Thinking about a rental property

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

  1. Huckster79

    Huckster79 Cleared for Takeoff PoA Supporter

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    We’ve been thinking about it but there’s just no inventory right now in my area... and what’s there ya couldn’t turn a buck on em with what they are going for. Gunna sack cash till the next real estate dip or even just more inventory..
     
  2. NHWannabe

    NHWannabe Line Up and Wait

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    I can assure you my property isn't junk and I do my work upfront but like everything in life there are no guarantees no matter how much due diligence you do. We've been lucky in 20 years of renting to have had a few long term tenants but have had a couple of evictions, one that we had to initiate on month 2.
     
  3. NHWannabe

    NHWannabe Line Up and Wait

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    We are hoping to sell our home in the spring and then move in to our rental property for a minimum of 2 years hoping to find a ranch during a lull in the market. Then sell the rental, occupying for 2 years lessens some of the tax liability upon sale.
     
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  4. bluerooster

    bluerooster Pattern Altitude

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    Rental properties around here rent for such a high price, plus the up front expense, that I wonder how anyone can afford to rent anything. Or why they would long term. I mean someone with the financial wherewithall to pay the exorbitant rent, plus a high deposit, and first, and last months rent, for a few dollars more, they could buy, and have a lower payment PITI. So, end result is the only houses being rented are either low rent slums, or short term very high end. (speaking only residential)
     
  5. Southpaw

    Southpaw Pre-takeoff checklist

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    Years ago a local oil refinery shut down. All the employee houses that the refinery owned were sold off . Most were not in such good shape but were livable.
    the fellow who bought most of them for pennies on the dollar rented them to welfare people. Said they were the best tenants. Check from county every month and no complaints about stuff not working as they were afraid they would have to pay for it. By the time the houses were "used up" he was money in the bank and the volunteer fire department had training material.
    A win win for both. (Back in the 80's)
     
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  6. FORANE

    FORANE En-Route

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    We've had section 8 and mod-rehab apartments (where the entire building is a housing tenant - we couldn't rent to a free market tenant no matter what they were willing to pay) in addition to free market apartments. Our experience was a larger percentage of the mod-rehab tenants trashed the apartment than the free market tenant. We felt this was due to the fact that they typically had no (or close to zero) deposit and just didn't care. We eventually removed all our buildings from the mod-rehab program, though we still have a few section 8 tenants here and there. After doing that we were able to remodel and improve the units, rent increased accordingly, and our incidence of trashed units decreased.

    A number of posts mention terms such as slums, slum lord, garbage, etc. While these may not be intended to come across in the pejorative, it does. I understand the NIMBY thoughts many may have, but every community needs low income housing and that housing isn't always squalid.
     
  7. Oldmanb777

    Oldmanb777 Pre-takeoff checklist

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    Interesting to read this thread. We have rental properties. Starting to get out of the business. Selling our properties. Lots of reasons for that. The big one is to retire and not work all the time. Having rental properties is having a second full time job. We have mostly had good tenants. But getting and retaining good tenants is 90+% of making a go of the rental business. It only takes once to have tenants leave in the middle of the night after doing $40k worth of damage because you were evicting them because they were 3 months behind on rent to destroy your business. And the laws are all on their side. The courts look at you as the "fat cat" taking advantage of the poor guy to make an undeserved buck. And as said you can get a judgement against anybody, but collecting can be impossible. I went into this with the attitude, "I didn't want a rental property that I would not have my Mother living in". I figured that would give me better tenants. Partially true, but not always. Then HUD or the county trying to get you to say something that will incriminate you. Had this happen twice. You think your local FAA inspector is bad, try HUD.
    We have done very well financially with our rental business, but we earned every cent and then some. It can be a good inflation resistant retirement, if you want the hassle. That was our plan. But I'm finding out as I get older, that I no longer want the hassle. I do find it interesting that many of the long time landlords that I know are getting out. Reasons are largely similar. "If the govt says they don't have to pay the rent, then I can't pay the mortgage. I can't/won't deal with that!" We have seldom been able, in our market to get positive cash flow in the first 3-5 yrs. Even though the places we tended to buy were in good locations, but needed some remodeling, and I do 90% of the work myself.
    I tend to look at the cashflow this way. I won't pay PMI on anything! So 20% down. (the cost of money) If the place is a $200k property, I need at a minimum of $2,400/ month to break even in the short term. Almost impossible in our area. I won't buy where there is a bad HOA, and most are. WE did that once. When buying I looked at long term demographics. What will people want when i want to sell it. So what will be needed in 30 yrs. Remember I was in it to make a retirement. I work very hard to take care of good tenants. Have gone out in the middle of the night to start their car when they had a dead battery. retrieved their kids from school when something happened and stayed with the kids until the parents got home. (that was a family emergency). no not things I would want to do, but................. The stories can go on forever, but suffice it to say, you will come away with a whole new understanding of just how low people can be. I didn't have a poor perception of the human race before getting into this business, but that sure changed. I do now!
     
