I'm in the process of buying a second property, a single family home in Orlando. Currently own and live in a condo in Orlando. I'm kicking around the idea of renting my condo out versus selling it. I'm guessing i'd be cashflow positive $800-$1000/month in a perfect world. Selling outright, I'd probably walk with $150k-$160K.

I do not NEED to sell condo in order to purchase the new house, but the cash would certainly add a significant layer of comfort. I've never rented a property to a tenant before so I'm worried about the unknown. The condo is fairly bulletproof but people are also fucking idiots.

Any advice from those who are landlords? With the above financials noted, is one option clearly the no brainer? Are there financial benefits (outside of the positive cash flow vs taking the equity and running) to owning a rental property that I'm not aware of? Any tax benefits or things I should investigate that go deeper than simply the rental income versus selling? I know interest rates are absurd right now, so applying more cash to the principle will save me a lot in the long term.

Thank you in advance.

I'm sure there are plenty of success stories out there, but every person I personally know who has rented out a spare house has had middling to negative experiences with it.

Managing a rental can be - and will be - a headache. As you noted, people are fucking idiots. Now couple that with how the average person treats property that isn't theirs. (It's not even necessarily malicious... Even "good" tenants are less mindful or considerate of their rental homes than they would be if they were the owners. See also rental cars, public property, public bathrooms, etc.)

Beyond that, unless you're at least a semi-capable handyman yourself, you can end up spending more than you might expect on repairs and upkeep. And the costs of tradesmen will continue to rise rapidly as the availability continues to dwindle.

There are ways to mitigate the headaches, such as by enlisting a property management company to handle all of it for you, but those end up taking a hefty bite out of your already fairly meager profits.

There's good reasons why the mom-and-pop landlords of yesterday are going the way of the dodo, and rentals are increasingly becoming the realm of dedicated corporations with large numbers of properties. They have the experience, tradesmen connections, and economy of scale to make being a rental landlord profitable, efficient, and worthwhile, while the average Joe with a spare house or condo to rent out does not.

There are definite benefits to renting the property.
Being bullet proof if a big plus.

Being a LL can be a complete pia also.
It boils down to finding a good, long term, stable tenant. If you can do that you will be good. Otherwise, not so much.

I am sure you will get some good advice. Maybe since we have a big FL. membership you will get a quality tenant referral.

You are doing the right thing by asking questions and doing some research.

I have been a LL a couple of times. At this point I would not do it again. I was not renting a condo either.

Good luck.

There are a lot of points to consider.

Are you willing to do short term rentals given you’re in the Mouse capital? If so, you will probably make more but it will definitely be more work.

Do you plan to market and maintain it yourself or pay for a rental company to handle the details. We did this on a property that was 7 hours away making it impossible to handle ourselves and it was costing us about 25% of the gross.

There are several other considerations but answering these will allow us to focus your direction.

quote:

Originally posted by smlsig:
There are a lot of points to consider.

Are you willing to do short term rentals given you’re in the Mouse capital? If so, you will probably make more but it will definitely be more work.

Do you plan to market and maintain it yourself or pay for a rental company to handle the details. We did this on a property that was 7 hours away making it impossible to handle ourselves and it was costing us about 25% of the gross.

There are several other considerations but answering these will allow us to focus your direction.

Unfortunately I cannot do short term based on the community bylaws.
I'm capable of doing most of the maintenance, but I'm self employed and travel, so availability is the problem is this equation.

quote:

Originally posted by MikeGLI:

quote:

Originally posted by smlsig:
There are a lot of points to consider.

Are you willing to do short term rentals given you’re in the Mouse capital? If so, you will probably make more but it will definitely be more work.

Do you plan to market and maintain it yourself or pay for a rental company to handle the details. We did this on a property that was 7 hours away making it impossible to handle ourselves and it was costing us about 25% of the gross.

There are several other considerations but answering these will allow us to focus your direction.

Unfortunately I cannot do short term based on the community bylaws.
I'm capable of doing most of the maintenance, but I'm self employed and travel, so availability is the problem is this equation.

Screening your potential clients will be crucial to having a successful Tennant including criminal, background and employment checks. Also depending on how many bedrooms you have try to get a professional like a visiting nurse, will usually make things easier. I have a friend who has a couple of smaller condos and contacted his local hospital directly to let them know he had a condo nearby for rent and it has worked out well for him.

