Thinking about becoming...

EdFred

EdFred

Taxi to Parking
Joined
Feb 25, 2005
Messages
31,402
Location
Michigan
Display Name
The Ed
Home Airfield
9D9 / 6Y9 / 88TN
...a slum lord.

OK, not that bad, but: I'm re-evaluating things and I've got enough cash to buy 1 single family (or multi-unit) house to rent out, and if I wanted to liquidate some investments probably buy 3-4 for cash. Thought process is to have this supplement current, and after a few more acquisitions make it my primary/sole, source of income. For those of you out there you are using rental property as income, is this a bad idea, horrible idea, or a great idea? Start with 1 house and go from there? Jump into the pool feet first and get as many as I can afford?

What say you?
 
EdFred said:
Expound please?
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1. Nobody cares if you make any money.
2. People that are good tenants that won’t damage your property and will stay are hard to find.
3. The margins for risking capital are poor. The premium over invested money can easily be erased by a damaging tenant.
4. I did it and made some money but it was not easy money.

there was a tread on this topic about 4-5 months ago that went into great detail.
 
Besides the aforementioned... a friend who is a realtor who does rentals says “keep them as close to home as possible... you’ll be at them often”.
 
Don’t rent to anyone that you aren’t willing to evict. For me that was single mothers.
People will lie to you and think that it is ok because you are the rich landlord.
 
Morgan3820 said:
Don’t rent to anyone that you aren’t willing to evict. For me that was single mothers.
People will lie to you and think that it is ok because you are the rich landlord.
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Is eviction even allowed in the current COVID environment? Seems risky for the OP ...
 
denverpilot said:
Besides the aforementioned... a friend who is a realtor who does rentals says “keep them as close to home as possible... you’ll be at them often”.
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This for sure. I ended up stuck with an unintentional rental after a move during a soft market. I went through four management companies before I found one that didn’t take all the profit one nickel at a time. It was a huge pain in the butt. Plus the frustration of paying other people a premium to do work I can do myself.
 
Tarheelpilot said:
****. That would suck. Makes me wonder who’s paying the mortgage if the tenants don’t pay rent? I bet it’s just guberment cheese
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Rule #1

this is actually becoming a bigger problem nationwide. I read one estimate of 35 million evictions because people can’t pay. If people can’t pay then the landlord defaults on the mortgage. The banks walk away and the towns and municipalities are left with a non-performing tax property.
 
Tarheelpilot said:
****. That would suck. Makes me wonder who’s paying the mortgage if the tenants don’t pay rent? I bet it’s just guberment cheese
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The nurses that were laid off at the out-patient surgery centers have all received extensions on their home loans for 6 months to avoid repo ... am guessing landlords would have a hard time getting evictions approved.
 
Well, there's always the big F.U. that's available for damages, unpaid rent, etc. They don't pay, you claim it as forgiven debt and a loss to the IRS, and that's considered as income for the other party. Then you let the IRS deal with them.
 
EdFred said:
Well, there's always the big F.U. that's available for damages, unpaid rent, etc. They don't pay, you claim it as forgiven debt and a loss to the IRS, and that's considered as income for the other party. Then you let the IRS deal with them.
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A deduction is not the same as income.
 
I always thought a good business model would be to start up a credit reporting agency for landlords. As more people move into being permanently renting, I thought that it would be nice to have that service available for the small landlord. The large apartment complex corporation of course get the real credit report.
 
Morgan3820 said:
A deduction is not the same as income.
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True, It's not the same as a tax credit when it comes to how much is owed/paid. But if I have 100% deductions vs income, that is 0 income for the year.
 
danhagan said:
Is eviction even allowed in the current COVID environment? Seems risky for the OP ...
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Only evictions for non-payment of rent have stopped. Here in New Hampshire I can still evict for other causes.

I'll add to this as a current landlord.

I own a single townhouse, that we actually bought brand new in 1986 at what we soon find out was the peak of the marker shortly after we were married and were owner occupiers. It was probably no more than a year after we bought it that the economy and real estate market went in the crapper and we lost a shart ton of value. We eventually purchased a our current home in 99 and because the townhouse hadn't really appreciated much form our original purchase price we decided to rent it. We have had a mix of great, good, bad and terrible tenants. Luckily have only had to do one eviction. I expect to sell the house in spring and move into the townhouse for a couple of years to reduce our tax liability and to wait on a smaller home when the market goes through a down cycle. At that point we'll sell the townhouse.

If you're going to jump in then wait until the real estate market crashes and take into account all the things posted above and be prepared to get calls from your tenant at the most inopportune time.

