Posted by BR on September 03, 2001 at 11:07:17:
I meant 25% for the MP and infinite for the investor.
Rentals - Posted by Nathan(oh)
Posted by Nathan(oh) on September 02, 2001 at 11:04:37:
Does anyone here make a significant amount of money off of rentals? I have LO’s which are slowly but surely giving me passive income, but they do not build equity or net worth. I have read several posts in which people talk about not buying anymore, just taking over properties. My question is this: In today’s market, is buying rental properties a good idea? If so, what is the best way to analyze a property and what are the best kinds to rent. Are there any hidden factors I should look into? Looks like it would be a whole different kind of tenant that the ones I have in my lo’s. I have found several sfh’s and some doubles that I may look into renting because I can get into them cheaply. I have been on this board for a while and hardly see any posts about rental properties or building net worth. I am just trying to diversify by adding to my lo’s and rehabs. Any takes on this issue? Thanks as always.
Nathan
Re: Rentals - Posted by Shelby
Posted by Shelby on September 03, 2001 at 17:46:19:
Well I’m new but I’m putting in my .02 because I’m renting mine out for the long term. I bought a GEM of a house (only needed carpet and paint, I painted) and increased my net worth by 12K in 6 weeks (and this was VERY part time, I have a toddler). My renter put up a full year’s cash so I don’t have to worry about the monthly. The house is only 10 years old and all the mechanical systems are in great shape. Just happened to be a very nasty divorce. Not as much profit as the superstars who post on this website, but I’m not as smart or savvy as these guys. I am setting up rentals for mine and my kid’s retirement, but am going to be getting more aggressive shortly with some of the techniques I’ve read about here. I just haven’t had the time to really make a go of it yet. I want to build my net worth after years of working my way through college and not saving alot of cash. I think the rentals are great if the properies can be bought cheaply and are in very good structural and mechanical condition. My husband is (almost) a structural engineer and can spot the bad ones easily.
Best wishes!
Re: Rentals - Posted by David Krulac
Posted by David Krulac on September 03, 2001 at 16:14:26:
I’ve had rentals for about 25 years, and I can only recall one call in the middle of the night, it was NOT about an overflowing toilet, and the profanities from the drunken tennat were not what gotten him evicted shortly thereafter.
I did have a tenant (not the same one) call during the day about a clogged toilet. I called a plumber and met the plumber at the house with the tenant. The tenant ranted a bit about the toilet and implied that somehow I was negligent. I did not argue. But the plumber retrived the blockage and I handed her child’s tooth brush to her.
BR and Frank Chin have the right ideas, you need to be on top of repairs. Now when a plumber goes to any building I have him check every faucet, toilet, value, etc. in the place. Just last week a tenant called to say their toilet was running. The plumber went their and replaced the flapper NOT ONLY on the offending toilet but the other 2 as well. Preventive maintenance. In the apts. I pay the water bills, but this policy also applies the the units where the tennats pay the bill. I also monitor the water bills, which come months for usage spikes and call tenants asking about possible leaks.
Rentals are an easy place to start, you can be as big or as small as you want to be, and if you buy well cosen property you can have a lifetime of steady income.
Re: Rentals - Posted by Alex Gurevich, TX
Posted by Alex Gurevich, TX on September 03, 2001 at 12:58:53:
I guess, the reason this subject is less discussed here is because most of the new investors who want to enter the game think in terms of replacing their income from work with the one from their r.e. activities. Building a long term wealth comes distant second.
Replacing one’s paycheck with the traditional rental income just isn’t possible over a short period of time. Although the time does make little wonders with equity and cash flow. The last 4-plex I have left in my rental portfolio (bought it 9 years ago) shows $160-180K increase in value and $1,300 or so increase in cash flow.
Even though L/Os don’t qualify for a pure rental discussion, I still consider them and treat them as rentals. They just happened to be relatively short term rentals, 1-3 years on the average.
Even though I learned how to extract a lot of monthly cash flow from them and create a sizable back end profit, they are still SFR rentals for me. When I get cashed out I either pay myself or take the money and roll them into the next one, with less leverage.
Re: Rentals - Posted by JohnSyr.
