Pros and Cons of buying a rental property in Boise while living in NJ?
April 14, 2015 11:16 PM Subscribe
We are considering buying an apartment or a small house in downtown Boise, Idaho strictly for renting it out. We live in NJ, but have family in Boise. Please help us understand all the pros and cons and the logistics of buying property from across the country.
This is with the hope that it turns out to be a good investment, since Boise is growing, and the rent income would cover the total monthly expenses. We (mid-30s couple) have saved up 4-5x the amount needed for a 20% down payment (we would only put down 20%), and I alone make enough each month that we can cover our rent and the mortgage/taxes/insurance for a house in Boise if need be for several months while still continuing to save. (Yes, we still rent in NJ, but that is because we do not know where we will settle down. We do plan on buying a house in NJ for us in a couple of years.)
We have family in Boise (brother + awesome in-laws) who are willing to help (essentially act as a management company and we would pay them), but we are OK with finding a management company because we realize that business + family isn't always the best combination.
Boise is a beautiful city and we would buy something close to downtown, with the hope that young professionals will continue moving to Boise. A condo seems like much less work than a house because the monthly maintenance fee would mean there is no mowing or snow removal to think about, in addition to roof/siding/etc.
Things that concern me:
- How does buying property from 2000 miles away work? I want to hear some advice from people who've done this.
- Thinking long term - is it possible for this to be a success without having to travel to Boise more than once per year? Twice at most?
- Would we be paying Boise/Idaho taxes and would it be a significant amount? We will get specific advice from an accountant/lawyer, but in general is the tax hit a big enough issue not to buy out of state?
- In case any legal issues come up (tenant sues us, or we have to evict them for not paying rent), can all of this be handled remotely through a lawyer? Would I be able to give my brother legal rights (power of attorney?) to handle things for me if needed? I would be able to fly down there on short notice once in a while, but not several times in a a few months.
What else am I missing when thinking about this? As you can see we are new to all this legal stuff and real estate, but we always do our research and think carefully. Money-wise, it feels safe, since we have a large cushion, but the reason we have a large cushion is because I've always been really careful with saving, and this would definitely be a drastic move and I want to consider all aspects. Interest rates are low, and we hope that Boise real estate market would grow, or at least not drop. If the price of the property stays the same during the course of us owning it, we would still come out ahead if we had most of the mortgage paid for us by tenants and then sell the place, right?
So. Is this a good idea? Bad idea? What am I forgetting to think about?
This is with the hope that it turns out to be a good investment, since Boise is growing, and the rent income would cover the total monthly expenses. We (mid-30s couple) have saved up 4-5x the amount needed for a 20% down payment (we would only put down 20%), and I alone make enough each month that we can cover our rent and the mortgage/taxes/insurance for a house in Boise if need be for several months while still continuing to save. (Yes, we still rent in NJ, but that is because we do not know where we will settle down. We do plan on buying a house in NJ for us in a couple of years.)
We have family in Boise (brother + awesome in-laws) who are willing to help (essentially act as a management company and we would pay them), but we are OK with finding a management company because we realize that business + family isn't always the best combination.
Boise is a beautiful city and we would buy something close to downtown, with the hope that young professionals will continue moving to Boise. A condo seems like much less work than a house because the monthly maintenance fee would mean there is no mowing or snow removal to think about, in addition to roof/siding/etc.
Things that concern me:
- How does buying property from 2000 miles away work? I want to hear some advice from people who've done this.
- Thinking long term - is it possible for this to be a success without having to travel to Boise more than once per year? Twice at most?
- Would we be paying Boise/Idaho taxes and would it be a significant amount? We will get specific advice from an accountant/lawyer, but in general is the tax hit a big enough issue not to buy out of state?
- In case any legal issues come up (tenant sues us, or we have to evict them for not paying rent), can all of this be handled remotely through a lawyer? Would I be able to give my brother legal rights (power of attorney?) to handle things for me if needed? I would be able to fly down there on short notice once in a while, but not several times in a a few months.
What else am I missing when thinking about this? As you can see we are new to all this legal stuff and real estate, but we always do our research and think carefully. Money-wise, it feels safe, since we have a large cushion, but the reason we have a large cushion is because I've always been really careful with saving, and this would definitely be a drastic move and I want to consider all aspects. Interest rates are low, and we hope that Boise real estate market would grow, or at least not drop. If the price of the property stays the same during the course of us owning it, we would still come out ahead if we had most of the mortgage paid for us by tenants and then sell the place, right?
So. Is this a good idea? Bad idea? What am I forgetting to think about?
Buying property at a distance is usually not difficult--I've done it a couple of times, although not in Idaho. You will need to travel in order to pick out your property (obviously) and possibly for the closing. You will need to know what the local real estate laws say about allowing a person with your power of attorney to close for you, whether this can be done at all and whether it's different for married couples (for instance, in Illinois, a closing can happen with only half of a married couple, regardless of how the title will be held but that is not permitted in California). In some cases, you can arrange closing in a different place from the property.
The same is almost certainly true of getting sued as a landlord. You will need to be very available to your attorney (and sure of that attorney's skill) but in my experience, landlords (and indeed, everyone who is suing or being sued) who have attorneys are pretty much never in court unless there is a trial. Where I practice, landlords with attorneys are only at landlord-tenant trials if they need to testify and when they have management companies handling everything, they don't generally need to testify. Local laws may change that somewhat, but even so, in the unlikely event of a lawsuit (assuming you are conscientious about following local law and just a reasonable person over all), it would be also unlikely for a lawsuit involving a small landlord to require that person to fly back and forth for a lot of court stuff.
