Thinking about a rental property

Discussion in 'Hangar Talk' started by DaleB, Nov 12, 2019.

  1. DaleB

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    Who actually has, or has had, rental properties? How's it working out for you, what would you do differently (or do more of), and how do you find your good tenants?

    I'm thinking about investing in a modest single-family house. Or two. Or three. I'd love to find a duplex with at least one tenant already, but that's a tall order. From what research I've done so far, it looks like we could see modest positive cash flow, a few hundred bucks per month from a fairly inexpensive rental. We're talking older homes between, say, $70-100K, that would probably rent for $750-900 per month. I know we could probably make more on newer houses in the $150-200K range, but I'm just not comfortable with the down payment on something like that as our first foray into investment properties.
     
    Last edited: Nov 12, 2019
  2. TCABM

    TCABM Pattern Altitude

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    I’d buy buy in cash, no debt.
     
  3. alfadog

    alfadog Final Approach

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    My neighbors are big fans. They rent the house across from me for $2200 per month and the attached efficiency for another $850. However that house has been in their family a long time. House is worth about $350k so don't know how that would work out if you had to purchase.
     
  4. JCranford

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    My in-laws still own and rent out their former house in So Cal. It all works pretty well until they need a major repair, which in an older house will come sooner rather than later. Major plumbing work and a new roof in the past year or so.
     
  5. EdFred

    EdFred Taxi to Parking

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    Talked about this with my financial planner he said don't do it unless you can get enough properties to get a management company to handle it so you don't have to deal with the tenants face to face. All of his clients that have done onesie twosie rentals have absolutely regretted it.
     
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  6. DaleB

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    Do you actually own rental properties now, and that's what you would do differently?
     
  7. Fiveslide

    Fiveslide Line Up and Wait

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    There are plenty of realtors that will manage a single property for you.

    I think people could do it themselves, but they have to be willing to let it sit, empty, for period and not just jump at the first opportunity to rent it. Just like a management company would rather it sit empty than lower their standards and rent to someone with questionable credit, poor work history and no real rental references.

    In any advertisement, clearly state that a credit check, criminal background and references are required. You just told all people not up to par in those areas to not apply. You need high standards and you have to stick to them.

    Full disclosure, I don't actually own rentals, my dad does.
     
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  8. steingar

    steingar Taxi to Parking

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    I did it. I wouldn't recommend it unless:

    1. You can buy on a downturn (like 2008) so you can sell in the eventual recovery
    2. You are good with tools and home repairs, so you can repair stuff when it breaks
    3. You have time to deal with said rental property
    4. You select tenants yourself and you can be very picky

    Your tenants pay off your loan, and you get the equity, which is a good deal. If you own the property outright, better still. All profit less tax and insurance. Moreover, you can still deduct any interest paid, not to mention any other expenses on the property. I did it under the worst circumstance and I actually made some money. Not much, but I had little choice at the time.

    Hiring managers cuts into your profit, as does hiring others to fix and maintain things. Tenants take care of the landscaping and whatnot, should be in the lease.
     
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  9. FORANE

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    I have a few rental cabins in Gatlinburg and 80 some units of apartments.
    The vacation cabins rent well when the economy is doing well and are about as hassle free as can be expected. They are easy to sell if I decide to do so.
    The apartments are more work but less impacted by the economy.
     
  10. SoonerAviator

    SoonerAviator Final Approach

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    I don't know why having onesie/twosies for rentals would be bad from a financial planning standpoint. It's just whether or not you have the cash/capital to cover repairs or mortgage payments when things break or rental sits empty. Plenty of maintenance companies out there who you just pay a monthly service contract to and they handle the small repairs and have 24/7 availability. If you have the time/skills you can obviously handle that stuff yourself. If you start with a solid home (structurally, roof/plumbing/electrical), it shouldn't eat you alive. The background checks, references, and in-person interviews should allow you to mitigate most of the risk from a deadbeat renter. I'd also check the laws related to evictions, since that can vary quite a bit from state-to-state.

