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Cash flow for renting out my townhome
Old 06-12-2009, 08:25 PM   #1
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Cash flow for renting out my townhome

I might be traveling out of the country for a year and would like to rent out my townhome. Could some experienced RE managers please help me figure out the cash flow?

Current rents are $1700/month in my neighborhood.

Current Monthly expenses

Mortgage --1133
HOA-- 197
RE taxes 170

TOTAL 1500

I would like to hire a manager but don't know what is a reasonable cost. Also, I realize that there may be repairs. Could I set up an escrow account that the manager could draw upon?

What other considerations should I know about?

Thanks for any help!
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Old 06-12-2009, 10:23 PM   #2
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Oldbabe,
Based on those numbers you would probably be negative cashflow after you factor in vacancy rates, property mgt fees, and repairs.
Here is a crazy suggestion: Manage the property yourself even if you're out of the country. I used a property mgr when we moved to Panama and fired them after a few months of high vacancies. After I took the property back I promptly rented my units and never looked back. With VOIP, a good friend and the internet there is no need for a PM. You could pay your friend a small fee only if he has to physically do something like and eviction or showing the property. Also get a great repair guy to handle repairs for you.
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Old 06-12-2009, 10:31 PM   #3
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Thanks, Arif, but I'm only planning on renting my townhome for one year then I will move back. If I get a one year lease I should be good with no vacancy. What I hope someone can help me with is an estimate on management fees.
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Old 06-12-2009, 11:00 PM   #4
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Well, vacancies can happen even with a one year leases. Think job layoffs, nonpayment of rents, midnight moves, etc.
Most PMs charge 10% of rents and some charge a one time fee for finding a tenant. You might want to call some local PM offices and see what they charge.
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Old 06-12-2009, 11:56 PM   #5
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Oldbabe:
What will you have the property manager do? Act as the leasing agent? Collect the rent? Disburse funds to the HOA? Pay other bills? Make repairs?

You might want to check with a few realtors in your area: some may already offer some of these services. You need to know a ballpark management fee to figure your cash flow.

Many years ago, I had a rental condo and used a rental agent (realtor): they got the first month's rent, but for that they did the background check, collected the security deposit, and got the lease papers signed.

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Old 06-13-2009, 08:38 AM   #6
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If you have friends/relatives who can do a little inspecting and maybe check to see that the tenants' repair demands are not unreasonable, I would go with a property manager who just leases the place for you.

We rented out our home while overseas for 3 years. We don't have the kinds of friends/relatives that can be imposed upon, so we hired one of the local real estate firms that has a property management service.

These firms make their $ off leasing fees; they take the first month's rent every time they lease your property. That is called "8% leasing fee." In addition, they charge a "management fee," typically 7 to 10 per cent of rent per month, to collect the rent, forward it to you, and direct tenants' complaints to tradespeople, who are then paid out of your rent before you get what is left.

Thus, they have an incentive to "get paying tenants in the place" ; and once the tenants are in there, to respond promptly to all complaints, and otherwise leave the tenants strictly alone.

For example: Our home's lease specified that the tenant was responsible for yard maintenance other than mowing (which we arranged for). The tenant, however, claimed he was told by the leasing agent that all yard maintenance was included in rent. Nobody from the property management outfit ever went out to inspect, until I came home on a business trip and went to inspect my home. What I found was my home in the midst of a wild jungle, shrubbery unclipped, weeds 4 feet high, a/c units choked by morning glory vines, etc. The grass was mowed, though!

Another potential problem is sneaky subletting by the tenants. Again, this goes on when property managers have no incentive (or time) to go out and inspect. One set of our tenants was two doctors, whose children were all grown. We found that their grown son had been installed in our finished basement the whole time they occupied our home, and five grandchildren had also lived there practically full time. Large holes had been made absolutely everywhere in the walls to hang heavy mirrors and pictures; the holes had been inexpertly patched by the tenants. My den had been fitted up as the doctors' office, and holes drilled in the hardwood floor to install a fiber optic home network. Our home was filthy. Fortunately, these were the "final" tenants so we were able to insist that their security deposit be used to clean our home thoroughly. (All other times, we, the owners, were dinged for cleaning between tenants, including almost $1,000 to clean the windows).
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Old 06-13-2009, 11:10 AM   #7
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Wow. How discouraging, Amethyst. And the leasing fee, a whole month!
Maybe I can think of another way to handle this possibility or maybe only leave for 6 months. Thanks very much everyone. I will do more research in my area RE offices.
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Old 06-14-2009, 03:07 PM   #8
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When I used one in the last 5 years (No Cal) - I paid 8%. The leasing fee was 1/2 of the first month's rent.
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