How We Turned Our City Home Into A Rental Property

Glorious After!

The staircase in the Cambridge home that we refinished ourselves.

As long-time readers are aware, Mr. Frugalwoods and I own a rental property in Cambridge, MA, which is one part of our diversified portfolio of assets. This is the very same property formerly known as our first home. We bought this house in 2012–for the lowest purchase price per square foot for that buying season in Cambridge–and happily lived there for four years.

This home was purchased with the intention of one day translating into a rental after we pursued our ultimate dream of moving to a homestead in the rural woods of Vermont, which came to fruition in May 2016. Today’s post is devoted to the tale of everything Mr. FW and I did after making the decision (in spring 2016) to rent out our Cambridge home.

If you’d like more backstory on our rental–as well as our current home in Vermont–please enjoy:

The super quick math on our rental is as follows:

Cambridge Rental Expenses Amount Per Month
Mortgage & Taxes $1,921.66
Property Manager $105.00
Insurance (not escrowed through mortgage) $127.42
Total monthly costs: $2,154.08

 

Cambridge Rental Income Amount Per Month
Rent $4,400.00
Monthly net revenue: $2,246.00
Annual net revenue: $26,952.00

As you can see, we’re on track to generate $26,952 in profit annually from this property. Note, however, this is not our net income after maintence and capital expenditures. Should the house need a new roof or new appliances or any other repairs, those expenses would draw down on this income. On the flip side, this simplified spreadsheet also doesn’t include appreciation to the property, which is a crucial reason why we’re renting it and not selling it. If you’re interested in our comprehensive rent vs. sell analysis, check this out.

Yes, We Have A Property Manager!

You might be surprised to see that we–oh insourcers of everything from haircuts to ham cooking–pay someone to manage our rental property. But we do indeed and we’re happy about it for the simple, simple reason that we do not live in the same city as our rental. If we did, we likely wouldn’t hire a manager.

Our Cambridge rental

However, living in a different state like we do, we decided to try out using a property manager (PM) for the first year. And we’ve decided to continue because our PM doesn’t charge us much–a flat fee of $105/month–and they’re on call for any and all repairs.

We do not want to have to jump in our car and drive 3.5 hours every time our tenants need a minor repair. We also don’t want to incur the hassle of calling 19 different handypeople to try and find one who can jet over to the house and fix a leaky toilet (who we’d likely end up paying way more than $105/month for anyway). Enter the PM.

Our PM has handypeople on call who they dispatch to our home anytime our tenants need a repair. We don’t even have to hear about it until after the problem is taken care of. Is this lazy of us? Perhaps it is. But I rather think of it as a wise allocation of resources. A loss of $1,260 per year in income is 100% worth it to me to avoid spending hours of my time (not to mention incurring ulcerous anxiety) in order to fix a problem. All insourcing should be undertaken with a cost/benefit analysis of time vs. money. If our home was brand-new (and not circa the 1880s), then a PM might be superfluous. And if we lived nearby? Mr. FW could conduct repairs himself.

Another advantage of our PM is that they took care of every single detail related to renting out the property. They took the photos, managed the advertising, toured prospective tenants through the home, vetted/interviewed/background-checked our tenants, and generated the lease. Most crucially, they set the rental price at $4,400/month. Based on our research, Mr. FW and I were inclined to set the price circa $4,200/month, but our PM felt that $4,400 was more in line with the market. Hence, their expertise netted us a significantly higher profit margin.

How To Find Tenants

The kitchen in our Cambridge house

Although our PM handled the logistics of finding tenants, for our part, we spruced up the house and had it spic and span for prospective tenants. I treated the prospective tenant tours exactly as I would’ve treated an open house.

I turned on all the lights, lit a scented candle, played soft music, and hid clutter in the closets. The kitchen granite sparkled and you wouldn’t even know I’d just cleaned baby spit-up off the couch.

I also hung out at the house with Babywoods while the PM brought prospective tenants though. I was able to answer questions and, more importantly, had the opportunity to get to know each group of prospective tenants.

Pre-Rental Renovations And Repairs

After making the determination to rent and not sell the house, Mr. FW and I embarked on a frenzy of tenant-proofing around the house. We decided to do all of the repairs and upgrades that we thought would make the experience as smooth as possible for us as landlords and for our tenants as residents. We’re not slumlords and we want this home to serve a a rental for decades to come. Thus, it was in our best interest to make improvements before our tenants moved in. It’s a lot easier to do repairs when you live in a home versus after it’s already rented out.

C Is For Ceiling

I wish I had a better before shot–this one doesn’t capture the cracked and falling plaster

By far the most significant–and expensive–improvement we undertook was replacing the ceilings in two of the upstairs bedrooms. The home was built in the 1880s and the plaster ceilings in these two rooms had been plastered, patched, boarded over, and patched again for decades on end.

Thanks to all of these quasi-fixes by previous owners, and the simple facts of time and gravity, the ceilings were bowing downwards, heavily cracked, and looked ripe to fall down. When we bought the house, we knew these ceilings would need to be replaced at some point and pre-rental seemed the opportune time.

We did NOT want these ceilings to fall on our tenants. In addition to the obvious health and safety concerns–not to mention the damage it would wreak–we’d have to pay to re-home our tenants for the duration of the repair work. Hence, we decided to preemptively replace both ceilings. I collected bids from 15 different contractors and plasterers and every single one of them said the ceilings needed to come down entirely and be replaced.

The exposed beams after the old ceiling was torn out

Previous owners had put drywall over the existing ceiling as an amelioration, but the weight of the old bowing plaster was such that all the contractors said more drywall would merely be a temporary, and likely insufficient, fix. This was our inclination as well. And so, we took this opportunity to redo the ceilings and do them right.

