Going Through The Process Of Renting A Home
When I first bought this condo I considered that in the near future I would want to rent it, therefore it had to have the right math to make for a good rental income property. Back then my napkin math made sense so I went for it.
I’m now slowly getting ready to rent it out because it’s sitting empty and I don’t see myself living in it in the near future. I considered selling it at some point but I would rather gain some experience having a rental property.
This post is about all the various things to consider when it comes to renting. There isn’t a whole lot to renting, after all most of us have been tenants before but each aspect needs to be done just right to prevent law suits, late-night phone calls or a disgruntled tenant. I got a lot of inspiration for the the Guides section of the Bigger Pockets website as well as the forum section.
Selling vs. Renting Out The Condo
I consulted with someone with expertise in this field on the clarify.fm platform. It was a very worthwhile $61 spent because he asked me questions that I didn’t even consider.
I needed to consult with someone to confirm my math and actually it was a bit more favorable than I expected. Basically I’m looking at
- $13,200 in gross rental income,
- $5,700 in expenses (repairs, vacancy, HOA, taxes etc.)
- leaving me $7,500/yr of net income.
This math would be for the low-end. There are ways I could slightly increase the profit margin.
That’s a 5% return on my investment which is already inflation adjusted but not including taxes. I’m not sure how to calculate that yet, still working on learning the taxes on real estate income which I’m guessing will be taxed at ordinary income-tax rates.
Selling it would net me a slight profit, very slight after calculating in taxes and closing costs. If I used a realtor I would be left with even less. Online real estate websites value the condo at around $160k which is a tad too high, I would say it’s closer to $150k in value.
Getting The Condo Ready For Renting
From the forums I learned that some people go overboard when it comes to prepping a unit for renting. The goal is to make the land-lording process easy. Fixing things prophylactically that might break down later on and upgrading appliances that you foresee malfunctioning. After all, some renters won’t take as good of care of the condo as myself.
A fresh coat of paint and basic cleaning will go a long way to make the unit appear more presentable and favorable to the potential renter. In my case I would need to do a deep cleaning and probably change out the sink in the kitchen because it looks like farm animals were slaughtered in it.
Figuring Out How Much To Rent It For
Looks like most people just go based on the market value. Meaning, however much nearby condos are renting for is the price that I should probably set. The newspaper, Craigslist and websites like Zillow etc are good leads.
It’s important to take everything into consideration so that I don’t price myself out and that I don’t rent it for too little. My unit has a washer/dryer and amazing light coming through with a ton of cross-flow air. This little tiny studio has 6 windows.
Advertising In The Right Places And Using The Right Wording
Marketing is such an amazing skill to have isn’t it? You could throw an ad up and get way too many replies from lookyloos which would exhaust your time and push out the potentially great candidates. The proper phrasing is therefore critical.
Everything needs to be taken into consideration such as to whether allow the potential renters to email you vs call you. Whether to include the address of the property or just give a vague location etc.
The screening process needs to start with the advertisement. Then it’s all about talking to the person and seeing if there are any red flags. They should be told about the requirements to be considered for tenancy. This takes us to the application process.
Screening Applicants By Having Strict Rental Criteria
The majority of property owners those who rent out real estate as a career have very strict screening criteria. They want to know your exact rental history, make sure you’ve never been evicted, they want to talk to your old landlords, they check your credit history and they will check your job references.
Financially it’s important that the tenant can afford the rent. I would be looking for a medical student, grad student or other pre-professional person. The tough thing is that as a landlord it’s easy to play the discrimination game, there were multiple forum posts on this topic alone. It’s important to not pick and choose based on criteria your state deems discriminatory.
Showing The Unit And The Lease Agreement
I don’t live in Portland so showing the unit can get tricky if I do it the traditional way. In the past when I had to sublet my apartment in Los Angeles I held an open-house and it worked great. Apparently the no-show rate of potential renters is high so I will stick to this method.
Once the applicant is deemed a good candidate through my cross-checking the references I would need them to sign the lease agreement. I would walk them through the property and note any damages and document that.
Renting the place month-to-month or signing a 1-year lease is up to me. I have to find out whether I can legally charge them more for a month-to-month vs a 6-month or 1-year lease. I’m fairly sure I can but there are just a lot of things I have to verify still before renting out the condo.
Trial & Error
This all is sort of exciting for me. I am not delusional to think that I’m gonna get everything right the first time around though I will surely try my best. What’s the worst thing that can happen, I find blood and vomit stains after the tenant moves out or I get called to a crime scene in the condo? That’s what an umbrella policy is there for.