Posted by JohnSyr. on September 03, 2001 at 10:50:34:
I make some good money from rentals. Alot of it has to do with where you buy them. I buy my properties in lower income areas. For instance I bought a 2 family 4 months ago for 9k and it just needed cosmetics. I have both units rented out to people on sec.8 at 600.00 a month. A few more properties like this and I wont have to go back to that under paid back breaking labor that they call employment. HAHAHAHA. happy investing
I sure do! - Posted by BR
Posted by BR on September 03, 2001 at 08:32:27:
I started out 20+ years ago growing slowly into a position that is VERY comfortable today with nothing but rentals. Today I’m a little more creative in many deals I do but my bread and butter is my rentals. Have you ever heard the phrase sitting around in your underware till noon. I often do just that and it’s because of rentals. Now I’m not claiming it’s ALL gravy but all this whining you hear about calls in the middle of the night and landlording nightmares is a bunch of bull. In twenty plus years I’ve only had a few calls in the middle of the night. Actually I get very few calls period because my places are all well kept, my tenants are happy and pay like clockwork most of the time. It’s all in how you run your business, knowing what, where and when to buy. As an example the last keeper I bought was a 4-plex that needed some cosmetics and cleanup. It took me all of 90 days to create an $800 cash flow on a 12 year note(zero down). That cash flow will only grow with time. Take the advice of Warren Buffet and buy when everyone else is selling, and sell when everyone else is buying. There might be a good buying opportunity soon but my market is still going strong for the time being. I would love it if this recession everyone is talking about would get into high gear. Today I do some rehabs(not many however…too much work), buy a SUB2 here and there, buy some VA foreclosures for wrapping John Burley style and every now and then one on the courthouse steps. I’ve got something in the works for using a combination of Merle’s and John Burley’s money partner techniques. I think everyone would be well advised to open their eyes to keeper properties and start creating some wealth along with the much discussed cash flow.
Good cash-flow in rentals - potentially - Posted by TJ
Posted by TJ on September 03, 2001 at 24:27:53:
First, I recomend you check out Ray Alcorns commercial board. Rentals are discussed quite a bit there.
I buy rentals for cash-flow. But I do not have in mind three- and four-plexes. These give little more cash-flow than SFRs. You can generate quite a steady income and a good cash-on-cash return (i.e just the net monthly income alone) on investment (20%+) in buying larger apartment buildings. What I and many others do is flip smaller properties for fast lump sums of cash, then use the proceeds to buy large multi-nit “keepers” for permananent income.
Some tips on this: 1) Buy in low-income areas. The cash-flow is always better. 2) Just like SFRs, buy fixers or “value-added” properties. These are ones that with certain well-placed changes can be increased in value or cash-flow. Sometimes its merely repairing deferred maintenance and cosmetic enhancements, or perhaps adding amenities (e.g. security gates) the tenants will pay for. In apartment buildings there are really two kinds of “fixers.” There is the physical fixer, then there is the “management fixer”. The latter are buildings whose value is depressed because of poor management, resulting in low rents, high expenses, and high vacancies. A skilled manager can turn these buildings around.
One year ago I bought a 40 unit building in an area near downtown Los Angeles that, although not the best area had potential for gentrification. I rehabbed units as they turned over (or got evicted) and just started marketing them to a better class of people. It had apparently never occurred to the prior owner to do this, but the building had character and the neighborhood seemed ready for this. I’ve probably increased the building’s value by almost $100,000 with about $15,000 in upgrades and the higher quality and higher paying tenants that came with them.
To answer your question, the right apartment buildings can be quite lucrative.
Hope this helps.
TJ
Try looking at RonStarr post… - Posted by Alan in Houston
Posted by Alan in Houston on September 03, 2001 at 24:11:27:
Nathan, RonStarr uses this method. If you look in the archive you may find out some more details. He buys at forclosure, 50% of market, rents them out and holds for long term.
This is a good plan for long term growth. A retirement plan so to speak.
HTH
Alan
Re: Rentals - Posted by Bud Branstetter
Posted by Bud Branstetter on September 02, 2001 at 19:16:23:
Let us first establish that you are building equity or net worth. The paydown of the mortgage builds equity. Slow but still there. Second, in most parts of the country there has been appreciation for a number of years. Less on low end properties. Must more on higher end in good areas.
Next let us concede that multiunits generally have a greater cash flow than single family homes. Same on lower end properties. The trade off is risk and management. The higher the leverage the less the cash flow on better properties.
L/O and Subject to are ways to control property and get some cash flow until you cash out because you either bought right or the fates where kind to you. My view is that there is nothing wrong with rental in your begining stage if you pick the right property. One with no maintenance(roof, AC, etc) for at least 7-10 years. In a good area to provide a high occupancy. But since those are few and far between it is better to initially concentrate on turning over your assets to keep pyramiding the wealth. Learn how to do this in a tax free or tax deferred enviroment. The wealth will build much faster.