I first researched doing this project ourselves, but was quickly turned off by a number of factors. First, we’d have to get a permit from the city for a dumpster on our street (which we’d also have to rent), then, we’d have to schlep all of the ceiling debris from our house down an alleyway to the street since there’s not enough space for a dumpster to sit next to the house. We’d also have to cover everything upstairs with plastic and rent exhaust fans and heavy duty masks to cope with the dust. This before even getting to putting up new drywall (and mudding and painting) the ceilings. I calculated that the materials, permits, equipment rentals, and dumpster alone would cost us more than half what we’d pay a contractor. Plus, we were slated to move in three months, we had a three-month-old baby, Mr. FW was working full-time, and I was working part-time from home. We happily hired a contractor and paid cash for the project.

Here, my friends, is a prime example of the beauty of extreme frugality–we didn’t bat an eye at paying cash for this major repair during the same time period that we were: 1) closing on a second home; 2) buying not one–but two–cars (in cash); 2) moving; 3) conducting all of the other repairs detailed here; 4) oh yeah and we were first-time parents to a little infant! It was a relatively crazy time for us schedule-wise, but financially we could swing it thanks to our lifestyle of extreme frugality. Having the ability to manage all of these expenses–and more–with cash is a supreme benefit of frugality. People sometimes ask, “why do you save so much money all the time?” And my answer is simple: because it reduces the numbers of things I have to stress out about.

The almost finished product (this pic is minus the final coat of paint)

Here’s what our contractor did:

  • Prepped the space by moving all of the furniture out of those rooms, taped down tarps over the floors, walls, and stairs and installed fans in the upstairs windows.
  • Ripped out decades of cracked plaster, lathe, and board in order to completely remove both ceilings.
  • Carted away an obscene amount of debris (down the stairs and out the alley).
  • Put insulation in the attic. Since we had these rooms open all the way to the roofline, we decided it would be wise to add more insulation to our attic. Anytime you do a project that entails exposure like this, you might as well do any other fixes you can think of while it’s open.
  • Added an access hatch to the attic. Indeed, this ancient house had no attic access and so, we had them frame out an access hatch on one of the ceilings.
  • Drywalled, mudded, and painted the new ceilings.
  • Added crown molding. Since the new ceiling height is a good several inches higher than the old ceilings, there was a massive gap in between the ceiling and the wall. Crown molding to the rescue!

What we arranged with the contractor ahead of time was a flat rate payment for the project. I like this approach because–since they’re not getting paid by the hour–there’s no incentive for them to take any longer on the project than they have to. We were very pleased with their work and the ceilings look fabulous!

B Is For Bathtub

The bathtub after refinishing: chip-free and sparkling

Next up, we had the bathtub resurfaced in the main floor bathroom. The previous owners had refinished this tub at some point in its history and it was chipping something fierce.

Unlike the ceilings, which were a 100% fix, this was a mid-level repair. On the more expensive, but more long-term end of things, we could’ve ripped out and replaced the tub. On the cheaper end of things, we could’ve just sanded and painted the chipped portion ourselves. We chose the middle ground and hired a guy to strip and refinish the tub.

Here again, we were thrilled to pay someone to do this on account of the harsh chemicals involved and the fact that we had a teeny infant. On our tub guy’s recommendation, we took Babywoods and Frugal Hound to our Vermont house while the work was underway to avoid having them inhale the fumes. The tub turned out shiny and non-chipped, so a mega success for a very little amount of money!

The Triumvirate: Stove, Fridge & Closet Door 

Mr. FW’s new PEX plumbing under the kitchen sink

As you may recall, our stove helpfully underwent an agonizing and protracted death during this timeframe. Thus, our tenants are the proud users of a new stove! The fridge and master bedroom closet door also experienced trauma (in the same week… ) and we DIY’ed those fixes. The full story on this particular episode of homeowner havoc is memorialized here: Revenge Of The Appliances: A Tale Of DIY Mishaps And Triumphs.

Plumbing

Right around this time, one of our pipes froze and burst. Yay! Mr. FW fixed it and took the opportunity to re-plumb our entire kitchen with more durable PEX, which tends not to burst if it freezes. He also wrapped the PEX in insulation and heat tape.

While in the walls, he went ahead and insulated and added heat tape to the bathroom pipes as well. This was an over-engineering of the project, but our hope was to future proof it and make the plumbing as (hopefully) maintenance-free as possible for our tenants. Here’s the full rundown on our plumbing fiasco and fix: Extreme Frugal Insourcing: Repairing a Frozen and Burst Pipe with PEX.

Main Water Valve

The closet doors we fixed

In the course of re-plumbing the kitchen, Mr. FW discovered that our main water valve wasn’t working properly. When we turned it off, it wouldn’t turn the water all the way off because it was an old gate valve. We had it changed over to a modern ball valve, which is more adept at, you know, doing its job and turning the water off all the way. This is one of those things that isn’t a big deal until one day, it’s a REALLY big deal.

This change was a mega hassle because we had to arrange with the city of Cambridge to turn off the water at the street in order to have it replaced. Definitely easier to do pre-tenant.

