Live-In Landording: All of My Mistakes

I became a live-in landlord in April of 2013. It is a day that I will always remember and I will forever kick myself for not trusting my gut.

I moved into my 3 bedroom, 2.5 bathroom house in late January and, after a few weeks of getting everything all put together, I was finally ready to begin searching for my first tenant/roommate in March. I posted a listing on craigslist and, and a short time later had weeded down the replies to the person I thought was best for the room. She was a few years older than me but was really fun and energetic. I thought we’d get along great. And at first, we did.

This was my first experience with craigslist and I didn’t feel comfortable having her to the house right away, so we decided to meet for dinner. Warning sign #1: we were supposed to meet at 6 PM and she didn’t show up until 6:30. 30 minutes late is not a good first impression. If you do that on an interview, you’re not going to get the job. This should not have been any different. Warning sign #2: She was very fun and energetic, but a little too much so. As in, something wasn’t quite right. Later I found out this was due to drugs. I’m so naïve that I didn’t recognize the obvious signs.

I ignored the warning signs (mistake #1) and my gut feeling that maybe something with her wasn’t quite right, and in she moved.

Mistake #2: I did NO due diligence on her. No application, background check, credit check, income verification. This was extremely foolish of me and I paid the price.

Mistake #3: No lease. Once again, what was I thinking! Letting someone move into my house on a verbal agreement. Completely stupid. Please never make this mistake.

So now the fun story of how everything blew up –

She moved in and everything was good and well. We hung out, became friends, ate dinner together. Everything was great. Well, almost. Let’s not forget about the constant late payments, the always having a story behind the late payments, having to get the money from mom & dad to pay rent. And I felt like the bad guy making her pay me, even though she knew coming in that I wasn’t running a charity house. Besides the late payments, everything else was fine. Then I went for a couple days vacation and she was alone at the house. When I came back, she was no where to be found and my expensive items were gone. She left behind some of her stuff but took most of her belongings. I never saw her again.

When clearing her personal belongings out of the room I came across a paper for rehab. Apparently she had gotten out of rehab right before moving in with me. A few months later I googled her name and she was arrested for heroin use.

I lost approximately $1,000 in items, but when I think about how bad it could have been I feel very grateful that it wasn’t worse.

Key takeaways:

#1: Always thoroughly vet applicants before allowing tenants to move in

#2: Always have a signed lease before allowing tenants to move in

#3: Have thorough house rules that have been signed and agreed to by both parties before allowing tenant to move in so there are minimal questions that pop up throughout their tenancy

#4: Trust your gut! If someone seems a little off, they probably are.




Want to Live for Free? Consider Becoming a Live-In Landlord.

When I graduated college I landed my first “big-girl” job 700 miles away from friends or family. I needed a place to live so I checked out various studio and one bedroom apartments, but was quickly left with a bitter taste in my mouth. Half of my take-home pay to live in a tiny little box? How would I ever save a dime? I needed a better option and that was when I stumbled upon the idea of buying a house and renting out the spare bedrooms to help with the mortgage. Two years later, I have met interesting people, had some really great learning experiences, and managed to put away roughly $20,000. Here are the steps you can take to liberate yourself from the one bedroom apartment blues:

  1. Talk to a Mortgage Lender. You want to know what you can afford, but also take the maximum they tell you that you can afford with a grain of salt. I almost laughed when they told me how much I could afford, because I knew that figure left nothing in my budget for, well, anything. Since I did not feel like living off of Ramen for the next 30 years, I only looked at houses 75% or less of what they told me I could afford. Also, even though the plan is to have roommates paying you, you want to make sure you can afford the house on your own just in case something unexpected happens.
  2. Talk to a Realtor. Discuss what you are looking for in a house. Personally I knew that I wanted to have my own bathroom and a separate living area in case I wanted to be alone. My two tenants shared a bathroom, but keep in mind that you will get more for rent if each bedroom has their own bathroom.
  3. When you find a house that you think fits the bill, look up what comparable rooms rent for. I have found craigslist to be the best source of information for this. You can even go so far as pretend to be a person interested in a room for rent in the area and go check out the competition.
  4. Run the numbers and see if it works for you. Using my situation as an example, I had two bedrooms that rented for $500 and $525 each, plus each tenant was responsible for 1/3 of utilities. I did not assume that my income would be $1,025 * 12, or $12,300, because this would not account for any vacancy or repair expenses. I estimated a 20% vacancy rate (I tend to be picky about who I let live with me, but I easily could have had a 5% vacancy rate if my sanity meant nothing to me) and I also estimated a 10% repair rate. This left me with $8,610. The entire mortgage payment (principal, interest, taxes, and insurance) was $1,000 a month, leaving me with an estimated yearly cost of living of $3,390. I didn’t factor in utilities because I would have had to pay those in an apartment anyways. This is MUCH cheaper than an apartment, plus the principal portion of the mortgage payment is similar to moving money from one pocket to another pocket, it’s not a true expense.
  5. After you buy the house, it is advisable to create a very solid rental agreement. With my first tenant, I did not have this and I learned the hard way very fast. It’s a story for a different day, but she stiffed me rent and ransacked the house when I was away. Always do a background check and credit check and always have a signed lease.
  6. Have fun, be friends, but keep your authority. Some people you live with will end up being good friends while some will be acquaintances. Even with the roommates that turn into friends, I have always relied on the lease and rental agreement and do not stray from it. Remember, you aren’t being the bad guy, you’re just enforcing what they agreed to before they moved in.

Now just sit back and watch that money stack in your bank account! At any stage in life, if you’re the type of person who (A) doesn’t like to live alone and/or (B) prefers to live alone but really wants to gain financial freedom this is a great way to accomplish that. Good luck and keep up the saving!