View Full Version : Looking for advice on how to turn my current house into a rental.
So, my current house is
1.) Too small.
2.) In a pretty good location for a rental.
I'd like to move forward on getting a new, bigger house to move into while turning my current house in a rental.
But I don't really have any idea on how to go about doing this. Presumably people have done this before, and I'd like to know what that process looks like, and would especially like to hear from anyone here who's gone through this process.
So, how did you do this? Did you secure a second mortgage before even looking for a new house?
What sort of requirements did you have to deal with from your bank or homeowner's insurance?
What repairs or upgrades did you make to your place prior to renting it out?
Are there any relevant laws or statutes or whatever that you have to take into account?
Do you have any tips on finding a decent property manager?
Any tips or tricks on how to do this?
Thanks!
Subscribed.
I've had rentals, but never (yet) turned my own home into a rental, so only have very limited advice.
spqrzilla
08-12-2019, 16:56
You can and should obtain appropriate insurance for your house as a rental as opposed to your residence. An additional umbrella to raise the over all policy coverage is not a bad idea. Require any tenant to obtain renters insurance to cover themselves and their goods.
Most existing mortgages are not breached by your use of the house as a rental, but you should go dig out your paperwork from the closing to have it reviewed.
I have no recommendations for a property manager, as in my experience they all suck. Get good advice on drafting the lease agreement as too many people just "download a lease from the internet" and end up with a very very bad agreement and/or one that has illegal provisions.
If you have sufficient equity in the house that you can borrow it out in order to buy your replacement house, and you need to do this, be careful as the loan application may require you to specify why you are borrowing the money. You probably do not want to lie on that application if you can help it. I do wish to discourage doing this if its the only way to afford the swap. Being a landlord and under capitalized can be very risky.
So, how did you do this? Did you secure a second mortgage before even looking for a new house?
I was running some numbers the other day and in my head my idea would be to refinance my loan to keep the mortgage payment low, then I'd have as much monthly as possible to put toward the new house mortgage. However, that would have me applying for TWO loans in a short time period. I'm not worried about temp lowering credit, but could it prevent a person from getting their second loan?
All I know is my dad rented out their 1st house after we moved to the 2nd, and he swore he'd never do it again.
Renters can be assholes.
Sell it. Move on. Not worth it.
Have you thought about ARB&B? There is a lot more owner inclusion and recourse. You can charge more than rent and select/deny easier.
I managed one for a while and it did really well. Stayed at a couple and, except for one, was happy with the results. Make it homey and toss in some details (coffee, popcorn and popper, soaps, lotions...).
Have you thought about ARB&B? There is a lot more owner inclusion and recourse. You can charge more than rent and select/deny easier.
I managed one for a while and it did really well. Stayed at a couple and, except for one, was happy with the results. Make it homey and toss in some details (coffee, popcorn and popper, soaps, lotions...).
Please expand on this. Considering doing something crazy, but will need to have a B&B or vrbo to help out.
Get a management company and let them do all the work, all you do is receive a check every month. Treat the house as an investment and not a piece of your life or history, lose all emotional attachment to it, its only a house.
I have several friends that rent out homes/condos that they owned before getting married and stepping up to bigger places. They are all building wealth by letting someone else pay for an asset that they hold/own. Three of them use management companies, one guy takes care of everything by himself. Talk to an accountant, you may want to form an LLC and treat it as a business if possible.
You 100% want to form an LLC and treat it as a business.
Please expand on this. Considering doing something crazy, but will need to have a B&B or vrbo to help out.
I'm no expert. The rentals took it in the azz when pot became legal. Rent a "grow" house, two harvests, walk away, $70k in damage, no recourse.
ARB&B has the customer's CC info. Any documentable damage is on them. I managed one house. The owner was not a part of it, except to collect the check every month. We took reservations, cleaned (an extra expense after each rental), added fresh flowers (a huge plus we found out), added extra amenities. All 5 star reviews.
ARB&B takes their cut. We, as a management company, took in all revenues. Owner got paid once a month.