    From a taxes standpoint, the rental expenses can help offset the revenue for a lower tax burden. Once the home is paid off and a sufficient cash reserve is in place to cover the odd large repair bill, the rest is just pretty consistent income that can rise with inflation.
     
  11. RussR

    RussR Pattern Altitude

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    We own 5 single-family home rentals in the OKC area. We started with our first when we moved out of that house in 2010.

    It has gone well for us.

    How do I put this nicely? We don't buy cheap properties that will rent cheaply. Those properties often have high turnover and other problems. We aim for a more middle-class-income price range, we find it's more stable that way. Basically, we would be willing to live in any of our houses. We take care of them, we make them look nice, fix stuff when it breaks, and in general the tenants have therefore treated them well. In this area, a big selling point is having a tornado shelter - so if the house doesn't have one, that's one of the first things we put in. If the tenants feel safe, they're more likely to stay. Our property that we started with in 2010 has only had two tenants, and another one of ours had a tenant for over 6 years. So we like the long-term tenants!

    I think we had one of our tenants pay the rent a few days late once. Once. That was the extent of the "problems".

    We are selective and do definitely say "no" to applicants.
     
  12. Zeldman

    Zeldman Touchdown! Greaser!

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    Don't rent to friends.
     
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  13. DaleB

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    We've both done everything from minor repairs to major remodel and construction work, so maintenance and repairs aren't an issue, really. We even know when to back off and let a professional do the work -- with required permits, insurance and licenses. My wife knows the real estate market pretty well, and we have friends who have a couple of rental houses. One of the reasons I'm limiting the target price range for houses is so that, if we have to go for a few months or longer with the house empty, it won't cause us any financial distress. Nor will it break us if a rental house needs a few grand in repairs -- say the furnace and A/C crap out, or the roof needs to be re-done. We can deal with it, and we don't skimp on repairs.

    My wife is leaning more toward flipping houses, but to be perfectly honest I think it would require more time than I'm willing to give it, and the house never sells for what you hope it will. I'd rather spend a week or two fixing up a nicer place and rent it out. Most will need carpet, paint, maybe replace the 1940s plywood kitchen cabinets with new. Drop in some decent but not terribly expensive appliances, clean up the yard and address the cosmetic issues. We know enough not to buy houses with structural issues, unless we know for sure what it will take to fix them and the price is adjusted accordingly. We've gotten really, really good at sniffing out concealed damage like leaky basements and crappy plumbing and electrical work. Honestly, I think she could make a good living as a real estate agent, and I could probably make it as a home inspector. We've looked at a whole lot of houses for ourselves, our kids, friends, etc -- and owned a few, too.

    What I'm looking for, and they are out there, are older, less expensive homes that are still pretty nice. 2-3 bedroom, 1-2 bath 1940s and 50s vintage houses that have been pretty well taken care of. Some need a little renovation work, and some need more -- but we're not afraid to go in and do paint, hardwood floors, carpet, tile, baseboard, doors, windows, cabinets, etc. We know some good subs who do good work for reasonable prices for stuff like framing, drywall, and floor refinishing that I don't want to do myself.

    I look at this as dipping our toe in the water. If it works out well, I'm willing to move further up the scale with the next house. There are lots and lots of mid-priced houses out on our end of town that could potentially be good earners, I'm just hesitant to commit that much cash up front on the first one.
     
  14. SoonerAviator

    SoonerAviator Final Approach

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    That rental plan is how I would do it as well. When the wife and I were married, we both had houses of our own. Her house was much smaller and in a neighborhood unlikely to appreciate much in value. It was a nice starter home, and had good neighbors on her street. However, the neighborhood was mostly smaller starter homes built in the mid-70's. There were A LOT of those homes which were farmed out as lower-income rentals, so the properties were often maintained as such. I made the decision that we should sell them home as opposed to renting it because I didn't want to deal with the type of people we'd likely be renting to. If I were going to have a rental unit, I'd certainly be targeting the middle-class family as a tenant, as well as a neighborhood/region that was likely to appreciate in value so that I wouldn't lose money on the property value if/when I decided to sell. For retirees, rental income can be a great nest egg, as long as the major items are kept in good condition and accrued for (like new roofs/HVAC).
     
