Have you ever dreamed about buying a second property and renting it out for extra cash? The thought of someone living in your property and paying the mortgage while you sit back, relax, and get rich sounds perfect, right? Getting into the landlord business can be a good experience, but it also can lead to a lot of headaches.
Some people that we have talked to say that they would much rather invest their money into other avenues because they feel owning an investment property/properties would be too much of a hassle for your return. They swear the stock market and other investment opportunities provide higher yields and less hassle. Others believe that buying several properties and keeping them for the long run is a great way to create an extra nest egg in the future. We feel it depends on your personality. We Skelly twins never intended on being landlords, but circumstances brought us to this.
When Christa was going through a divorce, she decided to rent a townhouse inside the ouHHHouston “loop” to be close to all the action (restaurants, museums, shopping). After living in the townhouse for a year, she decided she needed to be more practical, responsible, and buy a place of her own. Because she was a teacher, she was limited on what she could afford (but not willing to sacrifice her children’s wellbeing), and decided to buy a townhouse right outside of the loop near Briar Forest and the Beltway. She chose a townhouse because she didn’t want the maintenance of a yard, wanted to be in the Houston city limits, and wanted to live in a townhouse community that had a guard gate.
The townhouse was perfect for her small family of three and she lived there until she married Brad. Ultimately they decided to keep the property because the market was not doing well and they would have lost a large chunk of retirement by getting rid of it early. The only option was renting it out and hoping that her new, fixer upper husband Brad, could handle the tasks of being a landlord.
Oaks of Woodlake Townhouse:
The good: The location is great. The West Chase area is now booming and prices are going up. It does not hurt that the uber “cool” City Center is a few miles away.
The bad: She has owned this particular property for eight years and has had some good and some just ok tenants. She also had several years where the rents collected were not enough to cover the payments and therefore had to cover the difference out of pocket.
The ugly: When she bought this townhouse, the HOA fees were $490 a month. This was very high but she justified the expense by telling herself that it included electricity, cable, and lawn care. MISTAKE!!! A year after owning the property, the HOA fees went up to $606 a month plus two special “extra payments” of $1200. As an owner, you have no control when your community goes up on HOA fees. She (as most people would) hates having communal electricity because there is no incentive to save. She is pretty sure every unit right now has their AC on 65 degrees.
Christa’s biggest advice: Be VERY picky about your tenants. This will save you a lot of headache in the long run. She has heard nightmare stories of tenants not paying rent and being a nightmare to get them evicted (Remember the nanny that would not leave!) She would rather have her unit be empty for a few months longer and get the right tenant. The tenant has to have good credit and have a job that shows they can clearly pay the rent. The only problem that she has encountered thus far is that her last tenants refused to follow their contract and show her property to potential tenants when they decided to not renew the lease. This was very frustrating because she lost valuable time in getting it leased out. It is best if your tenants resign their lease because putting it back on the market costs money (every month you still have to make the mortgage payment and typically realtors charge one month’s rent to re-advertise the space).
Christa has a love/hate relationship with this property. She has great memories of living here and the location is great. Christa and Brad plan on selling it when this tenant’s contract expires. This property is a money pit. They would keep it for the long run if the HOA fees weren’t so high. The fact that they can be increased makes them want to sell it.
Corrin and I (both teachers and divorced at the time) decided that we were way too smart to depend on any guy. Our solution was to buy an investment property. We realized that we would never get rich being school teachers, but we never wanted life to suck because we put all of our “eggs” in a guy’s basket. Thankfully we were strong women who learned from our “stupid mistakes”.
Investment property #2 (#1 for Corrin) consisted of a small condo that combined we could afford even if it was empty. We found a great location and were given the choice of two units. They were both super cheap and both had senior citizen ladies. One tenant was super nice, the other was mean. We chose the unit with the “nice old lady”. This would prove to be a smart decision. Our investment property was located right across from an empty field that would soon be the “new center of Houston” called City Center. Our 83 year old tenant, Myrt (full Cuban) was a twice widower who had no children. Myrt is spunky and has been our tenant for over six years. She has been a trooper living in a condo that has had lots of issues over the years. We will never forget when the plumbing was overflowing in the bathroom sink. Brad went to go and see what was going on and there was pubic hair coming up in the sink. Apparently the plumbing is connected with the upstairs unit’s plumbing. Poor Myrt!
The diamond in the rough: Our Georgetown Condo
The good: Location, location, location (We purchased the condo a few years before the very trendy City Center was built). Our condo is literally located across the street from the City Center. The value of it has increased about 70 percent in about seven years. The HOA fees are very low.
The bad: The property is old and often requires repairs. Twice a month they cut off water. Most people would never put up with this arrangement, but all of the tenants do (or it seems they do).
The ugly: The property desperately needs updating. We keep trying to get Myrt to let us paint (change floors out), etc but she says that she doesn’t want it. We feel like slum lords not doing the improvements that need to be done.
Overall, we feel being an investor is a great opportunity if you don’t mind the hassle (being called in the middle of the night with a repair issue) or knowing that there will be expenses involved. We could have a property management company manage our properties but that costs a lot of money. Brad would like to sell the Oaks of Woodlake Townhouse and buy another one when the kids go to college in the town where they go. Brad, Christa, and Corrin are very happy with our Georgetown condo. They plan on keeping it for the long haul for the cash flow. Dave complains about it all of the time. He would love to sell it. Christa and Brad offer to buy Corrin and Dave out all the time, but Corrin would never allow this. Part of it is pride. This is something she can claim has “hers”.
(City Center: What was built a few years after we bought our condo)
If you are interested in buying an investment property, here are a couple of interesting articles.