Hi all, sorry if this sounds like a brag but I’m pretty ecstatic about life right now. I’m going to talk about my “success story” then segway into the advice I’m seeking about becoming a landlord. Thanks for the patience for my long-winded post.
I bought a house in Austin, TX about 2 years ago. Even then it took a LOT of effort. I know some people look at that post now and say “Oh you’re so lucky you beat the current market”, but honestly.. it took me 10 offers to get a house out here in 2019. I got EXTREMELY lucky and nabbed a corner lot in an area just north of North Loop and Guadalupe. It’s 1500 square feet, 3b/2ba, 10,000 sqft lot, and the neighbors are great. Tons of trees on the lot (no giant oaks sadly. Just one medium sized oak). So bottom line is I freaking LOVE the house, but due to an (unexpected) pregnancy, my wife and I are seeking to upsize. 1500 sqft with paper thin walls just isn’t going to cut it for us. Not to mention her MIL is from another country and planning to stay with us for a month after the baby is born, and we just need more space.
We actually managed to get our “first offer” accepted. To back up a bit, we looked for a home at the end of 2020, and start of 2021. We got an offer accepted on a remodel last December, and when we got the inspection back it was a NIGHTMARE. Beautifully done remodel, but it was basically falling apart. They had done things like remodeled the patio into a house extension, but kept the 4″ concrete, so there was a dip in the corner of the house. They cheaped out on drainage and the whole foundation (we hired a foundation inspector) was basically a disaster waiting to happen. The inspector told me in person he’d walk, and the foundation inspector said he wouldn’t live in it before putting at least $20k into the foundation for repairs (forget what exactly, but he recommended us to a few good contractors). We ultimately decided to walk, thinking we’d buy another house easily enough. Nope. We bailed out and just started saving a lot of money.
My realtor called us the day after we found out we’re expecting, and it felt like a sign. I told him we’d be interested in looking in about a month (this was a month ago). I worked with him before on buying my current house and I really like him. He was ALWAYS available. Weekends, nights, mornings. He always had my back in the process. He called like he said he would and explained the state of the market and basically said “Things are now appraising mostly, and people just price their homes at about $100k less than they want. So expect to pay about $100k over.” We found a house my wife fell in love with after walking through – priced at $501k. We did NOT want the emotional roller coaster a second time and had more urgency this time (we lost about 7 offers before calling it earlier this year). We had our realtor ask the listing agent what his sellers want to take it off the market “right now” (they had 4-days of open house scheduled). LA said “$700k, appraisal addendum, $1000 option, 4-day period, 1% earnest”. Done, and done. We made the offer, executed next morning, inspecting this morning (have a better feeling about this one. I will update after it’s done). We’re going from 1500sqft to 3000 sqft now, and a garage (which we don’t have. No covered parking, really).
Onto the next part of the post. I addictively read this SR when I should be working and I’ve dreamed of being a “landlord” for a long time. Owning property took my dad and step mother to financial independence, and they did it in a way that most people don’t realize is possible; Working two median-income jobs, and making wise choices with their money.
We want to just rent out my existing property and hold onto it. In the past year or so I’ve extended the driveway, put on a new roof, upgraded the bathtub to a walk in shower (so now it has a walk in and a bath tub instead of two bath tubs). It’s 3 bedrooms, 2 bathrooms. I’d say it’s the perfect home for a young couple who wants to experience living in Austin but can’t quite get in the ownership market here.
I’m at about 45% equity right now in my Austin home. The payment on it is $1520 a month, and the taxes are about $620 (I expect they will go up to about $800 when I remove the HS exemption next year). I think I can probably rent my place out for about $2800 a month based on other rentals around here.
Some questions I have –
I want to hire a management company to filter applications. In a market like Austin what is a good way to optimize renter qualifications so as to not get someone who is likely to bail in a year, but also will pay me reliably? (credit score, income, etc) Side note on this – if there is someone who is less credit worthy (say they have a 690 or something, but I’m preferring 740+), is it legal to require more deposit from them similar to how utility companies do things? Traditionally any time I’ve rented a home I’ve payed first + last + deposit of one month’s rent, and a pet deposit of 50% of a months rent. This makes the move-in cost about $9800. Is this the standard practice? I’m curious how rental income works against my income taxes. How do I calculate how much of the rent to put aside to cover us come federal tax season? I was thinking of opening a “business account” at a bank for the purposes of managing this property’s mortgage, taxes, etc, and accepting rents. Is there any problem with having the renters make deposits directly into my account by the first of each month?
Overall the money aspect might not even make much sense, but what I do know is I don’t want to give up my property. It’s very close to where a railway will be once they complete the new rail system, close to Central Market, and a few other nice restaurants and bars. It’s biking distance from UT Austin and downtown if you’re feeling adventurous. So even if I were to break even, or god forbid have to pay a little (but have tenants pay the majority) of my mortgage I’m fine with it and 100% set on renting this thing out.
Also a side question for Austin property owners – how has Airbnb been compared to doing long-term leases? I was checking and I think I could get a good amount for my house nightly, but I’m not sure I could keep it booked here year round.