Personal finance, being a landlord, tenant rights, Boston, oh my!!
July 12, 2022 3:30 AM Subscribe
Hi! When we move out of Boston, we are considering renting out our house. I'm having trouble finding advice/considerations with regards to this. Specific questions:
We haven't had a rental property before so these are some basic primer questions:
1. How much would we charge for rent? Our house is uniquely modern with garage and private entrance for the area. But also, I wouldn't need brokers / broker fees because why would I? (Local Boston scam). How would you recommend finding out this number?
1.1 The house is really set up well for a single family, not 2-3 individual renters. Can I be selective somehow in the application process for this?
2. Does taxes or mortgages start charging you a ton extra for not having it as your main property?
3. Is the standard estimate "plan for 50% vacancy" really real?
4. I've heard that it's hard to be a landlord in Boston because of all the renters/tenant rights. But, I want to be a good, caring landlord! I'm happy to give people back deposits, etc. But, are there significant challenges outside of this? Like, if my tenants don't pay rent, there's some kind of recourse, right?
5. I would live 14 hours away. My house is currently under a HOA, that covers landscaping/snow removal. My neighbors rent their property out as well. I could hire a cleaner between tenants. Would there be any reason I'd need to come visit myself?
6. The reason I'm considering this is because we have a 3.25% interest rate. It feels like our money is happily leveraged into this property in a way that would be inaccessible in the future with closer to 5% interest rates. But, if I did sell the house my capital would go right into the stock market, which doesn't sound so bad. My math: 200k capital earning $4k (rent for $5k, $1k profit, 1k interest and taxes, and $3k equity) per month, is a 24% annual return. Is this estimate as good as it sounds?
We haven't had a rental property before so these are some basic primer questions:
1. How much would we charge for rent? Our house is uniquely modern with garage and private entrance for the area. But also, I wouldn't need brokers / broker fees because why would I? (Local Boston scam). How would you recommend finding out this number?
1.1 The house is really set up well for a single family, not 2-3 individual renters. Can I be selective somehow in the application process for this?
2. Does taxes or mortgages start charging you a ton extra for not having it as your main property?
3. Is the standard estimate "plan for 50% vacancy" really real?
4. I've heard that it's hard to be a landlord in Boston because of all the renters/tenant rights. But, I want to be a good, caring landlord! I'm happy to give people back deposits, etc. But, are there significant challenges outside of this? Like, if my tenants don't pay rent, there's some kind of recourse, right?
5. I would live 14 hours away. My house is currently under a HOA, that covers landscaping/snow removal. My neighbors rent their property out as well. I could hire a cleaner between tenants. Would there be any reason I'd need to come visit myself?
6. The reason I'm considering this is because we have a 3.25% interest rate. It feels like our money is happily leveraged into this property in a way that would be inaccessible in the future with closer to 5% interest rates. But, if I did sell the house my capital would go right into the stock market, which doesn't sound so bad. My math: 200k capital earning $4k (rent for $5k, $1k profit, 1k interest and taxes, and $3k equity) per month, is a 24% annual return. Is this estimate as good as it sounds?
What does the 200k represent? Your current equity in the property? To get to 24% you’re probably not comparing like for like.
Like for like would be the market value to gross rental income. You need the whole house, including the share still financed by the bank, to generate the gross rental income. Your equity value would buy you much less real estate that would generate much less rental income.
Lenders and insurance companies rate owner occupation very different from third party tenancies. So expect the interest and other costs to change. Your mortgage agreement probably contains a requirement to inform them if you let the place. And chances are that moving out for good triggers changes to the terms of your mortgage.
If you’re an absentee landlord how will you handle any of the things that pop up that a landlord is expected to take care of? Have you got good relationships with local trades people to get stuff fixed easily? What are your landlord neighbours doing?
How much tenant turnover is there in the neighbourhood? That should inform your expectations around costs to clean/maintain and re-let as well as time between tenancies. Looking at how much rent comparable homes in the neighbourhood generate in listings should inform your expectations about rent. It really doesn’t matter that you don’t expect to have to cover agency fees. You may find you do want an agency after a while…
posted by koahiatamadl at 4:30 AM on July 12, 2022
Like for like would be the market value to gross rental income. You need the whole house, including the share still financed by the bank, to generate the gross rental income. Your equity value would buy you much less real estate that would generate much less rental income.
Lenders and insurance companies rate owner occupation very different from third party tenancies. So expect the interest and other costs to change. Your mortgage agreement probably contains a requirement to inform them if you let the place. And chances are that moving out for good triggers changes to the terms of your mortgage.
If you’re an absentee landlord how will you handle any of the things that pop up that a landlord is expected to take care of? Have you got good relationships with local trades people to get stuff fixed easily? What are your landlord neighbours doing?
How much tenant turnover is there in the neighbourhood? That should inform your expectations around costs to clean/maintain and re-let as well as time between tenancies. Looking at how much rent comparable homes in the neighbourhood generate in listings should inform your expectations about rent. It really doesn’t matter that you don’t expect to have to cover agency fees. You may find you do want an agency after a while…
posted by koahiatamadl at 4:30 AM on July 12, 2022
Response by poster: Thanks for the answer so far. To clarify on the last point, I have about 200k in equity on my $1mm property. If I were to sell, I would keep that $200k. That last question is trying to parse that it seems like a good investment opportunity at such a low interest rate.
posted by bbqturtle at 4:31 AM on July 12, 2022
posted by bbqturtle at 4:31 AM on July 12, 2022
So if you have a 3.25% interest rate on a $800k mortgage, that means annually you're paying $26k in interest, more than $2k a month, plus taxes and insurance, plus maintenance expenses. A good rule of thumb for cap rate these days (net operating income divided by property value) is 3%, which is super low but the tax advantages make it better than it sounds.