And then there was a spate of minor repairs:

  • Mr. FW replaced all of the inner components of the main floor toilet as it’d been a tad sketchy and we didn’t want to risk it breaking down on our tenants.
  • I painted and patched the various nail holes and gouges we’d inflicted on our walls.
  • I removed our curtains and hung the original blinds back up (thank goodness I’d stored and labeled all of the hardware in plastic baggies taped to the appropriate set of blinds).
  • I washed all of the kitchen cabinets (which we refinished ourselves a few years) to make them sparkly white.
  • Mr. FW replaced all of the smoke and C02 detectors with 10-year lithium battery detectors that’ll never beep or need replacing before that ten year mark.
  • A bunch of other fiddly odds and ends that I’ve blocked out of my mind.

Tenant Relations

Pre-Move In Meeting

The culprit oven

Even though we have a property manager and thus didn’t bear the responsibility for orienting our tenants to the house, we thought it’d be a good idea to have them over to show them around. We gave them a detailed tour along with a document I prepared about the house, they took notes, and we answered their questions. It was a nice opportunity both to introduce them to the house and also to get acquainted personally. I highly recommend it!

Ongoing Communication

We are extremely pleased with our tenants–they’ve been terrific so far–and we feel lucky to have them. Something I really appreciate is that we have a direct line of communication via email. With a property manager, technically the landlord isn’t required to have any communication with the tenants at all. However, we’ve found it’s nice to be able to answer their questions and communicate over email. It’s good to know that they can reach us anytime and vice versa. Plus, this provides a check on our property manager–if work isn’t being completed or there are other issues with the PM, our tenants can contact us directly.

Holiday Gifts

Mr. FW and I packed up a box of local maple syrup and maple cream and mailed it on down to our tenants for the holidays. I got this idea from the wise Mrs. 1500 who is an experienced landlord. A bit of stewardship never hurt anybody and I like our tenants and want them to like us; ergo, we sent them syrup.

Landlording 9 Months In

The master bedroom

We are still neophyte landlords, but so far, it’s going really well. I attribute this primarily to the fact that our property is located in a highly desirable neighborhood, within walking distance to both Harvard and MIT. This area of Cambridge is booming right now, thanks to the universities and also the presence and growth of biotech firms headquartered there. Our home has appreciated tremendously since we bought it and the neighborhood seems to be in a steep, upward climb as far as housing prices are concerned.

Cambridge also has a robust rental population: over 65% of all units in the city are rented. Thus, the tenant pool is enormous and of a high quality, think: graduate students, post-docs, Google employees, etc. We don’t have any plans to purchase another rental property at this point in time, but I’d be very hesitant to do so in a market weaker than Cambridge.

Given the strength of the Cambridge housing market, we could easily sell the house if we chose to, or continue renting to quality tenants for decades to come. One of the reasons we decided to rent instead of sell is that this provides a bit of diversity and depth to our portfolio of assets (more on that here). All in all, we’re pleased with our decision and hope that we have many more years of successful landlording ahead of us!

Do you own a rental property? How has your experience been?

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71 Responses

  1. This is about the best home buying story I’ve ever heard, financially speaking! It sounds like you guys are awesome landlords and that the house will continue to cashflow a ton even in a year where you have to replace the roof. Plus you are likely to have a TON of appreciation by the time you sell it. That’s amazing!

    • Agreed! It’s such an inspiring story of how good timing and a visionary perspective can help you cash flow positively, not to mention amazing appreciation! I’ve gained a better understanding of the Cambridge housing market through this post too. It’s one of my most favorite posts by Mrs. Frugal Woods!

  2. Congrats on a good rental experience thus far! We, too, also have a rental property and we use a property manager as well. Ours is in the next town over but our PM provides us with the piece of mind of knowing that everything is being taken care of -legally. I wouldn’t intentionally do something illegal or not document something, but I do not know all the requirements and I don’t have time to learn everything – nor do I want to. We want to eventually acquire a bunch more properties and I want them to replace my income – I don’t want to buy myself another job as a PM. For us, it’s worth the tiny amount we pay him.

    I found the first round of tenants myself by holding an open house, but even that was more time than I was willing to invest, on top of working full-time, getting my master’s degree, caring for my aging mother, and raising my daughter. From that point on, I let the PM handle everything. I gave him a list of contractors and repairmen I want him to use so I know I’m getting a fair price. And, it’s nice to know that a problem tenant or eviction will be handled by a professional. Hopefully it would mitigate any legal action taken against me.

    On a good note, I’m 3 years and 2 tenants in. No issues and never a late rent check. Love it!

    • One more thing…we also made sure our rental was in top-top shape. I always say I wouldn’t rent out a property that I, myself, wouldn’t live in. And I like nice homes 🙂 That also helps attract the best tenants – especially in our little PA town.

    • Mrs. Frugalwoods says:

      That’s great! And, you make a really good point about the PM managing legality. We’re in the same boat–we’d never intentionally do something illegal, but there are quite a few permutations of local law surrounding landlord/tenant rights and it’s always good to know we’re following those laws to the letter.

  3. We own 4 rental properties and two of our own homes. I am AMAZED at what your property manager charges. Our biggest concern for moving forward in retirement is finding someone good to manage our properties (we manage them ourselves now). We also treat our tenants as clients rather than “renters” and it has made a huge difference. We also bought properties we would live in – and try to maintain them that way. We haven’t given our tenants gifts at the holidays, but we do give them one big gift – not raising the rent. What we’ve found over the years is that keeping good tenants is the key to our long-term sanity in this business 🙂 Our longest tenant has been there for 22 years – and we’ve never raised the rent. Really. I just wrote about how we gave her notice to move by the end of April though – as we plan to take over the house for ourselves. It was one of the hardest things we’ve ever had to do in the landlording business.

