Comments on: Might Not Stay In Our Starter House Afterall

By: FBN Roundup- Back in School Edition : Tight Fisted Miser

FBN Roundup- Back in School Edition : Tight Fisted Miser — Sun, 11 Jan 2009 15:21:20 +0000

[...] Babe might move. If you work at home and can move to a much less expensive area it is something that should be [...]

By: Weekend Roundup - The Water Heater Went Out Edition | Not Made Of Money

Weekend Roundup - The Water Heater Went Out Edition | Not Made Of Money — Sat, 10 Jan 2009 13:08:13 +0000

[...] Frugal Babe is considering a move. [...]

By: MITBeta @ Don't Feed The Alligators

MITBeta @ Don't Feed The Alligators — Sat, 10 Jan 2009 03:38:45 +0000

I’ve heard nothing but bad news concerning management companies. Makes me wonder how they’re still in business. But clearly this would eat even further into your profits.

In addition to the other comments about getting familiar with tenant law where you live, you’re also going to want to become familiar with tax law concerning rentals as well. There are some really great benefits for “small time” landlords. For example, you may want to delay fixing the roof until you rent the property so that you can claim the expense as a deduction, etc.

Also, as it concerns my first point above, you have to actively participate in the management of the property (which you can still do, even if you have a management company) for it to be considered passive income rather than investment income. This will make a BIG difference come tax time.

Nolo.com publishes a great book on the subject.

By: FrugalBabe

FrugalBabe — Sat, 10 Jan 2009 03:15:53 +0000

MITBeta – thanks for your input, it’s good to hear from people who are or have been landlords. Our taxes and insurance are included in our mortgage, and the total is $1140/month. Rentals in this neighborhood are currently at about $1250.
We’re still thinking about all of this, but for the time being we wouldn’t be trying to profit by renting out the house. Instead, we’re just hoping to break even and be able to delay selling our house until the market recovers a bit. But our views might change as we start researching all of the ins and outs of being landlords in our state. We are considering the possibility of renting it directly instead of using a property mgmt company, in order to avoid the extra expense. There’s a lot to consider here, and we’re grateful for all of the input and ideas.

By: MITBeta @ Don't Feed the Alligators

MITBeta @ Don't Feed the Alligators — Sat, 10 Jan 2009 02:29:16 +0000

“and have found that average rental prices in our neighborhood are actually a little higher than our monthly mortgage payment.”

As a landlord myself, I would not settle for “slightly higher”. Your mortgage needs to be 60% or less than the rent you collect. You’ve still got taxes, insurance (which will go up, by the way), wear and tear, repairs, etc. to pay for as well. That all has to come out of the rent or else you’re losing money.

I applaud your diligence, but don’t fall into the trap of sugar-coating the bad stuff and over-hyping the good.

By: heidi

heidi — Fri, 09 Jan 2009 02:01:58 +0000

My husband and I rented out our “starter” home for 6 years before choosing to sell it. (Top of the market, we needed the money to finish up a flip…) Anyway, we had wonderful tenants and awful tenants. (And it was really hard to determine beforehand who would be which). Please, please check into how easy it is to evict someone in your state. Each state is different. Our state allowed us to post a five day or quit notice after the rent was late one day. After those five days we could file in small claims court. (Cost – about $300?) After paying the get the tenant served by the sheriff we could go back to small claims and show that they were served and actually get a court date… usually a month or five weeks out. In the six years we rented the house we filed for three evictions. It IS stressful and expensive… and chances are really good that you will have some cleanup on the house before it is rentable again… then you have advertising costs (although you can use Craigslist for free now), and he time wait before they will want to move in, etc. The whole process ends up costing you the equivalent of about three months rent.

Having said all of that, I would do it again. It is frusterating and hard. Most things in life that are beneficial are.

The main recommendations I have are:

1) Don’t use a property management company. Do it yourself and save the money. Be involved with what is happening with your investments. Your house is an investment right??

2) Use a month to month rental agreement. Going through a lawsuit is stressful enough, but have you ever tried to collect on a judgement? It can be done, but you will probably spend a lot of money and time and never collect any money from the former tenants. If they don’t want to live in my house anymore, I don’t want them to either. Do you know anyone who stays in a home when they want to move because of a lease? This also allows you to give them a thirty day notice if you end up not liking them.

3) Think long and hard about whether it makes financial sense for you to rent it out versus trying to sell it. If it remains unrented for months at a time, is that going to be an issue for you financially? Will it make it a break even or loss situation?

Either way, I wish you the best. Lowering your living expenses is the ULTIMATE way to provide security for your family in the coming hard years. Just make sure that you are not gambling the security that you and your husband have already achieved on minimal financial reward.

By: Natalie

Natalie — Thu, 08 Jan 2009 22:05:13 +0000

My husband and I moved to a very small town outside of a huge city. We are 30 mins. away and we love it. We have a much bigger house and yard and much lower property taxes. However, the one thing that is a major issue now is the schools are not as good compared to the big city and since we have a child who will enter school in a couple of years that is a concern. We also know that while the city is growing that the schools should improve. Just check into that before you are in the same boat as us…do we move back to the bigger city and get a smaller house or stay where we are and send her to private school?

By: Lilbet

Lilbet — Thu, 08 Jan 2009 22:02:19 +0000

I had a terrible experience with renters (and we used a property management company). Just check into your local laws to see just how easy it is to evict someone. In my case, our renters stayed 1 year without paying a dime, trashed the house, and we could never collect. Certain states protect people from being tossed out in the cold of winter. Not sure where you live, I’m new to your blog. But, I’m sure, like everything else, you will think hard and research all the information.

I think if the idea of this move makes you happy, then go for it. Personally, I would sell my house, but I’m not you. And I learned the hard way with renters, you may not have the same experience!

Keep us posted. This is a great time to buy property, wish I had some extra cash!

By: Sherry

Sherry — Thu, 08 Jan 2009 15:29:46 +0000

FB – Wonderful! Stir things up a bit…(that wasn’t a new year’s resolution, was it?). Nothing in life is carved in stone!

By: Kay

Kay — Thu, 08 Jan 2009 14:25:14 +0000

Goodluck with your new idea. I think it’s a really good move.

I’m very glad that you are doing plenty of research before you make any decisions!