  15. DaleB

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    No kidding. Or family.
     
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  16. simtech

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    We have rentals and flip. My only regret is I didn't start sooner. Don't own any of it in your name, cash buying is fine as is loans. Use equity from one to buy another, snowball that baby. It will work out, learn how to do most repairs. Be fair as a land lord and look out for your renters. Not all want to screw up your stuff. Put in your contract that every 3 months YOU go into the house and install the air filters. That way you know its being done and you get to lay eyes on your property. I've seen inside evap coils get trashed from people not changing the filter or running no filter at all.

    Jump in and do it!
     
    Last edited: Nov 12, 2019
  17. TCABM

    TCABM Pattern Altitude

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    I did own one; we converted our primary residence to a rental while we took an overseas tour. Though it was a positive cash flow, the net was a wash over the three year period as the insurance and usual as well as unscheduled maintenance ate up the reserves.

    The margin just wasn’t there, and that was with pretty good tenants and no major capital investments.
     
  18. luvflyin

    luvflyin Final Approach PoA Supporter

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    We have 4. Rent under market value. Don’t want tenants leaving for a better deal and do want them to be good tenants to protect the deal they have and not want us to want them out. Not having to replace tenants frequently more than makes up for a little less monthly income. When things are broke we fix them, now. Twice have had bad luck renting to ‘roommates.’ They split up and the other can’t make the rent. We are retired so can manage them ourselves. Recent tax laws have made Land lording more lucrative. Old passive activity rules are not as much of a factor as they used to be under certain circumstances. Talk to your tax dude or dudette about this.
    We have found tenants on Craigslist.
     
    Last edited: Nov 12, 2019
  19. G-Man

    G-Man Line Up and Wait

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    I'm curious if anyone has experience owning the rentals within an IRA or ROTH IRA?
    One issue is the owner is not permitted to do any maintenance/repairs/improvements, but must hire a third party. (I don't think there are restrictions on who it is or pay rate.)
     
  20. 455 Bravo Uniform

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    We’ve had a few. Bought low, held, sell high. We have one house left, along with some farm ground left. Sold the rest and reinvested in other things.

    Key for us was to be selective with renters. Do background and credit checks and follow up on references.

    Another biggie- price the rent under market. Shortest renter we had was 4 years, longest was 7 and he died this year. High rent can cause turnover, and turnover costs in vacancy and turnaround for the new renter, and additional risk that an unknown renter brings. Low rent leaves little incentive for your renter to move.

    Borrowing for investment property is ok. 20 year loan with low to no cash flow means your net worth has all been raised by others. Couple duplexes or 4 homes and you are a millionaire in 20 years.

    Would I do it again? I would be absolutely stupid not to.
     
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  21. 455 Bravo Uniform

    455 Bravo Uniform En-Route

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    One more thing- when considering if your down payment is comfortable or not, consider the cash flow and the equity built as return on investment and ask yourself if you can make that same ROI in the market or any other investment with that same amount. If you can, great; If you can’t then there you go.

    Are there risks? Yes. Low risk, low reward.

    This is assuming you have all your other finances in order.
     
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  22. wilkersk

    wilkersk Pattern Altitude

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    Been there, done that.

    -If you have a hard time dealing with ignorant *******s with a smile, you're going to find being a landlord a PITA.

    -Join your state's association of landlords and pay the annual fee to get access to all the state's required "boilerplate" forms and stay abreast of landlord/tenant laws.

    -If you cannot do it with a positive cash flow, don't do it.

    -You'll never know when your real estate "bubble" is gonna burst until it does. Have enough capital to wait it out and maybe even buy more at the bottom.

    -Buy low, rent high, sell higher.
     
    Last edited: Nov 12, 2019
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  23. Lndwarrior

    Lndwarrior Line Up and Wait

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    Depending on your location, an Airbnb can earn lot more money than a regular rental. Its worked out very well for us over 7 years and has helped me semi retire.