When you have all your bills paid off and have the extra cash or time you can consider other things. Get enough cash together and good multi units are a better investment than most fixed income assets. But fixed income will never beat the return when you take active involvement in your investments. Rentals are not discussed a lot here because it is easier to use something creative to gain the higher returns by active involvement.
Rentals are OK - but its Not Fast Money - Posted by Frank Chin
Posted by Frank Chin on September 02, 2001 at 14:32:30:
Hi Nathan:
There’s a number of people on this board who pursue the “buy and hold” rent it out strategy. DanT for one just gave you a good answer. I believe others include Lor, David Krulac and Ron*Star to name a few more.
Then there are the reluctant accidental ones.
It took nearly 20 years for me to get to a point where the passive income exceeds my expenses. I did it way back with earlier retirement in mind. Up to a year ago, I held a job, and managed a number of 3 family MF’s here in New York.
The trick is to buy cheap and start off with at least breakeven cash-flow, making provisions for maintenance, roofs, and so on. As time goes on, and the rent and thus passive income increases. The big payoff is when the mortgage gets paid off. I’m some years away from that.
Based on your post, you already know that.
As for selecting the right kind of property, keep in mind rental is a business where you are serving customers (tenants), which makes some properties easier to rent than others. And when a property is easier to rent, you get a better choice of tenants and have less headaches later on.
Things to Consider:
1- When renting a SFH with 3BR’s or more, or MF’s with 3BR units, you’ll be renting to people with children, and good schools is an issue. You can try renting to several singles, but I find them less stable as they last no more than two years (or two days in one instance). Familes stay for years, and the place is usually kept in better shape.
2- In lower income blue collar (more urban)areas, access to good public transportation is a plus. This means you’re within 15 minutes walkking distance from a bus stop. Some of these families may want to make do with one car, so the husband drives to work, but the wife may take the bus. This may not be true in the more rural areas.
3- The better you maintain the place, the better tenants you’ll get. Tenants willing to rent a poorly maintained place will take even less care.
4- Easy Access to shopping. People like it when all they have to do is drive 10 minutes or less to get their hair done, pick up some fast food, and get milk or beer from a convenience store.
If you can pick up a property which can cash flow in a good school district, near public transportation and shopping, then you’ll have a gem. Putting it another way, you want to be able to rent something that everyone be fighting over, rather than the “poor credit risk” rejected everywhere else.
The other thing to keep in mind is the RE cycle. If you can buy more at the bottom of the cycle, you hang on for the rent increases. The thing working against you is I beleive we’re at the top of the cycle.
In my case, I done OK because I went through TWO up cycles, and rode interest rates down on the last down cycle.
This is NOT a strategy for making enough in TWO years to retire on. You’ll have to do flips, rehabs etc. to generate the fast cash.
As for landlording, you’ll have to have “people skills” and expect to be called at all hours. You can’t be too soft, but you can’t be too hard either.
If you strike the right balance, then you’ll have happy tenants staying long term paying on time. But landlording is not as terrible as some people make it out to be.
Right now, i have a tenant whose wife had what was though to be a stroke, and was paralyzed when admitted to the hospital. We found out when the rent check bounced. When my wife spoke to the husband, he sounded scared and desperate.
Instead of ranting about the rent check, my wife volunteered to look after their nine-year-old.
When the lady came out of the hospital the other day, the first thing she did was to call about the rent check. She couldn’t thank us ehough for offering to look after her girl. She wanted to take us out to dinner once they catch up.
For me, its just another week in Landlording business.
Hope this helps.
Frank Chin
Here’s Your Post, Nathan (nt) - Posted by J.P. Vaughan
Posted by J.P. Vaughan on September 02, 2001 at 14:24:22:
nt
Re: Rentals - Posted by DarrenNY
Posted by DarrenNY on September 02, 2001 at 13:16:52:
I’ve had some rentals that i made some money from. But I’ve gotten more headaches then what it was all worth. I’m not saying the hell with being a landlord I’m just saying you need to be prepared. At this point i can only blame myself with the lack of experience and being blinded by the thought of the money that I was going to be making. Being a rookie at landlording is’nt fun. Another mistake I made was buying property way to fast for a newbie to manage. To make a long story short I lost everything. And it has taken me 2 years to rebuild my credit and my self-esteem. What I can suggest is for you to read as much property management books, talk to some landlords in your area, and if you have’nt already - join a local real estate investors club. Just remember, if something happens and you end up losing some things, it’s not the end of the world. Keep your faith, keep your head up and definitely keep coming to this web site. It’s helped me tremendously, not to mention that I just purchased my first rental since 2 years ago. Thanks to everyone at creonline.