Interesting read on what some big real estate investment companies are doing

https://nypost.com/2020/07/18/corporations-are-buying-houses-robbing-families-of-american-dream/
 
Tarheelpilot said:
This for sure. I ended up stuck with an unintentional rental after a move during a soft market. I went through four management companies before I found one that didn’t take all the profit one nickel at a time. It was a huge pain in the butt. Plus the frustration of paying other people a premium to do work I can do myself.
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Similar story here but managed it myself...ugh
 
I just finished spending four months and $24,000 to repair damage done by a tenant who intentionally flooded my rental house. I found out the hard way my insurance didn't cover water damage by tenants.

The tenant also stiffed me for $3,000 in monthly rentals, and right now I've lost five months and counting that monthly "income" while doing the repairs.
 
danhagan said:
Just asking, I don't own rental property, but I thought I read this was temporarily blocked (Repo's as well).
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Depends on your locality. It looks like Michigan's moratorium on evictions ended a few days ago.
 
3393RP said:
I just finished spending four months and $24,000 to repair damage done by a tenant who intentionally flooded my rental house. I found out the hard way my insurance didn't cover water damage by tenants.

The tenant also stiffed me for $3,000 in monthly rentals, and right now I've lost five months and counting that monthly "income" while doing the repairs.
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Damn that bites. Sorry man.
 
so, comrade, i'm in one of the "friendliest" areas for covid landlord/tenant law and would have to make some changes going forward. I may not buy another rental here, TBD.

Here is how I do it:

Like any business, you need to deliberately define your market segment/value prop BEFORE you buy anything and run all your plans against that.

My plan is pretty nice (nice cosmentics, nice enough that I'd live there), close in houses (good commutes) with good schools. I target renters who are very stable and low drama, and charge just a sconch under market and aim to keep them for 5-10 years. I don't make a lot of money on the cashflow, and am betting on appreciation (don't really lose either). Greater Seattle area. I include landscaping service as part of the rent. It's a luxury to the tenant, creates pride on residnecy for them (so they take good care of the inside) and it makes the nieghbors happy that we always have a well kept yard/flowerbeds.

I would argue to keep them close by, though I typically go to each house perhaps 3x per year to clean gutters or oversee a repair. I try to keep them up very well (major remodel before renting). When I go to turn a house, I really look through it and see what I might need to do in the next 5 years and do it. that makes it a gorgeous, fresh house for prospective tenants.

I rent via an open house. I announce an open house on zillow/craigslist/etc on Saturday from 11-2 with the following
- no appointments, just show up!
- Application materials (legal in my jurisdiction)
- Fair housing criteria (a written list of the rental criteria that I leave on the counter and invite propsects to review (xyz credit, abc background check, $$ income, xyz years job history, no evictions, etc)

I leave that with 1-2 people applying. first one that passes background/reference checks gets the house. I generally have 4-5 families at a time wandering around and I highlight things and "sell" it generally, but the 4 other families looking for a place to live at the same time/place usually create the pressue.

the 1-2 that apply are falling over themselves to give the $50 for credit check and signed app.
 
There IS money on the low end of the market. Homes and apartments that can be fixed up cheaply, renters with section 8 checks. The downside is, that you have to either be willing to do the slum-lord thing yourself, or you need someone who does it for you. Also depends on what state you are in. Does your state have 'self help eviction' or do you have to wait months until a judge in 'housing court' tells you to suck it up because your renter is part of A/B/C/D protected group and cannot be evicted ?

Locally, we have landlords who specialize on the active duty military clientele. A steady paycheck and they move on after 2-3 years allowing for a re-set of the rent to whatever the market is at that time. Lower to mid market homes that have to be maintained in good condition. Those renters dont have much time to spend looking for a place, if you have something that works, they are ready to put down a deposit.
 
A friend owns 3. 2 of them no problem at all for last 4 years, one of them is a living nightmare. There is a neighbor, the other side of the twin home, and she doesn’t like anybody. We, er, she has lost 2 good renters because of that lady who calls cops every chance she gets to complain about some crap. Eventually that neighbor was sent a letter from an attorney that essentially said, if the renter leaves again due to her, she is on the line for paying rent. Haven’t heard her complain since, that was 2 years ago.

Then the renter (3 guys staying together) one fine morning disappeared, left half of their crap there. That group of renters still owes us 4K in damages and unpaid rent, utilities etc. they are now with a collection agency with no end in sight.

It’s a crapshoot just like 40 yr old piston engines.

