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Our Renters Renewed For Another Year!

by J. Money on Wednesday, April 23, 2014

happy carrot

The best thing you can hear as a landlord :) At least of course if they are *good* tenants, as my friend Lazy Man was quick to point out when I announced the good news on Twitter. I asked him why he’d even offer his tenants the chance to renew if they sucked so much anyways?, and he said they tried doctoring the contract so he had to take ‘em to court! Ouch! The joys of rental properties, eh?

But this post is about me, not him (sorry Lazy Man ;)) and I’m in the mood to celebrate! Opah! And this now closes out two large questions we’ve been mulling over the last two months as well:

  1. Where are we going to live this year?
  2. What are we going to do with our default rental property? (Our old house we used to live in, but don’t want to sell yet cuz we’re too underwater)

As you can see, #2 is now crossed off the list: our renters will remain for another year! And as for #1, well, we decided we liked it too much here in Virginia to leave anytime soon :) So we’ll be sticking around for at least another year ourselves too. Especially while baby #2 makes entrance, and the wife once and for all finishes that dang dissertation to complete her PHD. Meaning this time next year we’ll no longer be a single-income house! Double opah!

The interesting part about this whole house renting business, though, is how similar both homes in question are. For example:

  • They’re both 1,700 sq feet
  • They’re both on the same rental time-frame (which I guess makes sense since we moved out of one and into another, eh?)
  • And they’re both set at $1,700/mo rent. Even though one’s far away from the city and one’s smack dab in the middle of one.

So it always feels like we’re playing Even Steven here, which again we continued forward when it came to the renewal rates. I’m not sure if it was a smart *business* decision, but emotionally it felt pretty good so we ran with it (ya’ll know I choose emotions over facts/money most of the time ;)).

We got the notice first from the house *we* rent, saying they wouldn’t be instituting a monthly rate increase, so when it came time to tell our tenants our offer to them, we decided to stay put and not raise the rates either. I just couldn’t see ourselves raising it when we were offered a similar deal, ya know? And our biggest fear of course is that they walk and decide not to rent again, effectively costing us a whole entire month’s worth of rent (the amount our property manager pays to secure a new renter from start to finish) – if not more.

So while the few hundred dollars extra this year would have been nice, it’s much nicer knowing we’ve got a good, solid, tenant staying put for yet another 12 months. Now had our landlord increased the rent instead? Who knows how it would have played out :) Even though the two shouldn’t have anything to do with each other at all…

Either way, we’ve now almost officially been landlords for a year! That was fast! We got off to a rocky start, but thankfully we haven’t heard a peep of trouble for the past 5+ months now which is music to our ears… Here’s what the numbers looked like for 2013 (starting in July):

  • Total expenses (repairs, management fees, etc): $3,290.95
  • Total income (rent collected): $10,479.15
  • Total amount we paid in mortgage + HOA: $12,120.00
  • Total loss for 2013: $4,931.80

And that doesn’t include the $20,000 we dropped to get the place up to par either, ugh…. But at least we were able to write it off for the year which helped us get back $11,000 like we did. And now all our major expenses are out of the way for the future too, which is good! (Knock on wood)

Still, we’re definitely not raking in any profits :) We’ll just be losing less every month going forward, which one day will even out and THEN start giving us some extra profit. At least in theory…

Here are some things we’ve learned so far being a landlord:

  • No phone calls are good phone calls :)
  • Managing a property can be emotionally draining
  • But property managers help with this, as long as you’re okay with the costs
  • It’s pretty awesome when someone else pays your mortgage for you!!
  • Rental properties are a long strategy play
  • And they aren’t for everyone (just like home ownership)…

We’ll see what the future holds, but I’m not a converted man just yet – only a more patient one ;) I think it would be much different going into investment properties when you actually do so ON PURPOSE than by default, haha… We’d have never bought our house when we did (or for how MUCH we did, for that matter) had we known we’d later become landlords. Definitely something to consider for all those looking to scoop up their first homes soon… It’s all fun and exciting except for when it’s time to pony up large buckets of cash you’d rather hold on to! So consider this a scare tactic! ;)

Anyways, you live and you learn and we’ll continue going along for the ride and seeing how things pan out… Maybe we’ll have a whole portfolio of properties the next time we talk about this and retire at 30 like FI Fighter? Oh wait… I’m already 34, dammit.

How are your properties going if you have any? Did they do better than mine? (HAH!) Did you keep rates the same this year, or is that only for suckers?

