Becoming an accidental landlord

I became an accidental landlord about a year and a half ago. I took a new job that relocated me down south. I really didn't want to deal with the hassle of being over 1,000 miles away and getting a phone call from a tenant with any issues, so I hired a property management company to take that responsibility over. I get a monthly financial statement from them and a check. If there are any issues they call or send an email, but I have yet to have any problems. They basically do everything for me, and take 8% of the rent for their fee every month. It has worked out very well for me so far, and I'll keep using them until I either move back or decide to sell it.

I think those online tools like rentomatic are interesting and helpful, I didn't know about them when I hired the management company. Even if I did know about them though, I'd still go the direction I went being so far away. What is the guy in Germany going to do if he gets a call from the tenant saying a pipe burst, or the washing machine broke? I don't want to deal with that hassle.

I became an accidental landlord last winter. We had bought our first home, a two-bedroom condo in Somerville, in early 2003. Four years later we decided to move for several reasons, including tension with another unit owner, and the fact that we'd had a baby and were planning another soon.

The place went on the market in the fall 2006. An offer came quickly, but 10 percent below asking. We politely thanked the woman and told her to check back in a few months, confident we'd get closer to what we were asking. It never happened. She was the only offer. Clearly we had priced the place too high for the market at the time, but we didn't really know any better. So a couple of months and price drops later we got in touch with her again and agreed on a price in the middle. She was stretching her budget a bit, but the only hurdle left was the inspection. In the meantime we had found a house just outside of Boston that we loved. We were in competition with one other person, but we were willing to pay a bit more. We just needed that inspection to pass. The morning after the inspection I got a call from our realtor: the buyer was backing out. With no other offers it was all going to collapse. On to Plan B: we'll rent the place and sell it the following year. Little did I know. About anything. The only thing I knew about landlording was that my downstairs neighbors had done the same, moved out and rented, and they seemed to be doing fine.

We found a renters on Craig's list. A young couple who needed a new place immediately. They could easily afford the rent, and just signed a new lease through 2009. So far so good.

I've picked up whatever bits and pieces of information on what landlording means as I've gone along. I think it's like the stock market: there are risks and potential rewards, and your tolerance for risk determines whether landlording is for you. Me, I see hazards in everything. I worry about the trees in back falling over in a winter storm. I worry about the old boiler giving out in February. Pipes freezing. Water heater exploding. Mostly I worry about future tenants deciding to not pay rent and spray paint the place black. Costs of eviction, lawyer fees, cleanup. All of this requires a hefty slush fund of untouchable, ready cash. I have enough (I hope), but we just had another baby, which means we're using savings for three months.

Also, we financed the condo with a 5-year ARM and a piggy back. I know, I've just opened myself up to the self-righteous scolds on this blog. But for us it really did make some sense. We could easily afford the mortgages, and we didn't plan to be there more than a few years before trading up. And guess what: we were right, that's exactly what happened. What I didn't see coming was the worst housing crisis since the Great Depression. Stupid me right? I know, all of the brilliant folks on this blog saw it coming YEARS before, but alas, I'm not so smart. If only I'd studied the three-month moving averages! And what about historical price-to-rent ratios! DUH!

Anyway, what this means is that on top of worrying about everything else, I worry about adjustments and what that means for my rental budget. Put it this way: the bank won't be knocking on my door anytime soon, but when interest rates eventually rise, I will probably lose some money over the next couple of years if I keep the place.

I would like nothing better than to sell and move on with my life. I have a new house and all of its issues to worry about. But the market right now is impossible. So, I forge ahead, watching the value drop by the day, worrying about the worst, and hoping that in a year, maybe two, the place will be sellable at a price at which I won't have to bring money to the closing. I'm not underwater yet, but the line is up to my chest and I'm looking for straws....

Hey JB:

Do you mind sharing your property management company? Does the 8% including repairs in your unit as well like plumbing or is that separate that you ahve to pay for or tenants locking themselves out of the apartment? I used one that charges 10% and basically does (nothing) for me and just collects the 10%....