We purchased our first rental property about six years ago – a single family home located a few blocks from our first house.
The same family has rented this property for the last six years. And, to be honest, we just got lucky with them. They are incredible people and renters – they take care of the property, pay rent in a timely manner, and are very low maintenance.
That gave us a little (false) sense of accomplishment. We were around 25 years old and thought that we were pretty good at this rental thing.
Ha. Ha. Ha.
And then another duplex.
And after some years of managing five rental units, we’ve seen the good, the bad and the downright ugly.
We have looked at each other and asked, “Why in the world are we doing this to ourselves?” Several times.
I keep meaning to post about our experience of owning rental properties and have received a lot of emails and comments about the topic, but I’ve hesitated for several reasons.
Mostly, I try to stay upbeat, and it’s just not all pretty. I also want to be cautious about sharing personal information about tenants. But I think I can do both of these things while still being honest.
Because we’ve been running into some ugly lately, and it’s a big part of what’s going on in our lives.
So, today, I’m going to try to share some of the ups and downs we’ve experienced. Depending how it goes, I may share more over time. And I’d be happy to answer any questions I can.
The good
We had a standard honeymoon period with rentals for a few years. Since we did a basic remodel on the first property, there was little that needed to be fixed or updated. Our tenants are really low-key and took care of most of the day-to-day stuff themselves (mowing, basic updates, etc.)
This gave us a pretty little taste of what can be great about rentals – it can be an excellent source of passive income. We chose to put almost 100 percent of rent received toward the loan (which was incredibly low as it was a foreclosed property). This meant that the loan was paid off quickly.
Bam. We had a house that was 100 percent ours. And it was providing income.
Financially, rental properties can be great. But the key is choosing the best renters you can.
This isn’t a science, but rather an art. The renters that have been the best for us are those who have steady paychecks (duh) and seem to be interested in staying for a length of time (duh). Because flipping properties every year is for the birds.
How do we attract those people? The biggest way is by trying to price our properties on the low-end of the market. We keep them clean/presentable/safe. (In most cases, way nicer than others we see in our area.) They aren’t fancy, but we make updates when needed. And then we price them a little below the market to try to attract more people.
This strategy gives us more applicants to choose from and also allows us to find people who actually want to stay because they know they are getting a pretty good deal. I would stay we have had moderate success with this strategy to this point.
Depending on the time of year, there can be more or less demand for rental properties. And depending on the time of year, there can be more or less available for rentals in our area.
The bad
So, that’s a little bit of the good. But there are also some pretty yucky parts of renting – and on the top of our list are the calls.
They can come at any time – holidays, nights and weekends. They can come when you really don’t have time to take a call. (But you do anyhow.)
We obviously understood that this was going to happen, but when a fridge goes out two days before Christmas (which happened to us) or when the basement is flooded right after you paid a big tax bill (which also happened to us), you want to throw a massive temper tantrum (which also happened to me).
The harder part for us now is that we are now almost 30 minutes away from the properties, so it’s not desirable to drop everything and drive in. And after Ryan gets off work and is working on the house, he really doesn’t want to get in the car and drive in.
In other words, it’s not always passive.
There are times that we want to just put it off. But we can’t always do that. And because Ryan does the vast majority of the physical work, I know that he gets really burned out.
We’ve also found that things happen at the worst possible moment. People move out. Issues pop up. And they almost always happen when we just can’t imagine having to deal with something else.
Another challenge we have faced is the interpersonal issues between tenants. Because I take the calls and try to troubleshoot, sometimes I’m seen as the den mother. And I don’t want to be the den mother.
I have had to say bluntly that some problems just simply aren’t problems I need to deal with. Instead, they are issues that need to be resolved between grown adults (without me). I can’t jump in and “fix” everything when it’s really just that people don’t like each other. We have had this problem pretty consistently in our duplexes.
And I think the thing I’ve learned the most is that I just simply can’t be a friend. I have had to draw a line in the sand. I care about our tenants and wish them the best, but I also have to keep my distance and cannot worry that they don’t like me. (This is hard for me.)
The ugly
So, that’s a bit of the good and bad. Both are probably pretty expected, right?
Then, there’s some ugly.
- I’ve been called names to my face.
- We’ve had to give up on receiving rent some months. Which especially sucks when big bills are on the horizon.
- We’ve had to evict tenants – and that has not gone easily, in our experience.
- I’ve had major anxiety when we were struggling with a tenant and didn’t know how to handle it.
- We’ve walked through two units that were literally gut jobs after a tenant moved out.
- Ryan and I have had some serious disagreements due to the properties and issues.