As for cash-on-cash return, which is what you're calculating, it's plausible you could be getting 10% but remember that's a leveraged return and you're taking $1mm of risk with $200k of capital.
posted by goingonit at 4:35 AM on July 12, 2022 [1 favorite]
As for cash-on-cash return, which is what you're calculating, it's plausible you could be getting 10% but remember that's a leveraged return and you're taking $1mm of risk with $200k of capital.
posted by goingonit at 4:35 AM on July 12, 2022 [1 favorite]
Based on your update - at 5k pm the return is 6%, not 24%. And that does not consider your actual profit after interest, maintenance, cleaning HOA fees etc.
posted by koahiatamadl at 4:38 AM on July 12, 2022
posted by koahiatamadl at 4:38 AM on July 12, 2022
Response by poster: Ah, I don't mean to threadsit, but you are correct. I pay $1400 into principal, $1800 into interest, and $850 into taxes and insurance monthly for a total mortgage and escrow of $4050.
I'm not sure how to look at the true ROI because I'm only investing $200k, not $1mm - and my mortgage is for less than $1mm anyway. Regardless of my misinterpretation, I guess my last point is "is this investment opportunity advantaged vs a standard investment of $200k in my non-tax advantaged brokerage account".
posted by bbqturtle at 4:41 AM on July 12, 2022
I'm not sure how to look at the true ROI because I'm only investing $200k, not $1mm - and my mortgage is for less than $1mm anyway. Regardless of my misinterpretation, I guess my last point is "is this investment opportunity advantaged vs a standard investment of $200k in my non-tax advantaged brokerage account".
posted by bbqturtle at 4:41 AM on July 12, 2022
Best answer: Boston does have reduced property taxes for your primary residence, although if you didn’t already know that you might not be taking advantage of it?
posted by songs about trains at 4:42 AM on July 12, 2022
posted by songs about trains at 4:42 AM on July 12, 2022
So if you have a 3.25% interest rate on a $800k mortgage
This is not necessarily the case - the mortgage might be a lot less, since property prices have gone up a lot the last few years. I agree though that the amount of the mortgage is important.
1. I'd ask your neighbors, since at least one of the houses is rented. Basically you need to find comparable properties and see how much they're renting for; you're not going to get much more comparable than a house in your neighborhood that's currently rented.
1.1 You can't discriminate against renters based on familial status. I wouldn't worry about it too much because this is most often used to discriminate against families with kids rather than the other way around, and if your house is well-set-up for families, there's going to be some self-selection.
2. Generally you get to keep your mortgage with its current terms. Your homeowner's insurance will probably cost more; call your agent for a quote. As for taxes, when you say "Boston" do you mean literally "the city of Boston"? (I assume yes but I didn't know there were SFH HOAs in Boston!). In Boston I believe the current tax discount for owner-occupied properties is up to $3300 a year. So you'd owe an additional $3-400/month for property tax and insurance, but you'd be able to deduct things that you can't deduct now from your income. (A lot of Boston suburbs also have residential exemptions but the amount varies.)
3. Boston currently has a rental vacancy rate (for apartments, not sure about houses) of less than 3%. Planning for 50% seems extremely conservative, but I guess it depends what "planning for" means (if not being able to rent the house for six months means "uh oh, this wasn't such a good idea" that's one thing; if it means certain bankruptcy that's different). In your shoes I'd expect 10% and be happy if I were proved wrong.
4. I mean, if you follow all the rules you will be able to eventually evict a non-rent-paying tenant. But it would take time and a lawyer. So you do need to make sure your tenants can afford to pay.
5. If you don't want to use a broker and you live 14 hours away and don't want to come back, I'm not sure how you're going to handle turnover? Like, someone is going to have to show the house to prospective tenants. And you will have turnover, because families that can afford $5K rent probably aren't going to want to pay $5K rent forever. Maintenance you can probably handle from a distance, either by allowing the renters to choose their own repairpeople or by keeping the phone numbers of your Boston-local repair people. But things that you would fix yourself, you're probably going to have to pay someone to fix them.
6. A few more financial things to consider:
- you will have to pay income tax on the full rent minus stuff like mortgage interest/taxes/insurance (if you put the money into the stock market you could defer a lot of those taxes AND they would be long-term capital gains rather than plain income); based on your most recent numbers it sounds like your expenses will be like $36k/year (interest will stay the same, taxes will go up, insurance will go up, plus some money for maintenance); assume you can rent it for $5k/month (no idea whether that's realistic) that's $54k/year assuming 10% vacancy. So $12K additional income you'll need to pay income tax on (if the money were in the stock market you would only need to pay long term capital gains).
- huh $12k income does still sound a lot like a 6% return on your $200K investment (although that doesn't take into account fluctuations in price of at actual asset, the house).
- you'll have to pay more capital gains tax on the house when you sell it - no exemption for it being your residence. Otherwise you would be able to exclude $250K or $500K of the capital gains (if you've lived there for 2 out of the last 5 years).
I mean, the devil is in the financial details and I've thought about this myself (I own a home just outside of Boston that's a bit too big for me BUT my mortgage rate is 2.625% so I'm staying for now) but I feel like if you would be comfortable putting that money in the stock market you should. I kinda suspect you can't make money as a landlord without being a shit.
posted by mskyle at 4:52 AM on July 12, 2022 [1 favorite]
This is not necessarily the case - the mortgage might be a lot less, since property prices have gone up a lot the last few years. I agree though that the amount of the mortgage is important.
