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Advice for my first rental

2,724 Views | 23 Replies | Last: 3 yr ago by Mhickerson09
Mhickerson09
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AG
I just purchased my first rental property and I'm wondering what the best next step is with extra income. Should I pay down the mortgage ahead of schedule; pay myself back for the down payment faster or hold it for a down payment on the next property? How much should I hold in reserves for maintenance? The house is an older house but most of the big ticket items have been replaced or upgraded within the last 5-10 years. Any other advice for a first timer would be great. Thanks.
Aggie369
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AG
This is just what I do.

-I keep reserves of 5,000 per property
-I take all my positive cash flow and keep it in my separate account.... this money is not for spending.
-I dont put any extra personal money into paying the house down...thats what my renters are for.
COSciAG
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I agree with Aggie369, dont go spending the money you are making from the rental and I wouldn't pay it down faster either. Either use it to build up reserves, or begin saving it for down payments for the next property. Let your current property pay for your next one.
schwack schwack
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AG
We started in 2015 with a 4-plex. The rents from those 4 units have now paid off the purchase price of the building + the extensive renovations we did as they became vacant. We got all of our money back with this months rent! Thank you tenants!

That money will now go into a separate account & will pay insurance, taxes plus some "maintenance money" for all of our properties. We have 10 now - 11 if we include a small office building we bought. Most of these will be totally paid back by our tenants within 5-7 years of purchase. That said, we paid cash for each - so no mortgages. Still, I wouldn't have paid additional on the principal with rent money - as others have said, keep it for unforeseen expenses and for future purchases.

That one little office building gets us nothing, we bought it when we retired & closed our Dallas business & needed a transition place for all that stuff. Without it we'd have had to pay storage somewhere. Now, we use it for left over materials & when we buy sale appliances, closeout stuff, etc. (to keep on hand should an appliance go down so we don't have to rush out & pay retail) and store it there. We are setting up a small office over there for us to get all of our paperwork, etc. out of the house. We are also considering putting in a small air b-n-b type unit in part of it. Not that our small town has a big need, but it would also serve as a guest room for us on overflow holidays. We recently found out zoning will allow us to put a small house on the back part of the property. That is a consideration for the future. So you never know what fun kind of things are going to present themselves.

My point of this rambling post is, I guess: save your profits & keep investing. Good luck!
Mhickerson09
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AG
Thanks for the replies. I was leaning toward building up money for the next purchase and sounds like that's the best plan.

How do y'all handle appliances? Better the buy new in hopes it last longer or spend less and buy used.
schwack schwack
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AG
Quote:


How do y'all handle appliances? Better the buy new in hopes it last longer or spend less and buy used.

We've done both. When we first started, we looked for deals on used appliances on craigslist & fb marketplace. Had a lot of good luck & a couple of fails. Since then we try to go with new. We will buy scratch & dent (if the cosmetic flaws can be hidden) and the big box stores usually have a clearance aisle (always ask if they can do better on that stuff - often they will). You can find some great returns there, floor models, etc & they usually come with a warranty. We buy & hold when we find a great deal so we have a spare for replacement or we're ready for the next property.
Mhickerson09
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AG
Thanks schwack.
Mhickerson09
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AG
How do y'all prefer to collect rent. My renters are college students and I purchased the property in the middle of their lease so I will follow the current terms which are personal check, cashier's check, money order or venmo. I know my bank offers a service that will let me pull the money from their account for a monthly fee which might be the way to go but not sure how easy it will be to get a voided check and set that up with college students.
Aggie369
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AG
Venmo or Wells Fargo's service is Zelle I think
AgCPA95
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AG
Mhickerson09 said:

How do y'all prefer to collect rent. My renters are college students and I purchased the property in the middle of their lease so I will follow the current terms which are personal check, cashier's check, money order or venmo. I know my bank offers a service that will let me pull the money from their account for a monthly fee which might be the way to go but not sure how easy it will be to get a voided check and set that up with college students.
Cozy.co

Free as they hold your incoming ACH's for a day or so which was still usually faster and 100x easier than dealing with checks in the mail. Also a easy way to report and follow up with any maintenance assuming you are self-managing that as well.
Cyp0111
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I've heard good things about Cozy
Mhickerson09
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AG
Thanks again for all the help. I've looked into Zelle and since my bank doesn't offer it, I would have to use a credit card to receive money. I haven't hard of Cozy before so I'll have to look into that.
schwack schwack
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AG
We use cozy.co, too. We don't pay the extra for getting money quicker. We do the free option & get our payment from them within 5-7 days. Could be a problem if you need it quicker -but you could just pay the fee.

Have not had any problems. Almost all of our younger tenants use it. A couple pay cash & our "olds" pay with a check. They are long termers - no one new gets to pay via check. Never had one bounce but not a risk I want to take anymore with the easy online payments.

Our bank does not do zelle or that would have been my first choice.
BMach
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AG
+1 for cozy
RockOn
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For a SFR rental, what's everyones preference on who pays utilities?

I was thinking of covering city utils of water/sewer/trash ($60) and gas ($29) and then having my tenant cover electricity, cable/internet, and whatever else.
BMach
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AG
My tenants pay all utilities in my SFRs
Aggie369
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AG
Your choice...can make you more competitive but cuts into your profits
schwack schwack
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AG
We take care of the lawn in most of our SFRs - they pay the rest of the bills. We have 2 that take care of their own, one out in the country with a nice shed for a mower & another in town that wanted a small cut in the rent to do it themselves & they do. Actually the cut they asked for was less than what we pay the lawn service per month for theirs, so it worked out better for us.

We have 8 other ones that we hire a lawn service for. We are a bit more than other rentals in town to cover it. Our town is pretty quick with high grass notices + I just really like for our properties to look good. Our tenants appreciate it, too.


RockOn
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Wonder why I didn't think to ask this before - what does everyone use for a month-to-month lease agreement? Anyone have a fillable document they could share?
Mhickerson09
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AG
For those that have the tenants pay the utilities; do you keep them in your name so you have more control over it or let the tenants put in their name?
Aggie369
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AG
We move everything to the renters...though im open to other ideas if this isn't the best to do
BMach
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AG
We have landlord accounts. When a tenant moves out or cancels their account, it auto transfers back to us.
Aggie369
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AG
Yes same
schwack schwack
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AG
Quote:

For those that have the tenants pay the utilities; do you keep them in your name so you have more control over it or let the tenants put in their name?
Ours go in the tenants name. I have family that keep them in their names & sometimes it's a hassle getting it & more that once they've been left with bills. Yes, you can deduct from the deposit but all that has to be sorted out in 30 days from move-out. If anything was missed, you get to eat it.
Mhickerson09
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AG
Thanks for all the help. Sounds like landlord agreements is the way to go.
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