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Thread: Real Estate Questions

  1. #1
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    Real Estate Questions

    About 10 years ago, I was white hot about real estate, but then ... life, ya know? Here is my situation:
    Next year, I'll turn 40, and I want to have my family of four set up well down the road. Currently, we own two houses outright. Our primary residence (zillow valued at about 190k) and our rental (zillow valued at about 155k). The rental was really just for family, and "produces" $700/mo. We have 40k in the bank and about 70k or so tied up in investments/collectibles.
    We are looking at possibly purchasing another house to actually move to, with a garage apartment or similar for the family member to move into that is currently in our rental. I had long considered just selling the other two houses and getting into a house that is 300-350k, and be done with it, but I am starting to think about having both properties as rentals. The total approximate rent coming in from the two houses (according to zillow) would be about 3k a month.
    I would love to hear the input from everyone here - what would you all do? What are your suggestions based upon my situation? I'm happy to answer any other questions that need to be answered, if I have missed anything. Thank you!

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    Steve, can you weigh in on this, as I am curious, too, about using rentals as income stream in our retirement

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    Senior Member iris lilies's Avatar
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    Using the 1% guideline* you are losing money on the $155,000 property. Since you seem to hold it mainly to house a relative in need, perhaps you dont care.

    But a sum total of $345,000 in real estate that generates only $3,000 per month is digging yourself further in the hole.

    Don’t you post over on the Mr. Money mustache forum? Those guys are pretty good at assessing these kind of questions.

    Another general guideline I’ve learned from that forum is generally speaking, if you are landlording in in flyover country you had better be making your money via the rents. Only on the coasts and in a select number of large cities will you make money on property appreciation.

    Another truism they’ve been promoting lately is this idea: landlording is a business, it is not a passive investment. When you buy income property you bought yourself a job.

    *Guideline is a rental should generate 1% -2% per month of its market value. For those assessing income property, walk away from any deal that doesnt hit the 1% minimum.

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    Senior Member jp1's Avatar
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    Iíve never owned rental property but my sister and SIL rented out their house in san diego for the four years they lived in seattle for her work. (They only did so because they planned to move back to san diego after sister had earned big money in seattle working for a major tech company there.)They paid a management company 15% of the rent and the management company definitely earned their money. There was nothing passive about it.

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    I went back and read your post and have a couple of observations--I think at max you should own one rental property, if any. I wonder about the 40k and 70k being adequate for taking care of emergencies that may arise. Two rental properties opens you up to two sets of emergencies, and three properties is even worse. I would be concerned about having to dig into my money in the bank to take care of the properties.

    Also, the investment/collectible designation confuses me, as I'd be concerned about collectibles as any source of value, but I don't know about what you collect, obviously..

    I worry about renting to family as I would not be willing to evict family if circumstances changed, and I couldn't afford to carry them.

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    Senior Member Teacher Terry's Avatar
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    We had rentals and they were a giant PIA.

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    Senior Member iris lilies's Avatar
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    My message below is not intended to be snarky.

    Three years ago you asked the same question and the overwhelming response from posters here was to to sell the properties.


    You’re asking the same question today. You’re not showing us any math at all, just are throwing out some Zillow estimates. This is absolutely not the foundation of a successful real estate investment plan.


    First thing I would do is go back to the question you posed three years ago and read those responses. What has changed?

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    Quote Originally Posted by iris lilies View Post
    My message below is not intended to be snarky.

    Three years ago you asked the same question and the overwhelming response from posters here was to to sell the properties.


    You’re asking the same question today. You’re not showing us any math at all, just are throwing out some Zillow estimates. This is absolutely not the foundation of a successful real estate investment plan.


    First thing I would do is go back to the question you posed three years ago and read those responses. What has changed?

    Too funny! I've gotten a few messages like this in the past with the "I don't mean to be snarky, but..." and I roll my eyes because it comes off as snarky. So, after I rolled my eyes, I searched my posts from 3 years ago. Sure enough ... I did in fact ask a similar question, only with much more clarity. I appreciate your reminding me about this, because I had ZERO recollection I posted this before. That should be a testament to how many extreme highs and devastating lows I've had over the past few years, that I didn't even remember.

    A lot has changed since then, though, financially, it isn't a whole lot different, aside from apparently both of the properties having increased in value (yay!) It sounds as though the responses here are a resounding SELL! I appreciate the responses ... even from 3 years ago. Thanks guys!

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    Moderator Float On's Avatar
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    Quote Originally Posted by jschmidt View Post
    TI searched my posts from 3 years ago. Sure enough ... I did in fact ask a similar question, only with much more clarity. I appreciate your reminding me about this, because I had ZERO recollection I posted this before. That should be a testament to how many extreme highs and devastating lows I've had over the past few years, that I didn't even remember.

    !
    oh heck. I can ask a question yesterday and not remember. But I hope your highs and lows have mellowed out and things are going ok.
    Float On: My "Happy Place" is on my little kayak in the coves of Table Rock Lake.

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    Senior Member SteveinMN's Avatar
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    Quote Originally Posted by Tybee View Post
    Steve, can you weigh in on this, as I am curious, too, about using rentals as income stream in our retirement
    Tybee, if you mean me (I think I'm the only Steve on the forum right now), then I will say jschmidt has received excellent advice here -- now and three years ago.

    The only thing I can see changing the equation is if property values have increased considerably due to an organic improvement in the local market -- and, even then, there are caveats. I don't quite agree with IL that property appreciation happens only on the coasts; there are pockets of appreciation in flyoverland and real estate is a truly local endeavor. Minneapolis/St. Paul is doing well as the strongest economy for states around, what with the collapse of Dakota gas mining and Target, Best Buy, and United Health Care (all HQ'd here) thriving. That and real development in our neighborhood have buoyed property prices to the point where we're at least where we were when the bubble burst 10+ years ago. But I think there's another real estate bubble coming; last thing I'd want is to be close to extended on credit and on the hook for major repairs to even sell when that happens.

    I finally raised the rent on my rental starting last January (it's still below the 1% rule because relatives but still is below market for this area). In the last three years I've had to replace the roof, the water heater, the furnace, the back door, and substantial chunks of the plumbing; added a ceiling fan; and partially remodeled the bathroom. The central A/C will need replacement in the next few years and the appliances are all ten years old and are on a timetable to be replaced. Like regular home ownership, it's one thing after another.

    I've largely decided that, when my relatives no longer need the house, I will sell it. Just not the way I want to spend my time. Even at market rents, it's not going to be a huge income stream. Maybe it would be different with "real" tenants (with whom boundaries can be set more firmly). But it's just real work -- rarely on my schedule -- and that's one property. Or you pay someone else to do the work (and earn a profit because most people aren't going to work for free), which takes a bigger bite out of your margin. I may change my mind if I have the house to sell when the bubble has burst. But, right now, I want to be out of the accidental-landlord business. I have zero interest in expanding that role by two- or three-fold.
    Success is to be measured not so much by the position that one has reached in life as by the obstacles which he has overcome. - Booker T. Washington

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