1. I'd ask your neighbors, since at least one of the houses is rented. Basically you need to find comparable properties and see how much they're renting for; you're not going to get much more comparable than a house in your neighborhood that's currently rented.
1.1 You can't discriminate against renters based on familial status. I wouldn't worry about it too much because this is most often used to discriminate against families with kids rather than the other way around, and if your house is well-set-up for families, there's going to be some self-selection.
2. Generally you get to keep your mortgage with its current terms. Your homeowner's insurance will probably cost more; call your agent for a quote. As for taxes, when you say "Boston" do you mean literally "the city of Boston"? (I assume yes but I didn't know there were SFH HOAs in Boston!). In Boston I believe the current tax discount for owner-occupied properties is up to $3300 a year. So you'd owe an additional $3-400/month for property tax and insurance, but you'd be able to deduct things that you can't deduct now from your income. (A lot of Boston suburbs also have residential exemptions but the amount varies.)
3. Boston currently has a rental vacancy rate (for apartments, not sure about houses) of less than 3%. Planning for 50% seems extremely conservative, but I guess it depends what "planning for" means (if not being able to rent the house for six months means "uh oh, this wasn't such a good idea" that's one thing; if it means certain bankruptcy that's different). In your shoes I'd expect 10% and be happy if I were proved wrong.
4. I mean, if you follow all the rules you will be able to eventually evict a non-rent-paying tenant. But it would take time and a lawyer. So you do need to make sure your tenants can afford to pay.
5. If you don't want to use a broker and you live 14 hours away and don't want to come back, I'm not sure how you're going to handle turnover? Like, someone is going to have to show the house to prospective tenants. And you will have turnover, because families that can afford $5K rent probably aren't going to want to pay $5K rent forever. Maintenance you can probably handle from a distance, either by allowing the renters to choose their own repairpeople or by keeping the phone numbers of your Boston-local repair people. But things that you would fix yourself, you're probably going to have to pay someone to fix them.
6. A few more financial things to consider:
- you will have to pay income tax on the full rent minus stuff like mortgage interest/taxes/insurance (if you put the money into the stock market you could defer a lot of those taxes AND they would be long-term capital gains rather than plain income); based on your most recent numbers it sounds like your expenses will be like $36k/year (interest will stay the same, taxes will go up, insurance will go up, plus some money for maintenance); assume you can rent it for $5k/month (no idea whether that's realistic) that's $54k/year assuming 10% vacancy. So $12K additional income you'll need to pay income tax on (if the money were in the stock market you would only need to pay long term capital gains).
- huh $12k income does still sound a lot like a 6% return on your $200K investment (although that doesn't take into account fluctuations in price of at actual asset, the house).
- you'll have to pay more capital gains tax on the house when you sell it - no exemption for it being your residence. Otherwise you would be able to exclude $250K or $500K of the capital gains (if you've lived there for 2 out of the last 5 years).
I mean, the devil is in the financial details and I've thought about this myself (I own a home just outside of Boston that's a bit too big for me BUT my mortgage rate is 2.625% so I'm staying for now) but I feel like if you would be comfortable putting that money in the stock market you should. I kinda suspect you can't make money as a landlord without being a shit.
posted by mskyle at 4:52 AM on July 12, 2022 [1 favorite]
Best answer: mskyle: re the tax treatment, you are missing the two best (tax-related) parts of being a landlord: depreciation and 1031 exchanges. Most small-scale landlords NEVER pay appreciable income tax OR capital gains! Here's how it works:
- I buy a house for $500k and rent it for a NOI of $20k a year (after expenses). But every year I pay say $10k of mortgage interest and get to depreciate say 1/27.5 of $400k so $14.5k, so I have a tax LOSS of $4.5k, on cash gains of $10k.
- After 27.5 years, I sell the house. But instead of paying capital gains, I do a 1031 exchange, buying a new and more valuable property, which carries my cost basis over, AND defers depreciation recapture, and the process begins again. While I have to buy a more expensive property (so I can't get cash proceeds of the sale), I can get a mortgage against the new property and get cash out that way (remember it's 27.5 years later so my old mortgage is almost fully amortized).
- I do this 1-2 more times.
- Then I die. My heirs get a stepped-up basis on all the assets in my estate, so I never pay capital gains, AND all the depreciation recapture goes away. So they own the property free and clear (as long as it's under the $11m estate tax exemption).
It's a total scam.
posted by goingonit at 5:31 AM on July 12, 2022 [7 favorites]
- I buy a house for $500k and rent it for a NOI of $20k a year (after expenses). But every year I pay say $10k of mortgage interest and get to depreciate say 1/27.5 of $400k so $14.5k, so I have a tax LOSS of $4.5k, on cash gains of $10k.
- After 27.5 years, I sell the house. But instead of paying capital gains, I do a 1031 exchange, buying a new and more valuable property, which carries my cost basis over, AND defers depreciation recapture, and the process begins again. While I have to buy a more expensive property (so I can't get cash proceeds of the sale), I can get a mortgage against the new property and get cash out that way (remember it's 27.5 years later so my old mortgage is almost fully amortized).
- I do this 1-2 more times.
- Then I die. My heirs get a stepped-up basis on all the assets in my estate, so I never pay capital gains, AND all the depreciation recapture goes away. So they own the property free and clear (as long as it's under the $11m estate tax exemption).
It's a total scam.
posted by goingonit at 5:31 AM on July 12, 2022 [7 favorites]
But instead of paying capital gains, I do a 1031 exchange,
Right, if you want to be a landlord until you die this makes sense. But the whole point of OP's plan here is to casually take advantage of their low existing mortgage rate.
