Episode 1390
Our top 10 things to consider before becoming a landlord and rental property
Investment properties can be something that can produce a lot of income for anyone. There are a bunch of pitfalls to consider BEFORE you dive in. Here are our secrets to consider before you turn that house into a rental. All this and MORE in this weeks first hour of Around the House Show.
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Mentioned in this episode:
Baldwin Hardware
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Transcript
[00:00:04] Intro: around the house
[:[00:00:16] Eric Goranson: Yeah. Cabinet doors all went into the fireplace cuz they found in the ashes.
[:[00:00:32] Caroline Blazovsky: hardware at the bottom. And, and as a landlord, do you even have any legal ramification for kind of stuff like that?
[:[00:00:40] Eric Goranson: Yeah. Yeah. But I mean, if you've got somebody that's, that's almost homeless. I. What are you gonna do get when it comes to remodeling and renovating your home? There is a lot to know though. We've got you covered. This is around the house. Welcome to around the house with Eric G and Caroline B your one [00:01:00] stop shop for everything about your home.
[:[00:01:03] Intro: how are you today? Hello everybody. Welcome. Welcome.
[:[00:01:14] Intro: You did and
[:[00:01:20] Eric Goranson: We found at this estate sale about ah, 45 minutes from the house. This guy had a vintage bar from the like early seventies.
[:[00:01:43] Caroline Blazovsky: completely swanky. And it looks like a high end wet bar that you would put so portable and you can have stools in front. Very, I call it very rock star and it's got like the black sleek look to it.
[:[00:02:08] Eric Goranson: Thanks. I'll throw it up on, uh, around the house. Uh, Facebook page over there.
[:[00:02:33] Eric Goranson: And
[:[00:02:48] Eric Goranson: It can be.
[:[00:03:10] Eric Goranson: And now he's got about $20,000 into fixing the thing because he had meth heads and everybody else living in it. So I wanna talk about the things you should be prepared for before you decide to. Maybe go buy that house or even more importantly, take something you have and, and turn it into a, you know, a rental unit for yourself.
[:[00:03:31] Caroline Blazovsky: you think about the amount, amount of money that you can make, you know, cuz you see all of these 2,500 a month, 3,500 a month, it's you get sucked into the fact that wow, I could really have some extra income coming in, but there's so much stuff that you have to
[:[00:03:51] Eric Goranson: Number one, here's my first one, have six months of your mortgage payment for that property. Save. And of course have a [00:04:00] heavy. Duty insurance policy that protects you and the place definitely. Cuz
[:[00:04:09] Caroline Blazovsky: You actually need some type of umbrella policy for your own protection.
[:[00:04:30] Eric Goranson: Right. You know? Sure. And so you've got six months of that mortgage payment there and you're right. I mean, what happens if you know, let's, let's go worst case scenario. Somebody somebody gets heard in the place or killed in the place because maybe you failed to do the inspections and. Smoke detectors weren't working or, or they made the smoke detectors inoperable because they didn't wanna change a battery.
[:[00:05:13] Eric Goranson: Four payments as well as, you know, big insurance writers and have a big deep conversation with your insurance company. Because if you just have regular homeowner's insurance on that property, no, that's not good. It might not even be valid if it's a rental property.
[:[00:05:34] Caroline Blazovsky: They usually recommend you LLC them. So you actually don't have it under your name. It's under a corporate name. So you would start a new corporation.
[:[00:05:50] Eric Goranson: So it's just something to really keep an eye on and, and work through the next one here. Understand the laws in your area [00:06:00] as a landlord and a tenant, and then join one of the associations in your area for assistance. That's a really good one to
[:[00:06:15] Caroline Blazovsky: Like as a basic, if you just go on and Google the law for eviction, for example. Yep. They are so vastly different from where Eric is in Portland to where we are in New Jersey and how you can evict. And it depends on the salary of the person who's renting your property. If they actually are low. You can't get them out of there.
[:[00:06:38] Eric Goranson: Well, and here's the other thing too, is, is you need to decide, and this is, this is a hard one, but you need to decide early on if you are gonna take the state or federal low income payments, because there's a whole new set of rules.
[:[00:07:14] Eric Goranson: And so we joined an association and that association was like, um, I'll be honest. Don't do, at that time, their advice was not to take the federal. Payments and not take those, those things. And you had the right at that point to not do them, but they were advising not to because the hoops that you had to jump through were incredible, and it was gonna cost you a lot of money.
