Using Property Management on my first house
If you haven’t read how about my journey to buy this house, you can check it out here – My first house – Buying in a Boomtown
Towards the end of March in 2014 I received some great news at work in the form of a promotion. Fantastic! It came with a nice pay bump, new responsibilities and it also came with a transfer to a different site for a new project. This was a camp only fly-in and fly-out site. Not so fantastic! As you know I had just taken possession of my house just five short months earlier. Now I need to rent it completely, not just the one room.
This transfer took effect immediately. I would be in a camp an hour north of town and would be flying out of an airstrip on one of the work sites. I wouldn’t even have the chance to drop by on my way to the airport to show the house to prospective renters, nor would I be available to deal with any issues that may arise from the renters. My only option was to find a Rental Management company ASAP!
Knowing absolutely nothing about property management companies, I spoke to a few co-workers and did some research and searching online. Luckily this wasn’t an unusual situation for people working in the region. A lot of people buy a place only to be transferred and they don’t have time to sell or don’t want to sell because larger homes with basement suites and with more than 2 bedrooms can be highly lucrative in a booming town like Fort McMurray.
So what is a property management company anyway?
Glad you asked! Property Management Companies are essentially landlords for properties they do not own. For a flat rate or more commonly a percentage of the rent they will handle everything from finding and screening tenants, collecting rent, and dealing with any emergencies that may arise with the property.
From my searching most of the property management companies I found all had the same basic monthly rate of 10% of the gross rent. The difference came from the vacant months some charged anywhere from $50-200/month, some had start up fees and the biggest difference was on the agreement terms and termination clauses.
Since I was overconfident in my length of stay in town before buying the house, I figured I should try to make sure I had a flexible agreement. The property management company I went with was one that allowed for flexible agreement terms. I went with a 6-month defined agreement, after that it becomes a month to month and only a written cancellation notice is required, no cancellation fees.
Initially I was skeptical about how much money I could get for renting the entire house. I saw similar properties on the various management websites I looked at and several were going in the ballpark of $3000 per month! :O
I remember myself thinking these properties must be over priced and have been on the market for quite sometime. After discussing it with the property management company they said it’s not uncommon for houses like mine to receive that much in rent. Many companies in the area rent homes for their employees because the contracts they have require them to be flexible, so camp is not always an option. After hearing this I was a bit more confident that I could cover my payments even with the management fee and set a goal of $3000/month for the furnished house with utilities.
What are these payments you need to cover?
Another great question! There’s a lot of different payments I would have to cover with the rent payments. Now since this property is considered a rental property most of them are tax deductible. Here’s a breakdown of those payments
– Mortgage payments – The interest is now tax free
– Condo fees
After getting everything sorted out in a few days I dropped off my keys to the rental management company office and drove up to my new project on March 27th. I received an email back from the rental management company later that day. The associate went to inspect my house and was impressed with the cleanliness and thought I should be able to rent it for $3000 per month without an issue. Great news!
They started to show the house on April 1 and it was rented on April 4th for $3000 per month, after their management fee I grossed $2685. By my calculations that was just a few dollars shy to cover all my costs which included an accelerated payment plan for the mortgage. Not the greatest situation to be in, but the piece of mind was incredible. Now all I had to do was focus on killing it in my new management position and leave the rental to the experts.
Why not just sell?
After renovating the house, and increasing it’s equity $10,000+, you might be wondering why wouldn’t I just sell it?
I wasn’t really in a great position to sell the house so soon after buying. Even after the minor renovations I did to bring it up to the same level as neighboring units, I don’t think it would have been worth it to sell the house for a few reasons:
1. Fees – The Realtor’s fees, lawyer’s fees, the fees to get out of my mortgage early all would have eaten away any profits I may have made.
2. Work – By this time I was working in the region for just less than 3 years. 10 months were spent in camp at the beginning and the rest was in town. I could be back in town before the end of the year.
When I originally bought this house, I was buying it with the intention of savings some of my rent money in the form of home equity. Now since the entire house is rented I’ve increased my yearly gross income $36,000 each year! That is a bigger raise then my promotion! 😀 Sure, it comes with an equal amount of expenses, but as long as it remains rented, I’ll be building equity in this house without spending much if any of my own money.
Have any of you had to rent out your home due to some sudden work changes? How have your experiences gone with property management companies? Let me know in the comments.