- There is also a serious potential for losing money if you can’t get an apartment rented. This has not been an issue with us at all, but we have to prepare for it if it does. (This means that we make sure to save as much as we can from the rents in case of major issues or extended vacancies.)
It’s not always sunshine and roses. We even put one of the duplexes up for sale after a particularly stressful winter. (We ended up taking it off the market.)
And now, we find ourselves with an apartment that needs a full gut and remodel after an eviction. While we’re building our house. Here’s everything that had to come out of the house. It was not a fun job for Ryan and my brother. Thank goodness for curbside special pickups.
This is not ideal. In any way. We had been trying to give the benefit of the doubt and avoid eviction for a really long time. But it was the only option.
Then, my father has stepped in to (singlehandedly) help us get it back to livable condition. We honestly could not do it without him at this point. We just don’t have it in us. Without him, we planned to leave it as is for the foreseeable future – basically giving up half of the income for the property. He put on his tool belt and got to work.
While Ryan’s at work during the day, my dad works on the apartment. (I know. We’re the luckiest people on earth.) And then at night, my dad works on our house with Ryan. The man is obviously super human.
We hope to have the property back on the market in the next month so we can move past this. But most people don’t have a dad like I do, who is willing to do this work. In those cases, it’s lost income or paying someone (big bucks) to do it themselves. This can get really ugly.
Would we recommend rental properties?
This is, by far, the most frequent question I get from people.
Our answer? Yes. And no.
If you are willing to work through the good, the bad, and the ugly – I think that rental properties can be a great financial investment. They really have been for us – in the big picture. At least our accountant tells us they are.
I think a big part of successfully navigating rental properties is being really analytical when purchasing – don’t let your gut or heart decide (like you may allow to happen for your own home). Ryan has a pretty extensive spreadsheet that inputs all of these estimates and then analyzes income over time. This helps us decide the best deals for us.
Here are a few things to analyze:
- What is the income potential? (Looking at current/past/comparible rents)
- What are the fixed expenses? (Mortgage, insurance, taxes, electricity, water, trash)
- What are the likely expenses? (Replacements of large items like carpeting, appliances, heating/cooling, water heaters, cabinets, etc. Look closely at these and consider a home inspection to plan accordingly. These type of fixes are likely the most financially damaging.)
- What is the rental history? (Are there long term tenants or do tenants come and go? How often and how long have the units been empty? This could help you see any trends and plan accordingly.)
Also be sure to have savings in place before purchasing to prepare for the worst. Because the worst thing that could happen is that a unit ends up empty or needs repair that you cannot pay for.
And if you don’t have the time, the energy, the finances or the sanity to deal with the worst parts of rental properties, it may not be for you. It’s not always easy or fun. It’s not always money rolling in. Sometimes it just feels like lots of money rolling out.
At this point, things are looking much more positive for us. Once this last property is complete and rented, we will have all five units (and one garage) generating income with great tenants on leases.
Our plan is to have the properties paid off in the next five years or so, which will help provide our family with a modest passive income. This is the end goal at this point. At that point, we may or may not keep them or sell them and invest the proceeds. It depends on how it goes. But this gives us a great deal of options.
So that’s a little (or a lot) about our experience owning rental properties. Hope it’s helpful for those of you looking at this as a possibility.
Feel free to leave any questions or additions in the comments – I’d love to share anything I can with you to help your decision making!
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sarah says
In Okc, I use Tenant Information Exchange but I am sure there is a similar type company in your area.
Sarah says
My husband and I have twenty rental units in okc. Have owned most for twenty years. In the beginning I tried to vet the tenants myself and many times it was a disaster. I have found the best way to get the best tenants is to use an evaluation company. The perspective tenant pays the 50 fee. This shows the tenant is truly interested in renting the property and that they think they have a decent chance of qualifying. The company does a work history, credit check, rental history, and criminal background check. With all this info you can be assured you’re getting a good tenant. The company does this all day every day. I am requesting their professional opinion, so when the tenant doesn’t qualify I don’t have to be the bad guy. Also, the company is looking at the whole picture. I rent to young recent college grads mostly and many have tons of debt. In fact, in all those years I’ve only had one with perfect credit. This strategy has saved me tons of headaches over the years.
Kim Woodward says
Thank you so much for sharing! I think I need to go this direction in the future. Which service do you use?
Adriana says
So with how destructive bad tenants can be, what are the most valuable tips you can share on choosing tenants? What application information do you value the most when deciding who to rent to?
Kim Woodward says
This is such a good question, and one that I don’t know if I’ve truly mastered. Frankly, I feel like it’s been a crapshoot and we have had to deal with problem renters as well as have been lucky to find wonderful renters. We do have an application with basic questions and references. But, as is typical, folks put recommendations of those who will speak well of them. So, I don’t think it’s giving us the full picture.