[:[00:07:52] Caroline Blazovsky: Okay. It's weird too, though.
[:[00:08:12] Caroline Blazovsky: There's nobody governing you. So it, it so varies depending on how you're gonna rent this.
[:[00:08:30] Eric Goranson: And for instance, here in Oregon, if you, you can't raise your rent up. Basically, and then this is not a legal description, but you have a cap on rent increases about 7% is all you can do in the state of Oregon. There's some rules and stuff around that. We're not gonna get into those details, cuz it doesn't matter, but you just need to know what all those things are.
[:[00:09:10] Eric Goranson: And I think it's good that uh, you've got some support too, down the road. You've got a resource for information of how to navigate. There's gonna be stuff that you don't know what to deal with and they're gonna be able to help you a little.
[:[00:09:24] Caroline Blazovsky: So just like, just think about that. There's an entire book about the rights of tenants for California. Yeah.
[:[00:09:41] Eric Goranson: We'll talk about that just as soon as around the house
[:[00:09:55] Intro: Hey, I'm Rudy
[:[00:10:00] Intro: to improve your home. I hid your line. You got me thinking about the day we move along. You have me singing in
[:[00:10:15] Eric Goranson: And if you're on Facebook, join us over there and join around the house nation. That is our closed group, where we put a bunch of different stuff up there and you can share your projects kind of a safe space, right? Carolyn? Yeah. We like to
[:[00:10:32] Caroline Blazovsky: And if you're, you know, agree with us or disagree, I'm open to all convers.
[:[00:10:55] Eric Goranson: And a group comes in together of all these industry professionals, TV stars, and everything else are [00:11:00] commenting, helping this guy out. I'm like, that is why I created that years ago. Was just so we could have a community of people help out without having any of the social media drama that goes with it.
[:[00:11:17] Caroline Blazovsky: us,
[:[00:11:31] Caroline Blazovsky: consider it.
[:[00:11:43] Eric Goranson: It's like
[:[00:11:49] Eric Goranson: Can't tell you how many people I know or businesses. I know go, we're gonna get into podcasting.
[:[00:12:04] Caroline Blazovsky: listening. So they get
[:[00:12:09] Eric Goranson: that happens. That happens to everyone. Yes. So, well, the next one here on the list that I wanted to dive into is probably one of the most important on.
[:[00:12:38] Eric Goranson: What I'm worried about is putting the child molester into the duplex or somebody that is, that has got a long history of destroying properties or on payment, you know, somebody that's running a drug den outta the house. Right.
[:[00:12:58] Caroline Blazovsky: Um, not of [00:13:00] character and their background check comes back. Okay. Or the,
[:[00:13:23] Eric Goranson: I always hired a company to do that for me, so I didn't have to worry about it. And then they would come back and say, Here's what the background check is. And then you could see if they'd had, you know, if, if they're, if they've got a long history of evictions, you should go. Mm mm. All right. If they've already had four evictions in the last 10 years, maybe this might not be a great tenant.
[:[00:13:44] Caroline Blazovsky: other downside to this. Is they recommend that you what's, that do not rent to friends and family. So here you've got one thing you've gotta do a background check, check on a stranger, but then you might say, oh, well, I'll just rent it to my friend. My family I've
[:[00:14:00] Eric Goranson: That can be worse. Why is it just
[:[00:14:06] Eric Goranson: Uh it's you know, it's a business transaction when you have a landlord, right? Yeah. Now you've made it personal when you've put that personal aspect to it. You know, when it's your, your buddy from college or something like that, or your brother-in-law or something crazy, that's when it goes sideways.
[:[00:14:23] Caroline Blazovsky: what you gotta be really. I think one of the numbers, but I'm not gonna jump ahead, would fit in with this category, what we were talking about, and then you have to have conversations. Mm-hmm that aren't pleasant.
[:[00:14:43] Eric Goranson: It really is. You don't think about that because you're gonna have people ask re you know, that's the whole thing. So we'll talk more about that. Moving forward, upcoming in the list here. Now, the next one is really important as well. You need to have a written out maintenance. What are you doing [00:15:00] to keep this place maintained?
[:[00:15:24] Eric Goranson: We'll step back on the maintenance plan. It is very hard to be profitable with a handful of properties. If you're not doing this stuff yourself, a lot of it. Mm-hmm I agree. If you're not handy, I would recommend that you are not becoming a small landlord. Because you need to hire people then to do it and your profits go out the door really quickly.
