Becoming A Landlord

Our Path

A lot of things have happened since my last post and our travel journey has stretched over three years now. With that, certain decisions had to be made around our condo. The bottom line is that we only had two options, sell it or rent it.

We decided to become landlords despite the fact that it was a lot easier to sell our condo, pocket a hefty profit and buy another property elsewhere in the country. However, I have been an avid supporter of multiple streams of income and becoming a landlord has been one of my strategies.

Once we made the decision to become landlords, I went to the drawing board and started working on a game plan. To put things into perspective, we had about a month to turn things around from living in our condo to becoming landlords. I mean, we couldn’t wait to get back on the road again! I know, I just had to say it.

For all the landlords out there who are reading this post, you know exactly what I’m talking about and you know the logistics are nothing to sneeze at. Knowing that things can get pretty complex pretty fast, we decided to keep things simple so here is what we did:

• Moved most of our stuff into a storage unit
• Donated a lot of items we couldn’t fit in storage
• Hired our one and only real estate agent to help us list our place and find the “perfect” tenant
• Created a single member LLC

The four steps above is all we did to officially become registered landlords in Montgomery County, Maryland. Now, I’m going to elaborate further on each of the bullet points so that you have an understanding of the overall process.

Moving is not fun, but we did not want to rent a furnished place so we had to move all of our belongings out of the condo. We got creative. Instead of putting our things in a public storage unit, we ended up renting a storage unit our condo building for $20 a month. The storage unit was big enough to store all our essentials and memorable items. The key thing to note here is that $20 a month is a bargain when compared to $200 a month if we went the public storage route.

Items that didn’t fit in the storage unit were donated and later were written off as donation items on our annual tax return. You know I love me a tax write off and one of the most notable ways to make more money is a write off by way of business expenses or donations.

We made the decision to hire a real estate agent in order to expedite the listing process and find reliable tenant in less than 30 days. This service ended up costing us $1,500; and in my opinion, it was money well spent. Some may argue, we should have done this without an agent, but since it was our fist time going through the process we needed an intermediary person who knew exactly what we needed to do in order to be compliant.

As we were working on the paperwork with the county, we found out that first time landlords are required to rent their place out for a minimum of two years, which it’s a great deal for a landlord because have a guaranteed income for at least two years. We also learned that we have to renew our landlord license every year with the county for as long as we are landlords.

Every state and county are different so I’m just tossing this out there in case you are reading this and thinking of becoming a landlord in Montgomery County, Maryland. The total amount we spent for having our condo inspected and becoming registered landlords was approximately $400.

Here comes my favorite part, from the get go we knew that we didn’t want to rent our place under our names from liability stand point, so we ended up forming a single member LLC in Wyoming for $150 and asked our tenants to make monthly rent deposits in the name of the LLC. That way, we are protected in case something goes south and the tenant decides to come after us. First they’ll have to deal with the LLC before getting to us. It’s a simple, powerful and widely used strategy in the world of real estate.

On that note, I do want to make one thing clear. Thanks to our real estate agent and the due diligence put forth by her and us, we were able to find very good tenants. It’s been year and a half since we rented our place out and we couldn’t have asked for better tenants.

Final Remarks

It was a lot easier to become a landlord than what I anticipated and I’m really happy we chose to keep our place and rent it out instead of selling it. By doing so we essentially become mortgage free, generated additional source of income and still have a property that is appreciating in value.

Let’s talk numbers for a second, we still owe $194,109.26 on the condo. Right now, our monthly mortgage is $1,416.76 and our tenant pays our LLC $2,500 a month. After all expenses are paid including HOA, repairs, etc. we get to pocket $300. Instead of spending the $300, we decided to put the entire amount into the principal each month for one simple reason, pay off a 30 year mortgage before the 30 years are up and save as much as possible on interest.

We asked ourselves two questions:

• How much faster could we pay off our mortgage with extra monthly payments?
• How much interest could we save by making extra payments on our mortgage?

It turns out, Dave Ramsay is saying, we are shortening our mortgage pay off date by 6 years and 7 months and saving a whopping $34,972.83 on interest in the process by adding $300 on top of our monthly mortgage payment of $1,416.76. That is a pretty good start to the landlord life!

Forever grateful and thankful JL Collins for referencing us in your latest book, Pathfinders. For all you avid readers out there, I strongly encourage you to get your hands on this book asap, you are going to thank me later.