First off dont do this if you cannot disconnect from the thoughts and memories of this being your own home. You are personally invested in the structure and if someone trashing it will personally cause you or your loved ones grief, dont. You can move the equity into another property to separate the money and memories
Second despite the lawyers advice, nobody will draft a lease for you because its stupid expensive. I bought my lease from the apartment association of Denver. Google it and pay them a small fee for their proven lease.
If the two mortgages are unaffordable for you on 66% of your gross income, dont do it.
There are few managment companies that are going to do more than take their percentage. They will get shit tenants for you because they just want their money. You need to do some serious research on this.
Generally you won't have to do much in the way of maintenance to rent it. Make sure there's no peeling paint and no other code violations.
You need to research the Colorado landlord tenant Act. The Americans with disabilities Act, the fair housing act. Just to name a few.
It will be difficult to find a management company worth a crap who will manage a single residential property for you.
When AirBnB started, finding good property managers was easier because it was mostly enthusiasts in the game. Now sleazy prop management companies have discovered the market and are moving in a bit, but should still be easier to find good people compared to the regular rental market.
I'm not sure why people recommend property management.... They will shove the first "qualified" person into your house without hardly any cursory checks beyond some garbage $15.00 internet background search that only pulls about 5% of someone's history. So sometimes, sure people who use prop management will get a decent tenant - by luck - but there's no insurance against them shoving in the first college student who clears their "background check" and begins a grow op for you. WHO you lease to is the most important decision you could ever make. Use resources like cocourts.com and screen people yourself, meet with them, get a feel for them, bring someone along if you're not a very good judge of character or if your personality generally "likes" anyone with a head and a mouth. Don't just screen the person either, check out their references (parents) associates, etc. Then you will have a good picture. Don't deny on distant records, most people renting have them tbh. (I actually prefer to see some distant records... the reason why is I can confirm their honesty - if they conceal where they lived (other states), it's possible to conceal their records). Also make sure to casually ask where they are from, etc. get their state history subtly so you can check court resources in each state (or sometimes county) Bankruptcies in the past shouldn't bother you, distant drug charges etc. shouldn't be a big worry. Recent DUI's, lots of divorces, domestics, recent drug charges, violent crimes, evictions, recent creditor judgments, those are people you should avoid like the plague.... and most prop management companies don't check all that or don't know how to. Point is, you're tens of thousands invested into your house and the decisions you make with it. A prop management company is only invested a couple hundred dollars.
Something to remember is you'll always get slightly less value than what you're paying a prop management company; sometimes substantially less.
ETA: edited to add re: asking about state history
ETA: You can check for federal records via Pacer, all Colorado records via cocourts.com
Great-Kazoo
08-12-2019, 21:20
Put a 4 sale sign out front. Take the check at closing and never look back.
1 renter, just 1 who trashes the place out and refuses to leave, can cost you $10K . If they cook meth (you never know) that's a hazmat issue. That can run untold amount of out of pocket money.
The question you should ask yourself is. IF my renters stopped paying and i had to evict them. How much out of pocket expense can i afford before i ran in to financial trouble?
Renters can be both terrible and great. Pretty much just like everything. Like OxArt was saying, if you do your due diligence in selecting your renter and are a bit hands on (maybe talk to them once a month), that really helps you control issues. One big red flag for grow houses or other drugs are people who offer to pay for the whole lease up front. That is a person who can easily afford a down payment on their own house, and doesn't want you coming around.
Great-Kazoo
08-12-2019, 21:24
Renters can be both terrible and great. Pretty much just like everything. Like OxArt was saying, if you do your due diligence in selecting your renter and are a bit hands on (maybe talk to them once a month), that really helps you control issues. One big red flag for grow houses or other drugs are people who offer to pay for the whole lease up front. That is a person who can easily afford a down payment on their own house, and doesn't want you coming around.
OR put in the lease agreement. ANY illegal activity be it state, or Federal is grounds for immediate eviction. While legal in CO it's still noy federally recognized, might be an escape clause to CYA.
I wouldn't be overly concerned about a lease nor expect one to protect you against jack squat. If you've ever dealt with evictions, a written lease mostly protects the tenant in CO. Most judges seem to be "pro tenant" and the laws have shifted that way too. Even if they break the lease and move early, don't expect courts to award you lost rents either. So expect to find they can use any restraining provision, but you can't use any protecting one.... e.g. they can stay there the whole term even if problematic.