[:[00:15:57] Caroline Blazovsky: electrician. I just had an electrician at the house. Two [00:16:00] guys showed up and $250 just to have them change a wire, just to give you an idea,
[:[00:16:07] Eric Goranson: I would almost recommend that you hire the electric. Instead of doing yourself. Absolutely. That's what I'm saying, because if you burn the house down doing something simple. No, no guess what, now you're liable. And so maybe that $300 charge for them to swap out an outlet. Oh. Is gonna be cheaper than somebody dying on a household.
[:[00:16:28] Caroline Blazovsky: to have electrician and even with plumbing issues, I see so much of it in my trade. You know, people think they can do plumbing and they put the wrong thing. And we talked about shark bites. You're like, oh, I'll just put a shark bite here. And then all of a sudden you've got a leak in the wall that costs you $30,000 in Boulder remediation.
[:[00:16:54] be
[:[00:16:59] Caroline Blazovsky: There's always [00:17:00] tenants getting sick from mold and they are always trying to file suits. That doesn't mean you're gonna be successful against the landlord. However, the landlord's gotta go and defend themselves and it comes back to insurance again. You need to make sure you're protected cuz at any given time
[:[00:17:12] Eric Goranson: Yeah. I mean, I had a lot of fun doing, doing the landlord stuff. But there are times that it's gonna be rough and just expect that. And, um, that maintenance plan is really big, cuz you need to go around and do it. And uh, you know, getting ready, you can spend a day just going around and making sure things are winterized correctly.
[:[00:17:35] Caroline Blazovsky: give the. Is this for them personally, as a landlord, or do you recommend they give it to the tenant as a list of things that are
[:[00:17:44] Eric Goranson: It is your responsibility and you don't want that tenant to have the responsibility of trying to make things. Sure. Things are winterized. You know, if you've got a, supposed to have covers on the go do it. Mm-hmm . It's not that you it's your responsibility. I would not put it on the tenant, [00:18:00] uh, to do any of that or no, just what
[:[00:18:02] Caroline Blazovsky: meant is giving it to them just so they could see it and know what's gonna get done.
[:[00:18:08] Eric Goranson: It's for your own personal thing and then just turn around and you'll have to make sure again what the notice is to make sure you got the correct notice to them. Cuz many times you have to have 24 48 hours notice just to get into work on the place. So you can't just roll over there unless it's an emergency and check your local laws for that.
[:[00:18:35] Intro: returns.
[:[00:18:50] Eric Goranson: around the house with. Gene Caroline B Zeke sky. And I'm gonna show you how to shred it
[:[00:19:02] Eric Goranson: Welcome back to the, around the house show. Now, if you are sitting there listening to us on the radio, we appreciate you. But don't forget. We do have a podcast for all the radio listeners out there that you can grab on any podcast player. Just make sure you head over and hit that subscribe button, especially if you're on apple iTunes or one of those things, or apple podcasts hit the subscribe button, Spotify, all those, and that way you get informed of all the different shows we're doing, including our midweek special, where we talk about stuff that doesn't hit the radio only the podcast.
[:[00:19:39] Caroline Blazovsky: think it is. It's a good topic. I think everybody kind of contemplates being a landlord at some point they go, you know, I could do that. Yeah. Yeah. Right. It's sort of like, it just happens.
[:[00:19:51] Eric Goranson: considered it. Absolutely. Absolutely. Next on the list, which is number five here. Six month inspections. [00:20:00] Now to get access inside a residence, you usually have to give them 24, 48 hours. Notice, know your local laws for that, but you need to go do a tenant walkthrough with them every six months to make sure.
[:[00:20:33] Caroline Blazovsky: now.
[:[00:20:41] Eric Goranson: It should be in your contract because there's, uh, it will say in the contract, and this is where you have to have the lawyers involved or have a, an association that wrote the contract.
[:[00:21:12] Eric Goranson: I mean, I have had some horror stories from people when I've been working in the remodeling business. I had one guy that, um, they had a really nice house and the guy they weren't paying attention. The. Power and water got turned off. And so the guy was heating the house by taking the cabinet doors in the kitchen to the bathrooms and was burning 'em in the fireplace.
[:[00:21:38] Caroline Blazovsky: And I've heard of this a lot that people can't pay their electric or their gas or their oil, and then it gets shut off and then pipes break and that kind of stuff I've heard. But burning cabinets
[:[00:21:56] Eric Goranson: The ashes, the fireplace, cuz he wanted to know where the doors went [00:22:00] and when they cleaned the fireplace out, there's a bunch of Ash in there and it was all cabinet door hardware at the bottom.