  4. Tarynkay says:

    We do not own any rental property, but we have discussed renting our current house out in the future. One thing I wondered about is if you have an LLC for the rental property? We were recently advised to do this in order to limit our liability if we do end up becoming landlords and wondered if you had any experience with it.

  5. Lisa says:

    Just curious what the total repair/upgrade bill was…and how long you expect it to take to recoup those expenditures.

  6. TPOHappiness says:

    Thanks for sharing this. My wife and I are looking to turn our current home (first home too, btw) into a rental and its great to see what someone else has done who was been successful in doing so.

    One of the things we were debating on is whether or not to hire a property manager. We will be in the same state but we’ll be about 8 hours away once we move.

    Glad to see it is working out for you.

    • Mrs. Frugalwoods says:

      I’d say call around and price out property managers to see how much it’d cut into your profits. I called a bunch before I found our current PM. Good luck :)!

  7. JD says:

    I have been a landlord once, and it wasn’t good. One of my husband’s co-workers rented our former mobile home, then skipped out of town, owing us rent. His wife, who split with him at the same time, took off a different direction with a bunch of my baby clothes I’d loaned her and needed back, as I was pregnant again. My parents rented out my grandparents’ old house, and had a couple of wonderful tenants and a couple of horrible ones before that property was sold. Long story short, we don’t plan to ever be landlords again. However, the Frugalwoods’ house is in a desirable area, with a good, big tenant pool — we didn’t have the same situation which I think that makes a big difference. It’s great that the FW house was all fixed up first. I’ve heard of too many rentals for which the landlord neglects long-needed repairs until they are huge, then acts like the tenant is somehow responsible for the problem. You folks sound like good landlords, and I’m glad you have good tenants!

  8. I’ll trade rentals with you! I have 6, they are solid working class houses, but not nearly that profitable. I live close by and perform all the management myself. I have a few tradesmen I use regularly when needed, but most months the properties require very little of my time. It was a good idea to make some preemptive repairs to your property, as that is almost always cheaper and easier then being forced to make repairs when something breaks. I hope your property continues to do well!

  9. Sounds like being a landlord is going well for you so far. I’ve been leaning more towards renting out our current home when we move. Although we would still be in the same area, I will likely go with a property manager. Financial freedom for me is not only freeing up my time but freeing my life of unnecessary stress and headaches. Having someone on call to handle repairs, vet new tenants, collect rent, etc. is worth it for me. And your property manager seems to have already paid for themselves with netting you an additional $2,400 in rent each year. Plus, $1,200 a year for the property manager seems like a steal. In your experience, what is the average cost of a property manager? I’ve heard typically around 1 months rent.

  10. Dylan says:

    This is great timing for me. We are planning to buy our first rental house in the next year or so, and this post is helpful for what to expect. Thanks!

  11. We owned a rental property – not willingly though. We moved from AK to CO so that my husband could attend school in 2014. We couldn’t sell the house before we left, so we alternated renting it/trying to sell it for three summers (people don’t buy houses in the winter in AK). I was just entering the job marketplace during this time and trying to support my husband in school on an entry-level salary in an already low-paying industry.
    Our house didn’t help; we spent $30,000 in two years alone in home repairs because houses, permafrost (permanently frozen ground), and buried things like septic tanks generally don’t mix well. $30,000 is about the entirety of what I made – before taxes – each year. So, we were broke and increasingly in debt. Finally, we got an offer on the house – under the stipulation we paid $35,000 for a new septic system. The old one had finally broken to the point of making the house unlivable, so we couldn’t rent it out anymore.
    We couldn’t afford the repair, we couldn’t put renters in, and we couldn’t afford the mortgage on top of rent too. So, we did the only thing we could do: we gave the house back to the bank in a deed-in-lieu of foreclosure, which we just wrapped up after nearly half a year of fighting the mortgage company. At least we’re out from it now – even if it was a big hit to our credit.

    • Christine K says:

      Oh wow, that’s a tough situation 🙁 It sounds like you did the best you could under the circumstances, and your credit will recover eventually.

  12. Christine K says:

    It sounds like you guys have set yourselves up to have a relatively hassle-free rental experience with what amounts to a decent renter pool in Cambridge. After watching my dad be a landlord of a triple decker in Lawrence (UGH), and then watching my boss go through 2 years of squatter hell with his condo in Jamaica Plain (which he desperately wanted/needed to sell), I decided landlording wasn’t for me. The MA laws favor the tenants terribly and a bad tenant can make your life hell. My boss kept having to go to court and the judge kept letting the squatters stay. It was awful. My dad had tenants who stole from him, wrecked the property, infested the property with bugs…UGH. Your decision on going with a property manager is well worth that $105 a month if they vet the tenants and make sure you don’t end up in a squatter or home-destroyer situation.

  13. Monica says:

    Great Post!!!! I owned and lived in Cambridge around 20 years ago and recall that property taxes were treated differently if you owned or rented – wondering if that is still the case?

  14. luytterlinde says:

    Just curious, how does your rate of return work out once maintenance & repairs and the market value of the house are factored in? We are landlords too (although it’s our basement in our case), but given how crazy the Toronto market has been lately, from a strict financial point, we’d be farther ahead to sell and invest the proceeds. This is particularly since at least in Canada, rental income is considered “other income” and is therefore taxed much more heavily than either dividends or capital gains, even with writing off such things as a portion of repairs, property taxes etc. Or, is this more of a diversification of income streams play for you, meaning, while it may not be as ‘profitable’ all in, it adds a layer of security since it further diversifies your investments (which already include stocks and bonds)?

  15. Jo-Ann says:

    Thank you for this post! As you know, we’re in the initial stages of planning to rent our East Cambridge home. We also have a sketchy bedroom ceiling that needs attention. We’ll be taking the next few months to repair and clean.

