate you and think you're greedy. Tenants pay utilities and take care of keeping the house and yard clean. I like keeping my rentals in the condition that I would live in. I have them landscaped with flowering trees, spring bulbs, etc. The visual appeal to me helps the property stand out. You may not want to go through that trouble, and I do take on the task of pruning, bi annual flower bed maintenance, fertilizing, etc. I do not expect nor trust tenants to do these things and I look at it from the perspective that I'm a person who likes to take care of my things. Everything in the yard that could be damaged is idiot proofed as well. I pay for pest control and HVAC servicing twice a year, spring and fall. That is specified in the lease. Your lease should have provisions for including such items. Be honest with yourself about your abilities. Can you also be the handyman? If not you will need to take that into consideration. Make sure the property is in good condition and everything in functioning order as if you were living there. Learn to tell the difference between the wants and whims of tenants and actual issues that need to be addressed. I would not get carried away with fees and extras. To me this is not worth the effort, especially when you actually have a good tenant in place. I always give them (except the ones I've got rid of) a Christmas card with a $100 gift card, usually $50 to a restaurant and $50 to Amazon. Most importantly, do not take anything I posted as if it's nerve wracking work that will keep you up all night and ruin your life. Just remember you're in control. Set your expectations in the lease, in conversation, etc. and don't worry too much. Stay on top of issues whether it's property related things to fix or issues with the tenants themselves. I would get on Zillow/FB Marketplace and price it to your market. I would also suggest you do Month to Month leases. They roll over in perpetuity until you or the tenant notify each other. If you want a copy of my lease or application I would be happy to send them to you. Good luck and we can use this thread further for any rental shenanigans if you want. I have plenty from the past.
Can't say on rentals but we get amazingly screwed on taxes being an S-Corp. And I wouldn't hesitate to protect yourself.
I can't thank you folks enough for your feedback. I wouldnt call the property high end, but one of the nicest units in a few mile radius. One tenant has been there for 30+ years, the other a couple. I was very reluctant to purchase it, there are some circumstances in my personal life that made it "make sense." The plan is to establish an LLC. (thought about going the legalzoom route, idk anything about them though). I will quickly say, this isnt about a fast buck for me. If I dont enjoy owning it, I am going to part ways with it in a couple years. I dont plan on buying more, this is it.
The "on time discount" isnt really a discount, it is an incentive to pay on time, same as a late pay penalty without the language. Not something I have to do, just an idea that was bounced off me a few years ago. I purchased the property under market value. The rent at a conservative rate is my break even including insurance and taxes. What tipped me over the edge, was the quality of the structure. One of the areas most notable builders, built it and it has a new roof and hvac system on both sides. Not that I want it to sit empty, but I can afford for it to if SHTF. This is going to be a learning experience for us, that is to say the least lol.
I'm assuming you want to avoid late payment language/process to either encourage on time payment and/or create a positive feel to the lease. The "incentive" to pay on time is they don't want to face an eviction. Paying bills isn't optional, it's a requirement. The issue I see with offering incentive to "pay on time" makes it look like you have a difficult time enforcing the rules set in the lease and opens you up to tenants pushing their limits. Trust me, "professional" tenants know what they can and can't get away with and can sense weakness in a landlord. Seeing "if you pay when you're supposed to, I'll reward you" looks like a weakness to tenants that know the laws and the process better than you. If that's the route you want to take, a better option would be offering an incentive to pay early. In this case you would only be offering the discount if the tenant paid on the tail end of the previous month. On time payments are standard price and anything after starts accruing late fees. This gives the tenant 3 options and accomplishes your goal without appearing weak in enforcement of the lease and your rules. But you don't want to look like the guy who gives special treatment for just following the most basic rules of a contract.
I felt like you and I pronounce tomato differently while referencing the same thing, but I can get behind what you are saying on the last sentence. This is going to be a learning curve for me, fortunately I've known both tenants for 30+ years. I didnt end up changing any "on time" incentive or early reward (I dont see the difference). Our agreement is black and white, and they both understand that I can't pay the mortgage late- and there won't be any leniency there. I'm sure what I do will evolve. Thank you everyone for the feedback!
