If you're reading this and think that managing your own rental properties is going to save you 5 - 10% per month you would be mistaken. Read this and learn from my mistakes.
It's exciting to say "My mortgage is going to be $1,400 per month and my Real Estate agent said I could probably rent my property for $1,600 per month...YIPPEE!! I'm going to be making $200 per month!!!
There is no one - except maybe your BFF - who will ask you how much per month you will be setting aside for property taxes, and insurance. Probably not even your BFF will ask you how much you need to set aside for vacancy and replacement reserves. And no
one, except your local Real Estate Appraiser, will mention that if you're managing your own rental property you should probably set aside 5-10% for management costs.
If you want to make money on income property don't underestimate your expenses, because they like so many other onerous things in life, come in groups of three.
This fund covers things like gas to and from the rental, meals and lodging if you don't live close, hours you spend cleaning up after your tenants, and incentives you spend money on - gift certificates to the local ice cream shop, maid service, swim club
membership - to keep your good tenants in your properties.
Just today I agreed to hire maid service for a tenant who stayed in one of our properties through the time we were making repairs. Her windows are now grimy, and there is a fine layer of dust all over her belongings after the construction.
Remember what I said in my first post in this series on rentals, some rental income every month is better than no rental income when it comes time to pay the mortgage.
Fortunately for me the construction was primarily limited to one bedroom of the house, so we agreed to deduct the "rent" for that room during the time the construction was going on. We calculated this by taking the rent and dividing it by the number of rooms
the tenant uses during the month or $1,300 / 6 rooms (3 bedrooms, 1 bath, kitchen-living, laundry) = $216.67 per room.
PAY ATTENTION, over the last nine months I have discounted my rental income from this rental 12.3% to keep the tenant in the rental. If I was only setting aside 5% to cover the cost of management....I would be in the hole now.
Was it worth it? OF COURSE! If the tenant leaves, I will spend ALL of that and more to clean and rent the property again. I have found that with few exceptions it's less expensive to keep a tenant than it is to find a new one.