Share away in the comments if you would. We need all the help we can get :)

——-
[Happy carrot by Cyn74]


{ 56 comments… read them below or add one }

1 Chris @ Flipping A Dollar April 23, 2014 at 6:23 am

That’s great news! I’m sure it was a big relief. We are in a state of unknown now too with a possible move due to my wife finishing up her PhD program. One more year! I like to joke that my wife is my log term investment… not a rental property!

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2 J. Money April 23, 2014 at 9:02 pm

HAH! I hear ya brotha. Seems like our paths are going down the same direction as well – my wife has 1 more year left of her PHD program as well :) Then it’s DOUBLE INCOME TIME BABY!!! I can’t wait!

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3 Chris @ Flipping A Dollar April 24, 2014 at 8:14 am

I joke that she’s my 12 year plan. :) I can do the stay at home dad thing! House would be clean, dinner would be made, I’d get to the gym more… One can dream, right?

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4 J. Money April 26, 2014 at 12:49 pm

I like the sound of that! Imagine how many more things you can flip online too :)

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5 Charles@gettingarichlife.com April 23, 2014 at 6:39 am

Jay
When I have good tenants I rarely raise the rent. The past three weeks I had issues with two of my rentals and a vacancy in a third. Now my vacancy is under going renovation which means no income for a few weeks. This is the kick in the ass reminder that real estate takes work.

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6 J. Money April 23, 2014 at 9:03 pm

Oh wow. You have a little empire going on there! :)

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7 A terrible husband... April 23, 2014 at 6:53 am

Nice! We just sold our rental properties. So nice being able to move into our new home and not having to worry about other properties. Will probably get into a few more places over time but for now we are enjoying the peace.

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8 J. Money April 23, 2014 at 9:05 pm

Good for you man. And knowing what makes you all happy in the long run too.

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9 Holly April 23, 2014 at 7:49 am

We became landlords this past December. We were lucky though that some church friends moved into our house so we don’t have the management fee. It also helps that hubby is in the construction business so he is able to do all the repairs. Like you said between mortgage payment and HOA you don’t break even but at least your not selling your house at a loss and coming to the table with cash. Then when you add depreciation and other expenses the loss on your tax return is really nice!! :)

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10 J. Money April 23, 2014 at 9:07 pm

I need your husband around here! I’m the most un-manly when it comes to home repairs, haha… though I am learning a few tricks here and there out of necessity :)

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11 Don @ Breath of Optimism April 23, 2014 at 8:19 am

We are in the exact same boat as you. When my wife and I married, we moved into her house and I began to rent mine. My house is underwater and I don’t want to pay the thousands of dollars in order to sell it. I’ve always wanted to be a landlord, so it works out.

I kept the place in great shape and have been able to rent it for above the going rate. I also have an older woman as a tenant and she is awesome. I was going to raise the rent this year, but decided against it – I’d rather keep the great tenant than have to find another one. I did tell her though that next year, I will have to raise the rent and she was OK with that.

I lose money every month on it, but it’s about $200/month. To me, that is OK. In essence, the tenant is paying for everything and that $200 is my principal payment of the mortgage. So while I am paying down my house, I get the benefit of not paying any of the other expenses and I get to write them off of my taxes.

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12 J. Money April 23, 2014 at 9:11 pm

Yes! Exactly! Glad to hear I’m not a dufus for leaving rents the same rate too. I haven’t read the below comments yet, but so far so good ;)

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13 Kelly Davis April 23, 2014 at 8:21 am

Give yourself a bit more time, you could still be sold as a landlord! We have had 1 rental home for years! We haven’t had a bad tenant yet (knock on wood) which definitely helps. Taking a loss on your taxes is a huge help for you, this year we had to claim a profit and that hurt!

http://growingpainsbykellydavis.blogspot.com/

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14 J. Money April 23, 2014 at 9:13 pm

Well, I don’t really have much a choice now so I’ll def. be giving it some time to pan out, haha… I’m definitely a lot more excited about the possibilities than I was this time last year! :)

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15 tracy April 23, 2014 at 8:30 am

We too are “reluctant landlords” and not only have we not raised the rent in three years, we actually only make our tenant pay 11 months rent and get 1 month free for each year contract she signs. It helps that the going rate for rent in our area more than covers our PITI payment each month. However our wonderful tenant has said she wants to move at the end of this contract and we are trying to figure out what to do. Attempt to sell again? or look for a new tenant? Decisions decisions decisions…

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16 J. Money April 23, 2014 at 9:14 pm

Oh wowwww – you guys are GOOD to her! She must have one special place she’s moving too to leave that! Haha…

Def. a tricky situation indeed though. At least you have some time to think and/or get someone new on the hook before she leaves, right? That’s pretty good.