    Our $124,000 purchase grosses over $3000 a month for seven months of the year. A quarter of that over the other 5 months.

    Where its located is a location that gets a lot of European and Asian clients. 7 years and never had a problem with any of them - other than the occasional dirty dishes.
     
  24. frgo0629

    frgo0629 Filing Flight Plan

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    Own 24 units.

    Try to be picky with tenants. This is what will make your job easy/hard.

    There will inevitably be repairs. Part of the gig.

    I own multi family but have been told by others if SFH do not buy anything but at least 3 bedroom.

    Would I do it again? Time will tell. So far I would. All of my properties should be paid off when I’m 50 if not earlier. If all goes as planned then yes.
     
    Last edited: Nov 12, 2019
  25. DaleB

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    I’m guessing your house is somewhere much, much more popular with tourists than Omaha.
     
  26. Lndwarrior

    Lndwarrior Line Up and Wait

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    We're close to Yosemite. Its a lot like Omaha, except for the snow capped mountains, beautiful rivers, Half Dome, mountain air and wildlife. Other than that, they're almost identical.
     
  27. DaleB

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    Oh. So, I could probably get like 1/10 of your rent, then. Cool.
     
  28. Shuswap BC

    Shuswap BC Pre-takeoff checklist

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    I have 3 rental homes, and a commercial building. It is a smooth and easy business, good financial returns, and no regrets.
     
  29. Lndwarrior

    Lndwarrior Line Up and Wait

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    I was joking, but seriously Airbnb's work for a lot of different people in a lot of different locations. They dont need to be vacation spots. Many people prefer to stay in a home rather than a hotel. Whether its for work or visiting a relative or whatever. Sometimes the most unlikely places can work out. Just something to research in your area if you're interested.
    They can earn significantly more thsn a monthly rental.
     
  30. DaleB

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    Yeah... I have done some initial research into it, actually. The rental rates around here for houses like I'd be buying are nowhere near enough, unless it were rented out every single night. There are a couple of times a year when you could raise the rates significantly -- College World Series and the Berkshire annual meeting -- but I really don't think it would be enough.
     
  31. DaleB

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    Commercial holds some interest for me. At my wife's class reunion I talked to a former classmate of hers who bought a laundromat... then the building it was in... and now owns a couple of entire blocks of commercial and residential property. It's in an area of town I wouldn't want to park my car for lunch, let alone own buildings, but he's doing well with it.
     
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  32. FORANE

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    Never build a laundromat.
    Never buy a ministorage.
    At least that's what my commercial broker used to say.
     
  33. Brad Z

    Brad Z Final Approach PoA Supporter

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    Interesting thread: We own a vacation rental on the Outer Banks of NC that's doing well for us, but as a pure investment instrument we could probably do better with mutual funds (and less work), but there's value to use in having the property for our personal use too.

    We're looking into long-term rental properties as well. I have cash in hand, but I really have a hard time pulling the trigger when I feel like we're due for another real estate correction. When properties are cheap and money is expensive, having cash to buy properties comes in handy. That said, I'm not loving watching my cash earn 2% interest in a "high yield" money market account.

    Because of our vacation rental, I follow a lot of Airbnb type groups. I feel like the AirBnB business is going to bubble at some point. Between local regulations and over-saturation of the market, I feel like the gravy some hosts are enjoying will be short lived. There are folks out there renting long term rentals and then offering those properties up as short-term rentals (both with and without the permission of the LTR landlord). Google "rental arbitrage" for more information.
     
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  34. Brad Z

    Brad Z Final Approach PoA Supporter

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    Add car washes to the list too, particularly in areas with hyper-strict environmental requirements for wastewater.

    Agree on Laudromats. I've been watching a youtube channel of a guy in OH who runs a Laudromat. Seems way more trouble than it's worth. As washers and dryers are becoming more and more ubiquitous in even the most downscale rentals, the Laundromat business is dying.

