Rental Property

[TouchDown]

Does anyone own rental property and would you recommend it? My wife and I are considering it as a 2nd source of income / equity.

Investments can only take you so far, with the real estate market somewhat in a lull, we were wondering if there was some good investment opportunities that we could take advantage of...

2nd question - does anyone have a real estate sales license? As a side, my wife was considering this as a possible avenue for returning to work after our 2nd child goes to school (2 years away), it would be "somewhat" flexible with more work hours on weekends and evenings (open houses, etc.). That being said, you only make as much money as you put in it effort wise, so it could be somewhat of a risky venture. In addition, we only know our friends / family, so getting a reputation might be hard in an already over run career field in our city (600 realtors in a town of 100,000).

If anyone is doing this kind of stuff (even investing in real estate) give me some sage advice on your experiences.

 

[snickerd3]

My father-in-law is in the house rental biz. They currently have 4 homes, used to be 5. They just moved into the home they built and plan on renting the one they lived in prior...as it is right next door. They are currently renting another and the fourth house is just about done with repairs after a fire...the renter placed combustables too close to the hot water tank and the laundry room caught fire causing over $100,000 in damage.

He has had trouble the past year or so with renters...the house they just sold was rented to couple who he had to have evicted because they stopped paying rent after the first month and security deposit...took about 6 months and they trashed the place. holes in walls, they discarded all their garbage in one room of the house, let their dogs run amok etc...

Another renter was a single mom with 3 kids...he tried working with her on rent, but in the end he had to evict them too.

One of the newest renter's check bounced for second month, but they brought the cash over the next day...could have just been a bank delay.

Even complete background checks don't ensure you found a good tenant.

As far as income, when they had all houses occupied only 1 brought in extra money the others just paid for themselves. So if you are looking for equity building it could be a good thing, but not extra income...unless you get an amazing deal on the house.

If they can't find a good tenant once the fire damage is repaired they plan on selling it since it is essentially a brand new house.

 

[TouchDown]

My sister owns some rental property in a bad part (very low income) of the town she lives in... They are in court every month with evictions, etc. I thought renting homes / nicer duplexes might remidy many of the headaches she has, but very possibly not.

Yikes. Hope your dad has some tums or can allow that stuff to not get to him too bad. 100,000 on a burnt down home? I'd definately reconsider the rentals at that rate. There have been 2 such rental fires in our city in the last 6 months, burnt down entire rental 4/5/6 plex (one was lit candle, the other was unattended cooking).

 

[Dleg]

Speaking only from experience as a renter, I would say that it's more trouble than it's worth.

I remember a beautiful 4-bedroom home with swimming pool that myself and three other engineers lived in in Bakersfield, CA. I think "trashed" might be too strong a word, but it's all that comes to mind when I think of how we treated it.

The only way I would rent out property I owned would be to contract with a property management company. They would do all the dirty work, including all maintenance, and leave you mostly worry-free. Of course, you would be paying them a significant percentage of your rental income, but I would think it would be worth the decreased headaches and worrying.

 

[Road Guy]

never done it but I have made my fair share of low ball offers on houses with hopes of renting them that I never got the seller to bite that low.

I no doubt its a huge pain in the ass. but I know a lot of people who used that as their stepping stool into semi-extreme wealth.

I was in the army with a guy whose dad owned a trailer park (50 trailers in south ga) man he said that was a damn gold mine, he only needed 30% of the tenants to pay every month to break even. And he had some great stories, but that would be a little too much for me (a trailer park)

 

[EdinNO]

My wife's cousin and her husband rent at least two homes in Alabama.

I wouldn't mind doing it and actually came close to making an offer on a small house right after Hurricane Katrina. We had spent the evacuation time with this couple and saw how things were going fairly well for them.

In the end we had too much going on and were too scared to take the plunge.

I would just be happy to break even on the mortgate. My thought is that over a 20 or 30 year period, you would have built likely several hundred thousand dollars out of almost nothing in investment- other than some time, some trouble and probably some stress.

Now my wife's uncle (the cousin's dad) buys condos (pre-construction) and flips them after a few years and has made an absolute killing and has had been able to use them as vacation and weekend getaways in the mean time. A little more knowldge needed and special situations for something like that. Ie, he's a lawyer who has worked in real estate title transfer forever, owning his own title company (think he gets some good insider info there?).

One thing to be careful on- the market here is S-L-O-W-I-N-G D-O-W-N big time. We bought a new (14 yr old) house in November, stayed in the old one one until just before Christmas ('06), put the old one on the market January 15th and were LUCKY to finally close on it on June 8th. We took less than we really wanted, but still made a few bucks. At the closing (which went painfully painful, BTW) we heard that the agents were starting to see people who were upside down in their homes (owed more than they could sell it for). Again, we made a few bucks, but I think we got out just in time. Point here is be careful. In a good market, the risk is not so bad b/c you can sell relatively easily if you decide several months into it that its not for you. In a bad market, which I think we are beginning to see in this area, you might be lucky to sell the house for even less than you paid for it. Could take a loss and/or sit on the house for a long time, possibly even un-rented. A good friend/ ex-boss of mine had that happen to him in Houston in the early/mid eighties during an oil bust.

Overall, I encourage the idea, though, if the right precautions are taken. I think investing in something like this or your own business, etc... could be one of the best ways to financial freedom- especially for us engineer-types!

That was a long response, wasn't it?

 

[jfusilloPE]

I own some rental property in Ohio that I rent out just enough to currently cover my expenses. I am helping a young business owner build his business. Fortunately, I have been blessed with a decent renter that I have not had any problems with.

The only issue that I have with renting out this property is that my brother is a partner in my venture and he is harder to get a hold of than the President. So, my two cents...renting can be a profitable thing if you stay on top of it, but never mix family and business!

