Landlord | Matters
You guys have been asking about the rental property and buying houses so I'm going to share what we've done and what we're doing as far as property matters are concerned. First, I should clarify that property in Oklahoma is just dirt cheap. Second, we're no real estate experts but we've learned that you don't have to be.
THE BEGINNING
This story starts when I was still in college. My parents bought a for my brother and me to live in through college. It made sense to buy an inexpensive property near campus rather than pay rent to someone else for 8 years. After I graduated college and bought my own house my parents decided to keep their property and rent it out to college students. They paid me $50/month to act as the property manager. So I made applications, listed the property in the paper, drew up leases (Google is amazing for this sort of thing), showed the house and handled any issues (ilke clogged plumbing) that would come up. My parents never even had to deal with it and I learned how to be a landlord. 
OUR FIRST RENTAL PROPERTY
Jeremy bought his first house a couple years before we got together. Of course, this is Jeremy we're talking about, so he made sure it was well within his budget. Then when we bought the home we live in now he decided that he could afford to keep his old home and rent it out instead of selling it when the market was down. It was a very spur-of-the-moment decision, and one we probably wouldn't have made without the experience of my parents' rental, but it turned out to be far easier and more lucrative than we thought possible. This marked the beginning of our "rental empire", as we called it. The plan was to get out of debt over the next year or two (not including mortgages - we hardly consider those debt, since we always owe less than the house is worth) and then start saving for another rental. It's an interesting transition going from paying off debt to investing, where the goal is cash-in-hand. For example, we could pay down the mortgages we have now (which would be fantastic), but that money will do a lot more for us if we use it to invest in another rental instead. Each rental earns some amount of profit per month, so it makes sense that our income would snowball and it would take less and less time to save enough for the next rental.
BUYING OUR SECOND RENTAL PROPERTY
The plan was put into action, and once we had enough cash saved up to put 20% down on a rental property (and still have a little leftover in savings) we started looking. I had a clear vision of the kind of place and tenants I wanted. I wanted an older home with character in an interesting location, preferably near a college campus. I wanted tenants that will not only pay rent but will also respect and love the place. We've made a choice to not be slum lords, and only buy property that we would be willing to live in ourselves (which, we recognize, could actually happen one day).
We got approved for a modest loan, contacted a realtor and started our house hunt. We looked at a few places and as soon as I saw the house that we ended up buying I knew it was the one. We made an offer, it was accepted and three weeks later we closed. It was as quick and easy as it sounds. It's amazing how much easier it is to decide on a house when you're not going to be the one living in it.
We listed the property on Craigslist on a Monday and by the next Wednesday had over a dozen calls on it. A week later we reviewed our applications and had a deposit on the place. We knew it was a good property in a good location, but we couldn't believe how much interest we've had in it. We even had a guy offer to pay an extra $100/month to give it to him instead of the girl we'd already gotten the deposit from (we didn't, by the way).
THE BAD
Everyone asks about the downsides to owning rental properties. Here they are:
• Paying for repairs to a home you don't even live in can be a bummer - but if you budget for it it's not so bad. A tenant with a backed up toilet is not a happy tenant, and we want to be good landlords, so repairs are of utmost importance.
• Yes: we've had some deadbeat tenants, and yes: we sued them. We're nice people so stuff like this isn't fun for us. We learned from our mistakes and now take steps to avoid this sort of situation from ever happening again.
• Unoccupied space - Paying two mortgages for a few months kind of sucks but it's expected.
• The legal stuff - This isn't so bad, it just takes some time to figure out. Google goes a long way when learning your rights as a landlord and what rights your tenants have. However, now that we're growing our property business we have a lawyer who advises us on property matters.
THE GOOD
Buying property is our way of putting money in the bank and investing in our future. But when you have investment property, somebody else is investing in YOUR future. It kind of blows my mind. Sometimes it feels too good to be true, maybe even a little greedy, but it's a legitimate business and a service that we all need at some point in life.
• Someone else is paying your mortgage!
• Our property manager - When Jeremy's mom retired from her 9-to-5 we decided to hire her as our property manager. She's kind, smart and uses her gut. She gets good people in our houses and frees up our time to do stuff like watch Arrested Development all weekend.
• I'm not a tax expert but owning property is good for your taxes. When we take a loss on our property with repairs and unpaid rent it ends up being okay when tax time comes around. Or something…
• The profit - We rent our places out for enough to cover the mortgage, expected repairs and our property manager fees. Any extra little bit of profit goes towards saving for another property.