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17 Megan Vogel April 23, 2014 at 9:43 am

We have 2 rentals that are on 15 year mortgages that will be paid off 3 years before my son goes to college. We plan to use the rental income at that point to help pay for college expenses.

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18 J. Money April 23, 2014 at 9:16 pm

Hot damn! Work it!

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19 Becky @ RunFunDone April 23, 2014 at 9:45 am

We are not landlords, but when we first moved to WA, we had an amazing landlord! (And we were amazing tenants). He was so easy-going, and was even willing to let us do improvement projects (like installing a garage door opener) and take the cost off the rent. (I guess that he was getting free labor, but we were getting a home that was more livable for us, so we were willing to make the trade). I think being a landlord could be pretty nerve-wracking! You’d really want to have good, reliable tenants! I also live in a military town, and the law allows military members to break their leases with no consequences if they get orders for deployment or to go to a new area, so that adds another concern for landlords!

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20 J. Money April 23, 2014 at 9:18 pm

Yes, exactly. In fact, our renter is in the military! So that’s always a little nag at the back of my mind, but really it’s totally out of our control so just hoping for the best :) And growing up in a military family myself, it’s hard to really be upset about that, haha… Outside of them protecting our freedom and what not ;)

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21 Camille @ Challenge Mantra April 23, 2014 at 10:02 am

I’m renting from one of my co-workers which is difficult because we tread lightly around each other when there are problems at the house, and then things are back to normal once they are fixed. He also reneged on a verbal promise last month to refund rent on any day we have contractors in the house (it was almost the entire month) because he didn’t want to incur the wrath of his wife who just had baby #2. haha, he basically pulled 1 week’s rent from his wallet, handed me the cash and asked if we were even. He’s giving us a super deal though because he’s just thankful to have someone in here that he and his wife trust as responsible.

Currently, my landlord is embroiled in a big lawsuit associated with his last tenants — they accidentally flooded his neighbor’s basement — so definitely make sure you and your tenants have all the right insurance selections.

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22 J. Money April 23, 2014 at 9:19 pm

OUCH! For both situations! At least your landlord is a colleague and not a boss, right? RIGHT?? :)

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23 Stefanie @ The Broke and Beautiful Life April 23, 2014 at 10:13 am

I’ve actually heard of people getting a discount on their rent in subsequent years if they’ve proved to be good tenants.

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24 J. Money April 23, 2014 at 9:20 pm

Oh nice… I’m not too sure I’m ready to go down *that* route just yet, haha… but I can totally see myself doing so if it locks in awesome people :)

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25 Martin April 23, 2014 at 10:24 am

I sold my rental last year. I never had the same tenant twice. That’s awesome that they renewed. The only good thing about tenants leaving for me was that I could increase the rent.

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26 J. Money April 23, 2014 at 9:21 pm

That’s a good point actually. Though I’d still rather keep the same tenants in there if at all possible :)

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27 Shannon @ Financially Blonde April 23, 2014 at 11:01 am

Ha! I love the comment “no phone calls are good phone calls.” This is probably the main reason why I would never think to become a landlord. That and I would be scared about the wear and tear the renters would put on my investment. It’s like letting someone else manage your money for a year and you have no idea how they are going to invest it.

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28 J. Money April 23, 2014 at 9:21 pm

Okay – if you’re trying to scare me, it worked ;)

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29 Kathy April 23, 2014 at 11:24 am

Just posted on another site about rentals. We acquired ours from my mother who hadn’t raised the rent on any of her tenants in 15 years!! And some of her tenants had been with her for the entire time. Knowing that we are not cut out to be landlords and certainly do not want to spend our retirement catering to tenant needs, no matter how small, we decided to sell the properties. We are taking our chances in the stock market instead. I love it when that interest and dividend income hits our brokerage account without having to call and ask for it, or spend it to perform repairs. Call me lazy but it is just easier for us.

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30 J. Money April 23, 2014 at 9:35 pm

Hell yeah, I’m with you on that! I actually recently read an article about why rental properties are better in the end (mainly for leverage reasons), but honestly you gotta run with what makes you most comfortable and happy when all is said and done. And I’d probably have done the same thing in your shoes – at least with my current mindset :)

Here’s the article if anyone’s interested in reading:

http://www.fifighter.com/finance/real-estate-thoughts/2014/04/reits-vs-rental-property-comparing-apples-to-oranges/

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31 EL @ MoneyWatch101 April 23, 2014 at 11:45 am

Interesting that the rentals are so similar. Good for you for not raising the rates. Underwater mortgages are a big issue for many, and it seems nobody has a clear cut answer to solve it. I guess you can hold and hope it will increase in value, as long as the annual loss is not too big. Good luck.