[:[00:22:14] Eric Goranson: Yeah, but I mean, if you've got somebody that's, that's almost homeless. Yeah. What are gonna see
[:[00:22:25] Eric Goranson: You know, people owe me money out there that I'm never gonna see fair amount.
[:[00:22:35] Intro: nothing
[:[00:22:37] Eric Goranson: Very true. Yeah. I mean, there's times you just gotta write it off and that's, that's the unfortunate part with that. So that's a big one. So knowing that and being able to manage. Is huge. That way you can track what's going on.
[:[00:22:57] Caroline Blazovsky: where you're going. Like, you know, things that [00:23:00] are gonna need to be replaced and budgetary for yourself.
[:[00:23:10] Eric Goranson: And you're gonna have that expect to have, like, you talked about Caroline. Expect to have those hard discussions because people not paying bills and you having to remove them for drug activity, illegal behavior, you know, breaking the law. Think about this, if you
[:[00:23:40] Caroline Blazovsky: It's gonna be so awkward. You're gonna be accusing them of something and it puts you in. So, I mean, this would be very challenging for me, cuz I don't like to hurt people's feelings and I like to feel like the conversations are good and there's just no good way to have that conversation.
[:[00:24:00] Eric Goranson: Because I, we had one with my, with the, how, the ones I was helping manage up in the Seattle area where this was a mobile home and a gated community in a mobile home gated community at the time. And I think that's now been torn down and has now put into like residential housing cuz the air got so expensive.
[:[00:24:47] Caroline Blazovsky: I've gotta add a sidebar. When we talk about cats, I have so many clients that say, what is such a big deal about a cat cats, proteins. If we actually could see them under microscope, they have like little sticky balls as [00:25:00] proteins. Like imagine like a little thing that's got spikes on that sticks to everything.
[:[00:25:08] Eric Goranson: So guys that's number seven, actually pets and expect damage. So let's dive into this good timing, Caroline. Oh, you were moving ahead and you don't even have a list in front of you. psychic. Exactly. So here's the thing.
[:[00:25:55] Eric Goranson: Yeah. That can get destroyed too. Yep. So first off, there are no [00:26:00] hardwoods out there that are pet proof. I don't care what the manufacturer says. If they're a prefinished floor and they click together any place, they've cut it. Any place where the, where the grooves are, it can get down in there and soak into the wood still.
[:[00:26:17] Caroline Blazovsky: you have to think about nails and claws and all the scratching
[:[00:26:22] Eric Goranson: So really take a look at hotels that allow pets. What do they do? They put in the vinyl floor. Many times they actually do the glue down version of it because it tends to not move around as much.
[:[00:26:46] Caroline Blazovsky: proteins are sticky. So they get in your now think about your forest, hot air, your duct work.
[:[00:27:01] Eric Goranson: Well let's sidebar on that baseboard heat. It's something that I probably discourage the most in rental properties you do because people tend.
[:[00:27:39] Eric Goranson: Just stupidity around the heating appliance.
[:[00:27:58] Caroline Blazovsky: All the scenarios are bad. [00:28:00] Yeah,
[:[00:28:20] Eric Goranson: That's right. So now when we come back, we're gonna wrap up our last three. We're going. We'll do that just as soon is around the house
[:[00:28:37] Intro: I'm gonna take your.
[:[00:28:56] Eric Goranson: AMA from Stephen alos band and you [00:29:00] are listening to around the house with.
[:[00:29:07] Eric Goranson: Welcome back to the round, the house show. Now, if you've missed some of these things and you're listening on the radio, don't worry. You can always catch it on the podcast on.
[:[00:29:24] Intro: I
[:[00:29:35] Caroline Blazovsky: Maybe we should throw a positive. What's the positive besides financial? Well,
[:[00:29:54] Eric Goranson: So that's the cool part is that you might have bought a house for 300,000 or [00:30:00] 800,000, depending on where you're out in the country. And yes, that could be the same house depending on the house's location, but all of a sudden in 10 years or five years, that could be worth double that. So there's a huge upside to being a landlord on the property value side.
[:[00:30:50] Eric Goranson: And I've seen
[:[00:31:03] Eric Goranson: involved. There's a lot of risk involved and a lot of it just comes down to you and how well you manage this.
