2019 has been a year of transition for us. We welcomed our third child, bought a minivan (seemed like a big deal to us after 10 years of the same vehicles), and sold two of our three rental properties.
We are downsizing our rental properties and it FEELS SO GOOD.
I want to share a little about the sales of the properties and a review of 10 years of experience owning income properties. And why we are happy to have two less houses to manage. But first, let’s start with a little background.
We purchased our first rental property in 2008.
At the time, we had recently completed our first home renovation (see our first home renovation here). We were a young couple with full-time jobs, few major expenses, modest savings, and plenty of time on our hands. (Read: No kids.)
We were babies ourselves.
We thought investing in a rental property could be a good way to increase our net worth and create passive income.
Spoiler: It did. Sort of.
The 2 bedroom bungalow we purchased was a small, single-family home only a few blocks from our house at the time. It was dirt cheap. (Not kidding. It was a bank foreclosure listed at $32,000 and we put in an offer just under $15,000. I don’t know what made us think that low balling an offer would work – our realtor certainly didn’t. But the bank accepted.)
Like every home you renovate, it was a learning experience. The majority of the initial work was cosmetic – paint, bathroom updates, refinishing hardwood floors, kitchen cabinets, appliances.
But before we could get to that, Ryan had to spend several months in the dark, damp basement. He had to reinforce all the beams in the house, jack up the floors and have steel beams installed for support. We also had to actually hire professionals for some jobs, which he hated.
Outside of the basement work, the house already had newer siding, windows, roof, and furnace, which meant that many of the big expenses were covered. (All photos below are from the listing photos in 2019.)
As an income property, we also had to work closely with the city inspections department to make sure everything was completed correctly.
Check out more about this renovation from these posts from our archives in 2009 (with some super fancy photo collages):
- The outside of the bungalow rental property
- The living and dining room of the rental property
- The kitchen and bath of the rental property
These renovations were done on a tight budget. We upcycled and painted cabinetry, cleaned and painted when we could instead of purchasing new, and paid cash for everything.
After almost a year of working on this property nights and weekends, we rented the bungalow to a family who lived there for the next 10 years.
Having a family live in a rental property for 10 years with no major issues is pretty much unheard of. Outside of a few small projects, this was pretty hands off. This is not normal (as we learned with our other properties).
We had a pretty smooth start into income properties. The rental income each month easily covered all the expenses and quickly paid off the small mortgage. Owning this income property was doing what we wanted it to do. We were feeling pretty good.
We decided to purchase a second rental property.
This time, we decided to set our sights on a multi-family home.
In many cases, multi-family homes can be more profitable because you’ll collect more than one rent from each month. And while some expenses do increase due to more people living in the property, it doesn’t increase proportionally. For example, the taxes or mortgage payments wouldn’t necessarily increase.
We found and purchased a second property – a two-unit duplex – in 2011.
Our second rental property was closer to our new home (we had since sold our first home and moved). It was a 100-year-old home that was converted to an upstairs-downstairs duplex with one bedroom/bathroom in each.
The downstairs unit had been rented for several years and the upstairs was also rented at the time of closing. Unfortunately, the upstairs was pretty beat up and we had to evict the tenant due to nonpayment of rent shortly after purchasing.
Evictions suck. No one wants to have to evict someone.
In the end, it had to happen and it all turned out okay. And while having to renovate any property can be hard work, it was also an opportunity to create a nicer space and hopefully attract better renters.
Want to see more? Check out the before and afters of the duplex.
Honestly, we never really had great luck renting this property for the long-term. Getting renters to stick to a 12-month lease was challenging enough. Despite making the upstairs clean and livable, it was always a one-bedroom, upstairs apartment. And while we tried many things to find the best renters, we never really had great luck.
We had a couple live here for two years, but then it was followed by issue after issue. Nonpayment of rent. Overflowing the bathroom tub – three times. Constant. Issues. Constant. Calls. Constant. Stress.
And after a final, very ugly eviction that entailed actually going to court and getting the police involved, we were done. By this point, we lived 30 minutes away from this rental property and had two (going on three) kids. It was not convenient ever. It was challenging to get work done, to take calls, and to make costly repairs. And it just seemed like we were having issue after issue, causing a great deal of stress and anxiety.
Ryan cleaned up the upstairs apartment out (again) and we found a realtor who specialized in income properties. We got an offer fairly quickly, but that fell through. A few months later, our realtor brought us another offer and we accepted. Everything went through early this year.
It was such a huge relief to have one less property to manage.
Then, just a few months later, we heard from the renter in the bungalow. They were moving out after 10 years. It was a surprise, but it was bound to happen at some point. The bungalow is also about 30 minutes from home, and we just simply didn’t want to make the time to manage the rental with our kids and work and lives.
We knew how much relief we felt with one less property. Financially, both properties had done their jobs. The rental income earned over the years us to pay off their mortgages (or nearly pay them off). By selling them, we could put all the money from the sale into savings and investments and free up the time we spent working and stressing on the duplex.
So, Ryan and a friend spent a few months getting the bungalow ready to sell – cleaning and painting everything, refinishing the wood floors again, and making repairs that needed to be done.
It took a few months, but we accepted an offer and closed on that property in late October.
So, that was the story of how we bought, managed and sold these properties in ten years time.
Here are a few additional questions that may be helpful if you are wondering about managing long-term rentals.
Are we glad that we purchased the rental properties?
Yes.