Justin, any thread about renting is going to turn into a shit show about horror stories. The best way to combat that so you can have a clear path forward as to whether it will be worth the risk, is to tackle the problem backwards. **I'm an advocate of this method when trying to tackle any venture.** What you need to get a hold of first is an exit strategy. Meaning, if the worst possible thing happens with the house, what will be your exit strategy from the whole mess and how much will you lose your ass? If you try it out and your first renters trash the place and it costs you $10,000 to remodel everything, will that sink you? Would you be okay? Could you do the repairs, sell the house for market price and end up as a wash? If so, you really only lost time. Think of it that way, and if you can survive a catastrophic failure without too much of a loss, then start tackling the other issues like financing and property management. Good luck.
Colorado Osprey
08-13-2019, 05:52
If you decide you still want to have your home be a rental please look at squatters rights. If someone is in your home and they have their belongings there, they stop paying rent or in any other way break the lease but still reside there; you will need a court order to move them out and evict them. They can go to court and argue they have no money or other place to live and it can take up to a year before they are forcibly removed by law enforcement. During this whole time you will not be collecting rent and I bet you they will not leave it in move in condition knowing you are kicking them out.... actually probably damage stuff on purpose like breaking plumbing and damaging cabinetry and drywall as well as purposefully destroying carpet and tile. They have no funds so there is nothing to recover from them! My coworker had this exact condition happen and caused them to spend $50k repairing their home after just a one year rental where they received rent for only 2 months. This was also a renter approved from a rental management company who they thought would protect them. Hard lesson learned.
If you decide you still want to have your home be a rental please look at squatters rights. If someone is in your home and they have their belongings there, they stop paying rent or in any other way break the lease but still reside there; you will need a court order to move them out and evict them. They can go to court and argue they have no money or other place to live and it can take up to a year before they are forcibly removed by law enforcement. During this whole time you will not be collecting rent and I bet you they will not leave it in move in condition knowing you are kicking them out.... actually probably damage stuff on purpose like breaking plumbing and damaging cabinetry and drywall as well as purposefully destroying carpet and tile. They have no funds so there is nothing to recover from them! My coworker had this exact condition happen and caused them to spend $50k repairing their home after just a one year rental where they received rent for only 2 months. This was also a renter approved from a rental management company who they thought would protect them. Hard lesson learned.
That's not at all how eviction works in Colorado.
Been there. Done that. Will never be a landlord again. Ever.
Give my friend Scott a call at Zeal Property Group. He's a pro at this stuff.
Before starting his own company, he used to run a huge book at FourStar Realty in Boulder where he managed leased and rental properties for the infinite revolving door of students at CU... so he knows all the tricks and risks. I highly recommend him.
Plus he and his wife have twin baby girls, so he's super motivated to:
1. Make money and
2. Not be at home.
Cell - 7) - 244-3704
email - scott at zeal property group.com
I appreciate the input here.
One thing I'm thinking about would be that I could maybe minimize the odds of a crummy tenant by renting to military personnel, preferably officers; I'm told that most base housing organizations keep a list of rentals for their people who are moving into an area.
The hope there is that people who've signed up for the military are more likely to have a cleanish background and probably aren't looking to start a grow operation.
Certain military folk have money allocated towards housing as well; if they don't use it to pay their rent they can get into deep shit. So it can result in more reliability as far as payments are concerned.
Really the #1 issue you will face with renters is missing payments.
All the crazy damage horror stories and grow house stuff, pretty minimal risk, even less so when you screen yourself and know how to screen. That said; remember that military folk are just as diverse as the general public... remember why some people joined (some wanted to escape hometown, or couldn't get a decent job, or wanted to hit "reset"). The reason to rent to Military is often a slight increase in the reliability of payments, and maybe a reduction in the already unlikely chance of a "grow" house since a member of the house is otherwise employed for a few guaranteed years. As far as (minor damages) like small holes in the walls, screen doors ripped off, unauthorized pets, stains on carpets etc, you're not going to notice a difference between Mil / non Mil. Assholes r' everywhere.
I appreciate the input here.
