Have you ever wondered if you can buy a rental property in a faraway city where the housing prices are much lower than those where you live?
I have entertained that thought from time to time, especially given the expensive real estate market in the DC area.
What holds me back is the thought that I would have to either manage the rental property from a distance or hire a property manager, neither of which I want to do.
Today, we have a guest post from J at MillennialBoss.com. J will share with us the story of how she and her husband have successfully managed their rental property out of state for the past year.
J is a twenty-something who dabbles in entrepreneurship and real estate while working full time in tech.
J blogs about financial independence and millennial career hacking on her blog, MillennialBoss.com.
She and recently launched FIRE Drill podcast where she interviews guests with amazing side hustles, real estate empires, and investing strategies.
“What now?” I asked my husband as we hung up with our realtor.
The buyer couldn’t get financing after we extended the contract three times, and we were STRESSED.
Carrying an expensive mortgage plus paying rent in Silicon Valley meant that we were running low on cash.
We didn’t want to put the house back on the market and go through that stress again, especially now that we were living in a different state.
Plus, we had a $450 water bill from when our realtor (our neighbor) turned on the sprinklers every day in August so the buyer (his investor friend) could have a nice green lawn when he moved in.
Good thing we didn’t respond to the peer pressure from the realtor to let the tenant move in before closing.
For all of these reasons, we decided to rent out the house.
Property manager – Yay or nay?
I blasted our listing all over Zillow, Craigslist and military listings (since we lived near multiple bases).
I also looked into getting a property manager. I had an intense job, and my husband wasn’t keen on managing a property out of state. Plus, we needed someone to show the house to perspective renters.
I called a few places and looked up more information through Google, but the 10% of rent standard cost of property management just didn’t add up.
We didn’t buy this house as an investment property, and we would barely break even with the rent, before paying the fee.
Our house was also just 15 years old (a baby in my eyes), and we couldn’t justify paying someone over $200 per month to likely do nothing.
We decided to forge ahead and manage the entire thing ourselves.
Managing rental property out of state
That was over a year ago and we’ve been successfully managing our own rental property out of state since.
Here are the 5 key things that enable us to be our own out-of-state property managers.
1. We rely on our existing network.
We lived in the state where we own our house for almost five years. We have plenty of friends and acquaintances that we could rely on for help.
We don’t ask for favors from friends though. Instead, we think about people we know who could benefit from helping us, and it would be a win for us both.
For example, we needed someone to host a few open houses for us so we could show the house to perspective renters.
We immediately thought of the young graduate student who we used to pay to walk our dog when we were at work.
She was looking for extra cash during the school year, and we were willing to pay her $20 to show someone the house for 15 minutes.
2. We made an agreement with the tenant up front.
When we found the tenant, we let him know up front that we were out of state, and that we would require a little more effort from him to maintain the house, including the yard.
Setting expectations with the tenant upfront was the best thing ever. We aren’t responsible for shoveling the driveway, mowing the yard, landscaping or plowing. The tenant does all of that.
We bought him all of the tools he needs to maintain the yard. (I wish we still had kept ours from when we lived there, but we sold them when we thought we were selling our home).
3. We find the help we need on Google.
The emergency plumber I found on Google was expensive, but he was much less expensive than paying a 10% property management monthly fee and for repairs on top of that fee.
The one time our kitchen sink leaked, we called a repairman and connected him directly with the tenant for scheduling. The tenant preferred it that way since he didn’t want to work through us as a middleman.
I happily paid the $250 bill over the phone.
Many big chains make it super easy for the landlord to pay over the phone and the tenant be the contact for the repairman.
4. We automate as much as we can.
We used the website LeaseRunner to do the background check and create the lease. LeaserRunner had state specific lease templates, so we leveraged the one for our state and added our own lines in as needed.
We would have used LeaseRunner’s online payment system as well, but our tenant does not want to do online payments. He sends us a check every month in the mail.
Some months, it takes a few days to get to us, but we carry extra cash in our checking accounts. We would prefer a good tenant who doesn’t bother us than getting the check on the first day of the month.
We also notified our Home Owner’s Association (HOA) that we have a renter in the house. The HOA now contacts him directly instead of going through us. Phew.
5. We’re on the same page.
When we agreed to rent the house, my husband and I committed to it 100%. I grew up seeing my Dad be a landlord and my Mom complain about it.
I knew how important it was for a relationship to be on the same page about managing a rental property.
Now admittedly, my husband and I are not equally chill about being landlords. We were on a ski trip with friends when we got a call from the tenant about the kitchen sink.
I could see my husband’s stress level rise as he was answering the call. He doesn’t love landlord duties. Luckily, his wife can Google any problem away, and we had the whole thing handled in 15 minutes.
What’s next for this house?
Our first lease was for 9 months. The tenant wanted the flexibility to buy a house and didn’t want to commit to a long lease. As we were approaching the 9 months end, we proposed an extension of another 9 months.
We wanted to time it right so that the house wouldn’t be vacant at the end of December, when it would be really hard to find renters or put it back on the market. We also selfishly wanted to have a stress-free holiday.
Our lease is up this March.
We’ll make a decision in early February whether to sell the house or continue to rent. If out of state property management continues to be this stress-free, then we’ll likely continue with it.
What are our long term goals?
I’m actually looking to acquire our first true investment property next year.
I recently started a podcast where my co-host and I interview people who have achieved financial independence. I’m inspired by the folks who have built impressive rental property cash flow and Airbnb empires at a young age.
Check out FireDrillPodcast.com or search for us in iTunes/Google Play to follow my rental property journey and get inspiration from the incredible guests we’ve been lucky to get on the show.
What are your thoughts on being an out-of-state landlord? Do you have any advice on how best to manage a rental property in or out of state?