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Re: Advantages/Disadvantages of rental property?
Old 01-23-2006, 03:29 PM   #41
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Re: Advantages/Disadvantages of rental property?

fireme,

That's a great question! It'd be great to hear from a bunch of people about this.

One of the ways I look at real estate is to look at the amount of down payment that will get me to break even cash flow. I look at 30 year fixed loans, but you'll need to choose your loan structure because it changes the answer to this questions. I've found that duplexes in the Denver, CO suburbs are break even cash flow at around 16% to 18% down payment with a 30 year fixed loan if you have excellent credit. I've found the break even to be closer to 40% or 50% down payment for properties in resort areas such as ski resorts and some other resourts.
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Re: Advantages/Disadvantages of rental property?
Old 01-23-2006, 06:46 PM   #42
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Re: Advantages/Disadvantages of rental property?

Quote:
Originally Posted by fireme
Anyone know of areas where small rental properties would be cash flow positive for someone getting in today?* At least here in the San Francisco bay area the rents are a half or even a third of PITI payments, so it's really not at all cost effective to be a landlord.
The midwest.....thats about it
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Re: Advantages/Disadvantages of rental property?
Old 01-23-2006, 07:51 PM   #43
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Re: Advantages/Disadvantages of rental property?

midwest - yep!

Not even gonna run the numbers. Gonna take a cruise instead.

Still if it's a long winter? Repeat - I am not a landlord type.

Too old, been there done that, -* quick think of more excuses!

Kansas City and greater area - seems to be a lot of that - also some 'old timers' offering rent to buy packages.

For all I know - may be a bubble relative to prior years - nothing like the media darling areas though.



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Re: Advantages/Disadvantages of rental property?
Old 01-24-2006, 09:35 AM   #44
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Re: Advantages/Disadvantages of rental property?

I guess that monthly rent = 1% of purchase price bit still works. Look up rents in the area you want to buy in. If you can get a house for $150k and rent it for ~1500 a month, thats a great place to be a landlord. If the house is $500k and you can rent it for $1200 a month, look elsewhere.
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Re: Advantages/Disadvantages of rental property?
Old 01-24-2006, 11:23 AM   #45
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Re: Advantages/Disadvantages of rental property?

(),

Be careful applying those rules of thumb. You have to look at things like taxes too. For example, in Weatern New York property taxes are about 3%.

But property taxes in Colorado are closer to 0.7%. Both of these are on the assessed values of the homes. In California I believe property taxes are 1% of the purchase price and they are not based on re-assessed values of the house.

It's amazing how each housing deal can be so unique. That's why I prefer to hear from landlords who own properties in a given area. I'd love to find out about a good way to access rental market conditions and costs in a wide array of areas. If anyone knows some good sources for this kind of information then it would be great to hear from you.
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Re: Advantages/Disadvantages of rental property?
Old 01-24-2006, 11:47 AM   #46
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Re: Advantages/Disadvantages of rental property?

Prices for rentals also will differ substantially based on condition. For example, the four unit place that we live in is in excellent condition (except for the dirty windows). New roof, new garage, new exterior staircase, new appliances, newer carpet, etc. This means that maintenance is lower hence the price for the building will be higher than dictated by the 1% formula. In contrast, we sold a property a few years ago which was a cash cow, but had a lot of condition issues (shabby kitchens and baths, flat roof requiring lots of repairs, leaky skylights, old plumbing and electric). We sold it "as is" for less than the 1% formula would dictate.
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Re: Advantages/Disadvantages of rental property?
Old 01-24-2006, 11:54 AM   #47
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Re: Advantages/Disadvantages of rental property?

Martha,

Your situation highlights another opportunity on how to make this work well. It sounds like you live in a building that you rent. If you buy a building with 4 units or less, and you live in one of the units then you can get a regular residential loan rate, which is about 1 percentage point lower than an investment loan rate. That's very significant on the impact to one's expenses and cash flows.