Get a property manager if you would like to avoid calls at 4 AM and the renter crying that their sum pump broke, the basement flooded and needs to be fixed in next 45 mins
 
WannFly said:
A friend owns 3. 2 of them no problem at all for last 4 years, one of them is a living nightmare. There is a neighbor, the other side of the twin home, and she doesn’t like anybody. We, er, she has lost 2 good renters because of that lady who calls cops every chance she gets to complain about some crap. Eventually that neighbor was sent a letter from an attorney that essentially said, if the renter leaves again due to her, she is on the line for paying rent. Haven’t heard her complain since, that was 2 years ago.

Then the renter (3 guys staying together) one fine morning disappeared, left half of their crap there. That group of renters still owes us 4K in damages and unpaid rent, utilities etc. they are now with a collection agency with no end in sight.

It’s a crapshoot just like 40 yr old piston engines.

Get a property manager if you would like to avoid calls at 4 AM and the renter crying that their sum pump broke, the basement flooded and needs to be fixed in next 45 mins
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I think this is very, very market dependent. What end of the market you target, what type of houses you provide and what kind of renters are likely be attracted to your prodcut. I've found the medium high (but not luxury) price range to be good solid working people that aren't quite as fussy as the folks in the super fancy places, but it's market dependent.
 
Make sure you understand the market, get a good agent, and hope the force is with you. Even with a good agent, you will spend a lot of time managing repairs and maintenance between tenants. Paying someone to do that is probably a good way to forego a chance at profits. My wife has three condos in one neighbor hood. The agent does a good job with the credit checks, background checks and the actual rentals. Also collects and deals with HA. I don't get involved at all, it's her thing. About three years in she does fairly well.
 
"Investing complete faith in people to do the right thing with a 6-figure chunk of my assets"

....I wish someone had handed me THAT in a prospectus so I could have belly-laughed and kept my money.

Also BTDT. Landlording is a skill -- one that I lack sorely and no longer believe that I can cultivate. People are *terrible*.
 
schmookeeg said:
Landlording is a skill -- one that I lack sorely and no longer believe that I can cultivate. People are *terrible*.
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My stepdad had that skill and liked landlording and the money he could make that way. When he died, my mom couldn't get rid of the places fast enough. I'm more like her. Too much bother. I would rather have passive investments.
 
I will never again.
Bought the little house across the street from my primary residence (rural) and rented it to a single Mom and her three teenage sons. Soon the place began looking like a slum and rent payments stopped coming. Went to court and got an eviction notice, but......the Sheriff was unable to serve the papers to her because she hid out elsewhere outside the county, leaving her sons (who were surprisingly polite and well behaved) at the house. They all disappeared in the dark of the night a couple weeks later. Out rent and court costs.
 
We bought our first rental house in March, and we close on the second next week. Yes, we’re overpaying for it due to market conditions but we’re in it for the long haul so we’ll get over it. There will quite likely be a third.

I couldn’t figure out how to make the numbers work out well with a mortgage on the house. I mean, it would be profitable, in a minor way, but very thin. Without a mortgage, they’ll pay about 6-7% if you ignore appreciation. Not as good as ETFs in a good month, better than bonds pretty much any time. I see it as a good way to diversify the retirement portfolio.

As for crappy tenants, you need to vet them and not just rent to whoever wants to move in. It’s not rocket science, there are plenty of resources to help figure out how to get and process applications. The tenant we have is a peach, no trouble at all and I hope she stays as long as she wants. The new house will attract even better renters - bigger house, 3 bedrooms, garage, nicer neighborhood.

We’ve looked at a LOT of low end houses. No thanks. A friend of mine has over 20 of them, and he’s leveraged... but doing quite well. He refers to what he does as unpaid social work. Lots of Section 8 renters, lots of work. I see our rental on average on a a month for some minor thing.

I advertised the house on Zillow and Craigslist. Lots of inquiries, some applications. My wife posted it on Facebook and we got slammed with people looking. We’re going to streamline the process somehow... not quite sure how though.

Yeah, we’re fairly new at this. So far, though, so good.
 
ebetancourt said:
Make sure you understand the market, get a good agent, and hope the force is with you. Even with a good agent, you will spend a lot of time managing repairs and maintenance between tenants. Paying someone to do that is probably a good way to forego a chance at profits.
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But unless you consider managing a property a hobby, your time has value as well. If the deal isn't profitable unless you forgo a professional manager, it's simply not a good deal.
 
Had a rental property for a while and BEST thing I ever did was pay a property manager 10% and they did freakin everything. I had no idea who was even in the house nor had to ever chase rent or unclog a toilet.

Only heard from Management if there was a repair needed over $500 and they had handyman that did most everything for 50% off street prices.

...but I was not looking to maximize monthly cash flow...and even if I was it still would have been worth it for the amount of time that would have needed to be spent as we had a turnover every few years of new tenants.
 
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