If you wanted not to handle any of the legal stuff at all--handing the power of attorney over and forgetting it--you are much better off with some sort of legal entity, like a Real Estate Investment Trust. In the case that you just want to own and not be involved (choosing tenants, scheduling repairs, handling move-in/move-out inspections, logistics, cleaning/painitng/locks/repairs), you should most likely not buy a place in your own personal name (holding the entire mortgage in your own name) while remaining almost entirely disconnected from it. That is a situation much better suited to legal entities with hold you personally removed legally in the same way that you are personally removed practically.
posted by crush-onastick at 6:08 AM on April 15, 2015
The same is almost certainly true of getting sued as a landlord. You will need to be very available to your attorney (and sure of that attorney's skill) but in my experience, landlords (and indeed, everyone who is suing or being sued) who have attorneys are pretty much never in court unless there is a trial. Where I practice, landlords with attorneys are only at landlord-tenant trials if they need to testify and when they have management companies handling everything, they don't generally need to testify. Local laws may change that somewhat, but even so, in the unlikely event of a lawsuit (assuming you are conscientious about following local law and just a reasonable person over all), it would be also unlikely for a lawsuit involving a small landlord to require that person to fly back and forth for a lot of court stuff.
If you wanted not to handle any of the legal stuff at all--handing the power of attorney over and forgetting it--you are much better off with some sort of legal entity, like a Real Estate Investment Trust. In the case that you just want to own and not be involved (choosing tenants, scheduling repairs, handling move-in/move-out inspections, logistics, cleaning/painitng/locks/repairs), you should most likely not buy a place in your own personal name (holding the entire mortgage in your own name) while remaining almost entirely disconnected from it. That is a situation much better suited to legal entities with hold you personally removed legally in the same way that you are personally removed practically.
posted by crush-onastick at 6:08 AM on April 15, 2015
Perhaps your family in Boise know potential tenants. Referrals are usually a MUCH better way to get tenants than the open market.
posted by ZenMasterThis at 6:57 AM on April 15, 2015
posted by ZenMasterThis at 6:57 AM on April 15, 2015
What else am I missing when thinking about this?
This follow-up question you ask: "If the price of the property stays the same during the course of us owning it, we would still come out ahead if we had most of the mortgage paid for us by tenants and then sell the place, right?"
...suggests to me that you need to sit down and do more math to figure out the circumstances under which this is a great investment, a mediocre investment, and a bad investment. Figure out what the upside looks like under best case scenarios (100% occupancy, sell the place on the back end at a profit) and worst case scenarios (vacant for a year plus; sell at a loss) and likely middle-of-the-road scenarios. Don't forget to figure in things like insurance, management fees, occasional replacement of things like appliances, etc.
Then consider the fact that this is a very un-diversified and labor-intensive investment. Compare it to more diversified, less labor-intensive investment vehicles like a real estate investment trust (REIT). Is the potential upside to owning a place worth the extra effort and lack of diversity? Answer those questions before you start deciding on the logistics of buying a place.
posted by craven_morhead at 8:07 AM on April 15, 2015 [1 favorite]
This follow-up question you ask: "If the price of the property stays the same during the course of us owning it, we would still come out ahead if we had most of the mortgage paid for us by tenants and then sell the place, right?"
...suggests to me that you need to sit down and do more math to figure out the circumstances under which this is a great investment, a mediocre investment, and a bad investment. Figure out what the upside looks like under best case scenarios (100% occupancy, sell the place on the back end at a profit) and worst case scenarios (vacant for a year plus; sell at a loss) and likely middle-of-the-road scenarios. Don't forget to figure in things like insurance, management fees, occasional replacement of things like appliances, etc.
Then consider the fact that this is a very un-diversified and labor-intensive investment. Compare it to more diversified, less labor-intensive investment vehicles like a real estate investment trust (REIT). Is the potential upside to owning a place worth the extra effort and lack of diversity? Answer those questions before you start deciding on the logistics of buying a place.
posted by craven_morhead at 8:07 AM on April 15, 2015 [1 favorite]
I have owned rental properties in a half a dozen states. All were purchased without leaving my home state. I engaged a property managment company in each instance. I did actually own a single family home in Boise. I sold all the properties a few years ago during the recession. I never experienced any serious problems with any of the properties in the decade that I owned them. The worst issues I had were being notified of mold growing from a leak at an adjacent property in one unit, which the property management team handled, the need to install a fence once at another unit, again the managment company notified me, priced it, hired the crew and handled payment. In all the years I had zero tenant problems, and only had a vacancy issue in one unit and that was after hurricaine Katrina did damage in Pensacola. Insurance paid for the damages and it was re rented soon after. I used the equity from the first two properties I purchased to get a line of credit to purchase two more, and so on. This plan was good in theory, but the recession brought an end to the ever rising prices and I chose to get out before I lost too much more equity. If I recall, while I wasn't able to deduct mortgage interest from the rentals, I was able to deduct capital loss from the sale of one property that was indeed sold at a loss during the downturn. In all, I did not end up making the kind of profit Id hoped, but I also never had any real hassles or drama as Id feared. Having the property management companies handle the whole matter, including placing tenants and handling repairs, was the key for me.
posted by Rapunzel1111 at 11:23 AM on April 15, 2015
posted by Rapunzel1111 at 11:23 AM on April 15, 2015
This thread is closed to new comments.
posted by imthebadgerdamnit at 2:39 AM on April 15, 2015