  16. How neat! I still think that house is gorgeous, too. 🙂 I know a lot of people say you shouldn’t have a property manager because they cut into your profits, but if you don’t live in the same city or state as the rental property, it’s worth it. My sister has a house in North Carolina that she rents out (she’s now in Oklahoma). She doesn’t have a property manager because her husband’s family lives there and helps manage it. But yeah, a manager can definitely be worth the cost!

    I like the idea of rental properties, but in our area it’s kind of hit or miss as far as what tenants you’ll get. There are bad tenants everywhere, of course, but in a city like ours it does seem to be an issue. But yeah, I’d consider renting out a property. We plan to live in our current home for quite a while and we fixed it up with lots of custom touches, so we probably won’t rent it out. I’d be interested in purchasing one of the multi-family homes just down the street from us, though!

  17. Mrs. Cheapheart says:

    We love being landlords. Finding good tenants is key. We use a realtor, which we feel is a barrier for entry in that, if the tenant has it together enough to pay first, last, security and a realtor fee they, quite frankly, are more on top of their game than we are. We live in a two-family house and have doubled the amount of rent we charge in the six years we have lived here because of sharply increasing property values and improvements we have made. I absolutely treat my tenants as customers and respond to their needs immediately. Each time I sign a lease and see that five figure sum coming my way, I treat it as a job.

    We have made lots of improvements to our properties to make them attractive to quality people. If your tenants feel like you care about them and the property, most of the time they will treat it in kind. We, thankfully, have had good luck so far.

    One area in which we are weak is having reserve funds in case of emergency. Somehow we manage to make it work. Little Cheapheart will be in school soon and that will make it easier for me to earn money and save more.

    I have read that you are supposed to put each of your properties in a separate trust so you can’t be sued for your whole portfolio. Also, a million dollar umbrella policy is cheap and offers a bit of peace of mind.

    I guess my three takeaways from my short, but good time as a landlord:

    1. Quality Property: a well-maintained property in a desirable area is key.

    2. Quality Tenants: once they are in, it is very hard to get them out, make sure they are good people.

    3. Quality Service: make sure to keep your great tenants around and paying rent by making them feel valued and cared for.

    Knowing the law and being emotionally and financially prepared for disaster also helps. Some people say that the don’t want to “deal with the hassle of being a landlord.” I get hassled quarterly and get paid a salary equal to a full time job (we have two rental properties). I’d rather deal with the occasional leaky faucet or clogged toilet than go to work every day.

  18. Mrs. BITA says:

    Your apartment is gorgeous and your renters are lucky to have maple-gifting landlords who made sure that the house was in top shape before they moved in.

    Oh and that coffee maker in the corner shelf of your kitchen? We have that one too. We now have a Nespresso machine and that is what gets used on a daily basis, but every now and again I miss my little old pot and break it out. My Spanish brother-in-law bought ours for us – apparently that is the de facto method to make coffee at home in Southern Spain. It is one of many reasons that I am glad he joined our family.

  19. Mr. 1500 says:

    It’s wonderful to read about your land-lording success! The thing I really like about this is that you have one home that brings in great income. You don’t need to own 4 or 8 units to make it rain. Just one. Not much fuss. Wonderful job!

    And let’s not forget that this great story is built on the one where you got a great deal on the home in the first place.

    I could also take a lesson from you as far as hiring out. Time is just too darn valuable to waste on something like tearing down a nasty old ceiling.

    Can’t hardly wait to see y’all later in the year!

  20. Angela says:

    I love this article – thanks for sharing! My husband and I recently became landlords as well, but because of a much different reason! We purchased a house for 345, 000 an hour outside of Toronto, thinking we could commute in each day (since buying in Toronto isn’t an option with the insane housing market there!). Well we quickly learned commuting wasn’t an option, rented the house out and moved back to the city. The problem is, I’m not sure if we should continue to rent it out or sell it. The monthly bills, mortgage, and taxes comes to 2400 a month, but we were only able to rent it for 2050, not including any repairs needed. I worry about the money we would lose turning around and selling it so fast, so I’m thinking of waiting for the house to appreciate a bit more before we do (the area is very up and coming and has already increased in value). Another thing to note, because it was our first house, we had a mandatory 12, 000 in mortgage insurance added to our mortgage, which would be more lost money if we sold.

    Any Frugal reader advice would be appreciated!!! 🙂

    • Will says:

      Can you AirBnB it, maybe? I have heard that can generate a higher cash flow than long-term rentals. When I analyze a property for purchase I include 5% for repairs and 7% for capex plus 4 – 8% for vacancies. That all comes out of your gross rent effectively (sample spreadsheet @ https://docs.google.com/spreadsheets/d/1GWSDOpNM_V8dac-jgo1zJb5GRqvhqZiFnSW85ZVh1eA/edit#gid=0 if you want to do your own math). The reality is that your are probably looking at losing $10k/yr on this property as a standard rental. Since I purchase for cash flow and not appreciation I would personally dump that house and find a cash-flowing rental. I would also consider that if you don’t think it is in a good location for commuting to the city then your potential pool of renters may not, either, and it will always lose money. Good luck whichever path you choose!

      • Rob says:

        Good advice but Toronto is in the midst of a massive housing bubble, proces are totally nuts, bidding wars, massive run up in prices etc. Anyways there are good rentsl properties but probably not in Toronto.

        The only advantage is that the loss is tax deductible.

        • Angela says:

          Totally true Will. Purchasing in Toronto will not be happening. Even if I could afford it I wouldn’t dare invest that much into one thing.