[:[00:31:34] Eric Goranson: Oh man, let me go get that. And maybe it's a cheapy toilet in there. Maybe it's one of the home center, a hundred dollars toilets. Right. And you're always over there. You're you've got a plumber over there. You're better to go spend. A $300 toilet, like a nice Toto Drake or something over there. Mm-hmm or, you know, one of the nicer American standards or one of those to put in there and then not have to worry about it and never have to get that call on a toilet [00:32:00] issue.
[:[00:32:17] Eric Goranson: It's Mrs. Smith. Now you're getting dressed, going over there with the plunger. You just completely Dodge that if you put the right toilet in there, so durability. Make sure durability mm-hmm like there's carpets. Now, if you're putting carpets in, there is some of those smart strand carpets out there that I could put a white carpet in and I could throw you and I could get in a red wine fight with bottles, throwing wine on each other.
[:[00:32:50] Caroline Blazovsky: And they're doing that a lot with, um, couches and things like that, too. So think about some people do corporate rentals. It's not always that you're doing, you know, a vacant rental where somebody comes in.
[:[00:33:04] Eric Goranson: Yeah. There's huge corporate rentals in my area here because we have, you know, close to me half mile within, you know, within 20 minutes of me, I have Intel. Headquarters. And I also have Nike's headquarters. And so we've got two huge companies, as well as Adidas corporate, and you know, so we've got a lot of those guys here.
[:[00:33:24] Caroline Blazovsky: We've got all the pharma big pharma. That's a way to go too. Like if you are trying to get, I find that I've had friends and colleagues who have done corporate rentals and they've been very successful with getting, you know, an upscale clientele and being able to maintain, you know, a nicer place.
[:[00:33:44] Eric Goranson: Yeah, that's great. Sometimes with those corporate rentals, I've done them where the corporation is actually they've signed a two year lease with you and they were all their people through there and they're covering it.
[:[00:34:03] Intro: you, spies. Yeah.
[:[00:34:18] Eric Goranson: And you could start doing that. If they're supposed to take care of lawn maintenance and the neighbor's like, Hey, there's two, there's two city warnings on the front door. They're not taking care of the place. You've got issues. Mm-hmm , you know, just as if there's, you know, younger kids in there and it's the fourth frat party of the week.
[:[00:34:53] Eric Goranson: All those things can happen. And if the police have been showing up over their time and time, again, maybe there's some issues that need to be addressed, [00:35:00] you know, all. Handling the privacy concerns of the, of the tenant, but, you know, follow the laws there carefully. But uh, sometimes the landlord you have to intervene and say, Hey guys, uh, you know, we're not, we're not being good neighbors to everybody else.
[:[00:35:28] Caroline Blazovsky: Now, do you recommend, it's like a contractor? Do you recommend that it's have a plumber electrician, maybe just backups that you can just call from if you're in Florida and send them right over that, you know, that's what I would
[:[00:35:38] Eric Goranson: Here's two things that I see. Sometimes people will have a property management company that will take care of this for them. I've seen people hire property management companies, and then they deal with those problems. And then you, as the homeowner, that as the landlord will deal with the major stuff, but you can do that.
[:[00:36:19] Eric Goranson: And they're calling saying there's a water pipe leak. Yep. Or
[:[00:36:38] Caroline Blazovsky: So you know that you can call someone and they've got 24 hour service.
[:[00:36:57] Eric Goranson: Many of them don't do a great job of putting decent [00:37:00] tenants in there. They don't have the emotional tie to the house that you do. So they're like, oh, that's good enough. We'll put 'em in there. We rented it. Cool money. But when the damage happens, you're still responsible for it. So there's a common myth right there.
[:[00:37:32] Eric Goranson: I'm like, yeah, you're paying for the repairs. And he goes, what, what are you talking about? I'm like, You're building your repairs. You're responsible, you're
[:[00:37:48] Eric Goranson: protect yourself.
[:[00:38:07] Eric Goranson: It is very easy. Make sure that you have an easy way for them to pay rent to you. Oh, Venmo, make it easy. I love Venmo, Venmo, you know, Zal one of those things, PayPal, you know, make sure you have an easy way to do it and never have the checks in the mail because the checks in the mail never works. It's always lost.
[:[00:38:34] Eric Goranson: I sent it. Even with the apartments that we were managing, we had a sixplex that we were managing and we even put a locked in mailbox for people to drop it in there and they'd go, oh, I put it in there.
[:[00:39:07] Intro: around the house.
