Thinking about a rental property

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

  1. Jay Honeck

    Jay Honeck Touchdown! Greaser!

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    I've owned commercial properties and rentals since 2002.

    The only immutable rule of thumb? Do not, not, NOT invest in condos as rentals.

    As it turns out, you own nothing when you buy a condo. Every condo owner in our area lost everything after Hurricane Harvey, because they were completely unable to repair their unit(s) after the building was damaged or destroyed. The property management companies took all those monthly fees (that they were supposed to be using to pay for insurance, among other things) and spent them on hookers and blow -- and that meant that after the hurricane they could do NOTHING for 18 months or more -- if ever.

    By that time, the people who were living in the condos were homeless. The people who had bought them as investments had lost everything. It was a financial bloodbath that is still going on -- there are class action lawsuits working their way through the system.

    Otherwise, rental properties are a great way to make a living! lol
     
  2. Juliet Hotel

    Juliet Hotel Pattern Altitude

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    You seem surprised its that many. I'm surprised its that few.
     
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  3. DaleB

    DaleB En-Route

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    So far so good. The new water heater is in, furnace will go in late this week or early next, electrician will do his thing Friday-ish. We have a cleaner lined up, and have some of the other punchlist items taken care of. Because of how this is structured, we are verboten from doing any of the work ourselves... at all. So even the yard cleanup gets hired out. It takes a little discipline, but its working out fine. Just to have something listed, I put it up on Zillow with what I thought was a fairly high rent rate. We've already got multiple people interested. Not bad. We'll continue to have little things done to make the house better up until it's occupied... and beyond, for exterior stuff.

    Today I looked at what I hope will be house #2, a 1952 built 3 bed ranch that has been completely remodeled from top to bottom, new everything. Roof, siding, kitchen, bath, furnace, AC, floors, driveway, sidewalk... everything. If it works out we'll see roughly 9% ROI on that house, maybe higher. The offer goes to the seller tomorrow morning, we'll see what happens.
     
    Last edited: Mar 4, 2020
  4. Pim de Kast

    Pim de Kast Filing Flight Plan

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    Flighttracking
    I do, but the ROI is getting worse every year now...
     
  5. DaleB

    DaleB En-Route

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    So now we have two. :) And judging by the response we've had to the first one's listing on Zillow, we'll have them both rented by 4/1 if not sooner.
     
  6. DaleB

    DaleB En-Route

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    We're still holding at one property so far. The second house turned out to have issues I didn't want to deal with, so we passed on it after the home inspection.

    We do have a renter now; she's been perfect so far. Pays on time, easy to get along with, keeps the place up really nice, and I'm hoping she stays a long time. Zillow produced a lot of totally unqualified applicants. My wife posted it on Facebook, and we had it rented within a few days. Lesson learned there, I guess. We'll see how it works in the long run, but so far we're happy we made the decision to give this a go.

    I've been hunting for another property for a while now. I'm kicking myself for delaying too long on a nice 1914 vintage brick duplex -- I knew it was a good deal, but had trouble getting past the price tag. Dumb; it would have produced good revenue. The houses we've looked at since then fall into two categories. The first is the ones that look good in the listing but are absolute piles of crap. The other ones we never see, because they sell within 12 to 24 hours of being listed.
     
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  7. eman1200

    eman1200 Touchdown! Greaser!

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    do tell...….
     
  8. eman1200

    eman1200 Touchdown! Greaser!

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    that's horrible! it's so horrible that if you want, I'll have a word with these folks. just let me know which units and I'll be happy to set these folks straight. really, I would do that.
     
  9. FORANE

    FORANE En-Route

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    We have 3. Our long time friends who have moved to Gatlinburg manage them. Their website is here https://www.airbnb.com/users/41295494/listings
    Moonlight Ridge, John Davids and Bearly Rustic are our cabins. Bearly rustic is the one we rebuilt after the Nov 2016 fire and is spectacular with a 110 inch HD movie screen, big arcade, reclaimed 100 year old barnwood flooring in 5 different hardwoods which have taken a hue from decades of heat curing tobacco in the barn (which is the way tobacco has historically been cured in Kentucky for many decades), 2 person shower and more.
    [​IMG]
    [​IMG]
    [​IMG]
     
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  10. eman1200

    eman1200 Touchdown! Greaser!

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    pretty impressive cache. only seeing one (the new one) that might possibly cater to a few PoAers looking for a golf weekend. most seem to be 1 bedroom, but all looked real nice!
     