      • Angela says:

        Thanks for the advice Will! Sorry I just saw it now.
        AirBnB isn’t an option in our area – it’s still very up and coming and not close enough to downtown.
        I think you’re right about losing the 10k a year but I believe the appreciation will be worth it and it does diversify our portfolio (since otherwise we’d just be renting with no property). It’s a hard decision! I appreciate the thoughts on it from you.

  21. Felisa says:

    Love this but how did you find someone to PM for a low flat fee? In my area the fee is 8-10% of monthly rent plus 1 months rent for finding a tenant. You would be at $440 a month for PM.

  22. Cindy in the South says:

    I live in a very low income area, and it would be kind iffy if renters would pay, just due to the almost non-existent job market. I have a good job for this area, and bought a house in the town that was in the middle of everywhere I have to travel for my job, to make my commute easy, no matter which way I had to go for the day. I would sell the house, if I ever decide to leave the area. While I am about five years from retirement, I am not really sure if I want to leave. I would move to be closer to some of my kids, and the rent and mortgages where they live (college town and has some major industry there) is extremely high for this state. I think that is the same situation you have in Cambridge. Congrats to you on making wise business decisions.

  23. Joe says:

    Oh wow, the rent is really great. The property manager is really cheap too. Great job.
    This property will generate passive income for years to come. My rentals are nowhere near that point.
    Congrats!

  24. Angie says:

    I would absolutely love it if you could let me know who you used as a contractor for your ceilings, and the general cost. My husband and I recently purchased a home north of Boston with low, old ceilings that we’d like to re-do. I would really appreciate it, feel free to email me if you don’t mind.

  25. I own 7 properties, and I have PMs for some. I definitely like direct interaction with the tenants. Like your syrup idea, we used to send gift cards for holidays, but that was more of a pain, so now we just give them a discount on rent. It is easy and they really, really appreciate it.

  26. Brooke says:

    My partner and I purchased a property in inner SE Portland, OR 4 years ago, right before the big housing boom. We took our time (about 9 months) to find the right property. Our duplex was built as a duplex (instead of converted) so there isn’t any wonky plumbing, electric issues. Our philosophy agrees with Mad Money Monster – buy a property that you would want to live in. We self-manage and in 4 years, we’ve had 3 tenants total (one of our current tenants is the first one to move in!). There are lots of stories about terrible renters (and quite a few about terrible landlords), but I believe that if you “maintain the wall” (ie – be friendly, but not friends) it helps tremendously. Also, communication is key – lay out your expectations at the beginning and enforce them. I hear about people not charging late fees though the rent is late (which has only happened to us once). The problem with this is that you’ve now set the bar for the tenant to pay late whenever they want. Thus, my tenants have only tested me once – they were one day late and I charged them a fee (which they paid).

    TarynKay – you can set up an LLC and this does protect your liability or you can carry a large amount of insurance. If you do an LLC, the LLC has to file a tax return as well as yourselves. If not, then you would include your rental income/expenses on your tax return. There’s costs/benefits to each method, so I suggest you speak with an CPA or lawyer – well worth the consultation fee.

  27. Lena says:

    Sounds like such an amazing opportunity! I hope and dream that we will be able one day to rent out our current appartment and make a profit on it. I just love how the both of you have analysed everything so thoroughly and it seems like everything has worked out beautifully. Well done!

  28. I’ve never pursued owning a rental property (nor do I think I will anytime soon), you make it sound so easy! I like the idea of a Property Manager especially since you don’t live close by. I would consider hiring one of those even if I was close so I could avoid having to help with the repairs (maybe why I don’t own rental properties…) Well done!

  29. Vee says:

    Do you remember how much the tub cost? We need to make a decision about our bathroom but I’m nervous about it.

  30. Debbie says:

    We rented our home in Austin, TX after we moved to Houston and also have a PM. Such peace of mind even though we are 3 hours away, for the same reasons you stated. We’ve had 2 good tenants for the past 4 years, but recently found out our current tenant has to break lease and move for personal issues. Because of this, (and the first tenant broke lease and moved early because they bought a house themselves) we haven’t had to pay the relisting fee to locate new tenants, which was a nice plus. We are making a decent profit on the house because we’ve paid it off, and it is in a great location (close to Apple), which keeps the value appreciating (but not good for the taxes we have to pay on it!). I wish we did have more time to do some improvements on the house before we moved out (it was a very quick, unexpected move due to work), like replace the carpets and upgrade the kitchen counters, but we had done a lot of the work ourselves over the years, like painting, installing ceiling fans and new faucets because we lived there. Thanks for a great post!

  31. Wow $4400 monthly rent is insane. The east coast is so expensive. Awesome for you guys. My first ever home also ended up being my first rental property but it was not intentional. I just got lucky that the numbers worked out for me but ultimately that was one of the best things that has ever happened to me as it started my real estate investing empire. I now have a total of 7 houses and all of them are making me money except my primary.

    But my primary will be a rental in the future. 🙂

  32. I once knew a guy I worked with who owned a house in a different state, and I liked his idea and think it’s more economical, too. He simply bought a home warranty on his rental for $400 per year. There was a $50 deductible for each visit, but with this warranty, he could simply send someone out to his rental abode without having to go there himself.

    Have you looked into a home warranty instead? I think it’s worth considering given the cost savings, as it sounds like it achieves the same goal.

  33. Kate says:

    My late uncle owned rental property in Pennsylvania and he *always* had a property manager. I feel this is one of those “penny wise and pound foolish” decisions. Just be sure to vet the property manager very carefully. And yes, Mass. law is very skewed in favor of tenants. I wouldn’t own a rental property in this state on a bet.