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  8. mandm

    mandm Pre-takeoff checklist

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    @Oldmanb777 , amen!

    I feel your pain and I wish I could say most people are good, nope, not in America!! And guess what, this entitled attitudes of I can do what I want and not have to pay for it (aka it’s free), it is generally limited to America. People in other countries are generally far more honest, don’t take on debts they cannot handle, and pay their bills. You could be an absent landlord for properties overseas, tenants just pay rent automatically (wow it’s magic!) and the construction quality is generally better and less maintenance besides replacing some electrical appliances now and then which the tenant typically would do and even split the cost!! (Because the tenant is depreciating the appliance itself!)

    I would say the return is much lower overseas and am not saying move everything to overseas property, rather it’s just sad to see the entitled American tenant attitude. And the government now supports it trying to pass a 1 year eviction ban, and that is in talks NOW. The problem is these people don’t realize that debt will still be owed and they will have problems having a bank account or job in the future due to garnishments (and the same circle continues, those non-paying tenants will blame the government for letting them think they are rent-free during Covid).
     
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  9. mandm

    mandm Pre-takeoff checklist

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    I had a tenant recently cause damages and I have been wondering if I should claim it under insurance or just take the hit. I think insurance might retaliate and raise rates.
     
  10. DaleB

    DaleB En-Route

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    If we had to finance the rental properties we have, we wouldn’t have any. I just couldn’t find a way that made financial sense for us. Obviously not the case for everyone; my buddy with 20-odd single family houses (and a coin op laundromat) is leveraged pretty heavily and has enough cash flow that it’s his full time job. I wouldn’t want to do it the way he does... but he’s happy with it, we’re happy with ours, and we’re looking to add one or two more houses in 2021.
     
  11. Racerx

    Racerx Line Up and Wait

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    My property is rather unique. It's one tax parcel. But there's another house. 1300 sq ft. My previous tenant was a sort of friend. She paid, but never on time. My current tenant I went through a realtor. Was asking for 1300 monthly. He had a credit score of 750+, so he was front of the line. Then they offered 1350. Winner winner chicken dinner! They had their second child last December. He took his 2 months paternity leave. Then mid March got laid off from covid. I still got paid by the 1st of every month except one month they asked if they could pay the 3rd. No problem! Since the great state of illinois was one of first to ban evictions, I could have been stiffed very easily. For December I told them to just give me 500. I appreciate having them and consider it a Christmas present. Then 3 days later the furnace needs an 800 dollar repair. Kick in the knackers. Life is easier when someone else is footing the bill. But right now it would be tough to find a good rental property. Not as hard when this thread started.
     
  12. Oldmanb777

    Oldmanb777 Pre-takeoff checklist

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    Good tenants are the key. Finding them can be hard, but not impossible. My good tenants always get a generous Christmas present. I want them to know that I appreciate them as much as I want them to appreciate me. Finding good tenants...........I would much rather have a place empty for a while, than to deal with a bad situation. It can take years to recoup the money from the damage a tenant can do in a couple hours. And you will never get blood out of a turnip. So expecting to get paid back, even though you got a judgment is pretty naïve.
    I have also had to deal with bad landlords when we were renting. So its not totally a tenant problem.
     
  13. mandm

    mandm Pre-takeoff checklist

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    $800 repair for a furnace is not that bad. Mine went and I needed to buy a new one, I paid around $3000 although the repairman said it’s normally $5000 but he wanted to get rid of it since he did a bulk order for one of his clients and there were some extras. Works well and utility bill has dropped. Although had one tenant who kept it at 90 and kept complaining the house was cold even though the thermostat was showing the house in the high 80s. That was annoying and abusive!

    When you said just give me $500 for Dec, does that mean you wrote off the remaining balance or do you expect them to cover that later on?

    For rental houses, it is also up to the tenant to find the appropriate home for their life and standards. I don’t put all of that on landlord, a lot of properties in the US are poorly made and very old. It is impractical to expect landlords to bring the standard of an early 1900s home to today’s standard. Even my new home has construction issues, quite disappointing. You do not see these issues on homes built overseas.
     
  14. DaleB

    DaleB En-Route

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    That depends on WHERE “overseas” you look. Denmark? Korea? Somalia? You might notice a few subtle differences in construction quality depending on the area. Trust me, I’ve seen buildings in other countries that I’m amazed can survive much more than a gentle rain.

    Our 100-plus year old houses are very well built, and they were just regular old Craftsman style houses when they were built, nothing special. Of course they were built to the standards of the day, meaning you likely won’t find a truly square corner or plumb wall anywhere in the joint. Modifications and upkeep since then had been of varying quality. We’ve seen virtually identical houses I wouldn’t own if they were free, and others much nicer than ours — but out of the price range where they’d be viable rentals. But both of ours have the original floors and walls, most of the woodwork still has the original finish, and the basements are dry. I think that speaks well for the quality of construction.

