Rental Properties?

[freein05]

I was a slumlord for a few years. When I did my research the only properties that would pencil out were those in the not so good area of town. I did ok and my renters were ok but it was a lot of work and just was not worth it. If I had wanted to take the chance and go slumlord big time I probably could have made some money but with a lot more work. It would have had to be my full time job. Some interesting things did happen when I would do maintenance. One day I was spraying weed killer in the back yard of one of my rentals and the son comes out and says don't spray those plants and I said are you talking about the marijuana.

The only problem I had is when I sold one of the homes the tenant did not want to move out so I had to bribe him to move out.

[Zippy]

We own two rental properties, a fourplex and a triplex, and for us it has been very worthwhile. We got very good deals on them - actually lived in the fourplex and lived free while the tenants paid the mortgage, and then moved to a small single-family, and the money from the fourplex paid that mortgage, so we were able to pay cash for the triplex...etc. It really can work. And I'm REALLY grateful we have this income and will have it until we sell. It's more real to me than social security feels, or my husband's anticipated state pension, because its tangible.

Having said that, I'm at a different place in my life than I was when I bought them, and even now that I see some very good purchases, I can't make myself pursue them because this economy is just still too funky. It's like the rules have changed, but no one yet knows what they are. I think you can reasonably expect that the good deals you're finding today will be there several years down the road.

If & when you do buy, here's some advice: Buy for cash flow or to live free, not for appreciation. A multi-unit property makes good sense, because if one unit is vacant, the others can still pay most if not all of the mortgage. You make your money going into a deal, not coming out (or at least this should be your philosophy), so you should find a good property in a good location (think university area, think the best elementary school in town, where there will always be demand) and structure your offer so it's profitable from the get-go. Keep a year's worth of mortgage payments in easily-tapped accounts, in addition to a year's worth of living expenses.

If you can do that -- then MAYBE it's a good idea. But seriously, now's probably not the time. Wait for the market to hit bottom and buy 12 months after that - if you still want to buy. Another strategy would be to pay off your house and rent it out, buy a fourplex and live in one unit, and go up from there. Not having kids makes this much more feasible.

[loosechickens]

Many years ago, I bought a three unit apartment building and lived in one of the apartments and rented the other two. It was great. Nice building, attracted good tenants, I ended up living "rent free" as the two rented apartments paid the mortgage, taxes and insurance on the building.

Then I bought a duplex in a not so nice part of town, and entered into a ten year nightmare of bad tenants, unpaid rent, interactions with police, evictions, being taken advantage of (you really DO need kind of a hard heart to be a successful landlord, and I was always WAY too susceptible to hard luck stories), and by the time we managed to sell that one after ten years, we breathed a big sigh of relief.

That said, those two buildings (totaling five units) are what provided the money for our first year or two as nomads, because when we sold the buildings, although they were in an area where there was NO property appreciation, the tenants had provided the mortgage payments for ten years of fifteen year mortgages, and we had a very nice amount of equity in them, all paid by others.

So.......it's certainly no "get rich quick" scheme....has lots of headaches.....single family rentals are usually unprofitable, you need at least a duplex, and preferably at least three to four unit buildings.....bae is right, commercial is much more reliable, longer leases, better all around, but requiring much more capital to get started, usually.

Would I do it again? Probably not. Do some people find it a very successful endeavor. Yes, definitely. You just have to understand that your life will not be your own, people will find very inventive ways to damage the plumbing, cause problems, not pay the rent, etc., yet your overhead will keep marching on, regardless.........

[The Storyteller]

This topic comes up a lot. And, from all the posts on the internet, it seems like a bad idea for the amateur landlord.

I haven't found that to be the case. The secret is to buy an under-priced property that needs a little work, fix it up, price it right, get some good tenants (easier than what folks think), and collect the surplus from the rent as the property grows in value.

It isn't really the rent that makes you money. It is the appreciation on the property.

[bae]

It isn't really the rent that makes you money. It is the appreciation on the property.

I don't invest in real estate that doesn't make money on its own, without consideration of appreciation.

I also don't finance my real estate purchases with loans. I pay cash. Because leverage works both ways.