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  11. FORANE

    FORANE En-Route

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    right.
    we're currently building a 4th cabin but it's only planned to be a studio. it's lot adjoins the new one so it could be used in unison with the other one for additional capacity if the situation arose.
     
  12. DaleB

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    We're closing out our first partial year as landlords. We bought the first house in late February, I think it was, and had it rented starting April 1st. We've put substantially more money into it than we planned (AC died this summer), but not enough to make it really hurt. All of the stuff we've done has upgraded the house. We bought the second place in July, and had it rented in about 2 weeks. Both of our tenants have been great. They pay on time, they maintain the property, we couldn't ask for better and we treat them well.

    Financially, it's been pretty good considering the startup costs. By that I mean the cost of getting the houses prepped for renting, taking care of some deferred maintenance items, etc. The first house isn't quite in the black yet, but next year should see a decent return. Even after replacing some windows I'm projecting roughly 6.5% after property taxes. The second house has already earned us money and will return between 7 and 8% next year. We overpaid for it during a property feeding frenzy, but not by enough that I regret buying it -- it will appreciate a lot before we eventually sell.

    The first house has been a learning experience. It will pay off well in the long run, starting around March or April of 2021. We've spent way more on one-time repairs than we anticipated. We bought it hoping the AC would last a few more years -- it didn't, of course. We've also learned not to buy a house with no off-street parking; that was actually our biggest challenge finding a tenant. No driveway or garage. It's not unusual in that neighborhood, but it turned a lot of renters off. Our minimum standards now are at least three bedrooms, a garage, and strong preference for more than one bath. We're no longer looking at houses that need any refurb -- in our particular situation, we're better off buying older houses after they've been flipped than before. I'd love to buy older places, refurb, and rent them out -- but it's just not practical in our specific situation. Our next property will probably cost double what we spent on the first one.

    We are looking for a third house now. It seems like the market has cooled off somewhat, and prices should be pretty attractive in Jan/Feb. I'm not wild about pulling money out of ETFs to buy houses, but it needs to be done to get us better diversified. The rental houses provide a substantial monthly income stream that never varies, and I can't see the houses we have staying empty for more than a month or so if our renters move out.

    All in all... it has not been entirely without any stress or effort, but I can't complain about the payoff so far, nor about the long term prospects. Check back in another year. :)
     
  13. steingar

    steingar Taxi to Parking

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    Of course, I do actually know someone who had the apocryphal landlord experience. Rented his house out while he traveled for sabbatical. I doubt he did his due diligence with his tenants, because they turned out to be AWOL soldiers who stole everything out of his house including the fixtures and cabinetry. He came back to an empty trashed house.

    The thing about rentals is the laws are totally on your side, they're designed to help landlords. It does help to not buy places in the path of a hurricane, but other than that they're really good. Markets come and go, but folks always need a place to live.
     
  14. FORANE

    FORANE En-Route

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    I suspect the landlords among us may disagree with the above statement. Those who have been impacted by the recent Covid eviction bans included...
     
  15. Brad Z

    Brad Z Final Approach

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    That's a huge YMMV based on what state and locality your property is located in.
     
  16. steingar

    steingar Taxi to Parking

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    Says you. My experience was admittedly old, but the laws I was thinking of are in the federal tax code, and I doubt they've changed much. You can get burned if you don't do due diligence, like condos on an island where there are frequent hurricanes. But like I said, folks have got to have places to live.
     
  17. RussR

    RussR Pattern Altitude

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    We own 5 rental properties, although we have not yet had to evict anybody. However, from what I hear, if someone doesn't pay their rent (but refuses to leave), an eviction can take months and months, during which time you're not getting any income and the people are still living there. And, in many cases, if they're not paying the rent, they're likely also not taking good care of the property. Finally you get the deadbeats out, but are out thousands of dollars in rent and any damage. Yes, there is a security deposit, but that's not much help. So, you go to court, get a judgment against them, but there you have costs too and potentially no real expectation of ever collecting.

    So how is the law "totally on my side"?

    I will add, that having been a renter in many states myself, the landlord/tenant laws do vary between states, and municipalities.
     
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  18. Checkout_my_Six

    Checkout_my_Six Touchdown! Greaser!