  34. Carolyn says:

    We are doing the vacation rentals as my husband owned a house in an association on a lake we he lived when we met. Sleeps ten and we can get $250 a night between memorial and labor day. We get weekend rentals in the fall for the leaf season and weekend rental during the ski season. We made $3500 from last fall through the winter and are expecting to do over $20,000 by labor day. Keeping track of utilities, supplies, mileage and other costs as they are part of our cost of doing business. We actively manage the property ourselves, bookings, maintenance and cleaning ourselves. We personally greet and checkout our guests. And we get guests calling us direct to book follow on visits. We live to make them feel at home, like our vacation rental is their vacation house, without the year round up keep or worries. We are working on developing a loyal customer base. Being we are near retirement, we consider the rental house part of our income stream. And part of the house where we keep the computer is our home office, so we have business expenses for that as well. And we are still thinking frugal. Home cooked meals, diy repairs, maintenance and other gardening, canning, and other diy insourcing activities. My hubby has been my sylist for the last few years, and being my mom has been tight with her finances, i have become her colorist under training from my hubby who does mine and after two of my best friends dumped the salon and adopted my hubby as their stylist, my mother who had been openly hostile to hubby trimming my hair asked him to trim her hair. She didn’t like her last haircut. And hubby joked if she wanted the full treatment or color only. She said she wanted her hair trimmed and then gave me the evil eye and told me I wasn’t going to get near her hair with scissors. After my friends told her that he has been cutting their hair and fixing their previously bad cuts, my mother decided she didn’t want to pay for a bad haircut. She has her daughter coloring her hair, she is happy with that, and she feels safe saying she had her hair done at her daughter’s house, still funny as among my friends she praises my hubby’s work as he cuts theirs too, but among her work friends, she won’t admit hubby fixed her bad chop job. Just her daughter does her hair.

  35. thalia says:

    We have an older craftsman home that has an apartment in it (the house was raised in the 80s to add the addition). This apartment has really been a godsend. Not only does it pay 2/3rds of our mortgage in a high cost of living area (SF bay area), but we have met a lot of interesting folks, many of whom have become good friends. Some our more social than others, but we often have a nice communal situation, and walk each others dogs, make food for one another and generally help each other when and where we can.

    I second making the apartment nice. So many people walked through our open house commenting on the house’s nice state, and it reminded me that in our area, where it is so hard to find an apartment, people don’t always do those touches. We probably won’t keep the home after we retire (our property taxes make my toes curl whenever I think about it) but for now this rental has allowed us to enjoy a beautiful historic home in a wonderful neighborhood for a fraction of the price.

    • Mrs. Frugalwoods says:

      Sounds like a wonderful situation! And what a great way to offset a super high COL area! Nicely done 🙂

      • thalia says:

        Thanks, Mrs. Frugalwoods, but I have to confess that it was my very wise partner who bought this place before we were married, so I can’t take the credit for the wisdom. But I suppose I could say that I was wise to partner up with a frugal weirdo like myself 🙂

  36. Sandra & the 2 Spaniels says:

    Terrific article, which drove home your philosophy of; “Having the ability to manage all of these expenses–and more–with cash is a supreme benefit of frugality”. The old story-you can always spend money in the bank!
    Having experienced both home ownership and renting, I’d say ownership is better. The worst part of being a tenant was living in a place that constantly needed repairs, and/or a landlord who would not fix things. I learned, after awhile, that promised repairs most likely would not get done, so to only rent a place that is in the best possible condition. So, starting off having your property in tip top shape has given you the luxury of attracting top notch tenants.
    Thanks for a concise and honest view of another way to save money!

  37. Denise says:

    I’m curious as to your net position after taxes, which you don’t mention?

    • Mrs. Frugalwoods says:

      Hi Denise: taxes are listed in the spreadsheet at the beginning of the post–I combined them with the mortgage.

  38. Trish says:

    Thank you for being such a good landlord, not that it is a surprise in any way as you guys seem to be such nice people anyway.
    I live in a place owned by what I would class as a “minor” slumlord. We have had to harass the agent and the landlord to replace the heater which was broken when we moved in, clean, treat and paint over the black mould in the bathroom and oh there are so many problems.
    I feel people shouldn’t get into being a landlord if all they’re interested in is the money, and not ensuring their tenants live in a safe and clean environment.
    I think that your approach makes it much more likely that your tenants will treat your place with the utmost respect 🙂

  39. Cool to see that you guys are doing so well with this rental. I took a similar path by buying a small condo and then tuning it into a rental when my wife and I moved into something a little bigger. However, at this point I’m basically breaking even, and its been years….

  40. CowboyAndIndian says:

    Would love to see a article on how you found your property manager? What to look for? What to ask them.

  41. Rental properties have always been interesting to me. I don’t think I’d ever want one myself, but I think that has more to do with the fact that we haven’t even gotten ourselves a property of our own yet lol.

  42. Alexandra says:

    I love your story but I’ve done a lot of research on real estate and landlording and have come to the conclusion that you guys really, really lucked out…or, in a different way of thinking, you were super smart and resourceful enough to take advantage of a very special opportunity. You bought a bargain at a unique time period for real estate in your market, which is a pretty unique market.

    I’ve come to appreciate that success in rental property has to do with cold, hard numbers. It can be lucrative if you know what you’re doing and are similarly shrewd as you guys were to recognize a bargain when you saw it AND be positioned to take advantage of it. I think a lot of people fall into landlording without careful thought or planning–they move and decide to just rent out their original place–and the numbers really don’t add up if they stopped and thought about it. Maybe do a post about the opportunity cost of not selling your place? In most cases, selling the house and investing the difference is the better plan.