Financially, owning income properties was a smart way for us to build equity before we had much in the way of extra income to save. We weren’t independently wealthy. We were able to save a down payment and pay for anything in cash until we could begin earning rental income. And then, we used that rental income to pay off the mortgages and all expenses. (We didn’t take any of the rental income as income for us. We solely focused on paying for expenses and paying down the mortgage.)
Additionally, the first rental property – the bungalow – gave us other opportunities. We had paid off the mortgage fairly quickly (remember, we paid next to nothing for the house). So when we purchased our second home, we were actually able to refinance that house for a mortgage (because our home was a foreclosure and not able to be traditionally financed.
And essentially, this property paid off the mortgage on that house, too.
In other words, it became financial leverage for us to purchase other properties. That leverage gave us a lot of financial freedom.
Do we like being landlords and owning rental properties?
I’m gonna go with no. I don’t feel like either Ryan or I particularly enjoy the process of being landlords.
There were times that it wasn’t so bad. Like the times we didn’t have to do anything major or deal with issues. But issues always came up at the most inopportune times. Like Christmas Eve. Or when someone was in the hospital. Or when we were building a house.
Some of our renters were wonderful and we wish them well. But working with renters often meant only talking to them when something was wrong. And feeling like we were being taken advantage of. It wasn’t fun for us. It didn’t come naturally to us. (Particularly me, who hates feeling like the bad guy and often felt like one throughout the years.)
In the end, the rental properties were a means to an end.
We are glad we did it. We learned a lot. We are glad we are done. (Well, kind of. We still have one rental property left that we don’t plan to sell in the near future.)
Why did we sell these properties before getting to the point where we could earn a “take-home income?”
Had we continued to own these properties, we would have begun to take home an income, because the mortgages would be paid off.
However, by selling them now, we could put that money into savings immediately and allow that money to grow over the years in investments. That’s a much more passive way to earn money (assuming your investments grow, which we will assume to be true).
The way we explain it is that when we purchased the properties, we had more time than money. Now, we have more money than time. (Not that we are wealthy by any stretch. We just have less time we want to put toward rental properties than we did ten years ago, and our savings and property equity have grown over the same time period.)
Owning these rental properties was one part of a financial plan to save as much as possible as early as possible. We also tried our best to sock away as much of our income as we could into savings.
Doing both of these things when we were relatively young – in our early twenties – gives us so much more financial freedom today. But no matter when you start the process, time allows these investments to grow. And in 10 years, your financial picture could look much better. Spending time on our rentals was no longer a priority for us, and we could financially change course.
Why did we choose long-term rentals over short-term rentals?
There is a lot of info out there about short-term rentals (like airbnb) and it seems to be all the rage today. (I love to see all the house-hacking and airbnb info from the amazing husband-wife teams at Grit and Polish and learn from John and Sherry about vacation rentals at Young House Love, for example. ) However, our area isn’t really a hot bed for tourism and the management of a short-term rental would be even more than with a long-term rental.
With a long-term rental, you do quite a bit of work up-front to get it ready and find the best renter you can, and then you hope they’ll stay there for a while. (At least that’s what we hoped for.) You’ll have some upkeep and maintenance along the way, but not nearly the volume of having to flip vacation rentals every week or month.
Our goal was to create a better than average rental property for a fair price. We were often on the low end of the spectrum for rent in hopes of keeping people there longer. I know we did our best to create nice spaces, even when it would have been easier to cut corners.
What advice would we give to others who are thinking about purchasing rental properties?
I think if you go into income properties knowing what to expect, it can be a good financial decision. We would track the equity over time and it was encouraging to see our equity rise.
You also have options – you could sell the properties once the mortgage is paid off like we did or you can hold onto them and live on the income. You could even live in one unit and have the other units pay your expenses – essentially allowing you to live for free.
Here are a few things I think others should know:
- Doing things yourself will really help financially. The more you can make basic repairs and upgrades, the more money you’ll bring home. Hiring contractors for every little thing can really eat away at your profits.
- You may not want to go high end on design or finishes. People can be very rough on rental properties. There are times you’ll need to gut and start over. We tried to create nice spaces without making anything too precious. If something was broken, it would need to be fixed. The less that costs, the better. So durability and value was important. Sometimes we made choices that were best for the property but we wouldn’t necessarily choose in our own home.
- There will be things that come up. It will go in spurts, but you will have issues that you’ll have to deal with periodically. Plan for those things to happen when you are traveling or doing something very important, and prepare. In our case, issues seemed to come in waves. But, knowing it was going to come helped it to feel less “out-of-the-blue.”
- Focusing on finding good renters is important. It is definitely more of an art than a science. But in our case, we tweaked our application process over the years to find the best folks.
- You cannot be a friend to everyone. We tried our best to be fair in all our dealings, but there were times when we were yelled at, called names, and treated poorly. It’s not healthy to dwell on it. You just have to do your best and move on. And in the end, it’s a business. It can’t be personal and you have to try to shake it off.
Want more? Check out The good, the bad and the ugly of rental properties
Do you want to check out more about our rental properties, including our remaining duplex? Check out our rental archives.
In 10 years, life has changed a great deal. Those young people who enjoyed full nights of sleep may not even recognize us today. Buying rental properties in our early twenties wasn’t exactly common, but it gave us many opportunities we are grateful for.
And now that we were able to sell two of them, we can focus on our kiddos, home and minivan. Just like nature intended.
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Aunt Mooch says
Thanks, Kimmy,
Another great article! You presented the good, the bad and the ugly parts of being a landlord.
Thanks
Kim Woodward says
Well, if anyone knows about landlording, it’s you. Thanks for always being so generous in your wisdom and knowledge.