Edited to add: if the OP wants to get into long distance landlording, there are definitely places where they can get better return on their investment.
posted by mskyle at 6:17 AM on July 12, 2022 [1 favorite]
Right, if you want to be a landlord until you die this makes sense. But the whole point of OP's plan here is to casually take advantage of their low existing mortgage rate.
Edited to add: if the OP wants to get into long distance landlording, there are definitely places where they can get better return on their investment.
posted by mskyle at 6:17 AM on July 12, 2022 [1 favorite]
Lenders and insurance companies rate owner occupation very different from third party tenancies. So expect the interest and other costs to change. Your mortgage agreement probably contains a requirement to inform them if you let the place. And chances are that moving out for good triggers changes to the terms of your mortgage.
Definitely check your mortgage, but in my experience this is not how it has worked. Interest is different for primary vs. rental properties, but only at the time of purchase, and as long as you lived in it as a primary residence in good faith, they don’t necessarily care what happens later. But check, double check, and triple check your mortgage, this isn’t something you want to get wrong.
(I did have to get different insurance, I would be surprised if you didn’t, and taxes may be higher for non primary residences.)
posted by sillysally at 6:27 AM on July 12, 2022
Definitely check your mortgage, but in my experience this is not how it has worked. Interest is different for primary vs. rental properties, but only at the time of purchase, and as long as you lived in it as a primary residence in good faith, they don’t necessarily care what happens later. But check, double check, and triple check your mortgage, this isn’t something you want to get wrong.
(I did have to get different insurance, I would be surprised if you didn’t, and taxes may be higher for non primary residences.)
posted by sillysally at 6:27 AM on July 12, 2022
As someone who has rented for my whole life, you do need to be available to visit the property. The one time I had a landlord that moved out of town it was incredibly inconvenient for me and I moved asap. Just yesterday a major appliance in the house broke and my landlord needs to be here to manage the repairs, because that is his job and I have my own job to do. Tenants are not property managers! One potential workaround here is paying someone who does live in town to be your property manager. Also if you are not required to be a landlord, you might want to ask yourself whether or not you really want to be making a profit off of other people's need for housing. My landlord raised my rent by 30% last year and told me to my face that it was because he wasn't getting the return on investment that he expected, so maybe I have a chip on my shoulder about this, but making a profit off of the fact that people need a safe place to live isn't the best.
posted by twelve cent archie at 6:31 AM on July 12, 2022 [7 favorites]
posted by twelve cent archie at 6:31 AM on July 12, 2022 [7 favorites]
Yeah if you’re going to sell in the next few years you are just betting on the housing market, the primary residence capital gains exemption will more than compensate you for the rental income.
posted by goingonit at 6:43 AM on July 12, 2022 [1 favorite]
posted by goingonit at 6:43 AM on July 12, 2022 [1 favorite]
A rental place without a local property manager is often a nightmare for both tenant and landlord. If you're not going to be local or not going to be hands-on yourself fixing/replacing/inspecting things, you need a property manager who will be. Or maybe you need to be willing to cut your renters a break on rent for the extra work of finding, hiring, overseeing, etc. repair people, but that requires a very specific tenant who's both able and willing to do those things well. Many people are renting in order to not be responsible for that stuff. There has to be someone whose job it is to take the 2 a.m. "the pipes froze and busted, your basement's flooding, I'm taking the dogs and fleeing to a hotel, get here ASAP to stop the flood and fix the disaster and pay for my hotel stay because the house is uninhabitable" calls, and if you're in another state you're not going to be in any position to handle those.
(About those dogs: give some thought to whether you'll accept pets and if so what your stance is going to be on pet rents or pet deposits, and also make sure you're up to speed on your obligations re: renters with service animals or emotional support animals, if you're not otherwise going to allow pets.)
posted by Stacey at 6:45 AM on July 12, 2022 [7 favorites]
(About those dogs: give some thought to whether you'll accept pets and if so what your stance is going to be on pet rents or pet deposits, and also make sure you're up to speed on your obligations re: renters with service animals or emotional support animals, if you're not otherwise going to allow pets.)
posted by Stacey at 6:45 AM on July 12, 2022 [7 favorites]
I'm going to answer this from the opposite perspective - as a person who rented a townhouse in a major city from a first-time landlord who was letting their house because they took a new job on the opposite side of the country. It perhaps will shine a light on how being a landlord isn't set-it-and-forget-it unless you have a great management company.
The first four months were fine. They used their real estate agent to list the rental property and after it sat on the market for a bit, we decided to rent it because the price was right. They interviewed us over Zoom with the real estate agent who made sure that we knew we were renting a house and not an apartment, we payed the security deposit, and we moved in. The landlords clearly had slightly different priorities for their property than we did, so I did a bunch of very minor repairs - straightened the kitchen cabinets by adjusting the hinges and added some felt pads so they closed more softly, hauled broken pots out of the backyard (with approval of the landlord), put weather stripping on a door that was very drafty, replaced over half the lightbulbs in some very high ceilings as they burned out one-by-one. Most tenants either wouldn't do those things or would call you to complain about them and not fix them themselves. Maybe some landlords who intend on moving back into the property at a later date would be very unhappy about having tenants make those modifications.
Then the problems and disputes started:
- Summer came, and we found out that the window AC in bedroom was so loud as to be malfunctioning. We ended up going halfsies with the landlord on the replacement AC because they wanted us to buy the cheapest one on the market and we wanted a quiet one so we could sleep at night. We also ended up having a long back-and-forth about how to reinstall an unusual model of window AC that had been removed while they were showing the property.