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    It's not on your side Russ......I just had to tell a tenant that I'm not going to "renew" her lease. That was my way of getting her out without an eviction. It worked. She got none of her deposit....even though she "cleaned"....it was a mess. I hauled two 14' dump trailers of stuff out and replaced a bunch of stuff. Fortunately it didn't cost me all that much.....cause it came out of her deposit.Keep in mind....I can't charge back my time out of the deposit. That sucks. I can pay someone else for their services.....

    But, laws are not in favor of the landlord......nope.
     
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  19. FORANE

    FORANE En-Route

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    I just paid for 2 evictions this week on top of 2 last week. We get judgements but not much luck trying to collect. The recent eviction bans seem to be neither "on my side" or even constitutional.
     
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  20. steingar

    steingar Taxi to Parking

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    Yeah, there is that I'll admit. Eviction laws vary state to state. I suspect if you're competent on the front end you don't need to worry about it on the back end. If all you do is rent junk to low life's then yes, that can be a big worry.
     
  21. Brad Z

    Brad Z Final Approach

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    As many others have pointed out, all the tax benefits in the world don't make a lick of beans when your tenant stops paying and won't vacate the property. This doesn't only happen to slum lords...plenty of upscale property owners have gotten burned by a tenant who looked good on paper but became a disaster. Throw in bad relationships, break-ups, health issues, Covid, etc., and even good renters find themselves in situations where they decide they're no longer going to pay rent. Add on top places like DC (and I'm sure many other large cities) where the politicians have made it clear that you're not going to get evicted from their dwelling, and tenants decide that paying rent goes way down in the list of priorities. After all, who wouldn't want to live rent-free?

    Funny how cell phone companies are always the first to get paid when finances are tight; they'll shut your phone line down if you become delinquent.
     
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  22. FORANE

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    Lots of horror stories out there associated with rental property. I have heard of guys renting nice places then stripping it of appliances and even copper plumbing.
    My brother had a tenants girlfriend get mad at the tenant and decided to take his car through the front wall of his apartment in attempt of running him over.
     
  23. DaleB

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    I always value horror stories and “great” advice from people who haven’t ever actually done it. :)

    We have some friends (now in their early 80s, I think) who have been landlords for decades. Most of their advice has been solid, though they have yet to adopt any online listing tools. I don’t know that they’ve ever had to evict a tenant.
     
  24. Checkout_my_Six

    Checkout_my_Six Touchdown! Greaser!

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    Be a landlord long enough and you’ll need to know all the tricks and tools.....or you’ll get used.
     
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  25. mandm

    mandm Pre-takeoff checklist

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    Can you really be bothered to sue someone for a few thousand, and then what are the chances to collect? Or just make an insurance claim and let that be it. I wouldn’t want the ongoing drama and memory of a bad experience, my opinion.
     
  26. mandm

    mandm Pre-takeoff checklist

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    Nice home there in TN, I wouldn’t rent something that nice to tenants. One thing about tenants, EVERYONE is a smoker. EVERYONE has animals. NO ONE knows how to use the toilet.

    Property is good if you buy at a reasonable price in an area where prices are expected to appreciate, and with reasonable property taxes. Reasonable means you can afford to pay for it if the tenants don’t. Make sure you get at least a 3 bedroom. I personally prefer no basement as basements eventually get old and they eventually leak. Utilities are also cheaper.

    I would say about 25% of tenants are bad, once they stay awhile they start to get entitled and vetting tenants is not always easy. They break and steal anything and everything. On top of that, house build quality is generally poor (and repairs are even worse!) in the US so you have regular maintenance there that costs money and calling people to fix what your first repairman broke. You have to decide what you are repairing and what stays as that is lost money. Anyone who tells you otherwise tends to turn a blind eye expecting some damages. I’m not the one who wants to be bothered repairing things when a tenant leaves but that’s my opinion.

    Do your own calculations, research and research. Get a handle on the market then you can start from there. Some posters mentioned 6-7% returns, I would say that’s the absolute minimum but I wouldn’t touch that. Some cities in California are 3% returns. Forget that...
     
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  27. Checkout_my_Six

    Checkout_my_Six Touchdown! Greaser!

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    ROI?....depends on who does your repairs? or who does the property management? Up keep and management will drain your profits if you're not careful. If you're lucky you're profits will be in accumulated equity and debt being paid down.
     
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  28. DaleB

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    I’ve seen so many ways of calculating ROI that I only look at numbers I derive myself. When I’m evaluating properties I have my own spreadsheet that makes it quick and easy to determine whether or not it meets my minimum requirements and how well it is likely to perform. I don’t include appreciation over time as a primary measure, since the market is cyclical. If I do include a fairly modest percentage for appreciation, then the long term return tops 10% in most cases. I’ll take that.

