Calling All Landlords...

MorrisonCorner · #1 11/18/06, 06:11 AM

Ok, let me first preface this by saying that owning rental property, in my humble opinion, sucks on a personal level. I truly hate the "people part" of being a landlord. Our rental property came with the farm and it is the dirty secret of every "successful" VT farmer I know of: the rental pays the property taxes and keeps the show afloat. So, as you can imagine, the little rental, which is on the books in our town as a "substandard rental unit" may be substandard, and not rentable for much money, but it is an integral part of what allows us to keep the property.

It would appear, for whatever reason, that the septic at the cottage may be failing. Well.. it was probably put in sometime around 1950, and never intended for year 'round use, so it was probably on borrowed time anyway. But it has thrown us into a serious "what now?" issue.

We're tentatively assuming replacing the system will run around $30,000 with the new regulations coming into effect. Much of that is bureaucratic (VT complains about no affordable housing, then layers so much bureaucracy over things "affordable housing" simply can't happen... it is a state quirk). If we go ahead and do the septic, as you can imagine, this impacts significantly on the income off that rental. Doing the septic doesn't improve the cottage, it is still substandard, so I can't get a higher paying tenant in there.

Plan A: Do the septic, rent the cottage as is, with about a 3 year life expectancy left in the thing. This would barely break even with the investment, but in 3 years we'd have septic, power, and water up there and could do "something" with the cottage.

Plan B: Do nothing.. break even means "no income" anyway. Close the cottage down, turn it into a barn or something.

Plan C: Try to do "something" (which probably means "flatten, start over") with the cottage... probably $125,000

Those of you who manage rental property... is a large part of owning rental property the "cash out" at the end? Because we can't cash this asset out, it is part and parcel of the farm. If we're going into "rental property" would we be better off letting this die and taking a mortgage on a piece of rental property "elsewhere" if we still felt we needed to invest in a rental?

Ouch. My head hurts!

We're consistantly held this cottage and rented it to people who really needed affordable housing. The people in the cottage right now are totally desperate that they're going to be thrown out if the system collapses, they don't have anywhere to go, so I feel terrible about this. But we've also got to try and think sensibly... not sympathetically.

Just having some trouble doing that!

dennisjp · #2 11/18/06, 06:39 AM

Putting a septic system in isn't that hard of a job. You could rent a backhoe and buy all the materials needed includeing a new tank for less than $2,000.
It is truely a fairly simple job to do, and the inspections office should give you all the details on how to do it. It is according to where it is at, I don't think I would even let them them know I was doing it, except for a call to learn the codes.
Just don't give them your name and address and see what they say about you doing it yourself.
The people renting from you should be willing to help lay the pipe etc., just to be allowed to keep living there. I sure would if I were in that boat.
I would also call around and get some prices from contractors. If they are getting $30,000 to put one small system in, I need to move up there, because the ones around here usually come with the backhoe operator and two helpers first thing in the morning and will be finished, loaded up, paid and gone before 5 o'clock.

If my memory serves me right, the owner paid $3,100 for the one at the last house I built, and that was a 1,900 square foot 4 bdroom, 2 bath home.
Good luck and God bless
Dennis

The guy I always used would more than likely be willing to talk to you on the phone and explain the do's and don't's of it if you need. Real nice guy that loves to talk. PM me if you want his number.

rileyjo · #3 11/18/06, 06:46 AM

I don't have a solution for your problem, I can only relate my experience.

Our main business was getting killed at tax time so we needed a few more tax write -offs. I bought a property with highway exposure and opened up a retail plant nursery. I also offered landscape maintenace and design services. It was great fun.
I rented out the house on the property to a young family.
The property appreciated and my payoff was when I finally closed the business and sold everything off.
It doesn't sound like you can sever off this rental from your farm and cash out. Either way, you'd be looking at upgrading the septic to attract a buyer or keeping the rental cashflow.

dk_40207 · #4 11/18/06, 06:48 AM

Have you concidered a composting or incinerating? I know I spelled that wrong..

