The landlording proposition

[ken-do-nim]

I almost tossed my hat in the ring this weekend.  The neighbors across the street put their house up for $409,000, so I'd have to liquidate $81,800 if I went asking to make the 20% downpayment.  I think the monthly mortgage payment would have worked out to roughly $2100 given that rental mortgage rates are higher than owner occupied, and the real estate agent told me I could probably rent it for $2500, so there's a net $300 or so cash flow there.  I like the diversification that renting a property provides, but here's why I decided against doing this.

1) I'm trying to minimize my tax bill for next year as is, such a liquidation would greatly enlarge it.
2) Repairs and such on a house from ~1920 would naturally eat up the $300 or so net cash flow, not to mention things not usually covered by renters like the quarterly water bills.
3) During months when I don't have a tenant, I would have to pay the mortgage myself.  While I am paying child support, that will be difficult.

In the end, I decided that starting my real estate empire might be something I look into after child support payments end.  Whenever that is

[fenders53]

Do lots of research. I was a landlord for 20 years and 19 of them were pleasant. I would start with something affordable. You can jump if it's not for you. You can flip it and upgrade if you wish. Real estate crashes are infrequent but they can be brutal. My property was never vacant a full week unless I chose to do some repairs. I don't regret it but it won't be a retirement hobby.

[ken-do-nim]

(05-03-2021, 02:12 PM)fenders53 Wrote: Do lots of research.  I was a landlord for 20 years and 19 of them were pleasant.  I would start with something affordable.  You can jump if it's not for you.  You can flip it and upgrade if you wish.  Real estate crashes are infrequent but they can be brutal.  My property was never vacant a full week unless I chose to do some repairs.  I don't regret it but it won't be a retirement hobby.

Sounds like there's a tale to be told there.  Oh gosh that reminds me I still owe you my Raytheon exit stories.

[NilesMike]

My Dad bought income properties and I started while in High School. Buying crappy multi families for 16-17K. Later on I was a residential appraiser in a former life and owned just about every kind of property.

The path to success in my case was the order of investment properties. Early on only cash flow properties, literally no appreciation, 4 doors or more under 1 roof. As your experience and portfolio expands you can move on to what I call vanity properties. Properties that do not cash flow but appreciate like gangbusters.

Best tenants are single Moms with decent income. They do not want to move their kids frequently. Single women are good as well, until the boyfriend becomes an issue.

The holding period is like a high quality stock, never sell. The buy in is the most difficult phase. Need cash?-refinance the vanity property (ies)

Unlike stocks, there is much more work involved, like a job and I considered my tenants as my customers. That makes it much easier to deal with their issues.

[fenders53]

(05-03-2021, 04:36 PM)NilesMike Wrote: My Dad bought income properties and I started while in High School. Buying crappy multi families for 16-17K. Later on I was a residential appraiser in a former life and owned just about every kind of property.

The path to success in my case was the order of investment properties. Early on only cash flow properties, literally no appreciation, 4 doors or more under 1 roof. As your experience and portfolio expands you can move on to what I call vanity properties. Properties that do not cash flow but appreciate like gangbusters.

Best tenants are single Moms with decent income. They do not want to move their kids frequently. Single women are good as well, until the boyfriend becomes an issue.

The holding period is like a high quality stock, never sell. The buy in is the most difficult phase. Need cash?-refinance the vanity property (ies)

Unlike stocks, there is much more work involved, like a job and I considered my tenants as my customers. That makes it much easier to deal with their issues.

Definitely work at times.  If you hire all the work out you'll be waiting a much longer time for true appreciation unless the chips fall your way.  That property you pay $408K for may be worth $500K or $350K in a few years.  I wanted equity as quick as possible.  No cash flow for 13yrs, then it was paid off and it was pure cash flow for 6 yrs.  At time of sale 100% of my cash outlay was long ago recovered plus much more.

[NilesMike]

(05-03-2021, 05:43 PM)fenders53 Wrote:

(05-03-2021, 04:36 PM)NilesMike Wrote: My Dad bought income properties and I started while in High School. Buying crappy multi families for 16-17K. Later on I was a residential appraiser in a former life and owned just about every kind of property.

The path to success in my case was the order of investment properties. Early on only cash flow properties, literally no appreciation, 4 doors or more under 1 roof. As your experience and portfolio expands you can move on to what I call vanity properties. Properties that do not cash flow but appreciate like gangbusters.

Best tenants are single Moms with decent income. They do not want to move their kids frequently. Single women are good as well, until the boyfriend becomes an issue.

The holding period is like a high quality stock, never sell. The buy in is the most difficult phase. Need cash?-refinance the vanity property (ies)

Unlike stocks, there is much more work involved, like a job and I considered my tenants as my customers. That makes it much easier to deal with their issues.

Definitely work at times.  If you hire all the work out you'll be waiting a much longer time for true appreciation unless the chips fall your way.  That property you pay $408K for may be worth $500K or $350K in a few years.  I wanted equity as quick as possible.  No cash flow for 13yrs, then it was paid off and it was pure cash flow for 6 yrs.  At time of sale 100% of my cash outlay was long ago recovered plus much more.