I've owned a lot of rental property over the years and still do. It can be a pain for sure, but if you go into it prepared with a good cleaning crew and a handyman on call, it can be a good and rewarding experience. And don't forget the tax deductions. A big benefit.

Since you're in Orlando, I'd consider doing short term rentals and since you don't need the cash to purchase your other home, consider giving it to a rental company to manage. In a resort area, short term rentals can be very lucrative and short term people tend to do less "damage" or wear and tear.

I'm happy to give more personal opinions and experiences via email if you want.

You need to talk to your accountant and run the numbers for you.

You also need to run a market analysis on residential housing in the area of the condo.

Is the market going up or down and at what rate?

Plug in the numbers and weigh the opportunity costs for the money now or future with the cash flow added in.

My Florida house is just recovering from the RE crash of years ago.

I own outside of Orlando.

The first thing I would research is what your tax savings would be on the new property with the homestead portability benefit. Most of the property appraiser offices have an estimator tool on their website.

No property is bulletproof in a rental setting. Tenants tend to break things normal people wouldn't, and don't let you know until easy fixes turn into major headaches. You have to plan on doing regular inspections of the property and have the ability (or pay someone) to handle maintenance issues at all hours. It is just part of it and something you factor into the cost of doing business.

Are you planning on adding more properties to your portfolio, or would you just keep the one property as a rental? If you are planning on adding more properties then it may make sense to keep it.

If it is the only one, you could take that equity and earn 5% with zero risk in a brokerage account now.

The other thing I would want to know, is how strict your condo association is with tenant screening. That can be a sticking point and can make it a real hassle.

We live in Utah and inherited a house in KC Mo. that we rent out. That is a major pain in the ass. Last week the renters burned down a storage shed On the other hand a guy I work with owns 2 condos that he rents out. He highly recommends that setup. He knows the owners of all the units around his so he has "watch dogs" on premise 24/7. He also lets prospective renters know that. I think he sets up a 3 month lease and if that works out he goes yearly. I would think renting a condo out in the city you live in would be an ideal set up for being a land lord.

The one thing to keep in mind is that if something like an AC unit goes out it needs to be fixed fast. Keep a bank account with enough money to handle a major repair. If you don't need to use it great. I'm not sure about Florida but in Mo. we are required to keep a separate bank account deposits and rent. Not a big deal at all but knowing stuff like that is crucial.

My Dad had a rental house when I was growing up. 2 bad renters in a row cured him of owning a rental property.

Horror story #1 - tenants quit paying rent and Dad evicted. Turns out they quit paying trash service too and there was a 4x4 area we couldn't see from road or driveway, and they stacked trash 10+ feet tall. They also quit buying cleaning products and a half bottle of shower cleaner was insufficient to clean shower. Also we had to switch to The Works as toilet bowl cleaner as our normal family product wasn't strong enough. Trash, shower and toilet cleaning were apparently eldest son (ie me) responsibilities so it stuck with me.

Horror story #2 - Dad raised rent and used it to pay for trash service. Unmarried young couple rented and Dad interviewed both sets of parents before signing contract. Both lost their jobs, quit paying rent, Dad evicted, and neighbors witnessed his parents helping him steal the washer and dryer. Providing trash service only helps if people have the ambition to take it out of the house and wheel to curb. Bathroom equally disgusting and still eldest son responsibility.

Dad sold and I've never had the desire to be a landlord.

One of my buddies in Alaska bought a new house and decided to rent out old house. Hired a property manager to handle everything. Of course, when there was a gap between tenants the prop manager didn't flow the well and it sanded up all the plumbing in the house when the new tenants moved in and started using water. Property manager decided it was cheaper to be fired than fix mistake so my buddy got stuck with that fat plumbing bill.