Deb862 · #5 11/18/06, 07:53 AM

Ah, yes, the joys of living in the highly over-regulated Northeast! We're in NY very close to VT and now of the outlandish fees they are getting for new "environmentally friendly" septic systems. If you guys are handy, it might pay to see if you could perform some of the labor of putting in the system (here you need an engineer's plans!) and then possibly raze the cottage and build a new small dwelling in its place. You could probably spend less than $125K doing it that way and get more for the rental to boot.

RedHairedBonnie · #6 11/18/06, 07:55 AM

I have rentals. I use the rents to pay for that property. My homestead and rental are different properties. You said it may be failing-that also means it may not, and it might be another issue. If you think it is on the way out, could you extended it's life by pumping, or adding a grey water system? What makes it substandard? Could that be fixed, then you could charge more rent, and pay for repairs/septic?

We got ours, a three family unit, as a back up for the kids and I if something happened to my hubby, the house would be paid for, I can go there with the kids and live off the rentals. Now it's an investment, although we realize some cash, not much and I really don't put that in my budget. The cash at the end was not an issue. You use yours for your taxes, could you absorb the taxes if the rental was no more?

There may be a program that would allow you to do the needed repairs, interest free. The area that our rental is in, changed the zoning, and we needed to do a lot of work to met the new code, which we could not afford. In talking around, my sister mentioned it to a co-worker, who mentioned it to a friend, who suggested contacting the local community development office, who set us up with a hud loan. I came up with 1/4 of the repairs, they came up with the rest. I made interest free payments for 5 years to pay off 50% of the money they came up with, and at the 11th year the balance was forgiven. If sold the property, before the 11th year, I paid the whole loan plus interest. The purpose of telling you this is-there maybe something out there that you may only be able find out about by talking to people (the city notice that told me I had to conform didn't say anything, and when I called the city they didn't say anything about this program, even though it is managed by a city manager)

I would suggest, if you go for the option of getting a different rental, to think about multifamily. There will always be repairs, mortgage and expenses, the people I know who have a single family, never realize a positive monthly cash flow at the end of the year. And if you lose the renter, then you have to absorb the whole new mortgage. We have 3 units, the first two pay the expenses, the 3rd major repairs. So if I lose one renter I can still meet expenses.

Good luck!!

Herb · #7 11/18/06, 08:02 AM

Bulldoze the house once it becomes empty. If it is in that bad of shape and it is going to cost $30,000 just for a septic system, you can get in over your head real quick.
A word of caution about DIY with no inspections. I live in KY where there are few places that have building codes, but the septic is always inspected. In my area, it is done by the health department. I have heard horror stories of homeowners having to have the system dug out because it wasn't inspected.
It is a shame that simple stuff like that has to cost so much. Do they allow stuff like wetland systems or the like up there in Vermont?

moopups · #8 11/18/06, 08:14 AM

Just sell out and come to Florida like northerners have been doing for about 30 years. Nowdays our $1,500 to 3,000 lots are up to $25,000.00, yes we love northern investors.

bare · #9 11/18/06, 08:47 AM

First you have to shed yourself of your "people" problem. Not everyone is cut out to be a landlord. Hire a professional property manager. Ideally, your tenant shouldn't even know that you are the owner, just a neighbor.

Look at the existing septic to see what the real problem is and if it can be repaired/brought up to standards. Septic systems are never going to get cheaper, but existing ones are always grandfathered, so whether you continue to have a rental there or not, the septic system can be looked at and treated as rental investment for tax purposes.

If you don't want to put any money into the existing building, you might consider tearing it down or converting it to another use and offering rural acreage for a modular home, wherein the tenant actually owns the home and mortgage and just rents the property with utilities in place.

