Hot prices lure many to invest in real estate

Novice landlords

December 11, 2005|By LYNN MARIE HONEYWILL | LYNN MARIE HONEYWILL,SPECIAL TO THE SUN

For three Federal Hill couples, the journey to becoming landlords began at a New Year's party on William Street welcoming in 2004.

After moving as renters from San Francisco's super-inflated housing market, new homeowners Marty Marren and wife, Susan Kim, excitedly watched Baltimore's housing renaissance: vacant or aging houses bought low, rehabbed, then sold high or kept as investment rental properties. "We should do this," urged their fellow William Street neighbor and homeowner, Matthew Cimino, 36, who is married to Alexandra Pratt, 27, a physician.

Another William Street couple at the party, Minh Ngoc Nguyen, 32, an attorney, and James Bell Jr., 34, who owns an information-technology consulting company, had already scouted local properties as possible rental investments and spoken to the others about it.

That New Year's night the neighbors decided to pool their resources and take the plunge together. "They had been thinking about it for a long time, but I provided the catalyst," said Cimino, a research scientist with a doctorate in botany and a longtime interest in real estate.

The three couples formed William Street Group LLC and in March bought a Federal Hill rowhouse near Cross Street Market for $190,000, and then spent three months and $10,000 renovating it themselves. In July, when the first tenants moved in, the couples joined scores of other Baltimore investors in becoming landlords.

Two-thirds of city homes purchased in the first four months of this year were sold to people who did not plan to live in them, a Sun analysis of state property assessment records showed.

And some move-up homeowners, hoping to profit from appreciation, have hung on to their old homes instead of putting them on the market.

Typically, those people rent their houses to cover mortgage costs and for monthly income.

Many have become first-time landlords, confronting the travails of "tenants and toilets," said Alan Chantker, president of the Mid-Atlantic Real Estate Investors Association and a former landlord.

Calls for problems like plumbing backups can come anytime, said Dave Lombardo, who owns a deck-building business and three residential rental properties in Lutherville and Towson.

"You've got to know that you're accountable for it and you have to deal with it on a 24/7 basis," Lombardo said.

One Federal Hill landlord, Frank Muher, said he's dealt with maintenance headaches such as toilet leaks, roof repairs and broken air conditioners by making "good friends" with several contractors whom he's willing to "pay a little extra" for quality work. As a result, he receives few maintenance calls, said Muher, an attorney. In other cases, the problem is renters who don't report needed repairs.

Male tenants are "notorious" for not complaining about maintenance problems, according to Keith Losoya, who rented out a Federal Hill rowhouse from 2001 to 2003. His male renters "just put a bucket under that leak" or never mentioned the nonfunctioning dishwasher "`because `I didn't really use it,'" recalled Losoya, who said other landlords have told him about similar experiences with male tenants.

In contrast, he said, "the women will let you know right away, no matter how big or small. I think it's kind of a Mars-Venus thing."

The William Street Group has dealt with a few money-eating maintenance issues. There was the repair call placed for a non-working furnace, due, it turned out, to a pilot light that had gone out. The bill for the repair wasn't covered by the furnace's warranty, said Cimino, who handles the LLC's maintenance issues as well as its bill paying.

Still, the William Street Group rental has run smoothly for the most part. It helps that they have "model tenants," Nguyen said. The young professional couple leasing the house communicates their maintenance issues via e-mail.

Other landlords aren't so fortunate, said Chantker, adding that many new rental owners don't bargain for the many problems that can crop up, such as tenants who don't pay rent, are loud and damage the property. Then there are the property repairs that eat profits.

`It's a business'

"Some people think it's going to be a part-time hobby," Chantker said. "It's a business, even if it's a part-time business."

For instance, if a landlord is forced unexpectedly to replace a roof, "suddenly you haven't made any money that year," Chantker said.

Landlords can eliminate day-to-day headaches by hiring a property management company - for a fee typically 8 percent to 12 percent of the rent, Chantker said. These managers have no incentive to keep maintenance costs low, because "they're going to get paid whether you make money or not," according to Chantker.

To determine profitability, prospective rental property purchasers should carefully work out the numbers to see if they will come out ahead financially, experienced landlords recommend.

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