10-03-2013, 06:26 PM
If you are handy and if you are comfortable with being a hands on landlord, maybe. But unless very competent and motivated, I think that the REIT route is the way to go. One issue with investment property is taxes. Here in S.C. we are taxed about 1/3 as much on a primary residence as we are on an investment property. That difference alone takes about 3-4 months worth of rent to pay. Also, insurance is an issue. It is generally both more expensive and with less coverage than with a homeowners policy. Finally, financing is more expensive. For most investment property financing is done via a five year renewable commercial loan. When rates were in the low 4% range, my previous commercial loan was at around 6.5%.
There is also the issue of local vacancy rates. If there are lots of rental units available, then rentals rates will be under pressure, as will be competition for tenants.
Now a little anecdotal story. My wife and I leased her father's house for about 12 years. The first three tenants were great, giving steady income for about 7-8 years. Then we rented to a high school teacher who taught across the hall from me at the local high school. She was very pleasant and seemed a reliable person. Little did I know that her husband is a non functioning and very nasty alcoholic, nor did I know they she had no skills at maintaining a clean, functional household. Because I knew her so well, I didn't make periodic inspections. Big mistake!
My daughter needed a place to live so I told the teacher friend that the contract would not be renewed. When she moved out, what a surprise! The commode had been leaking in one bathroom, but she didn't bother telling me. Eventually they had stepped totally through the tile floor and still didn't say anything. By the time she had move out, both floors in adjacent bathrooms were totally rotted, plus water damage extended into three other areas. The bathrooms had to be totally stripped and renovated. The kitchen cabinets, tops of doors and any other crack and crevices appeared to have black pepper spread all over and throughout. Those were roach droppings. The house smelled so bad and had so many bugs, that we stripped the entire house of sheetrock, replaced all insulation and built back out. Doing the work ourselves cost about $34K, more than all of the rental income for the previous five years! Moral of the story, always be involved if a landlord, and always make periodic inspections no matter how clean or reliable your tenant appears.
Hopefully this illustrates that not just anyone can be a successful landlord with rental properties. IMO it requires a certain skill set and a certain disposition, if one is to make a reasonable return on investment and if the issues related to the entire process are not to overwhelm and overly stress an individual.
There is also the issue of local vacancy rates. If there are lots of rental units available, then rentals rates will be under pressure, as will be competition for tenants.
Now a little anecdotal story. My wife and I leased her father's house for about 12 years. The first three tenants were great, giving steady income for about 7-8 years. Then we rented to a high school teacher who taught across the hall from me at the local high school. She was very pleasant and seemed a reliable person. Little did I know that her husband is a non functioning and very nasty alcoholic, nor did I know they she had no skills at maintaining a clean, functional household. Because I knew her so well, I didn't make periodic inspections. Big mistake!
My daughter needed a place to live so I told the teacher friend that the contract would not be renewed. When she moved out, what a surprise! The commode had been leaking in one bathroom, but she didn't bother telling me. Eventually they had stepped totally through the tile floor and still didn't say anything. By the time she had move out, both floors in adjacent bathrooms were totally rotted, plus water damage extended into three other areas. The bathrooms had to be totally stripped and renovated. The kitchen cabinets, tops of doors and any other crack and crevices appeared to have black pepper spread all over and throughout. Those were roach droppings. The house smelled so bad and had so many bugs, that we stripped the entire house of sheetrock, replaced all insulation and built back out. Doing the work ourselves cost about $34K, more than all of the rental income for the previous five years! Moral of the story, always be involved if a landlord, and always make periodic inspections no matter how clean or reliable your tenant appears.
Hopefully this illustrates that not just anyone can be a successful landlord with rental properties. IMO it requires a certain skill set and a certain disposition, if one is to make a reasonable return on investment and if the issues related to the entire process are not to overwhelm and overly stress an individual.
Alex