Before we bought our current house, my wife & I were living in our Condo, just on the outskirts of Philadelphia. We had zeroed in on the new house and were thinking about whether we should sell or rent our Condo. We did some internet research and realized that there was demand for rentals in our area and the rents were good too. We decided to rent the property. In the beginning we were very nervous, we had no experience but we were confident that we will be able to figure it out. We also decided not to hire a property manager because we wanted to keep our cost down. We followed the below process:
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- Decided on the Rent we wanted to charge – Researched the current market to understand what we could charge for our property. Calculated our total cost and realized that by renting at market comparable rates we could make a small profit. We also found out that we could take depreciation charge on our rental income – it’s a great incentive. Below is a breakdown of all our costs:
- Mortgage Expense
- Real Estate Taxes
- Association fees
- Insurance expense
- Utilities charges like – Trash, Snow removal, Sewage bill
- Monthly allowance for any maintenance work that may be required
- List Posting – Took pictures of the Condo (while the house was furnished) and posted online on Trulia and Zillow. Posting rental properties on these sites is free and easy. Wrote a description of the property, date it was available for move in and the rent.
- Scheduled viewing – Within 24 hours of listing online, we started receiving calls to schedule viewings. The first couple that walked through the house said that they were interested in renting the property.
- The Vetting process – We used American Apartment Owners Association site for going through the vetting process. We took the following steps:
- Created a free account on the website
- Downloaded the rental application form
- The tenant completed the application form
- Purchased Blue tenant screening service for $39.99
- Reviewed the tenant screening results which includes a credit check to ensure there were no red flags
- Signing the Lease – We used Legalzoom for getting the lease document. Legalzoom is simple to use. We were able to purchase the lease document updated with all PA regulations for $20. Discussed the payment & terms with the tenants and signed the lease.
- Decided on the Rent we wanted to charge – Researched the current market to understand what we could charge for our property. Calculated our total cost and realized that by renting at market comparable rates we could make a small profit. We also found out that we could take depreciation charge on our rental income – it’s a great incentive. Below is a breakdown of all our costs:
Owning a rental property is a great way to build wealth. If you are thinking about it, I would say go for it. Look for a property in a great location, conduct market research to understand the demand and rental rates. Calculate your cost to ensure that you can at least make a small profit. Feel free to post comments below and ask questions if you have any. Happy Investing!
Disclaimer: These are my personal views and are for educational purposes only. I am not a financial advisor or a real estate agent.
Just curious how did you determine how much to set aside monthly for maintenance?
Good Question Allen. I listed all the things that I am responsible for. Then I estimated the cost of the most expensive item I might have to replace, estimated the probability of it going bad (age of the item helps in determining this) & figured out if I will be able to finance this expense or not. This estimation gave me the amount that I need to have at all times. In my case its fairly simple as well. I own a Condo, the association is responsible for all exterior structure including the roof. I am responsible for all the interiors, appliances & HVAC. Hope this helps. Happy Investing!