May 13

Becoming an Accidental Landlord, Part 1

Credit: jen on flickr

Credit: jen on flickr

Last year we decided we wanted to move. We liked our house pretty well, but we wanted to get into a better school district. We put our house on the market and started looking at new houses. As the weeks went on, there was very little interest in our house. We did a series of incremental price drops, but still no serious takers. So we started thinking about keeping the house and renting it out.

I should probably mention that a very good friend of mine had been encouraging me to get some rental property for the past year, and even gave me a very good book on the subject. He’s since bought 5 houses to rent (now 10!), and is looking for more. And another friend had recently made the same move we were making (from very near our old neighborhood to very near our new neighborhood) and had ended up keeping their old house and renting it out also. So keeping the house to rent out wasn’t exactly blazing into uncharted territory. But it was new territory for us, and we had a bunch of questions and concerns going in.

I’ll skip to the punchline and tell you that we kept the old house and rented it out, and we’ve been happy with the arrangement so far. We quickly found a renter, and now make a couple hundred dollars of (relatively) passive income each month, with no major hassles so far (knocking in wood). I’d heard some horror stories of bad tenants and major catastrophes. I’d also seen the infomercials for the high-dollar Systems for Making a Fortune in Real Estate, and you probably have too. So I thought I’d take the time to go into some detail about what’s really involved from the perspective of a regular guy who wasn’t crazy about the idea to begin with, and answer some questions that we had ourselves. There’s more to say than will fit in one blog post, so I’ll start with the basics, and drill into the details in later posts.

First, Do Some Homework

I don’t have any special real estate skills or background. But I did read this book: The Millionaire Real Estate Investor, by David Keller. The book is 50% getting you excited about real-estate and about 50% practical how-to stuff. I found it pretty helpful.

The basic numbers work out like this: Our house is worth about $150,000. It rents for about $1,400 a month. After paying the mortgage and all expenses, we make about $250 in profit per month. So, big picture, our investment is $30,000 (the 20% down payment to buy the house) and the return is about $3000 a year. That’s a 10% return, which beats the historical average of the stock market. This is without taking into account depreciation and appreciation.

There is a lot more to consider, but at it’s most basic, these numbers are how the landlord business works, and it does work. It’s real thing that regular people can do to make money.

Coming up next: The Details

 

 

 

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