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32 J. Money April 23, 2014 at 9:36 pm

Thanks man, I can use all the luck I can get these days :)

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33 SavvyFinancialLatina April 23, 2014 at 12:57 pm

The more and more I read about rental property management, the more I am scared by them! It seems most people just have tons of headaches and they don’t make much money. I’m sticking with stocks. I feel like I don’t have enough time as it is!

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34 J. Money April 23, 2014 at 9:38 pm

It’s definitely not for the faint of heart, but make no mistake – people become VERY VERY wealthy off real estate – so there’s a ton of money to be made. Not saying it’s for everyone of course, cuz it’s not, but a good majority of millionaires/billionaires out there make their $$ from property… I just wish it were easier on the brain, personally ;)

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35 Even Steven April 23, 2014 at 1:06 pm

So it always feels like we’re playing Even Steven here, which again we continued forward when it came to the renewal rates.

Always love hearing that phrase used! In a perfect world yes you want your real estate to make 10% cash on cash returns and have no vacancies, or problems to fix.

In my time as a landlord, I’m happy when the rent is paid and my own money is not being used to pay for the mortgage or any other property costs, I know it sounds simple but I prefer it that way.

One of our renters signed an extension in the end of March for a 7 month lease because we are flexible and she is a great tenant, it makes things all the easier.

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36 J. Money April 23, 2014 at 9:40 pm

Does that make the lease end in the dead of winter though? The one thing I’ve learned to watch for is when they come up for renewal so that you’re as close to the peak of prime time as possible, vs low rental periods where there’s slim pickings. You’re probably a lot more versed in this than I am, but figured I’d share for others reading this anyways :) Mr. Even Steven.

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37 Even Steven April 24, 2014 at 10:21 am

It’s always the dead of winter in Chicago……Agreed it is a concern, the lease will be ending the last day in October. We took a couple things into consideration, while October isnt the ideal month, this is a very good renter and the possibility is still there to sign another extension. The property shows well and is in a very good neighborhood. The decision ultimately came down to do you want guaranteed* money for 7 months with someone you know and have a history with or risk the vacancy and strain of going through the application process and potential good/bad tenant. We took the 7 month option and guaranteed money*

Side note we also live in the multi unit building and have a built in cushion of making decisions not based entirely on money.

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38 J. Money April 26, 2014 at 12:51 pm

Sounds like a plan to me – I probably would have done the same thing to be honest with you :) I’m super conservative with major money decisions – unlike 6 yeas ago when I bought a house on a whim (*shakes head*).

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39 Raquel@Practical Cents April 23, 2014 at 1:21 pm

“managing a property can be emotionally draining”. I don’t have properties but my sister has a multi-family one and has been a landlord for almost two years now. Whenever she gets a call it is drag and sometimes she panics but in her case the home is paid off and most of the monthly rent is profit so that is definitely nice. She’s thought of selling it a few times but the income is pretty hard to give up and also she’ll make more money over time by renting rather than selling. She hasn’t increased the rent in 2 years.

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40 J. Money April 23, 2014 at 9:42 pm

That’s a beautiful position to be in! I’d totally keep the place for all that extra income, as long as that’s what it is – extra – and not something I’m reliant on. That’s where you usually have the problems – counting on money that’s not 100% solid :(

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41 connie April 23, 2014 at 2:45 pm

Go J$, Go! Love this site and all of your Updates!!! :)

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42 J. Money April 23, 2014 at 9:42 pm

Hey, thanks! Feel free to stop by anytime and comment ;)

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43 daizy April 23, 2014 at 3:03 pm

I kept the rent the same this year but lowered it last year. It was kind of high for the area and I wanted to fill the house fast. I was a reluctant landlord and my bad tenant stories are too long for this space which is why I happily pay a management company now. It didn’t make all of the bad news go away but it certainly helped. The renters don’t call me, they call the pm. That alone is worth $100 a month. When some tenants had to be evicted and people asked me what I was going to do, I could say “nothing, my pm is handling it”. So much better now. I would like to sell it eventually when the selling price goes up a bit more.

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44 J. Money April 23, 2014 at 9:43 pm

Hell yeah! Having “your person” on call makes all the difference in the world. Exactly why I have an accountant too. (“There’s a problem with our taxes? Here you go Accountant!” :))

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45 The Wallet Doctor April 23, 2014 at 3:20 pm

Most people I know who do the landloard thing make good use of those management companies. It can be a lot for an individual to manage all the challenges, and having some help can really make an overwhelming task much more reasonable. Glad to hear that things have been going well for you!