- The shower wouldn't drain properly, and the landlord told us to dump drano down the drain a few times because that's what they would have done. We did, it didn't work, so they gave us the name of a local plumber to call and have fix it. He cleared the drain but while he was looking at a sink that also sometimes backed up, he didn't tighten the pipe under the sink all the way and the next time I ran the water on the sink, it leaked all over the cabinet. Most tenants probably wouldn't have noticed or paid a lot of attention to what the plumber was doing, so in most cases it would have produced a lot more cabinetry damage.
- Very enthusiastic bamboo overtook the yard and after we dug out a bunch of bamboo shoots and hauled out 10 trash bags of bamboo (per the terms of our lease we were the gardeners), we sent the landlords a picture of the yard for some other reason and they remarked that there was still way more bamboo than normal. It looked like it did when we moved in - but they'd left at the beginning of spring and let local contacts take care of the property for months before we moved in, so who knows what normal was.
- An outdoor speaker and a light very high on the house burned out/broke. We never knew if we did it or if it came that way, and we just ignored it because it wasn't getting in the way of our enjoyment of the property.
- We changed a battery in a smoke detector, and water leaked out. The landlord ended up needing to put a new roof on the property and we had to live there while they did it, which was both very loud and surprisingly messy indoors. It was also full of miscommunications about when and how the work could be done, both with the roofers and the landlord. They ultimately showed up by surprise on a day we weren't expecting them.
- Unusual summer rains flooded the basement/rec room of the property twice, which meant our landlord spent a holiday weekend trying to get a water remediation company out to assess the situation, we were in a hotel for a weekend while giant fans occupied the house, and we were both continually dealing with insurance adjustors for a month.
- Ultimately, we had unofficially indicated an intent to stay in the property but ended up moving out at the end of our lease because dealing directly with a wide array of contractors to fix the property was just too much and we were worried about future flooding. This is at least partially a result of the landlords not hiring a management company - it was by far the highest-maintenance situation I'd lived in and I had lived in old properties owned by small time (but not first time) landlords many times before.
- At move out we had all sorts of minor disputes that were directly caused by the fact that we couldn't do a walkthrough of the property together because they were so far away. They didn't give us the deposit back on time so we were legally entitled to the whole thing, but I also had no interest in trying to drag them to small claims court for it so we settled in the middle on what they could deduct.
From their perspective, I'm sure we were obnoxiously high maintenance tenants and they were doing the best that they could during a difficult situation. From my perspective, they were first-time landlords with a poorly maintained property who were completely in over there heads in trying to manage it without help from the other side of the country. We were good tenants in the sense that we didn't damage things and we paid rent on time, but I don't think the year was as easy as they thought it would be. Make sure you want to be a landlord before you become one...
posted by A Blue Moon at 7:02 AM on July 12, 2022 [8 favorites]
The first four months were fine. They used their real estate agent to list the rental property and after it sat on the market for a bit, we decided to rent it because the price was right. They interviewed us over Zoom with the real estate agent who made sure that we knew we were renting a house and not an apartment, we payed the security deposit, and we moved in. The landlords clearly had slightly different priorities for their property than we did, so I did a bunch of very minor repairs - straightened the kitchen cabinets by adjusting the hinges and added some felt pads so they closed more softly, hauled broken pots out of the backyard (with approval of the landlord), put weather stripping on a door that was very drafty, replaced over half the lightbulbs in some very high ceilings as they burned out one-by-one. Most tenants either wouldn't do those things or would call you to complain about them and not fix them themselves. Maybe some landlords who intend on moving back into the property at a later date would be very unhappy about having tenants make those modifications.
Then the problems and disputes started:
- Summer came, and we found out that the window AC in bedroom was so loud as to be malfunctioning. We ended up going halfsies with the landlord on the replacement AC because they wanted us to buy the cheapest one on the market and we wanted a quiet one so we could sleep at night. We also ended up having a long back-and-forth about how to reinstall an unusual model of window AC that had been removed while they were showing the property.
- The shower wouldn't drain properly, and the landlord told us to dump drano down the drain a few times because that's what they would have done. We did, it didn't work, so they gave us the name of a local plumber to call and have fix it. He cleared the drain but while he was looking at a sink that also sometimes backed up, he didn't tighten the pipe under the sink all the way and the next time I ran the water on the sink, it leaked all over the cabinet. Most tenants probably wouldn't have noticed or paid a lot of attention to what the plumber was doing, so in most cases it would have produced a lot more cabinetry damage.
- Very enthusiastic bamboo overtook the yard and after we dug out a bunch of bamboo shoots and hauled out 10 trash bags of bamboo (per the terms of our lease we were the gardeners), we sent the landlords a picture of the yard for some other reason and they remarked that there was still way more bamboo than normal. It looked like it did when we moved in - but they'd left at the beginning of spring and let local contacts take care of the property for months before we moved in, so who knows what normal was.
- An outdoor speaker and a light very high on the house burned out/broke. We never knew if we did it or if it came that way, and we just ignored it because it wasn't getting in the way of our enjoyment of the property.
- We changed a battery in a smoke detector, and water leaked out. The landlord ended up needing to put a new roof on the property and we had to live there while they did it, which was both very loud and surprisingly messy indoors. It was also full of miscommunications about when and how the work could be done, both with the roofers and the landlord. They ultimately showed up by surprise on a day we weren't expecting them.
- Unusual summer rains flooded the basement/rec room of the property twice, which meant our landlord spent a holiday weekend trying to get a water remediation company out to assess the situation, we were in a hotel for a weekend while giant fans occupied the house, and we were both continually dealing with insurance adjustors for a month.