    New homes are a mixed bag. We see a lot of cheaply built homes crammed close together, made to look good at absolute minimum cost. They won’t age well. Others are exceptionally well built but cost a lot more. It all depends on who does the building... some builders do really good work that will last. Others build cheap crap.
     
  15. mandm

    mandm Pre-takeoff checklist

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    I don’t care who the builder is, nothing is built to withstand tenants lol.

    I wish I could agree with you, even getting a great developer and paying more doesn’t give a great product. Noise insulation is a problem, water pressure is a problem, and if it isn’t your house it’s likely the city streets or drainage have issues. I’m guessing most people overlook these things that I notice...

    My overseas homes are built with cement, you can’t hear the neighbors for anything! Love that. Water pressure and drainage is never an issue either. Property taxes are also a fraction of the cost.
     
  16. Oldmanb777

    Oldmanb777 Pre-takeoff checklist

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    I've seen so much shoddy building overseas. Certainly there is plenty of that hear too. But I have seen a lot more elsewhere. Building codes here are sort of a suggestion, but at least they exist. Non-existent in many other places. So worth knowing before you buy overseas. And what are the rules for expats owning property. Lots more to consider when buying in another country. Can be very good, but get educated first.
     
  17. DaleB

    DaleB En-Route

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    Well, the very last thing I did in 2020 was... I bought another house. :) And I mean, the last thing -- I turned over the deposit check at 7:30 PM on the 31st.

    Got a call from our realtor that she had a lead on a house being sold by a wholesaler. I went and took a look; for the money it appears to be a great deal. The house was inherited by a couple about our age or a little younger (50s-ish) who are just looking to get rid of it for cash. This is a first for me; we're buying as-is with no inspections, in a private deal with no realtors involved. Everything will go through a title & escrow company of course. The place has a new (within the last 2-3 years) roof, furnace, A/C, kitchen appliances, and all vinyl windows. Siding, fence, garage, and yard are in great shape, but the interior hasn't been updated since the house was built in 1962. It's sound and in pretty good condition, but some aspects are extremely dated. My original intent was to clean it, paint the inside, and rent it as is, but really -- we can put a little money into some minor remodel work and make it so much more attractive to better renters that we'll do that now. It will also boost the resale value considerably. I bought the house for $30-35K under ARV and it only needs maybe $10K worth of refurb, so we'll still be in good shape from the start. Great cash flow and ROI as soon as we have tenants in it.
     
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  18. mandm

    mandm Pre-takeoff checklist

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    Congrats. I typically have my agent send a video tour of the place and go from there. I always buy with an inspection. I need to know about the roof, water leaks, utilities, electrical, appliances, etc. And a separate same day inspection of the sewer line. I have a camera scope ran down the line to the city connection, with a video sent to me. A problem sewer line sucks and can easily run you 10-15k in repairs. My inspections always get me additional money off along with a couple things repaired (or further discount). I have backed out of several homes as well when it’s just messed up. Well worth it!
     
  19. DaleB

    DaleB En-Route

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    We've always done inspections in the past, and actually backed out of one based on the inspection results. In this case, even a $7-10K hit for having the sewer line replaced wouldn't be a show stopper for us. Given the age. location, etc. it's a pretty low risk.

    Between our own houses and the prospective rentals we've looked at, and having seen the inspection reports, I figured this one was low risk (and high reward) enough to take a flyer. I did a walk through and saw no evidence of mold, mildew, water intrusion, foundation issues, etc -- and we're really good at spotting those. The wholesaler had half a dozen offers, including one equal to ours, but their realtor wanted to get paid. Ours still got a finder's fee out of the deal, but she wasn't asking for one. The wholesaler made out pretty good for doing very little work, so he's happy. We get what will be a very nice rental for a really super price, so we're happy. The owners get cash in their pockets, so they're happy. I'm not going to spoil that happiness by pointing out that they could have spent another $10-15K on some fairly minor renovation work, and gotten $50K more for the house.

    All that really needs to be done is clean the place up really nice, and replace the original 1962 vintage hand-made vanity in the master bath. We're also going to open up the kitchen and dining room into one large open space with all new cabinets, and possibly knock out a couple of little "decorative" stub walls that artificially separate the living and dining rooms. Very minor stuff. We've got contractors that we used during our own kitchen remodel (we acted as our own CG on that one). We know they do good quality work at really good rates. It shouldn't take more than a couple of weeks to get everything ready for the painters to do their thing, and I hope to have it ready to show by the end of Feb. I'm kind of pumped. I'm really enjoying this stuff more than I thought I would.
     
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  20. DaleB

    DaleB En-Route

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    2020 net ROI of just a hair under 3.43%. Not too shabby for the first year. House #1 was owned for 10 months and occupied for 8; house #2 was owned for six months and occupied for 5. We're closing on #3 in the next couple of weeks; turns out there was probate stuff that needed to be done, so we're waiting on them to finish that up. If you take the real world numbers from last year and extrapolate, the first two houses should return roughly 7.2 to 7.5%. Not bad, I was hoping to see 7%. Our renters have been really great.
     
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