Re: Rentals - Posted by DanT
Posted by DanT on September 02, 2001 at 12:02:01:
Nathan,
I only have rental property. I buy, rehab and rent out everything I buy. I have sold 3 over the last 15 years. It is a slow, consistant pace. You don’t have to rent them out to low income folks as there are tenants at all income levels.
I have 9 units and average less than a call a month. We average a little over a $100 a month per unit positive cash flow. Now by that I mean after everything, not just PTI. We build equity and the tax advantages are great. We are in the 28% bracket and were able to claim a little over 20k in legit loss for last year. And I am conservative with my taxes as well, could probably claim more. All in all it is a good part time business and that is how we work it. We are able to travel some and handle them by phone so I don’t buy the “constant burden” theory that you hear about all the time. It is simply a matter of managing people. If you are good at that then landlording is no different.
Have we had bad tenants and stressful times? You bet, but no more than anyone else who operates any other type of business. All types of business has its good and bad, the trick is picking what is good for you. DanT
Re: Rentals - Posted by JT - IN
Posted by JT - IN on September 02, 2001 at 11:42:00:
Nathan:
Each time you buy a property, in which you sell on L/O, your net worth should increase substantially. You should be reflecting the “back end” in your paper value of assets, likewise due to amortization of any mortage that you have in place on the property, you should be paying down the loan faster than any rent credits you are giving, resulting in an increased equity each month, albeit slight.
Whether or not you should persue rental houses or duplexes, are entirely within your scope of “pain tolerance”. While some are wired better than others, to handle the rigors of property management and babysitting, it is definitely not for everyone, regardless of the possible upside.
If still interested in becoming a Landlord, then I think that you must buy at really good prices today, to insure that the fundamentals will be in place, should the market take a header. Provided you can purchase at under market prices and endure the stress of tenants, then it is certainly a method of accumulating wealth.
I have some rental houses, 6 or so at last count. These have been good investments over time, with positive CF, relatively low stress, as well. SFH rentals are not very exciting, as the return is a slow process, as opposed to making a lightning hit, of selling a property with a huge front end.
It is a little bit like the story of the Turtle and the Hare. If you are wired to be the Turtle, (and deal with all the tenant hassles) you could win the race, just as the folklore depicts.
It is one of the many, many strategies of making money in this business. It does, however, take certain a temperment to be a Landlord.
Just the way that I view things…
JT - IN
Re: Rentals - Posted by Vic
Posted by Vic on September 03, 2001 at 21:00:48:
Hey…12K ain’t all that bad…so long as it’s a real 12K & not just an imaginary 12K that you could never get.
I’d take one of these deals every day if I could get it.
Sounds like youre doing well. Keep at it.
Vic
Re: Rentals - Posted by andrew
Posted by andrew on September 05, 2001 at 22:17:03:
Question for you. I just bought a place in dallas and was wondering what area in texas you have r.e. in?
Re: I sure do! - Posted by Alex Gurevich, TX
Posted by Alex Gurevich, TX on September 03, 2001 at 12:40:08:
Jim,
I guess in tighter times people look into ways to decrease their spending and do away with paying for extras.
It’s almost impossible to get a rent reduction in the same place, but it’s possible to drop payments by moving out of the L/O house into a home with a regular rent.
Yesterday, I got a call from a L/O buyer that she wants to downgrade from a L/O with $1425/mo pmt to a regular lease at $1,100/mo. In tune with the trends.
Re: I sure do! - Posted by Vic
Posted by Vic on September 03, 2001 at 09:57:58:
BR,
Could you elaborate a little on Burley’s technique for money partners & how does it differ from Merle’s.
Thanks,
Vic
Re: I sure do! - Posted by JPiper
Posted by JPiper on September 03, 2001 at 09:27:13:
This morning I’ve been thinking about rentals versus lease/options. The reason is that my rentals have all paid their rent. Interestingly, none of my tenant/buyers have. Maybe their all on vacation. LOL. Good post Bob.
JPiper