- Ultimately, we had unofficially indicated an intent to stay in the property but ended up moving out at the end of our lease because dealing directly with a wide array of contractors to fix the property was just too much and we were worried about future flooding. This is at least partially a result of the landlords not hiring a management company - it was by far the highest-maintenance situation I'd lived in and I had lived in old properties owned by small time (but not first time) landlords many times before.
- At move out we had all sorts of minor disputes that were directly caused by the fact that we couldn't do a walkthrough of the property together because they were so far away. They didn't give us the deposit back on time so we were legally entitled to the whole thing, but I also had no interest in trying to drag them to small claims court for it so we settled in the middle on what they could deduct.
From their perspective, I'm sure we were obnoxiously high maintenance tenants and they were doing the best that they could during a difficult situation. From my perspective, they were first-time landlords with a poorly maintained property who were completely in over there heads in trying to manage it without help from the other side of the country. We were good tenants in the sense that we didn't damage things and we paid rent on time, but I don't think the year was as easy as they thought it would be. Make sure you want to be a landlord before you become one...
posted by A Blue Moon at 7:02 AM on July 12, 2022 [8 favorites]
Would there be any reason I'd need to come visit myself?
I'm sorry, I just keep thinking about this question and it makes me really feel like you are not ready to be a landlord. Homes are not set it and forget it. If you have not had to do significant repairs or replacements to your home while living there, that means that you're overdue and those needs will become apparent on your tenant's watch. In the past 7 years, I have lived in two rental properties, and I have needed: 2 new washer dryers, a new HVAC system, a new fridge, I've had three leaks fixed, two windows replaced, minor mold remediation, electricity issues, an unsafe deck needed to be rebuilt, and to top it off, in my last rental, the pipes burst and the place flooded. None of these things were my fault, this is what happens when homes age (the pipes burst because my neighbors that I shared walls with turned off their heat in the dead of winter). In all of those situations, my landlord had to be physically present. Living quarters need much more maintenance than being cleaned in between tenants.
posted by twelve cent archie at 8:03 AM on July 12, 2022 [7 favorites]
I'm sorry, I just keep thinking about this question and it makes me really feel like you are not ready to be a landlord. Homes are not set it and forget it. If you have not had to do significant repairs or replacements to your home while living there, that means that you're overdue and those needs will become apparent on your tenant's watch. In the past 7 years, I have lived in two rental properties, and I have needed: 2 new washer dryers, a new HVAC system, a new fridge, I've had three leaks fixed, two windows replaced, minor mold remediation, electricity issues, an unsafe deck needed to be rebuilt, and to top it off, in my last rental, the pipes burst and the place flooded. None of these things were my fault, this is what happens when homes age (the pipes burst because my neighbors that I shared walls with turned off their heat in the dead of winter). In all of those situations, my landlord had to be physically present. Living quarters need much more maintenance than being cleaned in between tenants.
posted by twelve cent archie at 8:03 AM on July 12, 2022 [7 favorites]
Maintenance you can probably handle from a distance
Just to add on to others suggesting that handling maintenance from a distance is not really viable unless you hire a management service to not be at a distance. Have you done the basic googling on tenants rights around repairs, habitability, etc in the Boston area? Some of the phrasing in this question suggests no (being a "caring landlord" or even a minimally legally compliant landlord is not just about returning the security deposit). For example (and this extends to many, many localities) certain emergency repairs legally need to be completed within 24hrs, the landlord is responsible for them / they can't be fobbed off on the tenant, and you can't assume they are the kind of repairs that won't come up. Getting a plumber within 24hrs if you aren't on site is ... good luck with that.
Of course, let's be real, there are many landlords out there who do as absolutely little as possible, including dodging legal responsibilities where there's a low likelihood of consequences. In fact, in my experience, that's a place where the mindset of having a property as a passive investment often leads, it's easy to slip into it seems (and I'm worried that the set of questions you are asking you is pointing you squarely in this direction, rather than the "caring landlord" direction). I don't know how to convince people not to do this and high-value property markets actually tend to have communities that encourage this kind of thing; except to say that I'm pretty unconvinced that this works out well for small-scale landlords (the bigger ones seem to do ok); in the cases I've seen it's actually pretty terrible for the properties (crucial maintenance doesn't happen, which adds up in the long run), and people definitely get into debt traps that they aren't prepared for. Maybe if they time the market right they can get out with some profits, but maybe not. And the Boston area has codified a lot more responsibilities than most places, so it should be at least harder to get away with there. Anyways, these arguments are a bit weak, but please, please don't become this, I'm begging you.
posted by advil at 8:13 AM on July 12, 2022 [3 favorites]
Just to add on to others suggesting that handling maintenance from a distance is not really viable unless you hire a management service to not be at a distance. Have you done the basic googling on tenants rights around repairs, habitability, etc in the Boston area? Some of the phrasing in this question suggests no (being a "caring landlord" or even a minimally legally compliant landlord is not just about returning the security deposit). For example (and this extends to many, many localities) certain emergency repairs legally need to be completed within 24hrs, the landlord is responsible for them / they can't be fobbed off on the tenant, and you can't assume they are the kind of repairs that won't come up. Getting a plumber within 24hrs if you aren't on site is ... good luck with that.