We traded into 3 single-family rental houses, one in San Diego and two in the Phoenix East Valley.
We wanted to use a property manager so as not to have to deal with the constant headaches. There are other headaches that come with a property manager, but they find and vet the tenants, have maintenance people to deal with issues.
After you pay property taxes, commission, repairs, pool service, landscaping, etc. we're lucky to get 50% net on the rental income. There is a depreciation allowance (value of home depreciated over 27 years); that usually makes it so the net taxable income from the properties is very low. So far, because of appreciation in these markets, it's going to pay off. But without that it probably wouldn't be worth it.
Because we did 1031 exchanges and deferred substantial capital gains, we are pretty much stuck in a "swap til you drop" situation. When one of us dies, the basis of the property will increase to current fair market value and the capital gains tax liability wiped out.

We wouldn't think of doing this without a CPA guiding us in planning and in taxes.
And we've been pretty lucky--no one has tried to rip us off; rents have been going up; property managers are responsible.

Success may depend on the precise market the property is in, whether you get responsible tenants or deadbeats and grifters.

I would also check the eviction process in your area, if the breadwinner loses his job and kids involved, are the courts sympathetic to the family and your left floating them?

These days squatters seem to have more rights than landlords in some places.

Our last tenant lost her job in 2020 due to covid and she could not be evicted. Fortunately she eventually left voluntarily. We then renovated and sold the property last year for a large capital gain. Bought two new trucks and put the rest of the money in Real Estate Investment Trusts, including Realty Income (O:NYSE). It's better than being a landlord every day of the week.

I've rented property a couple of times. All the above is good advice, even though some is anecdotal. Relevant, but anecdotal. To me, in hindsight, to be a successful investor in property (which is what you would be), there are two important factors:

1. Screening. Do the absolute best you can at screening applicants. this will not guarantee you get a good one, but the more diligence you do, the better the chances.

2. Volume. More properties are better. They help to smooth out cashflow. If one needs a major repair, the rest will "float" your portfolio. If one sits vacant for a bit, you still have other rental income. FWIW, I never had more than one at a time. This speaks to RogueJSK's mom-and-pop comment above.

There's a decent web resource out there for the mom-and-pop investor - biggerpockets.com. It's got a lot of rah rah go go go advice, so it's easy to see the upside and not the downside, but there's some good stuff there.

Others have commented on many of the other things you need to be aware of.

I bought some duplexes about 12 years ago and have expanded some over the years. It’s not get rich quick, and it is work. That said, if you’re interested in buying a couple more I find it worthwhile. Buying a couple more gives you more stability in income if one needs turned.

My payments other than property taxes have stayed the same, and rents have gone up significantly since purchase. The homes have also increased in value. Some are more than double what I paid for them. Every time I think of selling though, I run the numbers and decide to keep them rather than invest the proceeds in the market.

I have also run scenarios where I invested that same money in the stock market instead of rentals, and the rentals have absolutely been the better investment (not that I don’t also invest in the market). I view the income from my rentals as nothing more than increased savings. My original goal was to bring in enough to match my w2 income so if I ever lost my job, I had options.

Set your rent on the high side of the market, screen applicants, build a reserve fund from the rent because turnover expenses will be high. Do not let anyone get behind on rent. You have to run it as a business not a charity. Get an attorney to draft your initial lease form. Check with your condo association on leasing. Some require approval and restrict the % of units that can be rented. Make sure they keep your contact info for any issues.

Just to add, there are many tips and tricks to screening people, and keeping them longer. My rents are never top of the market. I want the most options when picking a tenant. I also don’t want someone leaving because they found a place $50/mo cheaper. I may forego revenue, but my costs are low making my income higher. I also don’t turn units very often. Which given my already busy schedule allows me to continue managing and doing most of the work.

I was a landlord for 8 years when I rented out my condo I’d owned prior to getting married and when we bought a house together.

To be honest, and this is just my experience from doing it as someone with a full-time job, it’s NOT WORTH THE HASSLE. Finding a good tenant that isn’t going to destroy the place is getting harder and harder and outweighs any sort of benefit.

We started off with an OK tenant then we got a really bad set and then we ended with a guy that was actually pretty good. The only benefit I really saw out of it was at tax time when you can write off just about everything, but I wasn’t making any money off this.

If you did this as a full-time job with like 10+ properties then I would recommend it, but if you are just doing it on the side, my recommendation is to take that money and run and sell the place.

quote:

Originally posted by absolut18:
I have also run scenarios where I invested that same money in the stock market instead of rentals, and the rentals have absolutely been the better investment

As one would hope, since being a landlord is a lot more work than being a passive investor.