SOME OTHER CONSIDERATIONS
• We love our house and aren't particularly keen on relocating, but if we could live in these properties as we bought them we'd be entitled to some breaks - like a "homestead" exemption on property taxes, and lower interest rates. Those things wouldn't change once we started renting the house out, and would mean more cash-in-hand every month.
• Banks won't let you get away with any less than 20% down on an investment loan, which is actually fine because otherwise you'd be paying extra for PMI which is HIGHWAY ROBBERY AND THE DEVIL - evil, evil stuff. Avoid at all costs.
Of course there is more to be said on the subject, but this is the abbreviated overview of how we've made it work for us, so far.
I'm going to continue to expand on this new "matters" series. I'm an open book, so let me know if there are any other topics or specifics you'd like me to dive into. Help me figure out what to talk about next! I've had requests for Household Matters (how Jeremy and I keep a clean house and divide chores), Marriage Matters (from the big issues to the daily grind of forever and ever) and Wardrobe Matters (how to get the most out of a few basics) - I can't wait to tackle these topics.
Other topics in the Matters Series:
• Money Matters
• TO-DO Matters
:)
i tip my hat, lady.
kelly
i have a few requests for the matters series: if it's not too personal, would you mind sharing some more about your first marriage? i'd also be interested to learn about the tenants you had to sue... what was it over and did you win? i find it fascinating when bloggers share the "real" stuff. very enlightening. i am loving the new series, and thanks so much for sharing!
Thanks, Kelly! That's a huge compliment coming from a property guru like yourself. You're pretty much my hero when it comes to investing in real estate and bicep muscles.
Wow. This was quite informative. I LOVED it. More please. Thank you.
Shelly - Out of respect for my ex, I can't really go into my first marriage on the blog. I think it really was just a case of getting married too young. And for legal reasons I'm not really comfortable going into the lawsuit. It was basically a woman that wasn't paying rent. I tried everything I could from working out direct bill pay to a payment plan that she could afford. Eventually, after multiple eviction letters she moved out still owing us a couple months rent. We won the lawsuit but it still didn't feel good.
Part of marriage matters, can we get some sex matters in it? You seem to have a super healthy sex life and I think that's pretty laudable. Is it just how the two of you are, how YOU are, or something you work at? Don't share more than you feel comfortable with, but you know you're always alluding to boning.
Great post, Kathleen. I too have a rental property I currently rent out in Edmond since I moved in with my now husband. I've been renting it for about two years and we've played back and forth with the idea of getting another property. It's scary and exciting stuff and definitely has its ups and downs.
I love these posts.
We do like to bang it out and I do love talking about it... I'll definitely figure out a way to approach the topic on the blog without giving anyone in my family a heart attack or a case of the barfs. ;)
Interesting. I'm emailing this to my bf now who is very interested in property/investment type matters.
i'm totally jealous. in california (sf bay area) you could never cover your mortgage with rent, from what i've seen, unless you got some slummy multi-unit building. i will have to live out my rental property owning fantasy through your blog.
Cecily - I wanted to talk about the fact that location definitely plays into our ability to do this. The cost of living here is really cheap. But we're also in Oklahoma and not SF Bay - so it's definitely a trade-off.
My husband and I are considering renting out our house instead of selling it but I'm so so so scared! Reading your post definitely put some of my scaredy-cat syndrome to bed but it's still overwhelming to me. I will say though after reading this that I won't say 'no' immediately the next time he brings it up.
Can't WAIT to read your other "matters"...specifically the wardrobe one, I suck when it comes to fashion.
MrsSki - Renting out a house you already own is a lot less scary than you would think! It's not for everyone but if it's something you are seriously considering I would go for it - you can always sell later if it doesn't work out for you.
My fiancé owns a triplex - lives on the main floor and rents out a top and basement suite. They pay the mortgage! It's really a beautiful thing.
we own our home. actually we inherited it. it was paid off in the 50's. we completely re-did lots of things..and rented it out, ONCE!
Nightmare and a half. were here in california too and are seriously considering moving abroad. if we do, and we rent our home (as selling would be foolish, taxes on it are 600.00 per year!) we will hire a property manager as we would never in a million years consdier doing it ourselves again. especially if were not in the country! :0) great post K!
It's a really cute house. I'd totally come to look at it if I was looking to rent. ;)
And how cool to have landlords like you guys. We'd totally have you over for wine.
Nate and I are starting the home buying process soon. I'm a bit terrified.