agmantoo · #10 11/18/06, 08:49 AM

I am often confronted with similar problems as you face. Our area has grown significantly along with the that growth has come code enforcement. I would repair what should be a grandfathered system and I would nurse the old unit along. There are a lot of things that you can do thay do not cost a lot of money. For example, make darn certain that no excess water is going into the system. Often the water closet on toilets weep and floods the septic system. To determine if there is seepage going to the septic tank put some food coloring into the toilet storage tank, watch to see if the water in the bowl slowly changes color. If so replace the entire toilet with a low water consumption toilet. You need the low volume toilet anyway. Put a shower in instead of a tub since less water is used. Take out the washing machine and tell the tenants they must use a coin laundry. Reroute grey water that is going into the septic system now. Have the tenants to put drying toilet paper in a trash receptacle even if you have to pay for trash pickup. Once a year you may have to have the system pumped. When you have the tank pumped, flush out the lines of the drain field with clean water. Sure it is a dirty task but one that can help an ailing system. Soap and water will clean you up! Using these type of practices the septic system will last many years to come. You need the income and the income is put to use to enable you to have more discretionay use of your earned income. I know that being a landlord is a PIA BIGTIME but the reward is often what has permitted many of us to get a rung up on the ladder when it comes to managing our finances and improving our quality of life. You just have an addressable issue, not a problem!

dcross · #11 11/18/06, 10:12 AM

1 Find out if the septic is actually failing.

2 Get an actual estimate on fixing it.

Pouncer · #12 11/18/06, 10:14 AM

Hmm, I deal with septic systems every day. Agmantoo has some good suggestions, but to help with the real problem, I need to ask some questions:

What type of tank is it?
What type of piping do you think is down there?
What kind of drainfeild does it have?

It's probably a concrete tank, becuase a steel one would have quit working long ago. It *could* be fiberglass I suppose, but not likely. If so, the tank itself is probably okay, its either the lines or the drainfield that's toast.

If you have cast iron piping (probable, it was very common) it's possible the lines have been breached, either roots, soils, or simply cracked-but the most likely scenario is that they have accreted closed. That's a fairly inexpensive fix.

Do you get the system pumped regularly? If not, I would start there, because what really gums up and slows down a septic system is the accumulated soaps and greases that make their way into the tank-and eventually (depending on use) the drainfeild itself.

Drainfeilds have a finite life, and who knows what is out there beyond the tank. Replacing drainfeilds is not that difficult, but it's likely that you can't even check on the condition of it, because monitor pipes are relatively new in septic system designs (last 20, 25 years). IF there is some way to determine where the end of the drainfield is, start there and work your way back.

If you have cast iron pipe, start at the house and work to the tank.

Just my advice, I get calls about this every week.

Pouncer · #13 11/18/06, 10:17 AM

Oh and for thirty grand, I will fly down to VT, visit my sis in Burlington, and do your septic system for you, hahahaha! Even here in Alaska, the most expensive residential system is a pressurized one (high water table, or clay soils) that is essentially a mound system, and they are well under that amount with a tremendous amount of dirtwork to be done. I could set you up with an Advantex too, lol

rambler · #14 11/18/06, 10:57 AM

You are sticking in a lot of money into something that you don't seem to enjoy or want around. Only to break even or only slightly get a couple bucks.

Hum.

Seems you are telling us flatten it & invest your money in something else that will return you more $$$ or more happiness.

That is what I would do.

Some folks don't understand about septic regulations. You can't do the work yourself. They fine you or worse, plus you need it redone on top of that.

I'd love to see the fellow fly in & do the work for you for less. He'll have $100,000 of his own money tied up in bonds, permits, testing, etc. before he can take a shovel out of his truck.....

Don't worry - this level of govt oversite is coming to all of us, only a little bit of time. The feds are getting involved, and your states will all come up to the same stanards.

--->Paul

Shadow · #15 11/18/06, 01:20 PM

You say it is substandard, the city says it is substandard, now you are thinking of spending $30,000 to have a substandard rental with a good pooper.
Remove the piece of junk and if you want the headache of rental property start over.
As for the do it your self ever here in Alabama you have to have a permit for a repair, they come out and decide what type of system you need and how it will be built or repaired. It has to be done by a liscenced contractor liscened by the state and county, you do it your self and you will be fined and you will dig it up and you do not want to go there. And Alabama is way behind most on codes but even they are not kidding. People slipping around and doing it substandard and making a mess of it is the reason for the health dept getting involved and the permits.
Me and the wife finished a house yesterday, got the papers sold last night, new owners moving in today. We replaced ceilings , sheetrock, floors even down to subfloors some rooms, new roof, tiled the floors in the kitchen and dinning and baths new breaker panels a complete rebuild did it all our selves just me and her. EXCEPT THE SEPTIC SYSTEM. We had to get a permit, inspection, they told us what we needed and a list of approved contractors.
We did rentals for years, got out about four years ago. Our kids did not want them told us to just sell them cause that was what they would do with them. We did and the tax write offs over the years came back to bite us that turned into profit according to the IRS and we ended up giving most of the money to them. Federal and State income tax at that time was a total of 44 percent of every dollar.
We have a substandard rental unit on the far corner of our farm and no one will ever live in it again. As soon as I can get them out here the fire dept said they would burn it for practice. I have tried to give it away to be torn down for the material but that has not worked. But we are out of the rental forever. Just our experence.