Emily says
Thanks for your post! Would you ever consider using a property management company?
Kim Woodward says
Possibly … but it’s just not cost-effective for us right now.
Michael says
Have you considered annual or bi-annual inspections? This puts tenants on notice that you are involved. We’ve found small problems are less like to become large problems with the property.
I would also suggest cash for move out with bad tenants. This is purely a business decision not an emotional decision.
Respectfully,
Michael @ Sound Tenement
Kim Woodward says
We have considered this. We have definitely gotten less “warm and cuddly” over the years. It’s gotta be straightforward and business, or we get taken advantage of.
Michael says
Have you considered an annual inspection or bi-annual inspection? This has helped us prevent small problems from becoming big problems. It also puts your tenants on alert that you involved.
Respectfully,
Michael @ Sound Tenement
Simple Healthy says
Swooning over those dove-tailed joints! Just gorgeous!.
Carter says
My husband and I are considering purchasing a duplex. I have the stamina for the actual rental but not money for many extra costly repairs. I’m not sure how you handle the financial part. How much you should save for repairs, emergencies, etc..
I’m hoping I can find out all these details. We rented a basement apartment on a previous house, but they were considered a border. All of the same laws didn’t apply. This will be a much larger investment. We are doing this for extra income.
Kim Woodward says
I guess it sort of depends on the property. There are always going to be small repairs that come up – if you aren’t super handy, I’d get a contractor/home inspector to do an initial walk-through before buying anything. The general rule of thumb is that all of your expenses should be less than 50 percent of your total income – this helps you judge whether you are getting a good buy.
Ryan and I always erred on the high side – how much would it be to complete the entire unit when it needed it. (For example, we know that it costs somewhere around $3k for carpeting, $1k for new appliances, etc.). Because you will have to redo things at some point. The hope is that you’ll be able to build up equity and income before that happens, but an emergency fund is a necessity. What if the water heater goes out? Or the boiler? You’ll want that money set aside.
Also, don’t forget things like rental property fees with your city, taxes, and insurance. These things can add up quickly.
With the full 2-bedroom reno recently completed, I think we ended up spending around $7k to do everything – from floor to ceilings to fixtures. That was a HUGE chunk of change, but we had the money from past income that we used. And the hope is that we won’t have to do it for many years. We don’t currently take any of the rental income as our own income and just pay down the mortgages and use for rental expenses. We are always far below the 50 percent threshold for expenses, which means we can pay down the mortgage quickly. And then when it’s paid off in 5 years or so, we’ll be able to keep all that as income.
I hope this is helpful – I’d recommend finding a realtor who you trust and who specializes in income properties. They can really help you find a great value so you don’t end up in the hole.
Best of luck.
Mina says
My husband and I own a two apartment building. We have tenants that have been there 30 + years, rent is low., but good tenants, keep the place clean.
The other tenant was also there 30 + years, his parents were the first tenants, rent also low, but destroyed the place. When he left we did a complete gut job. Took us 4 months and a lot of money, now waiting to rent it. Wish us luck.
Kim Woodward says
Good luck! I can totally relate!
Mina says
Hi
Thanks for the good wishes. We just rented it today. They seem nice. This is all new to us. It feels like we are new landlords.
Jill says
We have one rental house, our first home that we weren’t able to sell. Since it is out of state, we have a management company and haven’t had any problems. But now we are thinking of buying rental property nearby and managing it ourselves in the hope of creating passive income.
I have 2 questions. 1. If you owned only single family and not duplexes would that have cut down the stress a lot? 2. Do you request longer than a 1 year lease? How do you know how long tenants will stay?
Karla says
Great post and very interesting!
My husband and I are currently trying to sell our house to move, but we’ve been discussing converting it to a rental if we can’t sell timely. We’ve been asking around to get insight from people with experience with rentals, so this is great info for me. I’m definitely going to have my husband read this, too!
Sara says
I don’t have the heart for this. Or the handiness. I love your honest overview of having rentals, people need to hear the truth! Now, if only people would tell the truth about parenthood before women get knocked up….nope, it’s all rainbows and unicorns and life changed for the better! Right.
