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Anyone using rental income for FIRE?
Old 04-21-2014, 10:24 AM   #1
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Anyone using rental income for FIRE?

I'm curious how many of you are using rental properties as a meaningful part of your FIRE strategy.

1. How has your experience been?

2. Has it been worthwhile from a money vs hassle factor perspective?

3. Any surprises (good or bad) you had not expected?

4. Does it limit your ability to travel and/or live far away from your rentals?

I've been acquiring single family houses to rent out over the past two years and get around $60k / year in net income. It's not enough for us to live off of exclusively, but it's a meaningful part of our FIRE strategy.
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Old 04-21-2014, 11:05 AM   #2
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I own a few rental properties, suites in apartment buildings in different locations, not where I live. They are professionally managed, which makes it easy to manage but reduces net returns. Currently they are cash flow neutral but when the mortgages are paid off in a few years they will generate a significant income stream. The principal benefit is diversification to a sector that does not correlate with the equity market. During 2008-09 this was the only part of my portfolio that was rock steady and I was very grateful for it!
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Old 04-21-2014, 11:56 AM   #3
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Yes, we own a few apartment buildings and they are the basis for our ability to FIRE. We live close to them, but have an on-site manager that handles emergencies, cleanings, showings, collecting rent and minor maintenance.

My wife is retired and handles the rent roll, rent deposits and bill paying.

Currently, my j*b limits our ability to travel. However, I plan on being in class of 2016. I can see this limiting our plan to travel for months at a time. So, I would like to sell and finance them a few years after retirement to facilitate travel.

I think they have been a good investment. I won't know for sure until I sell them and determine how much they have appreciated. My CPA feels they have been a good investment.

Have there been hassles? Yep, a few. Have a good emergency fund.
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Old 04-21-2014, 12:17 PM   #4
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We have a single rental (condo) that we are keeping as part of our FIRE strategy (which will engage in about 15-20 years -- we're on the young end of the spectrum). At that point the mortgage should be paid off and it will be generating about $15K/year net return. We manage it ourselves.

We are also keeping this condo as a potential home for aging parents, should they be capable of living in their own home but need to be closer to us. It's about three blocks away from where we live now, and infinitely cheaper than an assisted living facility.

If you want to travel, have a management company handle the property. It reduces your returns, but also your headaches.

For us, so far, no crises. But it's early days yet.
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Old 04-21-2014, 12:32 PM   #5
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I have 10 rental properties and yes, it's a big part of our retirement strategy.

No real bad experiences to date. Only had a tenant late 1 time and he told me ahead of time and paid the extra $50 late fee. I do a pretty thorough job of screening.

I maybe get 1 call/month regarding issues. The biggest impact on my time is when there's turnover - showing property to find new tenant and then turning over place and doing move out, clean/repair, move in process. Fortunately, I've had quite a few tenants that have stayed multiple years.

My daughter lives in 1 of my units (with roommate) and when we went out of country for a week I directed tenants to call her with any issues and gave her a list of vendors to call if there was an issue. While I self manage them all currently I do plan to eventually hire a PM to address our ability to leave more easily.
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Old 04-21-2014, 12:37 PM   #6
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I am planning on it. I have 24 renters and I generate ~$110K+ in net rental income. If I manage them myself, which I do, it is $130K+ annual.

You can manage them from a distance, you just need a phone book to be able to call in people who can fix stuff. [mod edit]

I am still not FIREd yet, but will be in the class of 2016. I need to achieve a couple of financial goals first to make sure I have a solid four legged table for retirement. Rental income, investment income, SS, and pension. Most of these sources will meet or exceed my needs, all by themself. Combined, and I make more money than my 'real' job.
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Old 04-21-2014, 12:42 PM   #7
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My wife (foreign citizen) has a vacation rental that throw's off a good portion of retirement income and as tax rates for locals are only 5% it all drops down to the bottom line.
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Old 04-21-2014, 12:50 PM   #8
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We have a detached granny flat on the lot of our primary home. We manage it ourselves - currently it's rented to an extended family member.

We built it for the traditional "granny flat" purposes - to house my inlaws to help with their eldercare needs. When that was no longer viable/needed we started renting it. It was always our intent to rent it after the in-laws no longer needed it. The income stream is absolutely part of our retirement plans. I think of it similarly to a COLAd pension. We paid cash to build it - so there is no mortgage associated with it - all net proceeds are income. Since it's fairly new construction (built in 2008) we don't have the maintenance worries yet.

