Long Term Renting?

February 6, 2008 8:00 AM

What do I need to know about getting my house into the Long Term Rental market?

Short version:
I have a big house in a great family neighborhood in Wilmington, NC and I need to get a long term rental solution for it. How should I spruce it up and get it on the market? Should I use a real estate agent or is that too expensive? How can I get as much free advice as possible from a local agent?

~~~~
Super long version that might not be necessary:

So I bought a house in Wilmington, NC that sits right on the water (actually on a tidal creek that leads out to the waterway). It's a 2000sq ft house in a great family neighborhood that is tucked away from the business of the main roads but close enough to make most commutes pretty quick. It has 3 bedrooms, 2.5 baths, and a ton of bonus rooms. It sits on a half acre lot. This property will be worth a ton of money when things get back to normal, and I'm excited at the prospects of turning a great profit on it when I finally do sell it.

But right now, I'm drowning.

Thanks to the economy, my regular career income has taken something of a nose dive. I deal in loans, and rate now nobody really has money to pay back their loans, so I'm making a significantly smaller income than I used to. I expect this to turn around as soon as the economy does but for now, it's canned beans and ramen noodles.

I am paying $1825 a month on my mortgage (split between me and my co-owner who doesn't live there). $900+ a month to live in a giant house I don't really need is just too much.

In a perfect world, I'd get a full-time renter who could pay the full mortgage for me and I'd just swing by to do any necessary repairs that come up. In an imperfect world, I'd at least get someone in there to pay as much as possible and then I'd pay the rest (I'd split the remainder with my co-owner so it wouldn't be so bad)

How do I get a long term renter, how do I get advice to make my house appealing to long term renters, should I use a real estate agent to do the whole process, can I weasel out advice from one of them and then cut the middle man out later?

~~~~

Any and all advice for long-term rental solutions is greatly appreciated. Help me solve this problem!

posted by ZackTM to home & garden (7 comments total)

Zack if you live nearby and can handle minor repairs yourself, you may not need an agent to manage the property. If you have kids and stuff, it will be a huge pain in the ass and you may want someone to handle it for you. In Philly, where I live, the fee is typically under 10%.

The other concern is, can people in Wilmington afford $2000 rents? You will need to charge at least $2000 for this house or else you'll get clobbered, because now you are looking at paying rent or purchasing a dwelling for yourself.

Having said all that, your best bet may be to try to get a reliable room-mate or mates to kick in some rent money. If you can let out 2 living spaces at $500 per, you and your partner are going to be much better off. However, your partner will still be paying something for a house he is not using, BUT the house may sit and bleed money for a long time if you're waiting for someone to spring $2000 + per month for the whole property. You need to talk to your partner, and the two of you shouild at least sit down and talk to an agent about the rental market.

Good luck!

PS The tenants are far less likley to trash your place if you are actually living there. Just sayin'.
posted by Mister_A at 8:10 AM on February 6, 2008

Luckily I'm 25 and single. I'm not the most handy guy in the world but I can usually fix the minor stuff and know who to call for the big stuff.

And you're right, I am planning on getting a low-rent apartment to live in while I rent out my house.

As for roommates, sadly I've been looking for them for 2.5 years and it's a huge struggle. The house is in a great location for familes and career people, but not so great when it comes to college students/single renters who just want a room. It's simply too far away from the university and the night life scene...
posted by ZackTM at 8:15 AM on February 6, 2008

You may want to try buying an ad in the local papers yourself then; most of these will also appear in the online version of the rag. You can get boilerplate rental contracts and stuff, but make sure you understand the insurance requirements for this property. And again, it can't hurt to talk to an agent and crunch some of those numbers too...
posted by Mister_A at 8:22 AM on February 6, 2008

Oh, one more thing - you should talk to an accountant as well, there are significant tax implications here. Rental property can really help you out vs the tax man.
posted by Mister_A at 8:23 AM on February 6, 2008

Have you tried putting a "house for rent" ad in the paper? That would be your first step. I would budget $200-300/week for advertising it.

You can get lease agreements at any office supply store, or at Mr. Landlord.

You can screen your potential tenants through sites like SafeRent. Always charge an application fee to cover the cost of screening. Screening is the most important part of the process.

The classic book on rental property is entitled "Landlording." I also thought "Managing Rental Properties for Maximum Profit" was an excellent book.

I would recommend setting up a second bank account that you ONLY use for house expenses. If you use this as a rental you will have many opportunities for tax deductions. These are much easier to monitor if you aren't mixing business expenses and personal expenses. The house bank account should probably have $2000-$3000 in it to cover any major expenses or repairs that come up. Save your receipts for any tools you buy to work on the house, any ads you place, any office supplies you buy, etc.

The main value of working with a realtor is getting the house on the MLS. If you wanted to set up a lease-option or "rent-to-own" situation, this might be something to look into. If you just want to rent and hold, you should be able to do this on your own.

Hold a rental "open house" on weekends to cut down on having to make trips over to show it to different people.

Start planning your next step. When you do sell it, you will have to transfer the profit into another investment property, otherwise you will have to pay tremendous capital gains taxes that might not even make it worth it. If you can find a way to make it your primary residence for 2 years, you will not have to pay capital gains. A lot of people do this with great success.

Allow pets - many landlords don't. Just charge a larger deposit.

I have to go now, but feel free to mefi mail me if you have more questions.
posted by Ostara at 9:02 AM on February 6, 2008

I've been through a similar situation, where we decided to rent our second home while I was out of work (for a couple of years).

I would definitely recommend that you find a local rental agent to help you rent the house. He/She will know what the local market can bear in terms of rent, what typical leases are like in your area, and should be able to find a good tenant. I found a rental agent by asking a realtor I've worked with in the past to recommend somebody.

Rental agents are different than realtors. You are not looking to sell the house. Rental agents do this stuff for a living, usually in exchange for a percentage of one month's rent. It's worth it. Mine would also have accepted a monthly fee to "manage" the house (basically call the plumber) but I declined to do that.

There are enormous tax advantages to owning rental property that people who are not landlords are usually unaware of. If you have any other income, the depreciation on the house as a business asset is deductible against your ordinary income (as are all other expenses on the house, offset by the income your receive from rent). It can be an unbelievably good deal.

One other piece of advice: chances are, your tenants will do some crazy stuff, like paint rooms ridiculous colors, very badly, if you let them. Don't let them! Also, don't leave anything in the house that you care about.
posted by thomas144 at 11:26 AM on February 6, 2008

Not exactly the same situation but the information in one of my Previous Posts might help.
posted by Octoparrot at 5:08 PM on February 6, 2008