  43. Wow, $4400 in monthly rent! That’s expensive! It must be a really fancy place (the pictures look nice) in a very posh neighborhood to command that kind of price.

    I thought rents in the Seattle area were high. Geeze!

    Amazing income! Congrats FrugalWoods.

  44. Norm says:

    Having just completed our 2016 income taxes, I have taxes on the brain, I hope you included all of that work as expenses (on Schedule E, which I am so sick of looking at), or as depreciable assets (Form 4562, ugggh). That $27k in net income doesn’t seem to subtract any of the work. So if that’s what you put on your 1040, well that’s a lot of extra tax you shouldn’t be paying.

    In our first year 2015, we had rented out our property for only the last few months, but had done a bunch of repairs before renting it out, so we were able to claim a $7k loss for the year, lowering our tax bill. For 2016, we grossed over $22k in rent, but after subtracting all of the expenses and depreciation, got it down to less than $4k in net income.

  45. B. Lyman says:

    Wow…$4400 a month rent! I didn’t know it was so high on the east coast. That’s about the monthly mortgage payment for 3 mid-sized homes here in Utah!

    I was a long distance landlord once and hated it. If I’d known about all of these great tips I’m sure I would have had a lot better experience.

  46. Annet M says:

    We have a rental and do not use a property manager… and we are on a different continent!!
    We rent our home in Australia and LOVE our tenants, who we got to know before we moved here to Canada. They were friends of friends and living in a crappy place, so they have a great place, that they treat as their own, and take care of any maintenance like calling a plumber, provide receipts and gets deducted from the rent. We don’t raise their rent (it’s been 5 years, they are seriously getting a deal) and we take care of any repairs they request (and they are very reasonable in their requests). Our long-term aim is to move back in when we move back to Australia, but somehow I love my Canadian home (though my Aussie husband gripes about the winters of course). So who knows, but we LOVE our tenants and got super lucky. I also ordered them some baby gifts when they had a little one.

  47. Katie says:

    Hi! great post and love this blog! We live in a Boston suburb and desperately need to replace the ceilings in our 200 year old house. I was wondering if you could share the cost of what you paid to have your ceilings redone? Thanks!

  48. Chad Carson says:

    I lòve your rental story! I also have rentals, and a few things stood out to me as impressive on your part.
    1. You got to know the tenants and treated them well.. So many landlords see tenants just a number. You treated them with respect and kindness. Those little human touches pay off in so many ways, financial and otherwise.
    2. You looked towards the future with preventative maintenance. I love how you guys point out that extreme frugality is not being cheap or taking shortcuts. It is about being wise stewards of your resources – which sometimes means investing time and money.
    3. You bought a beautiful place in a great location. Walkable. Near universities. Charming. Apparently Those are paying dividends by attracting quality tenants at a high price.

    Thank you for sharing! Hope the rental continues to go well.

  49. Alexandra says:

    I bought my first/current townhouse with the intention to create it a rental after 4-5 years of living in it. I’m coming up on my 3 year mark, and I don’t see myself renting it out anytime soon, even though I could rent it out for $1k per month over my mortgage/taxes/insurance . A few things happened:
    1. The housing market in Seattle has gotten so crazy that I couldn’t afford to buy a new house to live in (honestly, I couldn’t afford to buy my current house in today’s market)
    2. Seattle has been enacting some regulations that are very anti-landlord and I’m nervous to get in a squatter situation.
    We’ll see what happens a few years out, because I would love to have a cash flowin’ rental like the Frugalwoods!

  50. We recently decided to sell our old house instead of renting it out. It was a though decision, but we think it’s the right one.
    You guys are able to get some very good rent, so it seems like it makes a lot of sense for you to rent instead of sell.

  51. Daphne says:

    I love your blog and feel like our lives relate in a lot of ways. I was wondering if there was a specific spreadsheet you used to calculate the variables in order to decide if it was better to rent your home vs sell your home. You showed small parts of a spreadsheet on a different post but I would love to hear about it further. We are in that same lucky position and I am trying to get all the facts before making a final decision. Thanks for your help!

  52. This is awesome. Best rental story I’ve ever read. Hiring a property manager is a good decision I think.

  53. Frugal(ish) from VT says:

    Glad to hear that being a landlord is working out well for you so far, and that you guys are putting in the effort so that tenants feel safe and comfortable in your previous home!

    I’m a Cambridge renter, and even with the notoriously tenant-friendly laws in MA, I’ve had more than a few difficulties. One landlord used her key to let herself in and sleep on our couch. Another landlord claimed to live in San Francisco, but eventually we realized he wasn’t even in the country and didn’t leave us with a working phone # (and that particular listing we found through a professional realtor). Crazy stuff!

    Question for you other frugal folk: what do you think of buying in a HCOL like Cambridge *without* any plans to rent out the property? I plan on staying in the Boston area for the foreseeable future, but the current prices make me skittish. It seems like owning a primary residence could be an issue from a diversification standpoint (since a home would represent such a huge investment/component of my net worth), but it might also make long-term FI more achievable.

  54. hbr says:

    Could you describe in a little more detail how you found your property manager? In a comment, you mentioned that you called a number of potential managers – how did you figure out who to call? Did you have recommendations from others? We are looking for a property manager in Cambridge as well and starting from scratch — if you would recommend yours, could you pm me? Thanks so much. (P.S. — love your blog!)

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