My better half and I contemplated investing in property a few years ago, but when our cons list outweighed the pros we decided it just wasn't for us.. So for now, were very happy owning and living in our home! Glad to hear you have the stomach for it, girl!!
Ps, loving the 'matters' posts.. It's so refreshing hearing your take on these things!! Also, seeing aspects of your life unfold over the past 2-3 years makes it all the more facinating!! :)
You guys are lucky!! Here, in the outer suburbs (I'm talking an hour commute from the city), you'd be looking to pay $400,000 for a 3 bedroom house. Like, a cheap quality, tiny block of land house. So even when I finish Uni and Nic and I are both working full-time and earning money, it's still only within reach if we're going to be paying off that mortgage for like... 30 years, let alone get a second one to pay for a rental, and then I'm not sure if it works out more beneficial anyway, despite the HUGE lack of rental real-estate here.
Wooooo crappy real-estate situation! I want to move to the US where it's cheap!
Anyway, I'm envious of you guys and your many investment properties.
I'll continue to dream. ;)
I really appreciate that you address such practical, important matters, Kathleen. I'm moving back to NYC, so purchasing anything isn't in my future right now. But one day, it will be.
I agree with Brandi, such valuable information in the Matters Series. Please continue them!
I'm in the process of buying my first house and it's a nightmare. But if I had 20% down, that would've been A LOT easier. My long-term plan is to own rentals as well:)
This is something I've been tossing around as well (although, I still feel like I should sell the current house and put that money towards the cost of the next house). Anywho, I would love to hear your thoughts on the pro/cons of the following options: putting extra money into buying rental properties versus taking extra money and investing in stocks, etc. versus just keeping extra money in a savings account.
I'm kind of 27 going on little old lady, so my inclination is to just squirrel as much away in savings as possible, but I realize that this is really not the best return on investment. How did you (and Jeremy) decide on your current route over other financial plans. And do you also have traditional retirement, Roth IRA, etc.? Or is it all wrapped up in rental properties?
How much savings would you feel safe with when buying a rental? Because even with a downpayment covered... then you need some bank stashed back for repairs, months it may go unrented, whatever the difference might be between the mortgage and the rent, etc... I could probably have a downpayment saved up before too terribly long, but don't know how much in excess of that is reasonable!
Thanks for sharing your experiences with this! It is exciting for me to see (long time reader/first time commenter) because my husband and I are planning to do exactly this in a few months.
I am wondering though, how much do you guys set aside each month for repairs? We typically fix everything ourselves in our current home, but would probably be calling in professionals more often in a rental, so I'm really not sure how much to expect there. Plus, do you set aside more money for bigger things down the road, like replacing a water heater or the roof, etc.?
Diane - Yes, we do have traditional retirement IRAs too. After watching the market crash once or twice in my lifetime alone I find value in putting my money in brick and mortar. I know the housing market has crashed too but it's been able to hold a little more steady in Oklahoma. I like investing my money in something tangible.
Heather / AMG - I would sit down and account for a few thousand in repairs (depending on the condition of the place you buy) and realistically you should be able to always afford all mortgages on your own. From there do the math and find a number that you are comfortable with.
I finally was able to come back and read this in it's entirety. I even read some aloud to my husband. This was so informative. I also wanted to say I love the "matters series".
Your blog is a such a versatile place! Thanks for sharing all of it!
Annalena - Personally, we are always saving money. So we're not necessarily saving specifically for rental repairs and maintenance. We've mostly had large expenses come up that aren't an ongoing thing (like painting exteriors & interiors, sewer line replacements) and smaller expenses as well (AC maintenance, plumbing clogs). It probably depends on the condition of your property and how well your renters maintain the place on their own - but typically, I've found the kinds of repairs / maintenance we need are no more than what's typical with our own home. Sorry for the convoluted answer - I hope that helps!
Are you (please?) going to show us the before and after photos of your P90X workouts? I would like to see them!
Jenny - Ahhh... I've been taking the photos and am still debating whether or not I want to share them. We'll see. ;)
Thanks for posting - you make it seem less scary!
Question about insurance - do you have to pay more for home insurance on rental properties? Is it harder to find coverage or was it easy?
Chacha - It's actually a lot cheaper for insurance because you will just be taking out a dwelling policy. It's probably best to require your tenants to get renters insurance as well. Because our properties have updated sewage and electric it hasn't been a problem getting insured. And if you're in Oklahoma I've got a great insurance rep I can direct you to.
I feel like I need to disclaim all of this one more time just to say I'm not an expert but that this is how we've managed it so far.
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