A reader recently commented that I mentioned my Rental property but never gave alot of detail about it. I wanted to post a little more information about how I became a landlord.

Did I plan on being a landlord?
Yes. However, my plan was to purchase a few duplexes and have the rent pay the mortgage. The property I am currently renting was not intended to be an investment property. I bought this home when I was 26 and it was my first home. I did not think I could afford a home with the amount of debt I had. I used to go out on the weekends and look at homes all the time and happened to meet a realtor one weekend. He told me to call him the next day and he would discuss the process and see what I could get approved for. I called him up and was surprised to learn that I could afford a home up to $130k. (My credit scores were in the high 600s and I was making about $40k/yr). I was so excited and we planned to look at homes in my price range and preferred area the following weekend. The next weekend, we looked at about 3 homes in a townhome neighborhood about 20 miles NW of downtown Atlanta and about 12 miles from my job. The sellers needed to sell because they were building a new home and did not want to carry 2 mortgages. The home was about 5 yrs old and the asking price was $127k. The home was a 3 bedroom, 2.5 bath with a full, partially finished, basement. The townhouse was on a corner lot with a large yard (especially for a townhome). My agent put in an offer of $122 with the seller paying closing costs. The offer was accepted and I closed about a month and a half later. After living in the home for a year, I realized it was not the home I wanted. Trying to get to work in the morning proved to be a hassle due to tremendous growth in the area and the roads had not expanded enough to keep up with the growth. I also did not like the setup of the home. I decided then that I wanted another home closer to work. I continued to live in the home for about 3 yrs. I then found my current home and it was in a perfect location and exactly what I wanted. The house was new and they were asking a reasonable price. They were also "giving away" $10k in incentives. I could pay all my closing costs, pay my homeowners fees and then have money left over. Due to my poor lack of planning and having a bad habit of making poor financial decisions without thinking it over, I put in a contract on the home and put down $500 earnest money. I was smart enough to put in a contingency that if I did not rent my old house, I could get out of the contract w/o losing my earnest money.

Why did I choose to rent the home instead of selling it?
I took out a 125% mortgage to pay off my debt. I then owed more than the home was worth and could not sell the home without coming to the closing table with a large sum of money.

Am I cash flow positive?
I charge my tenants $1000/mo for rent. My mortgage is $1147.50. This includes an escrow account and $38/mo for my American Home Shield Warranty. I figure with the tax writeoff and the home slowly gaining in value, I am breaking even. Had I kept my original mortgage, the payment would be $903.00/month.

How are my tenants?
My tenants are great. Luckily, I did not get screwed in this deal. The tenant saw my sign I had in the front yard and called me to look at the property. She liked the property at first sight and wanted to rent it the same day. She was really nice and we talked for about 2 hours. I did not run a credit check on her because I wasn't exactly sure how to go about doing it. (I know, I know, I screwed up). I also did not check with her previous landlord. Don't ask me why. I did collect a security deposit and had her sign a lease. She seemed to be very honest and she told me " My credit is not good at all but I always pay my rent". Anyone else probably would have sent her on her way but I decided to give her a chance. My tenants have now been in the property for 16 months and she has never been late or had a check to bounce (knock on wood). She does not call me for any small maintenance issues. She keeps the property clean and I have not had any complaints from my former neighbors.


Do I plan to continue to be a landlord?
I'm not exactly sure. I guess it depends on how long I have these tenants. She has told me she is very happy living there and having me as a landlord. Her youngest son has 2 more years in school and she does not want to move until then. If I can keep her for 2 more years, I will then be in a position to sell the home or refinance to lower the payment.

Sorry this post is so long. If you have any other questions, feel free to email me at wannabefree30@gmail.com

3 comments

  1. Anonymous // October 4, 2007 at 12:01 AM  

    Hi Single Guy. I came across your blog and found it very interesting. Keep it up. It's nice that you have offered some details as to how you came to buy a house and later became a landlord (interesting facts that i want to learn more about myself). Good luck.

    --a reader.

  2. Heather // October 6, 2007 at 11:06 AM  

    This is a great post! Dh and I bought an investment property in another province which my parents are renting for the mortgage amount right now, it was cheaper than the house they own (and are trying to sell) and their quality of life shot right up :)

    We also just sold our main principle dwelling and bought another house for us. The downfall is or I should say mistake we made was buying 2 houses in a 3 month period.At the moment we are trying to straighten ourselves out.

    We are possibly thinking that maybe in another year or so we might either "flip" this house or rent it out and buy another one.

    We should be straightened up by Dec. with our extra accumulated debt and once we are back on track we will see but one thing is for certain, we will not be buying 2 propertys in such a short time frame. We put 25% cash down towards the investment property and about 13% down on our "now" current new to us house.

    You were lucky to find such a good tenant, that is one of my fears if we do go the route of renting.

  3. SingleGuyMoney // October 6, 2007 at 12:14 PM  

    Heather-Thanks for visiting. Good Luck on getting everything straightened out.