Got an interesting offer

[Mike 870]

Well, just when I think I have a good plan in place things get interesting.  I had someone offer to rent my house.   I have a 10 year fixed rate mortgage that makes my payment about $800 (about $450 prin and $350 int) per month. Taxes are $1,450 a half or $242 a month.  Water is about $100 a qarter or $34 a month. 

All these add up to: $1,076 a month or $12,912

The offer to rent is $850 a month.  Based on research I have done this is a fair to generous offer.  They claim it will be at least a couple years that they stay (take it w a grain of salt I suppose).  They also have a dog.

So if I take 11 months rent as a conservative estimate I get $9,350. 

$12,912 expenses minus $9,350 income = a loss of $3,562.

Obviously this sounds like a pretty bad deal except that I am gaining $450 (principal) * 12 months = $5,400 a year against what I owe. This number will gradually get bigger each year as the term of the loan expires.


So $5,400 - $3,562 = $1,838 gained a year if you count the principal on the loan.

Can I be cash flow negative $3,562 plus other write offs for the sake of taxes?  My wife and I are D.I.N.Ks and get killed on taxes.

Does this logic make sense or is it bad logic to be cash flow negative for a while. 

If I do this for 10 years or so, it doesn't matter what I sell the house for because it will all be profit (aside from capital gains).

Shoot the idea down or hype it up as you will, I appreciate all advice.

[Daddymem]

Pretty close to our situation too.  We built our new house and the market fell just as we put our old house up for sale.  It makes no sense to sell now due to the collapse.  We sat on it for a year until we finally found a renter.  It made sense for us to rent it out for an overall loss (not including the payments towards the princ.) and wait for the market to swing up to the point we can sell it eventually.  Way better than paying out everything and get nothing back in return.

Good luck.  We've been lucky with our renters but there are plenty out there who aren't so lucky.

[Mike 870]

Hey, I see you are on the cape, I am originally from the Newburyport area.  Thanks for your reply.  I will have to think out what I want to do.  My dad was a landloard for many years, and he said the same thing as you.   When you have good tennants, it's great, when you don't it can be very stressful.

[MountainDon]

You must do an excellent job on vetting the applicants. We've been there, done that (poorly, one time). 

As for the write off on taxes; it'll help. Shouldn't the tenant pay the water? Ours do.

[Mike 870]

Water can be done either way out here.  As far as I know, it stays in my name and is administered through our local municipality.  So if they chose not to pay the bill, it comes back to my name.  My Dad suggested I charge a little more and pay the water myself as this happened to him once.

[MountainDon]

Well, that sucks, but you can't help it if that is the way it's done. Seems, nuts... that the water company can go to you id the tenant doesn't pay. What about power and gas?

I'd get something written into the lease about expenses incurred by the tenant not being your responsibility. 


That's indicative of one of the problems owners face... the rules are stacked in favor of the tenant.

[Mike 870]

Power and gas do go in the name of the tennant. 

[glenn kangiser]

We have one that way. It is working well.

[Bill Houghton]

In Michigan if I move out of my house and rent it out, the taxes go up around 30%.  They call it non-homestead.          We have two places that we rent out and we try to cover oursevles with a 5 or 6 page lease, plus we do credit checks on the interested parties prior to proceeding on the lease.  Way better to be proactive than reactive.  Don't ask how I know.   
 
Bill in the U.P.

[Dog]

I'm sure you already thought of this. Not sure what the laws are in Ohio, but you should get a security deposit to cover any damages, especially with a dog involved. Also, a last months rent in advance in case they decide to stop paying.
Good Luck! 

[Mike 870]

I had thought of the security deposit, but I had not thought of the last months rent.  That is a good idea.  Right now I'm still trying to decide what the right thing to do is.  It's a scary time to make an investment, buy property or land (because we'd need someplace new to live).  But at the same time, the time to act may be when everyone else is afraid to.  I got pre approved by my credit union so someone out there thinks I am low risk.

[MountainDon]

Good points Dog; I let that slide through as I thought (incorrectly) that everyone knew about security deposits and last months rent as being a sort of a "given". It's just second nature for me; took it for granted.

A very good idea for the first time or wannabe landlord is to check on whether or not there is a landlord association in your area. There is here; they had forms available as well as a handbook that takes one through all the laws pertaining to landlord - tenant relations. You'd have to join for a year more than likely, but worth a thought. Dues would be deductible.

Many tenants have a better grasp on what the laws state, then many landlords. Especially the ones who are likely to try to shaft you.

[Mike 870]

I decided not to rent it out.  Not sure why, just didn't have a good feeling on it.

[Windpower]

Good decision IMO Mike

I rented once

the house got trashed

it was infested with fleas and the hardwood floors were literally black

Took 8 months to fix it up and sell it

I thought I was making a good decision

I worked with the man I rented to and he seemed to be a neat and organized man

his wife was a pig

Renting a house is at least a part-time job -- there is always something

I consider it a net loss for the 2 years I rented and I was making $150 per month positive cash flow.

BTW when you sell it you have to recapture the depreciation you took on your taxes (another nice surprise -- paid an extra $12,000 in income tax that year --- and this was only a cheap house back in the early 80's)

Would I rent again

If it was the ONLY option