    Ministorage was probably not too bad to get into 20 years ago, but not anymore. I suspect ministorage is okay for the dude who got in early and is playing the long game on commercial property: buy the land while it's cheap, put up a ministorage operation to cover the loan payments for a couple decades and sell the property to a developer, hopefully in time for your retirement.
     
  35. MuseChaser

    MuseChaser Pattern Altitude

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    I haven't read the thread.

    I've been a "landlord" involuntarily for two different properties... both houses that were our primary residences at the time we moved and bought another house before selling our previous one. The first time it happened, the house we rented out was only about 10 miles away from our new home so I could check on it frequently and address any issues/maintenance/tennant hassles that arose. The second time we moved about three hours away. When we lived close, we had four different tennants over three years, and that varied from OK to a hassle. The second time was an absolute NIGHTMARE. I'd never, ever do it again. The guy trashed my house, left in the middle of the night owing three months back rent and a bunch of his belongings and broken appliances in the house along with about thirty bags of garbage throughout the first floor and garbage that was not bagged. Landlords have virtually no rights compared to tennants. I called the police and they met me at my place, sympathized, but told me I didn't have the right to remove his belongings from the house without his permission. Court cases, death threats, hidden felony convictions.... it's a long, VERY painful story. It's over now, thankfully.

    I think it CAN be a good thing financially if you have the intestinal fortitude for it, are a very calm, go-with-the-flow person, or VERY aggressive and actually like conflict. For me, there are about a zillion other ways to make money that give me way less heartburn. I'll NEVER do it again. NEVER.
     
  36. lancie00

    lancie00 Line Up and Wait

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    I have one rental house that I bought from my dad. He was going to sell it anyway so instead of paying a realtor, we split the difference. That was 3 years ago and I've had a total of 1 renter. She pays CASH every month and I do everything I can to keep her happy. Her rent pays for everything (payments, taxes, insurance, repairs, etc.) plus about $100/ month extra, After it's all said and done, it will be paid off in about 10 years. I know I'm not getting rich at it, but she's paying for my $50,000 property. At $700/month for a 2 bedroom house with a garage I know I'm low but I'd rather keep a good renter than have to rebuild everything twice a year.
     
  37. FORANE

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    His point wasn't that either were bad to own rather he was saying that the value of commercial property is based on the cash flow it produced. A laundromat is expensive to equip with machines for the income it produced. A mini storage is inexpensive to build for it's revenue once leased out.
     
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  38. DaleB

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    I have zero interest in owning businesses. I do have some interest in owning the buildings and/or land businesses occupy.
     
  39. SoonerAviator

    SoonerAviator Final Approach

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    You also have examples like my uncle, who lived in the same rent house for 20+ years. You can get lucky and find renters who just don't have the capital or desire to own a home, so they rent their entire lives. As long as they maintain the home and let you know when things need repair (most renters have no problem asking for repairs), it's not a bad gig. I wouldn't buy less than a 3BR home w/2 car garage to rent, personally. Around here, 4-BR homes seem to rent for a premium. Many 3BR homes around here (say 1,500 sq ft) seem to run around $1,000-$1,200/mo, where a 4BR (1,900 sq ft home) will fetch $1,700+. The $500+ monthly rent premium for an extra bedroom is probably worth it vs the additional purchase price on the home itself.
     
  40. DaleB

    DaleB En-Route

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    DaleB
    I've never understood it, but I know it happens. I know lifelong apartment dwellers... never could figure that out. I don't try to.

    We have some friends who have a few rental houses. They swore it was not possible to have positive cash flow with a rental house... their angle was, you pay a few hundred a month to build equity in a house you can eventually sell. I don't know when they bought, or if they just don't have any awareness whatsoever of mortgage rates and property values... I was baffled. There's no way I would consider investing in a rental property unless it produced income from the start. I know it will take a while to recoup what we'll put into getting the place ready for renters -- paint, carpet, etc. -- but it's got to be cash flow positive, or there's no point to it from my perspective.

    I've got investments that are probably producing a better ROI than rentals will, but as market conditions change it pays to be more diversified.