 

[RIP - VTEnviro]

I've invested quite of bit of money in a rental property. It's currently lining my landlord's pockets. :smileyballs:

 

[JPGOLF]

Hey TD - I own rental property and even though I have not done it for a "long" time, i can share a couple of tips for you and anyone else that might be interested.

First of all, yes it can be a stepping stone, if you have the stomach for it! I am not trying to discourage anyone, but just be sure you know what you are getting into.

Couple tips:

1. Make sure the property you plan on buying, makes sense from a financial standpoint. Is the house in an area with a considerable renters to owners ratio? Check rents for that area in the newspaper, online, etc. How much rent could you ask for the property? That should be your first question. This is figure 1.

2. How much can you pay for the property? How much would your mortgage payment be? Figure on putting down at least 10% down plus closing costs (That seems to be the minimum a bank is requiring for an investment loan, then again, things might be different now with the credit crunch crisis). Do not plan on a 30 year mortgage if you do not want to. Make sure there would not be any prepayment penalty on the mortgage. From what I have seen, cheaper homes return a higher profit than middle of the road homes, but the risk is that renting on a lower income area has its share of tenants. Calculate the total cost of purchasing the property (purchase price + closing costs) This is figure 2.

3. Once you have 1 and 2, divide the ANNUAL rental income, by the TRUE purchase cost and multiply by 100%. This is your "ROI" when it comes to rental properties. A number between 9 and 13 is what you are looking for!

4. A bit of advice on financing: Get conventional loans with fixed rates and low points. Look for a low rate to apr difference, no prepayment penalty and if you feel comfortable, less than 30yr mortgage. I selected a 15 yr. but i know by paying it off early with no prepayment, total time to payoff is 8-9 years.

That is just the "scoping" section, if I see interest on the post I will move on to the next step: taxes, maintenance, lease contracts and managing of rental place. I need to get back to work!

Regards,

JP

 

[Freon]

I owned a rental house for almost 15 years. For me it worked out great; I never had a bad renter, kept it rented and sold it to make a down payment on my current house. My advice is to buy a large house in a location with a large population of "professional transients." (In my case I was near a teaching hospital and a military base.) It was a four bedroom/three bath house in a good neighborhood and most of my renters were junior military officers or interns at the hosiptal. I had a professional agent manage the place and he activly looked for renters from those sources. Don't expect to make money month-to-month, unless you do get an incredable deal. But your can let someone else build equity for you!

Freon, P.E. and Reformed Slum-Lord

 

[IlPadrino]

I am currently a landlord. My mortgage payment is $2600/month. My tenant pays $1800/month (but the Property Manager eats $180 of it). Annual property taxes are about $5000. Insurance is another $500 (or so, I can't remember exactly)

So my "investment" is something like $1000/month. It helps at tax time, but only time will tell if this investment returns anything.

So why am I a landlord? I couldn't sell for a reasonable price in Ventura County, CA.

I think flipping is too speculative for my tastes, especially considering the current market uncertainty. But long-term real estate investments are almost always a great investment (or so I'm told). If your income matches your expenses I'd say go for it.

 

[udpolo15]

2nd question - does anyone have a real estate sales license? As a side, my wife was considering this as a possible avenue for returning to work after our 2nd child goes to school (2 years away), it would be "somewhat" flexible with more work hours on weekends and evenings (open houses, etc.). That being said, you only make as much money as you put in it effort wise, so it could be somewhat of a risky venture. In addition, we only know our friends / family, so getting a reputation might be hard in an already over run career field in our city (600 realtors in a town of 100,000).
If anyone is doing this kind of stuff (even investing in real estate) give me some sage advice on your experiences.

My wife is in real estate. Generally, it is nice when times are good, crappy when times are bad. Even during the boom (we're in Chicagoland) she had a couple of slow years; however, this year is looking to be an above average year even though the market sucks.

Some other thoughts

-While it is flexible in the sense you don't have a 9-5, it is not flexible in the sense that people call up and expect to see the place in an hour. You certainly don't have to be on standby 24/7; however, I think it would be hard to have a regular commitment (i.e., watching the kids from 12 - 4 every day.

-Your wife will likely start out at the bottom and will only get a small percentage of the commission. My wife was fortunate to start working with her aunt who has been doing real estate for 20 years so she got whatever cut her aunt had worked up to. She also had the added benefit of some experience behind her when she was developing clients.

-You wife will need patience and a think skin. Even my wife's clients can be a handful, let alone the others she deals with. People have a lot of attachments to their homes and/or the amount of money they're investing so they sometimes don't take the truth all that well. People have a lot of unrealistic expectations.

-I wouldn't worry about who you know. Your wife's personality will be the big driver. Your friends have friends, your kids have friends, your family has friends. Word will get out. You can also get clients through answering the phones on the weekends and open houses. If your wife is good at developing connections with people, it should be a problem. It will be a snowball effect. Most of my wife's clients are repeat business or referrals from clients, not family or friends.

HTH

 

[TouchDown]

Thanks everyone. We were getting more interested in this potential since it looked like real estate could tank, and we might be able to get some properties at a decent price because builders in our area have overbuilt and are looking to offload them just to get out of their loans. I'm sure there are some good buys out there right now. We have a very small mortgage, so getting a loan wouldn't be that bad - and with another interest rate cut looming, you could lock into something long term that could be beneficial... ie. get nearer that 1:1 income to expense. Plus, I have a feeling that with the foreclosure problem - rentals will be in a slightly higher demand. Our rental market is saturated.

All this changed when we found out we were expecting again. Oh well!!! I guess I'll leave the landlord / rental headaches to you professionals!