Of course, let's be real, there are many landlords out there who do as absolutely little as possible, including dodging legal responsibilities where there's a low likelihood of consequences. In fact, in my experience, that's a place where the mindset of having a property as a passive investment often leads, it's easy to slip into it seems (and I'm worried that the set of questions you are asking you is pointing you squarely in this direction, rather than the "caring landlord" direction). I don't know how to convince people not to do this and high-value property markets actually tend to have communities that encourage this kind of thing; except to say that I'm pretty unconvinced that this works out well for small-scale landlords (the bigger ones seem to do ok); in the cases I've seen it's actually pretty terrible for the properties (crucial maintenance doesn't happen, which adds up in the long run), and people definitely get into debt traps that they aren't prepared for. Maybe if they time the market right they can get out with some profits, but maybe not. And the Boston area has codified a lot more responsibilities than most places, so it should be at least harder to get away with there. Anyways, these arguments are a bit weak, but please, please don't become this, I'm begging you.
posted by advil at 8:13 AM on July 12, 2022 [3 favorites]
I had a 2 family house and even being on-site, landlording at even a basic level is a fair bit of work. You are far away and even families that seem awfully nice will damage so much stuff, will have poorly trained pets, will just not pay. I really love animals, but even animals that seem well-behaved will cause so much damage. Urine is so hard to clean, pets will scratch and bite woodwork, etc. A friend with a 2 family had bad tenants and lost @ 6 months of rent, plus eviction expenses, cleanup, and an enormous amount of aggravation.
You have a moral obligation to keep in mind that a rental is someone's home and you should not go for the highest rent, should maintain it well, and should not kick people out casually. Tenant law varies hugely and you must stay aware of that.
Who will go knock on the door when the rent isn't deposited and they don't reply? Who stay home and will supervise the plumber, electrician, builder? who will show it, check references, etc.? You should find a property manager before it's a crisis.
posted by theora55 at 9:29 AM on July 12, 2022 [1 favorite]
You have a moral obligation to keep in mind that a rental is someone's home and you should not go for the highest rent, should maintain it well, and should not kick people out casually. Tenant law varies hugely and you must stay aware of that.
Who will go knock on the door when the rent isn't deposited and they don't reply? Who stay home and will supervise the plumber, electrician, builder? who will show it, check references, etc.? You should find a property manager before it's a crisis.
posted by theora55 at 9:29 AM on July 12, 2022 [1 favorite]
We rented to family members and so avoided most of the headaches. The one thing that I don't see your cost calculation is the cost of maintenance and repairs - our experience was every other year something moderately expensive broke that cost thousands of dollars (upstairs HVAC, downstairs HVAC, sump pump) We sold the house just in time to avoid having to put a new roof on it. With a normal rental, there are many more small expenses - no just the headache of finding a repair guy and getting them to show up but also the cost that eats into your profits.
On the plus side, the ability to deduct depreciation meant that we had no taxes to pay on the income until we sold the property and at that point we had to recover the depreciation but it got taxed at the capital gains rate so that was nice.
posted by metahawk at 11:02 AM on July 12, 2022
On the plus side, the ability to deduct depreciation meant that we had no taxes to pay on the income until we sold the property and at that point we had to recover the depreciation but it got taxed at the capital gains rate so that was nice.
posted by metahawk at 11:02 AM on July 12, 2022
Best answer: There's a really good tenants rights handbook for Massachusetts, which is phrased for tenants but would be great reading for first time landlords as well.
posted by john hadron collider at 3:12 PM on July 12, 2022
posted by john hadron collider at 3:12 PM on July 12, 2022
I want to be a good, caring landlord!
1.1 The house is really set up well for a single family, not 2-3 individual renters. Can I be selective somehow in the application process for this?
I believe that you want to be a good, caring landlord. But to me, as someone who has spent most of her adult life with roommates, you get to choose. Do you want to be a good, caring landlord, or do you want to select against familial status?
posted by aniola at 3:47 PM on July 12, 2022
1.1 The house is really set up well for a single family, not 2-3 individual renters. Can I be selective somehow in the application process for this?
I believe that you want to be a good, caring landlord. But to me, as someone who has spent most of her adult life with roommates, you get to choose. Do you want to be a good, caring landlord, or do you want to select against familial status?
posted by aniola at 3:47 PM on July 12, 2022
I am an accidental small-time landlord (moved in with now-spouse, didn’t sell previous home). If you can afford to and are planning to hire a local, vetted, property manager, this might not be the worst plan if you can really run the numbers and make sure it makes financial sense. If your plan is to somehow to do this from across the country on your own this is a terrible, awful, no-good plan.
My tenants could not tell you my name unless they rustled up their lease and that is *perfect* because I *do not want to be a landlord* so I pay someone I trust a share of the rent to not ever have to think about it ever. She checks in with any bigger stuff and has my permission to just deal with little stuff. It’s a dream; I did it all by myself for about 5 years and you know what I learned? Being a landlord sucks when you’re 20 minutes away.
But if I were across the country and the doorknob was sticking and instead of dealing with it myself I had to call a handyman/carpenter and work to find a time where the tenants could be there and wouldn’t resent being there in order to get it fixed, and then the fixer didn’t show up because of course they didn’t and now everyone is mad and I have to try it again, well, I would have sold the property when the first tenant’s lease was up.
posted by charmedimsure at 12:30 AM on July 13, 2022 [1 favorite]
My tenants could not tell you my name unless they rustled up their lease and that is *perfect* because I *do not want to be a landlord* so I pay someone I trust a share of the rent to not ever have to think about it ever. She checks in with any bigger stuff and has my permission to just deal with little stuff. It’s a dream; I did it all by myself for about 5 years and you know what I learned? Being a landlord sucks when you’re 20 minutes away.