Krista says
This is a great post that really resonates with me. Last year, we decided to rent out our small first home so that we could build a new home ourselves on our property 45 minutes away (while living in a camper in the ‘backyard’, I might add!). We found an amazing couple to rent the house and we were living the landlord dream: rent was always in early, we never got calls, they got along great with the neighbours, etc, etc. By December, we were living in the new house and getting ready for Christmas. Then the fire marshall called. Nothing good ever comes after the sentence “then the fire marshall called.” There was a pellet stove in the little house, and the tenants had left a bag of wooden pellets leaning against a wall while they were at work – a wall with an electric radiator on it. You can guess what happened next. The smoke damage was so extensive that the entire house had to be gutted down to the studs and joices and rebuilt. While our insurance covered all of this, it did not cover our loss of rental income during the renovations and suddenly we found ourselves paying TWO mortgages for over six months. The renovations were completed last month and the house sale just closed last week, thus ending our brief and tumultuous stint as landlords. However, we’re still open to buying an income property in the future as it is such a great means of passive income, as you’ve said. We’ll just get a better insurance policy next time!
Abigail says
Thanks for writing this post. I’ve been thinking about renting out my home again, and I’ve had a lot of questions. The first and only time I’ve rented it out was several years ago, for 12 months, to dream tenants. The repairs needed at the end of the lease were minor, and I knew it was a “one-time” deal, so it was an ideal situation.
I do wonder about becoming a landlord for a longer period of time, and your ideas gave me a lot to consider, both good and bad. 🙂 Coupled the experiences of friends of mine, I have a lot to think about. Thanks for your honesty!
Kimberlyn Green says
I love this post. It’s the raw truth. If it’s not too much to ask (you can yell at me if it is, I know you’re stressed), I’d love to see a before/after of the work that had to be done. Just for curiosity and to remind me again of why I don’t want to be a landlord. The thought creeps into my mind and when it does, I can refer back to posts such as these. We’re not the landlord types, at least I don’t think. LOL
Kim Woodward says
Honestly, I didn’t take many legit before and afters. It was just too much stress to be something that I really thought about. And it wasn’t something I planned to really blog about – it’s not a magazine-worthy remodel. But if you click on the “rental” tag after this post, you’ll see some of the before and after photos. And this post has some of them, too.
Amber @ Wills Casa says
Yeah your dad is pretty much a superhero. That’s amazing! I loved reading this post. I feel like I type that so often on your blog, but it’s legitimately true. I was excited and inspired by you and then also crazy stressed out by all of it! Thanks for making me feel all the emotions.
Kim Woodward says
I’m glad you felt the emotions. And yes, my dad deserves a cape.
Heather Laura Clarke says
Very interesting! It does sound like a lot of work — good for you guys!
(I’m also very curious what the tenants did to the apartment that needed to be gutted?! It looked like a lot of unharmed stuff out on the curb — counters, cabinets, etc.)
Kim Woodward says
It’s a very long story, but suffice to say that the only way to get it back to livable condition (at least in our opinion) was to get rid of everything and start over. It likely started as a cleanliness issue, but over time meant that almost everything was too disgusting to really reuse. (It’s also worth noting that almost everything was old enough that it needed replacing anyway.)
Jaime Costiglio says
Kim this is so insightful and honest. I’m sure your transparency is appreciated by those who are in the consideration mindset. I for one could not do it but I commend you and those who can, you do a good job of juggling it all that’s for sure!
Kim Woodward says
Thanks, Jaime! It’s something that really does have some positives. But it’s not all sunshine and roses.
Gretchen says
I just recently stopped having nightmares about our tenant in Boston….and that was 12 years ago. So never again for me! Neither Dave nor I has the right personality for landlording, I think; we learned the hard way that you probably shouldn’t rent to the person you feel the most sorry for. Oops.
Kim Woodward says
That is a tough one – sometimes, you try to be the good guy and it almost never works out. I’m not a naturally anxious person but there have been times that have tested that with rentals.
Amy says
We have rental property as well. Six duplex units. You have done a great job here of painting a accurate picture. I would NEVER buy rentals again. It really is the worst decision I have made and if I could sell ours I would. The best advise I give people is, “it is better to have no tenant, than a bad tenant”. I know that seems obvious. But, when you are needing rent to make the mortgage. Sometimes you give in and take whatever you can get. No money in the world is worth “the bad tenant”. They will make your life a living nightmare.
Kim Woodward says
We go through cycles – sometimes, we think this is doable. Other times, we want out. There are definitely financial advantages. Anyhoo, thanks so much for your comment and thoughts. I totally relate.
Anni says
I really appreciate your honesty! We converted our townhouse into a rental about a year ago when we bought our current house and so far everything has gone super well. We really lucked out with the tenants. But it’s good to hear some real-life experiences about the other side, as we maybe consider expanding to other properties in the future. Thanks for a great post!
Kim Woodward says
It’s definitely all about the people who are renting. Glad to hear you’ve had a good experience so far.