Who should I be talking to?
February 4, 2015 6:51 AM   Subscribe

My wife and I have a rental property, and it's basically one headache after another - and worse, it's costing us money every month. I need help! But I'm not sure where to go for sound advice.

We're in a situation where we now own two homes. We live in one. The other we rent out through a rental agency. We get a check every month from the rental agency, but it's less than what we pay for the mortgage. It's a bad situation.

We could sell the house. We could re-finance and get our mortgage payment down. We could do all sorts of stuff. But we're not really... we're not really comfortable with this stuff. We'd like to sit down with someone who does this for a living who can look at all the possible options and explain them to us like we're children and give us advice on what the best possible move is.

The thing is, I'm not sure who that is. Is it a financial planner? A real-estate lawyer? A mortgage expert at my bank? Who do I want to call up? Who can give us a road map that makes sense?
posted by kbanas to Work & Money (9 answers total) 2 users marked this as a favorite
You'll want to call a financial planner. You should be talking with an accountant anyways to ensure you're deducting things properly and maximizing your tax situation. A mortgage expert is a good idea to see if you can get a better rate or can get a longer amortization schedule, both of which can reduce the monthly cost.

It's not per say bad that you're "losing" money every month. You're at the investment phase of being a landlord. One day that mortgage will be paid off and not only will you then have the rent, but also the equity.

However, being a landlord is a high PITA way to invest. It's not for everybody. If you're too tight for money now and can't afford a big-ticket repair, you should get out and contribute monthly to a mutual fund or something.
posted by hylaride at 7:04 AM on February 4, 2015

Response by poster: As an aside, if it is useful, we do have an accountant who does help us make sure we're deducting things properly and maximizing our tax situation.

posted by kbanas at 7:08 AM on February 4, 2015

I would call, first, the mortgage expert at the bank -- because they will talk to you for free and may be able to give you several options around selling and refinancing -- and second, a financial planner after getting recommendations specifically for financial planners who are good with questions about real estate. It seems like you just need someone to sit down with you and talk you through this, and suggest options and potential benefits and risks you may not have thought of yourself. A financial planner who you pay for an hour's consultation should be familiar with all that without having any incentive to sell you on any particular course of action. (I am a lawyer and would not suggest calling a lawyer for advice like this. They will be more expensive and likely less practical than a financial planner.)
posted by chickenmagazine at 7:12 AM on February 4, 2015

In addition to a financial planner and accountant, you may want to talk to other landlords. There are landlord forums online you could join. You don't say how far your rental property is from your principal residence. Instead of giving a commission to a rental agency, you could rent it yourself and save on agency fees. Aside from it costing you more than it makes, you also don't provide any insight into the source of all the headaches. Nor have you provided information on why you chose to rent the house instead of sell it. Honestly, it's not a sound business if you're not making money, unless the overhead is temporarily high and future income will offset temporary costs.
posted by zagyzebra at 7:14 AM on February 4, 2015

Response by poster: "Nor have you provided information on why you chose to rent the house instead of sell it."

Sorry, not to thread-sit - but, I didn't provide a lot of information of that nature because I didn't want to task the folks in this thread with giving me financial advice - I just wanted to talk to the people in this thread about giving me advice about who to talk to about getting advice. :)

At the end of the day, we decided to rent because we owed substantially more than the house was worth. We would have preferred to sell.
posted by kbanas at 7:20 AM on February 4, 2015

Sell the house! You probably need to talk to an accountant about the bigger financial picture, then a real estate sales representative about selling the property. If you don't like being landlords and outsource the work already, on top of the fact that the place cannot make back its own mortgage payments, seems like time for it to go.
posted by zdravo at 8:20 AM on February 4, 2015

As others have said - just because your take home rental income is less than your mortgage payment doesn't mean you're actually losing money. You have a net cash outflow. I have that every month because I chose to use a letting agency to manage my flat because I live abroad and want to have an easy life so they take their cut. I also chose not to realise a loss on the property by selling. But my net rental income exceeds interest element of my mortgage nicely and covers other sundry expenses for the property so I'm not losing money and get the tax benefit of the interest payments.

What concerns me is that you seem to get monthly 'headaches' landed at your doorstep, when that's generally what an agency should prevent. All I get is occasional emails where they either tell me about a problem they've handled (i.e. give me a heads up that I'll get a slightly lower rent payment that month due to a minor repair being deducted), or ask me to approve proposed problem solution if it is an expensive repair. This happens maybe once every quarter if it's a bad year.

Having these slight variations in my monthly rental income does not cause me a problem because my budget can absorb these. I can smooth out these differences in cash in/cash out over time. If every cent of rental income is allocated in your budget I guess that could cause a headache as well.

If it's the agency not doing what you need them to do get a different agency. If your budget is so tight that this is a continuous headache explore how to sell the property in your discussions with your advisors.
posted by koahiatamadl at 9:11 AM on February 4, 2015 [2 favorites]

Definitely talk to a financial planner. I am in a similar boat (accidental landlord due to upside down house, rent does not cover mortgage) and we ran the numbers and decided to keep it, but it really could have gone either way if the numbers were different or if our particular situation was different.

(In our particular situation, we have decided to hold onto the rental because we aren't great at saving so the house is forcing us to build equity we otherwise wouldn't. In other words, I could sell today for a $10K loss and have nothing to show for it or rent it at a $200/mo deficit for the next 4 years, but by then the house will have appreciated so we will have a real asset AND rents will likely have gone up enough that we are no longer operating at a loss. Your situation may be different and a financial planner will help you figure that out.)
posted by rabbitrabbit at 9:49 AM on February 4, 2015

My family is in property management and I worked in it since the age of 10.

With property management, it is extremely important to shop around. If you're not happy, see your contract and you can probably fire them without cause. But I would contact your local property owners association and seek references for a property manager. If you are paying more than 7.5%, you are getting a bad deal and it is likely you are paying for this company paying through the nose for paid-in services, such as having a handy man. The threat of leaving is usually enough to get a property manager to lower their rate of compensation.

If you plan to sell, you don't want to do it with tenants in place unless you are willing to compensate them to leave. I would consider how far you are from the property before making a sale decision.
posted by parmanparman at 10:39 AM on February 4, 2015 [1 favorite]

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