fantasymaker · #16 11/18/06, 01:52 PM

REPAIRS!! Usually you can make repairs without a permit .In any case iF I did the work my self Id call it a repair and do it quietly

Chances are the tank and plumbing to it are ok its the drainfeild thats clogged.So id just add a bit of additional drainfeild to it . Very simple.Tie into any drainline you can find and add a feild from there You need a working hole arond the T area but everything else you can do witha trencher If you can block off the sight it should be easy to not bother anybody

lgslgs · #17 11/18/06, 03:47 PM

I'd invest the 30,000 in a couple of good mutual funds and spend the next 3 years stripping the cottage (selling any usable scrap that I didn't have a use for) and turn it into a nice shed, barn, or framing for a greenhouse.

That would let you recover a good portion of the lost rent, eliminate the need to deal with renters, and end up with an outbuilding that you can design around your needs.

If you bought a new septic tank now, would that be with money currently in the bank or would you be financing that money in some way?

Personally I wouldn't have any desire to have a rental as an investment. I'd rather sink the money into a solid international emerging markets fund.

Lynda

MorrisonCorner · #18 11/18/06, 03:57 PM

*laugh* Lynda, you're a girl after my own heart. Yes, we would have to borrow the money.. we don't have $30,000 kicking around. To the person with expertise in septic...

METAL tank, if you can believe it. Round, metal, tank. So out of code today it is frightening. "Crushed" pipe (whatever that means since things are still flowing downhill somewhat) coming out of the house, baffles broken, leach field not leaching.

In short.. implosion. Under VT law there is no "repair" under these circumstances, but "engineering study" and "replacement."

BIG bucks.

PCDreams had the same issue not long ago... what do you do with an investment when you suddenly discover it may not perk properly and a septic system is going to be frightfully expensive?

The "bulldoze" option is starting to sound increasingly attractive!

The people I really feel for are the ones in the cottage right now. They don't have a whole lot of options. There is just no affordable housing around here.

fantasymaker · #19 11/18/06, 04:17 PM

repair quietly!

lgslgs · #20 11/18/06, 04:33 PM

Quote:

Originally Posted by MorrisonCorner

*laugh* Lynda, you're a girl after my own heart. Yes, we would have to borrow the money.. we don't have $30,000 kicking around.

Yikes!

Time to start designing that goat house or greenhouse.

Another thing about rentals - there's always costs that come with them. If it isn't repairing a sink tap it's buying a piece of plywood here or a tube of caulk there.

Do you have a really good number for exactly what your true income is for the property - factoring in rental fee, vacancy time between rentals, damage and repairs, advertising for new tenant, liability risk (what would happen if there's a fire there tonight), accountant fees (or time spent doing the bookkeeping yourself), utilities costs, insurance costs, and other incidentals?

You might do a lot better using that space to grow food (animal or vegetable) or enjoy it in a hobby fashion (turning the sunk cost into family enjoyment).

I personally wouldn't ever want to get sucked into having a rental again. I had three rental apartments in a house that I lived in 20 years ago - and while the rents "could" cover the mortgage, in reality the true profit picture was rather grim. All it takes is one tenant flushing pads down the john to really pull cash out of your pocket.

I personally would never borrow money to keep a rental situation going. Maybe you're having a better experience with it than I did, but it was a ball and chain for me - time-wise and financially. And it was stressful.

Unless it was a real, substantial and reliable money maker after factoring in all costs, I wouldn't do it. I'd be trying to decide if I'd be better off selling the wiring and plumbing to the scrap metal dealer or leaving in a water supply to my barn or greenhouse.

Lynda