How We Turned Our City Home Into A Rental Property
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:
- Why Did We Buy Our House?
- That Time We Bought A Homestead
- How We Decided Our Homestead Was The One
- The Finances Of Our City Rental And Country Homestead
The super quick math on our rental is as follows:
|Cambridge Rental Expenses||Amount Per Month|
|Mortgage & Taxes||$1,921.66|
|Insurance (not escrowed through mortgage)||$127.42|
|Total monthly costs:||$2,154.08|
|Cambridge Rental Income||Amount Per Month|
|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.
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
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
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.
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.
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
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
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.
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
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.
Pre-Move In Meeting
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!
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.
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
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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