But if I were across the country and the doorknob was sticking and instead of dealing with it myself I had to call a handyman/carpenter and work to find a time where the tenants could be there and wouldn’t resent being there in order to get it fixed, and then the fixer didn’t show up because of course they didn’t and now everyone is mad and I have to try it again, well, I would have sold the property when the first tenant’s lease was up.
posted by charmedimsure at 12:30 AM on July 13, 2022 [1 favorite]
Make sure you’re factoring in the maintenance costs and the HOA fees when figuring out what to charge. Also when figuring out potential profit you should factor in that the house will probably increase in value.
That being said, not trying to go off topic or derail the post but I just want to say something because nobody else has. A landlord doesn’t provide housing. A landlord hoards a house and prevents someone else from owning it. There’s millions of millennials out there basically resigned to the fact that they will never be able to afford a house. What you’d be doing isn’t as evil and predatory as all the companies out there buying up all the houses they can, but you’d be part of that same system, driving up house prices and creating an underclass that will only ever be able to afford to rent.
Your calculations in your post are hoping to collect $60000 a year from someone who can’t afford a house, of which $48000 is essentially profit. Money someone would be paying to live that they would not be able to save towards their own house.
You say you want to be a caring landlord, so at least think about that before becoming one.
posted by cali59 at 6:39 AM on July 13, 2022 [4 favorites]
That being said, not trying to go off topic or derail the post but I just want to say something because nobody else has. A landlord doesn’t provide housing. A landlord hoards a house and prevents someone else from owning it. There’s millions of millennials out there basically resigned to the fact that they will never be able to afford a house. What you’d be doing isn’t as evil and predatory as all the companies out there buying up all the houses they can, but you’d be part of that same system, driving up house prices and creating an underclass that will only ever be able to afford to rent.
Your calculations in your post are hoping to collect $60000 a year from someone who can’t afford a house, of which $48000 is essentially profit. Money someone would be paying to live that they would not be able to save towards their own house.
You say you want to be a caring landlord, so at least think about that before becoming one.
posted by cali59 at 6:39 AM on July 13, 2022 [4 favorites]
1.1 If you mean "can I rent only to families and exclude single people," like most people here are taking the question, the answer is no. I took it more as not wanting to rent by the bedroom (like three entirely independent leases) instead of renting the whole house. Probably a wrong interpretation by me.
That said, a "caring" landlord does not care if the people wanting to move in are a family by blood or three otherwise-unrelated adults, because it really doesn't make any difference, all else being equal. If they each want a bedroom and to share the kitchen and bathrooms, why do you care?
posted by tubedogg at 4:08 PM on July 15, 2022
That said, a "caring" landlord does not care if the people wanting to move in are a family by blood or three otherwise-unrelated adults, because it really doesn't make any difference, all else being equal. If they each want a bedroom and to share the kitchen and bathrooms, why do you care?
posted by tubedogg at 4:08 PM on July 15, 2022
This thread is closed to new comments.
1) you'll have to check comps! Go on Zillow, look at places nearby, put yourself in potential renter's shoes. A broker will know the neighborhood better and be good at setting rent, but you can absolutely list by yourself (we did) and figure it out. Though see below about qualifying tenants.
1.1) In Boston it is illegal to discriminate on the basis of marital status or children. I believe you can say "no roommates" in a listing, but check with someone local. In any event, you ultimately decide who you rent to -- you can absolutely decide "nope I don't like these people [for a non-protected reason], I'll go with someone else" though please interrogate your views closely when doing this because a ton of housing discrimination happens this way.
2) This is the great part. When you move out of your house and start renting it out, you have to stop claiming the mortgage interest tax deduction, BUT you get to deduct mortgage interest, property taxes, expenses, and depreciation(!) against your rent. The upshot of this is that your rental income is more or less tax-free for the first 27.5 years, which is as long as depreciation lasts. You'll need an accountant to prepare your taxes however.
3) I don't know where you heard that, but I think you can assume much lower than 50% vacancy.
4) I can't speak to Boston specifically, but in a tenant-friendly jurisdiction what you really really really want to avoid is having to evict someone, and eviction is ultimately your recourse if a tenant stops paying rent. Here in NYC, eviction can take well over a year (longer now during the pandemic) and require thousands of dollars of legal fees. If you have a tenant with assets, you can get a judgment against them for unpaid rent, but if they don't have any money (and in this situation they almost certainly won't) you're just out of pocket. This is why landlords place such an emphasis on making sure their tenant can afford their place. One of the main things a broker will do for you is help you qualify tenants and make sure that you end up renting to someone who is likely to pay rent every month. You will also want to make sure you have a detailed lease agreement -- the ones with a zillion clauses have them for a reason! -- but once you cover your butt on these two counts, you can be a good landlord and have in all likelihood a great experience.
5) Oh yes indeed you'll need to come visit. Remember, your tenants don't own the house and won't act like they do. When the dishwasher breaks, they'll call you! When the toilet is leaky -- you HOPE they'll call you, but they might only call you when the ceiling of the floor below starts to sag or crack. There's just as much maintenance involved in being a landlord as being a homeowner -- more, probably, since tenants take less good care of their space -- and you're the one who has to do it. And when the tenants DO leave, it's not just cleaning, usually you have to paint and you might even have to do the floors, plus you'll notice tons of stuff that wore out over time that your tenants were OK with but the next people will see immediately.
If this doesn't sound appealing to you, you can try to find a local management company to handle things for you, but you'll still have to check up on them and make sure they're doing their job.
6) Are you sure your house is only worth $200k? Remember, your alternative isn't getting back what you paid for the house, it's getting back what you can sell it for. Also, remember you'll have maintenance expenses that can be significant over time!
posted by goingonit at 4:25 AM on July 12, 2022 [2 favorites]