In addition, if you are in a job where you move or if you plan to move a few years after living in one of your properties then you could potentially do this deal where ever you go, and then turn the properties into total investment properties after you move out. You'll still have the low interest rate if you locked into a 30 year loan.
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Re: Advantages/Disadvantages of rental property?
Old 01-24-2006, 12:00 PM   #48
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Re: Advantages/Disadvantages of rental property?

Quote:
Be careful applying those rules of thumb. *You have to look at things like taxes too. *For example, in Weatern New York property taxes are about 3%. *
Yep, that's why I am selling our properties in TX. The taxes have gotten to a point that it is just not worth owning the rentals that I have there. Instead we are shifting our portfolio to GA where taxes are roughly half of that in TX and the rental income is the same (comparing two Army towns). I also have equity in these properties that aren't doing a thing for me other than sitting there unemployed. So you do have to look at the whole picture (taxes, labor pool, and rental prices).

I think what gets people in trouble with rentals is they don't treat it as a business. Instead they cut corners and bend over backwards for the tenants. When I was managing our rentals I was firm but fair. No rent equals eviction so save the sob stories for your next landlord.
I am amazed of how few calls I get for references when an old tenant moves out. I evicted a girl whose boyfriend was dealing drugs in the apartment which I evicted. I never got a call from the new landlord to verify their last tenant history. Guess the new landlord will be in for a very rude awakening and then swear off rentals as too many headaches. *
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Re: Advantages/Disadvantages of rental property?
Old 01-24-2006, 01:25 PM   #49
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Re: Advantages/Disadvantages of rental property?

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Martha,

Your situation highlights another opportunity on how to make this work well. It sounds like you live in a building that you rent. If you buy a building with 4 units or less, and you live in one of the units then you can get a regular residential loan rate, which is about 1 percentage point lower than an investment loan rate. That's very significant on the impact to one's expenses and cash flows.
That is what we did when we bought the building some years ago. We ended up paying off the loan instead of refinancing when rates dropped.

Quote:
In addition, if you are in a job where you move or if you plan to move a few years after living in one of your properties then you could potentially do this deal where ever you go, and then turn the properties into total investment properties after you move out. You'll still have the low interest rate if you locked into a 30 year loan.
Well, maybe. If you look at the mortgage you signed, it may very well require you to use the property as your principal residence.

We are likely to sell our building either this summer or next summer. One thing we did think about was doing a 1031 exchange into a single family home in another city. Rent out the new house for a while and then move in and convert it to our home.
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Re: Advantages/Disadvantages of rental property?
Old 01-24-2006, 05:01 PM   #50
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Re: Advantages/Disadvantages of rental property?

My parents owned, lived* in and managed a tri-plex near a a university and hospitals complex. They gradually settled on renting to female medical residents. Lots of good experiences, including some lifetime friends. They almost never had to advertise, becaue they would get word of mouth applicants.

They were always having "open house". They would have hated living in a suburban single family. In fact, they didn't leave until we pried them out in their mid 80s. Too much upkeep was beginning to fall on my brother, and he got tired of it.

Ha
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Re: Advantages/Disadvantages of rental property?
Old 01-24-2006, 05:33 PM   #51
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Re: Advantages/Disadvantages of rental property?

HaHa,

Thanks for sharing that great idea your parents followed. It gives another meaning to "location, location, location." Buying or building and living in a triplex near a recession resistant source of good renters sounds great to me.
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Re: Advantages/Disadvantages of rental property?
Old 01-26-2006, 07:09 PM   #52
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Re: Advantages/Disadvantages of rental property?

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Originally Posted by Charles
Honest question:* How do you have a townhome with no homeowners' association fees?* We've never heard of that kind of arrangement.
Hi, thanks for the reply. It is a townhome, but there are absolutely no services provided. No lawn maintenance, no pool, no hot tub.......absolutely nothing.
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Re: Advantages/Disadvantages of rental property?
Old 01-26-2006, 07:17 PM   #53
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Re: Advantages/Disadvantages of rental property?

Thanks everyone for the great replies! Looks like we have to put the idea on the backburner for now.....hubby is probably going to Iraq (just retired from active duty and is now working a contract). Good news is that it pays quite well.
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