As a result, pretty much every property I own "makes money", throws off income in actual dollars I can use to buy food with, and isn't in danger of being foreclosed if I can't find suitable tenants.

[Zippy]

Also, the equity more than appreciation is important, which the tenants build up for you. If you do finance it, try to swing a 15-year mortgage and it builds up very quickly and nicely.

[jennipurrr]

One day I was spraying weed killer in the back yard of one of my rentals and the son comes out and says don't spray those plants and I said are you talking about the marijuana.

Heh, sounds like me after our worst tenant ever moved out. I was trying to salvage some pyrex dishes and just could not fathom what this crud was all over them. Uhhh, yeah, turns out it was crack cocaine.

[MudPuppy]

We have a small guest house on the back of our property that we rent out. We've only been here since June and are still on our first tenant, but so far it's worked out really well for us, and has made it possible for DH to be in school full-time with only me working. The house itself isn't fancy, but it has a dishwasher and its own washer/dryer, as well as a fenced yard -- an unusual combination for a 1-bedroom rental in our area.

We screened people pretty carefully, and I think the fact that we live here on the property may also have discouraged some troublemakers. At any rate, our first tenant has proved to be fantastic -- he loves having the yard for his dogs, he keeps the place looking clean, and he's even done a couple of minor repairs around the property. He's been late with his rent one time, but he let us know in advance when he would be able to pay, and it was fine.

Anyway, we're still new to this and in 5 years I may have some real war stories, but so far it's been a good situation for us.

[loosechickens]

We did find that LIVING right there discouraged most of the problem tenants, because the last thing problem tenants want is a landlord right there watching them. I never had problems with my 3 until building and always had great tenants because I lived there myself, and when I moved out, those same tenants stayed and a friend of one of them rented my apartment, so it stayed that way.

It is important, if you have a mortgage, that you have a way to pay that mortgage even if you lose your tenants. If you MUST have that rent in order to meet your obligations, you will find yourself with big problems, IMHO But if your own finances are such that you can carry that mortgage yourself for some months if necessary, o.k.

[fidgiegirl]

Well, I have pored over your responses many times in the last few weeks. So know that your information really did that - it informed!!

We are back on a kick of looking at properties. What's alluring is knowing that we could get our house payment down to where one of us would be able to leave work and we wouldn't collapse as a financial entity.

They are two veeeeery different places. One is a fixer-upper (though we don't know how much fixing-upping yet) for only $18,000 a few blocks from our house. There are several places for this cheap in the city but they are all in less desirable neighborhoods. It's only a one bedroom and it for sure needs cosmetic work, new exterior and the garage may have to go completely. But someone loved that house. It looks to me like they cared for it as best they could. I am hopeful that it wasn't trashed on a fundamental level, like the plumbing. But we don't know. Actually, the more I write, the less of a good idea I think this actually is The major attraction for me with this place is that we could do it without financing, allowing us to take a little more time fixing it up at the lowest cost, using sweat equity and looking for the cheapest supplies, etc. rather than having to rush to get it all done and get a tenant in there.

The other option we're (more seriously) thinking about is becoming an owner-occupant in a duplex. There are lots of them on the market in move-in ready condition. One that's calling to us is a duplex with two 2BR unit but with an unfinished half story above the upper unit, which would be what we'd finish and then live in the upstairs 3BR unit. It's in a great location and is listed for $299,000. That would make our mortgage about $250 after we sold our place, presuming that's even possible, and finished the upper 1/2 story. The payment would be $1600-1700 and we figure we'd rent the bottom unit for about $1200. These are all rough numbers, and frankly, I don't expect it to actually work out. We'd have to sell this place first and that's not an easy process right now. According to your responses, it sounded like living on site is a good way to control the quality of tenants, though. One teeny thing is that I'm not wild about sharing my laundry, but it would be a small price to pay for (best case scenario) $1200 bucks a month.

Anyway, it would kind of be a dream if it worked out like this. I'm not holding my breath, but thought I'd see if any of you have additional thoughts. The realtor, of course, thinks it's a GREAT idea.