    I wouldn’t say we’re “hands-on” landlords. We can’t be, really. We don’t use a property manager, though. We collect our own rent, and when tenants need something fixed we call someone to have it fixed and pay their bill. It’s really only happened twice this year - a clogged kitchen sink drain and an air conditioner. I’d say over time managing our rentals takes an average of a couple of hours per month.

    As for the crappy renters problem... I can see that happening if you let a property manager pick them, or don’t screen carefully. We do screen carefully. It’s not that hard. And yes, there is always the risk that no matter what you do someone can screw you. I have yet to see an investment that did not include some risk.
     
  29. mandm

    mandm Pre-takeoff checklist

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    How many landlords have tenants who automatically pay rent on-time? How many landlords would call their tenants if rent did not come in on-time? And how often do landlords chase rent? End of month is coming, again :cool::eek:

    Overall I guess the equation works for being a landlord but it doesn’t mean there isn’t crap to deal with, and when crap occurs you do think about selling everything to not have to deal with it but that’s also how to handle a bad day too!

    I just know what type of house I’m looking for and I have a max price that I will spend per city, but I’ve pretty much been priced out but that also means my investments have appreciated quite a bit too, in theory. Who knows what will happen when it comes time to sell.

    I wouldn’t flip a house myself but that’s because I don’t want to be hands on and managing contractors is a skill in itself that I don’t have. If you don’t know what you’re doing and a few people treat you as a push over then you’ll quickly lose money.
     
  30. Checkout_my_Six

    Checkout_my_Six Touchdown! Greaser!

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    I'm ready to shift gears.....and sell all the rentals and go for easy money.....the market. I'd do much better in an S&P 500 index fund.
     
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  31. mandm

    mandm Pre-takeoff checklist

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    Is that the PC way of saying you had a crappy tenant? Yes the market is good but have to be careful! Who knows how this new strain will affect the market and prices are so high! I keep thinking about when to get out of the market, waiting for the day the profits cover a plane + hangar. Haha
     
  32. scottfromboston

    scottfromboston Pre-takeoff checklist

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    Both of my siblings are “accidental” landlords - bought the crash in 2009 for places to live post-college, and each bought another similar place two years later, moving to single-families a few years after that. Given the increase in values in the Boston area in the past ten years, they’ve both done well and have been lucky with stable tenants and low-maintenance units.

    That said, the numbers weren’t great for the first five years and paying cash would be outright foolish - negative returns compared to the market, IMO. Not my cup of tea. I don’t know how people do it.
     
  33. Zeldman

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    :yeahthat:

    If you find one would you let me know.??? :lol::lol:
     
  34. DaleB

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    Sure, and if I see fairies hovering in my flower beds I’ll send you a picture too. :)
     
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  35. Checkout_my_Six

    Checkout_my_Six Touchdown! Greaser!

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    Ive had mostly good tenants (7 units) thru the years but I’m done. Home prices are rising and it’s looking like a good time for harvesting.
     
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  36. Direct C51

    Direct C51 Pre-takeoff checklist

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    Harvesting might be the best course of action for your situation. There are always downsides to this exit strategy however. First, capital gains taxes are going to suck. Also, while you will have a bunch of cash, if you don't reinvest it somewhere, it is just losing value due to inflation. Investors in your situation often 1031 exchange several SFHs for one apartment complex with a manager. This can really reduce expenses and headache while providing even better ROI. When you move to an apartment building, you have to stop thinking of it as a residence and start thinking of it strictly as a commercial real estate business.
     
  37. Checkout_my_Six

    Checkout_my_Six Touchdown! Greaser!

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    I've done better with single family homes....vs my duplex.
     
  38. DaleB

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    Ah, the simple joys of investment property owned by an IRA... :)
     
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  39. FORANE

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    Now if some of us with privately owned investment property could just nudge the contribution limit up a million or two...
    But, there is another solution. 1031 into a faster airplane, that's the answer.
     
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  40. Checkout_my_Six

    Checkout_my_Six Touchdown! Greaser!

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    Full disclosure.....four of the properties I subdivided from a large parcel. I have (6) tenants on those. If I sell all but one property I think I'll be able to get cash out with minimal cap gains due....by distributing the majority of the cost basis to that last property. We shall see if that works. I need to meet up with a good accountant. ;)