On Becoming a Landlord
I am seeking advice and insight from people who have had experience owner occupying units in a townhouse/being landlords in nyc. Putting in offers on 3 and 4 family brownstones in Harlem. Will occupy the lower duplex and rent out the other units. One of the renters will be a trusted family member. The other…
I am seeking advice and insight from people who have had experience owner occupying units in a townhouse/being landlords in nyc. Putting in offers on 3 and 4 family brownstones in Harlem. Will occupy the lower duplex and rent out the other units. One of the renters will be a trusted family member. The other unit(s) will need to find tenants. The rental income will be crucial to being able to afford the property. Thanks in advance for your input and sharing your experience on any of the below questions.
Costs
-How many months worth of mortgage payment reserve is wise?
-On a new renovation, given a solid engineer report, how much should we have saved for “just in case”
Finding Tenants
-Vacancies-How long should we
expect it to take to find tenants. Where have people been most successful-friends of friends/craigslist/broker?
Other than credit check, deposits, meeting the people and getting a feel for them, what to look for to (as best as possible) avoid payment issues and other “drama.” I have heard so many horror stories about how hard it can be to evict people.
Managing Tenants-what should we expect in terms of time commitment
So this building is in move -in condition with all new plumbing roof electrical boiler and needs no work whatsoever? Then the amount you need in reserve will be less. Maybe Dix months in case of mortgage emergencies, another three to six months in case of tenant emergencies, 20 to 40 thousand or more in case of building emergencies.
I wouldn’t recommend buying a place if you can’t swing the whole mortgage by yourself, but if it’s in move-in condition, maybe that isn’t as crucial.
CITIHABITATS? Sally i love your posts most of the time, but are you KIDDING me? citihabitats is one of the most notoriously crappy scammy apt brokers in the city!! look them up!
*rob*
If you contact a place like Citihabitats, they will do all that credit check, research, etc. for you and find a suitable tenant for you. I can`t imagine that in Harlem you would need to do it yourself. Ask for JoAnn Ebanks, she`s amazing and super professional AND she does amazing photography for the listing.
also it’s lame to have to do a credit check for harlem. most people only move to harlem cuz they have crappy or no credit to begin with and few other options. i’d nix the credit thing (do it if you want) but the biggest way is to get a feel for a tenant, give someone a chance.
*rob*
quote:
Other than credit check, deposits, meeting the people and getting a feel for them, what to look for to (as best as possible) avoid payment issues and other “drama.” I have heard so many horror stories about how hard it can be to evict people.
rule of thumb to avoid drama. (i dont care if this isnt PC). ABSOLUTELY NO FEMALES JUST OUT OF COLLEGE WHATSOEVER. ESPECIALLY IF THEY ARE TRANSPLANTS. believe me you will save yourself a LOT of headache 🙂
The one caveat tho is that if they are fresh out of college you probably wont have a hard time evicting them because they know it will be a black mark on their housing records and they tend to be transient anyway… thus… NO FAMILIES! ESPECIALLY DO NOT RENT TO SINGLE MOMS WITH CHILDREN! you will never get them evicted. and NO SECTION 8. There are many very nice families on section 8, but the vast majority are a nightmare. just google section 8 in any city and suburb across the entire united states of america and you will see.
*rob*
having a family member as tenant might become a problem. will they be looking for a deal on the rent? will you expect them to help keep the building clean. what happens if for some reason they cannot pay their rent? will you go to court to evict them? if you will have a ‘no pets’ policy & they decide to get a cat, what then? many times family & business do not mix very well.
The reserve, as specified by the mortgage, was “6 months of total expenses”. Basically they wanted to know we had enough to cover the mortgage and expenses (heat, water, etc) even if there were no tenants.
Along those lines, banks generally only count 75% of the potential rental income toward total income. The other 25% accounts for vacancy, upkeep, emergencies, etc.
Now that we’ve been in for a while and we have steady, reliable tenants, we have dipped into that reserve a bit, as I mentioned, to make repairs and upgrades. Once you close the bank doesn’t look at your accounts any more. It’s all about cash on hand at closing.
We still keep 4 months or so on hand for emergencies. For example, a new roof might cost 15k and if something happens to ours we want to know we can cover most, if not all, of the cost upfront to repair it quick.
Completely agree with above comments. Also, make sure they have renters insurance. One alternative approach, I’ve used a realtor to find tenants. Has always worked well.
Reserve, 4 months of total expenditures seems OK. In 5 years I’ve probably had $10k’s worth of unexpected problems. Could be far worse I suppose.
Timewise, not much. I’ve had three tenants in 5 years. 2 of which were absolutely great and no hassle whatsoever. There’s always potential for nightmare but my biggest problem was solved with a “Here’s the letter documenting I’m not gonna renew your lease.” You do have more hassles just because of the size of the property.
Also, keep in mind that the tax man is going to be VERY friendly to you. Talk to an accountant to get a sense of all the lovely deductions.
Bottom line – likely a smart move for most folks. Good luck!
Thanks Christopher. Your comment was helpful. The terms of our loan are very liberal so I know we need more reserves to cover the unexpected. Your reserve, does that amount include the entire mortgage or does it deduct any portion of tenant income? Thanks!