So You Want to be a Landlord in Delray?

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 You have been watching the news and reading online about the shortage of available rentals around Delray Beach and are starting to think that maybe you should grab a few rental properties. In my opinion the time is right, so let’s delve into what you need to consider. First thing to consider is whether or not you are in a position to pay cash for the property. Getting a loan on an investment property can be tricky and will take a minimum of 20% down, good credit, and strong enough income to justify the fact that you may have to pick up the tab if you can’t rent it right away. Now, before I scare you, let me tell you that in the last 90 days I have had three investors buy units that we had renters for before we went to closing. With so many people coming out of short sales and foreclosures, you have to consider that credit issues will cause them to wait a minimum one to three years before they can purchase again. So you have an opportunity to attract tenants that are not the typically renter profile. They are really homeowners themselves who find that they just can’t buy again yet or are so gun shy from taking a beating that they want to just live stress-free for a while. Back to the story… So you’ve got your pre-approval from the mortgage broker, what’s next? Let’s take what I just pointed out about the new “renter type” and evaluate what they need. Rents in excess of $2,000 a month require quite a bit of income since they will not have any tax deduction on interest at the end of the year. That being said, in my experience the $1,500 to $2,000 a month rental is the right place to be. Many investors use complicated formulas to determine if they can make a rental profitable, but I typically take a simple 1% approach. Can I rent this for 1% of the sale price? For example: a 3-bedroom/2-bath single family home with no pool that you were able to purchase for $165K could rent for $1,700 a month. If you are comparing what the taxes are compared to your own home, remember that you will not get a homestead exemption on a rental property, as that is only good on a primary residence. You are going to have to pick up the bill on the whole thing. Taxes on this property should be about $4,000, insurance another $2,000, and your principle and interest payment we will figure to the high side, around $700. All said and done (not including lost interest on your down payment of $35K) you have a monthly outgoing expense of approximately $1,200. Before you start counting the remaining $500, remember that you will need to consider upkeep of the property. Lawn service is going to run you a minimum of $100 a month and it is usually suggested to have the a/c and appliances on some form of maintenance contract that you can probably put together for under $100. Being a landlord is not for the faint of heart. If someone isn’t able to pay you the rent you’ll need to be able to put your feelings aside and do what is necessary to get the home back and remarket it to a new tenant. The upside of doing rental properties in this economy is beyond the estimated $300 a month we had left over from the above example – prices are at an all-time low, and real estate eventually has to come back up. That’s particularly true if you heed the words of my father: “Buy dirt-bicycling-distance to the beach and it will never lose value – they aren’t making any more”. PS.  Don’t forget the author is on the code enforcement board so be sure to get your landlord permit from city hall! By Kurt Lehmann www.kurtlehmann.com