Many people buy properties and rent them out to boost their income. Rental property investments can be particularly attractive for those who are not willing to risk their investment money in stocks or bonds. However, investing in a home can have its problems too.
In early 2006, my husband and I decided to purchase our first home in my hometown of Greenfield, Indiana. With 1,300 square feet, a few nice-sized bedrooms, and an open kitchen and living room, our first “starter home” was practically perfect for us. And since we had moved there from a one-bedroom apartment with only two windows and a total of 500 square feet, it practically felt like a mansion to us.
But, despite the fact that we loved our new home, our plan wasn’t to live there forever. You see, we had somehow set our sights on becoming landlords at a young age in order to reach our dream of financial independence as quickly as possible. And that’s exactly what we did.
A few months after the purchase of our own home, we put 10% down on a brick ranch nearby and turned it into our first rental. Shortly after that, we converted our “starter home” into our second rental and purchased a larger home for ourselves.
We learned most of what we knew about finding and screening tenants, creating and signing leases, and managing our properties on the Internet. Everyone we knew thought we were crazy, until they finally realized that, despite our lack of experience as landlords, we were, in fact, making it work somehow.
Here’s What I Wish I’d Have Known
Fast forward almost nine years, and our properties are still standing and as profitable as ever. Not only that, but they’re on the fast-track to being completely paid off on a much faster timeline than we ever anticipated. In fact, I’m expecting to make the final payments on our properties in a little less than 12 years from now. We’ll be 46 years old.
Of course, family members and friends who once thought we were crazy have changed their tune over the years. Once we pay off our properties, we’ll have at least $2,000 per month in somewhat passive income on a monthly basis. All the while, our tenants actually paid off the properties with their money – not ours.
Still, it hasn’t been a painless experience, and we made many mistakes along the way. And there are plenty of things I would do differently if I could. Unfortunately, it’s true that some things need to be learned the hard way. Here’s what I wish I would have known before we became landlords:
Your Property Taxes Might Explode
One of the first lessons we learned about owning rentals came as a huge, scary surprise and ended with a night of tears and weeks of stress. I’ll never forget the day I opened our property tax bill for our first rental and realized that our property taxes had gone up 300% overnight.
I actually knew that our property taxes would go up somewhat — my state offers a homeowner’s exemption on your primary residence, and I knew that it wouldn’t apply to any properties we didn’t live in. Still, I was unaware that property tax caps on rental properties were a full percentage point higher than those on homesteads and your primary residence.
The problem was, I had based the rental price on our old mortgage bill – not the new one. So, for the first year we rented that home, we merely broke even instead of pulling in a profit. Fortunately, we were able to readjust the rent and raise it to take the higher property taxes into account once the first year’s rental lease came to an end. Lesson learned there, but it was definitely learned the hard way.
Renters Can Do More Damage Than You Realize
If you talk to anyone who has owned rental properties, you’ve likely heard a few horror stories about the kind of damage they can leave behind. I was fully aware that these things happen, but not quite prepared or expecting to live through it myself.
Unfortunately, I would soon find out how stressful it can be when one of our tenant families broke their month-to-month lease abruptly and moved out in the dead of winter. When I showed up at the house to do the final walk-through of the property, I honestly couldn’t believe what I saw.
All of the doors in the home were missing — gone. The carpet, which had been new when they moved in, looked as if someone had poured a giant can of motor oil all over it. The front door had been broken into and the door frame had been haphazardly glued back together in an attempt to hide it.
But the worst was yet to come. The giant picture window in the front of the house had been broken — and replaced with a window that didn’t even fit and didn’t match the rest of the windows in the house. What?!?
I couldn’t believe what I was seeing. The house had been in great shape the last time we visited, which was only eight months before. Unfortunately, I later found out that the mother of the family had packed her stuff up and left several months before, which left the father and kids to figure things out on their own. He worked long hours and left the two teenage boys alone during that time, which led to the total destruction of the home in a relatively short amount of time.
We ultimately fixed and replaced everything in the home, and even got the tenants to repay us for most of the damage. Still, I learned a valuable lesson from the experience: A lot of damage can happen in a short amount of time if you allow it to, and the only way to prevent it is to visit your properties frequently.
Good Tenants are Worth Their Weight In Gold
Spending $6,000 to repair our rental property taught us that we needed to be more careful when selecting tenants. However, it also taught us to appreciate the really good renters we had the pleasure of doing business with. You know the kind, and …