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46 J. Money April 23, 2014 at 9:44 pm

Thanks Wallet Doctor. Never get tired of seeing your blog name :)

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47 Brian @ Luke1428 April 23, 2014 at 4:55 pm

Properties can definitely be a drain. I don’t think most people who want to become landlords realize this. They are only focused on the purchase price and forget all the other stuff. We’ve put significant money into two of ours for repairs and upgrades. I think you are right, that when you go into it intentionally things will be different. We make it a practice to raise rates, even if only by a little. I do everything I can to keep our tenants (short of compromising the business plan) but I don’t fret over them leaving. All our properties seem to rent fairly quickly, which is a good problem to have.

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48 J. Money April 23, 2014 at 9:45 pm

Indeed! Perhaps I need you to take over my rental and be my property manager? ;)

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49 Karen @ Money Saving Enthusiast April 23, 2014 at 9:28 pm

Congratulations. I bet you can breathe a big sigh of relief.

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50 J. Money April 23, 2014 at 9:45 pm

Thanks friend! I can indeed!

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51 Zee April 24, 2014 at 2:26 am

So I’ve been a landlord for…. ugh, too long, 7 years now. But I’m not a landlord in the sense that most people probably are when they say that. I rent out 2 rooms in my condo (san francisco you know, most 20-30 somethings have roommates).

I think if I were renting out a house that I didn’t live in my feelings on the matter would be different, but right now my roommates/tenants drive me a little crazy and since I live with them. I think if I went back to when I bought my house and I just rented for a few years I would have realized that I don’t like roommates so much and would have bought a smaller place for myself.

The one thing that I’m starting to realize is that I need to sometimes think of my roommates as tenants and my house as a business. Raising rent is just part of life, costs of HOA fees, utilities, and life in general go up with inflation. So having rent keep up with it all makes sense. Being nice because you don’t want someone to leave or you feel bad works for some people but for me, I must be doing something right since most of my roommates are here for spans of about 3 years or so. I also think that after 7 years of being a landlord I’m really just over it and trying to plan the best escape at this point.

I also know that where I live is probably a lot different than housing in Virginia so what applies here might not there.

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52 J. Money April 26, 2014 at 12:53 pm

“I’m really just over it and trying to plan the best escape at this point.” – Haha… I hear ya, brotha. I’m sure you’re in a much better financial situation than you were back then too – so hopefully your escape dream comes true soon :)

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53 Crystal April 24, 2014 at 2:46 am

We moved in October 2012, and started renting out our old house in November 2012 to our house keeper who claimed it before our new home was even built, LOL. She pays $1200 a month in a neighborhood that goes for $1250-$1300 a month, but she keeps it up better than we did. That’s worth it to us. We also paid off the last $25,000 owed on the house in April 2013. The contract went month-to-month in November 2013, but we’re not raising the rates or asking her to sign another contract. She’s made it obvious that she wants to stay long-term, and we rather let her leave if she ever has a problem affording the place.

Writing that out, it seems like we are pushovers, but here’s the breakdown for 2013:

Total expenses (repairs, maintenance, etc.): $1150
Insurance: $1200
Property Taxes: $2400
Mortgage Interest for Jan-April: $300
Mortgage: $2000 if you don’t consider the payoff or $27,000 if you do
Total income (rent collected): $14,400
Total profit or loss for 2013: $7350 profit without payoff or -$17,650 if you do consider the payoff

We’re happy enough with this one, 1750 sq. ft. home that we are considering buying another one. Our own mortgage plus insurance, prop taxes, etc comes to around $2000 a month, so it’s not completely covered by the $1200, but it’s close since we get another $600 a month from roommates…

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54 J. Money April 26, 2014 at 12:55 pm

Nice!! I can’t believe it’s paid off! Means so much more profit in the future now – way to go!! I’m sure it’s a nice relief too – even though I reckon you have another mortgage still on the new one? You little empire ruler, you :)

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55 Mike April 24, 2014 at 9:43 pm

Mike here from renting out rooms!

I hate the new tenant or roommate search. I think for me it’s dealing with the unknown whenever a new person moves in. I agree, property in general is a long term play. I’m barely breaking even. I’m just hoping for the best in the years to come.

The worst part of finding a new tenant is the chance that you won’t find a suitable tenant or roommate in which case unoccupancy is expensive.

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56 J. Money April 26, 2014 at 12:56 pm

Exactly, it blows. And stresses the hell out of me, so I’m totally good with lower $ but solid tenants. Nice seeing you here btw, bud. Things well? :)

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