Be Ready for Major Repairs
When his job took him to Nevada for a year, Andy Peterson of Wyoming rented out the starter home he’d purchased only six months before. While he was away, the sewer backed up into the house, the result of a sewer line collapse. “They had to replace the entire sewer line, and paying for it wiped out my savings,” Peterson says. “If you’re going to rent out a house,” he advises, “set a few thousand dollars aside for major repairs so you’re not strapped for cash if something happens.”
It May Sit Empty
If you don’t find a renter, you could be stuck paying all the bills for two houses—your new one and your rental. Laura Henderson of Colorado was awarded the house (a rural property) in her divorce, but it was too large for just her and the upkeep was too difficult, so she bought a smaller home in town, hoping to rent out the bigger house. “It took eight months to find a renter,” Henderson says, “and during that time, I had to pay the mortgage and utilities on both houses. If I had it to do again, I would wait until I had a renter lined up before buying a new home.”
Long-Distance Leasing Woes
At first, Brenda Miller from Kansas was excited to learn she’d inherited her great-aunt’s house, located just over the border in Nebraska. She lived four hours away but figured that was close enough to drive up to check on the house every now and then. “I didn’t think the renters would be calling me all the time,” Miller says. “I found myself having to make the drive two or three times a month because they always seemed to have some sort of problem.” She ended up selling the house (to the renters) and buying a small place in her own community.
Check References Thoroughly
When he rented out his first house, John Taylor of Kansas called the references listed on the application. “They checked out,” he says, “but they didn’t offer a true picture of the renter’s paying habits.” Those first renters left without paying the last two months’ rent and left an unpaid utility bill Taylor had to pay before the utility company would turn the power back on. “Now, I also call an applicant’s employer and his current landlord, and I try to visit his current residence to see how he’s caring for it.”
Before heading out of state for a job, Andy Peterson of Wyoming installed new carpeting in his small home and repainted the interior. “It was really looking sharp,” he says. Because he wanted it to stay that way, one of his rental conditions was that the tenants not have pets. When Peterson returned to his home after a year, he found the carpeting completely destroyed by animal urine stains and the inside of the front door deeply scratched from a dog’s nails. “I should have charged a large security deposit," Peterson says. “At least that way, I’d have had the money to repair the damage.”
Know Your Local Rules
“My house was paid off so I thought I’d give someone a break and set the rent low,” Annie Jackson from California told us. A few months after her tenants were in, a pipe burst, causing extensive water damage. Jackson paid for the repairs, but the incident made her realize that she wasn’t charging enough rent to cover her expenses. Unfortunately, in Hayward, California, landlords are not allowed to raise rent more than 5 percent per year. As a result, her tenants continued to live in her rental house another two years for less than half the rent they would have been paying elsewhere.
Consider Hiring an Accountant
“I made a stupid mistake the first year I rented out the house I inherited from my parents,” Josh Davis from Kansas shared. “I never thought of it as a business. I knew I had to pay taxes on the income, but I didn’t save any of the receipts for the materials, carpet, and paint I used to get it ready to rent.” When it came time to file his income taxes, Davis discovered he could have deducted all those expenses. “I learned my lesson the hard way,” Davis says. “Now, I have an accountant.”
Don’t Rent Without a Lease
After her house had sat empty for eight months, Laura Henderson from Colorado was approached by a friend and asked if she’d rent her house to the woman’s son and his fiancée. Henderson was happy to do so, and the young couple moved in without ever signing a lease. “I knew better,” Henderson says, “but we were friends, so I figured a verbal agreement would be OK.” The young man moved out a couple of months later, but his ex-fiancée had no intention of paying rent or moving out. “I had to hire an attorney just to evict her, because I didn’t have a signed lease.”
More Trouble Than I Ever Imagined
If you’re a landlord in a small town, you may find yourself answering the phone at all hours of the night. At least that’s what happened to John Taylor from Kansas. “The neighbors living next to my rental got tired of calling the police when the tenants would play their music too loud or let their dog bark at night. Instead, they started calling me—sometimes at 3 in the morning.” Taylor says. “Thankfully, those renters left after a few months, but I got a lot of phone calls while they were there.”
Leave It to a Professional
Lacey Gerard had no regrets after her home rental experience; in fact, she did virtually everything right. The Gerards moved from Texas to Illinois during the housing downturn, and they knew they’d lose money if they sold their house in Texas at that time. Instead of trying to manage the rental long distance, they hired an insured handyman to do it for them. He dealt with all the maintenance and repairs for the rental so they could focus on their new home. When the housing market recovered, the Gerards were able to sell their Texas house at a reasonable profit.
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