One thing I'm thinking about would be that I could maybe minimize the odds of a crummy tenant by renting to military personnel, preferably officers; I'm told that most base housing organizations keep a list of rentals for their people who are moving into an area.
The hope there is that people who've signed up for the military are more likely to have a cleanish background and probably aren't looking to start a grow operation.
The mistake you're making here is that you fully believe you can eliminate the risk on the front end. You can't. I learned this the hard way and was VERY strict with who I rented to and every single tenant met the criteria on the front end. Some of the people you think will be the best tenants end up being the worst. You will never be able to predict human actions and thinking you can is a mistake that will cost you thousands, possible tens of thousands. For me, I'm out of that game and the potential rewards do not match the risk.
I appreciate the input here.
One thing I'm thinking about would be that I could maybe minimize the odds of a crummy tenant by renting to military personnel, preferably officers; I'm told that most base housing organizations keep a list of rentals for their people who are moving into an area.
The hope there is that people who've signed up for the military are more likely to have a cleanish background and probably aren't looking to start a grow operation.
The downfall to renting to mil is if the get orders they can break their lease with those. If they do damages beyond the deposit and they move out of state you're unable to sue them in small claims court. Your only recourse is collections.
The mistake you're making here is that you fully believe you can eliminate the risk on the front end. You can't. I learned this the hard way and was VERY strict with who I rented to and every single tenant met the criteria on the front end. Some of the people you think will be the best tenants end up being the worst. You will never be able to predict human actions and thinking you can is a mistake that will cost you thousands, possible tens of thousands. For me, I'm out of that game and the potential rewards do not match the risk.
+1 to this. I've been in the rental game for decades and still am.
My top 3 worst tenants ive had to deal with were 1. A single mother on section 8
2. A couple who were both doctors.
3. the deli supervisor at the Safeway nearby.
All were qualified by property management companies. One was my tenant, one was my family members tenant, one was just a tenant at work. None of these caused traumatic damages like fires or floods.
If you can fix stuff yourself it's not that bad. You never really make cash-over-the-top on a rental until you're about 10-15 years into your mortgage. Where you're making a profit on it is generating equity on a second home. So yeah, you need to be able to fix and resolve issues as they come up, and improve the house over time. If you're a shlep that doesn't know a handle from a hammer, you're probably going to a take a significant loss. If you're a jack-of-all-trades, even horrific, catastrophic damage you're only out materials, maybe $1k-$2k in worst cases (and a month or two of downtime between renters). So ... that's a huge consideration to make. (And yeah, I've had bad tenants, but *shrug* I fixed it...) I've also had good tenants that fixed things and improved their place for free.
PS: Between myself and my family, we've managed rentals for 30 years. I can't emphasize how important it is to be able to fix the vast majority of issues yourself. That said, I think I'd prefer an AirBnB or something - simply for higher return $ in this area.
Great-Kazoo
08-13-2019, 11:47
If you can fix stuff yourself it's not that bad. You never really make cash-over-the-top on a rental until you're about 10-15 years into your mortgage. Where you're making a profit on it is generating equity on a second home. So yeah, you need to be able to fix and resolve issues as they come up, and improve the house over time. If you're a shlep that doesn't know a handle from a hammer, you're probably going to a take a significant loss. If you're a jack-of-all-trades, even horrific, catastrophic damage you're only out materials, maybe $1k-$2k in worst cases (and a month or two of downtime between renters). So ... that's a huge consideration to make. (And yeah, I've had bad tenants, but *shrug* I fixed it...) I've also had good tenants that fixed things and improved their place for free.
PS: Between myself and my family, we've managed rentals for 30 years. I can't emphasize how important it is to be able to fix the vast majority of issues yourself. That said, I think I'd prefer an AirBnB or something - simply for higher return $ in this area.
Definitely able to do the work yourself. And I agree, the AirBNB is the way to go. Especially people looking for real short term rentals, while they relocate.
whitewalrus
08-13-2019, 12:29
Something you may want to look into is factoring in a cleaning fee...I know plenty of times that landlord and tenant do not see eye to eye on the move out cleaning. Whether its your time or hiring a professional cleaner, I wouldn't count on the tenant cleaning to suffice for the next one to move in.
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