Pop the champagne! I recently celebrated my 10 year anniversary of being a landlord. There have been plenty of headaches along the way, but I realized everything is fixable with time, money, and compromise.
The one thing I’m very proud of is going 120 consecutive months without a single vacant month for my first rental. I’m on my fourth master tenant, and so far so good. The rent started off at $2,150 in June, 2005 and is now at $4,000 with this latest one year rental renewal. If all goes to hell, perhaps I can find a job as a rental property manager!
I also started renting out a single family home in June 2014 after purchasing my latest house. This rental has proved to be a challenge in its first year given the higher price point of the house, and the multiple roommate scenario. One had a dog who damaged several doors and cabinet sidings. One tenant needed to break the lease early for a job move. But in the end, it all worked out thanks to a lot of scrambling.
As a landlord on a quest to achieve financial freedom, your goal is to maximize rental income and minimize costs. One month of vacancy will cut your annual income by 8.4%. Two months of vacancy will cut your annual rental income by 17%. And if you’re at three months of vacancy or more per year, you might as well hang up your boots or hire a property manager because you are doing a piss poor job being a landlord!
As I discovered in my mortgage refinance rejection, banks ascribe a 25% discount to all rental income when calculating your debt to income ratio. In other words, banks have a default assumption that each landlord will on average, have three months of vacancy. Banks were crushed during the mortgage default crisis, hence it’s hard for anybody to blame banks for being so conservative. But if you’re reading this post, you won’t be any typical landlord. You will be a Financial Samurai landlord!