I look at property value somewhat differently. The bank is holding the bag for 80% of the price, so your 80K becomes 350K in Fenders' scenario-so what. If the property more than pays for itself that's a pretty good return on your cash.

I started a long time ago and properties were cheap in the 1970s, cheap enough that I paid cash for the 1st one, did some sprucing-refied and rolled into the next one and so on. 

It was classic Dr. Lowry with guidance from others. 

[fenders53]

You have a lot more experience. I was looking to diversify about 10-15% at the end with about no money down. My occupation didn't make it ideal to handle much property. Sure enough I got deployed 5 years in. My wife was never a fan of the plan but she was OK with the income that still continues.

[ken-do-nim]

(05-03-2021, 06:15 PM)NilesMike Wrote:

(05-03-2021, 05:43 PM)fenders53 Wrote:

(05-03-2021, 04:36 PM)NilesMike Wrote: My Dad bought income properties and I started while in High School. Buying crappy multi families for 16-17K. Later on I was a residential appraiser in a former life and owned just about every kind of property.

The path to success in my case was the order of investment properties. Early on only cash flow properties, literally no appreciation, 4 doors or more under 1 roof. As your experience and portfolio expands you can move on to what I call vanity properties. Properties that do not cash flow but appreciate like gangbusters.

Best tenants are single Moms with decent income. They do not want to move their kids frequently. Single women are good as well, until the boyfriend becomes an issue.

The holding period is like a high quality stock, never sell. The buy in is the most difficult phase. Need cash?-refinance the vanity property (ies)

Unlike stocks, there is much more work involved, like a job and I considered my tenants as my customers. That makes it much easier to deal with their issues.

Definitely work at times.  If you hire all the work out you'll be waiting a much longer time for true appreciation unless the chips fall your way.  That property you pay $408K for may be worth $500K or $350K in a few years.  I wanted equity as quick as possible.  No cash flow for 13yrs, then it was paid off and it was pure cash flow for 6 yrs.  At time of sale 100% of my cash outlay was long ago recovered plus much more.

I look at property value somewhat differently. The bank is holding the bag for 80% of the price, so your 80K becomes 350K in Fenders' scenario-so what. If the property more than pays for itself that's a pretty good return on your cash.

I started a long time ago and properties were cheap in the 1970s, cheap enough that I paid cash for the 1st one, did some sprucing-refied and rolled into the next one and so on. 

It was classic Dr. Lowry with guidance from others. 

I read a very similarly titled book about 10 years back.  It's something I definitely want to try when I'm ready.  But given the way my company stock pulled back yesterday, I'm really glad I didn't make an offer on the property across the street.

So now I have 2 rules governing my entry:
1. Already have the downpayment ready in cash prior to making a bid.
2. Have excellent monthly cash flow first (i.e. no child support payments).

[fenders53]

Add "pay a fair price" to your list of rules. Real Estate is no different than stocks or any other investment. Chase a hot market and you might wait years to be even. Real Estate is forgiving over time but your entry is still important. It can take a long time to recover the extra $50K you didn't have to spend. You don't have to sell it anytime soon but it's comforting to know you can at any time. You might love being a landlord or you might not.

[ken-do-nim]

Oh, excellent point! It took 15 years for the value of my current house to return to the level I bought it at.

[fenders53]

(05-05-2021, 11:49 AM)ken-do-nim Wrote: Oh, excellent point!  It took 15 years for the value of my current house to return to the level I bought it at.

I don't know if this is a terrible time to buy rental property, but I suspect it isn't optimal.  Seems like a sellers market with people paying well over the ask.  I read about that ALOT.  I have friends who bought houses in the Chicago area coming into the GFC and it cost some of them well over $50K out of pocket to move away after they made payments for five years.  That would be a bad experience

[ChadR]

(05-05-2021, 01:11 PM)fenders53 Wrote:

(05-05-2021, 11:49 AM)ken-do-nim Wrote: Oh, excellent point!  It took 15 years for the value of my current house to return to the level I bought it at.

I don't know if this is a terrible time to buy rental property, but I suspect it isn't optimal.  Seems like a sellers market with people paying well over the ask.  I read about that ALOT.  I have friends who bought houses in the Chicago area coming into the GFC and it cost some of them well over $50K out of pocket to move away after they made payments for five years.  That would be a bad experience

It is a sellers market, especially here in the DFW area and most of Texas.  In my HOA of 80 houses, 6 houses have gone up for sale in the past year.  The first 5 all got multiple offers over list.  The last one went up for sale 2 weeks ago.  It is 2 houses down from me and they just left to move to Florida for a job.  So I don't know how the selling is going and if they already have offers over list.  But it is listed at $23k more than the last one to sell.

I wouldn't attempt to buy a house to turn into a rental right now.  Price is too high to get a reasonable rate of return right now on one.  Especially here.  Maybe your area is better.