We looked at buying 2-4 unit investment properties in 2009. Even at the bottom of the market, it didn't pencil out without appreciation as a factor. Having to pay more in mortgage, than you get in rent, doesn't sound like a smart use of my money. So we passed.
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Old 04-21-2014, 02:34 PM   #9
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Rentals are what we focused on for the last 30 years or so - after about 15 they became the primary source of our income. We self managed and it was my job. When retirement time rolled around we had it in mind to sell, but that didn't work out so well - wasn't going to give them away, and that was pretty much what buyers wanted.

We brought on a manager who does most of the rent collection and tenant interaction and a bit of the bookwork. This allowed us to buy a place in the sun and escape during the winter - we still do most of the books and I'm on tap for troubleshooting, weird part finding, and dealing with some repair people on a negotiation level via phone. When back up north my manager does a bunch of weekend getaways and usually takes off for a few weeks so I'm back in the saddle for a bit. We have 43 mostly single bedroom units in a 15 mile radius, and a few houses, so there is a fair amount to ride herd on.

On the good side, the profit from the rentals more than covers our expenses, on the down side it is very hands on and tough to divest. By nature I like to feel I have some control over our income - the stock market never gives me that feeling. OTOH, you can divest of stock holdings in an hour vs. days or months of nonsense trying to sell a place.
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Old 04-21-2014, 02:56 PM   #10
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Calmloki - nice to hear it's been a good experience overall. What were you planning on moving your money into had you been able to sell at reasonable prices? I can't find any investments that offer the same kind of yield / cash flow.
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Old 04-21-2014, 03:00 PM   #11
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I do. No real issues over the past 2.5 yrs. Single family 4 bed rm. home in a good neighborhood 4 miles from the beach. Not sure I would want too many though, but one is easy. I remodeled it when I purchased it 2 1/2 yrs. ago. So there isn't much maint. required. We paid it off last year. It covers almost 1/2 of our monthly expenses. And will adjust for inflation.
I could not walk away from the job relying only on stocks and bonds. I just don't have that much faith in our system. LOL LOL
To some folks its a huge hassle, for me its a piece of cake. Even easier now that I am more of less home everyday if something does come up. I go by a few times a year. Screen well and insist on direct deposit on the 1st of every month. In addition to the monthly income, it appreciates. Not a whole lot of down side IMO. In 20 years when I'm 73, I might look at it completely differently. But for now its a no brainer.
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Old 04-21-2014, 03:01 PM   #12
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Calmloki, why do you think this was the case? Were you selling "as is," without fixing up after tenants were gone? or were the buyers somehow disdainful of the properties just because they had been rentals?

Heck, with the way some houses, especially town houses, get bought and sold every few years, how would people even know how many previous owners had rented them out?

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we had it in mind to sell, but that didn't work out so well - wasn't going to give them away, and that was pretty much what buyers wanted.
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Old 04-21-2014, 03:03 PM   #13
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We own half of 4 duplexes. Since buying those in 2006, we're now up to ~18% annual return on our 20% original down payment this year including mortgages pay down. This doesn't include increased valuation of the properties (fairly low number). We started out in the 2-4% return range & have steadily increased that with higher rents & mortgages refinancing. Our partner does the property managing, we keep the books & manage the tax returns.
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Old 04-21-2014, 04:30 PM   #14
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Calmloki - nice to hear it's been a good experience overall. What were you planning on moving your money into had you been able to sell at reasonable prices? I can't find any investments that offer the same kind of yield / cash flow.
We were/are looking for simple mailbox money investments that an aging mushmellow brain can run. Oh - and it needs to be totally safe and wildly profitable. Oddly enough, despite the claims on tv and in my email in box we aren't finding those. Instead we bought PenFed certificates, which sort of kept pace with inflation, and started lending money out on property. A certain amount of risk and we have taken some substantial hits on some of the loans, but overall quite profitable, and it has much of the joy of buying a place but (if things work out) none of the maintenance.

One of the problems with selling a mature rental is it is mostly depreciated out on the value from decades ago and the tax man wants his cut on the current value, which can be almost all profit after the depreciation. Means taxes sting, and your $100,000 rental property nets you maybe $75,000 after taxes. Now you have to make the $75k work harder than the $100k did before to earn the same amount, so it's not just a matter of finding an investment that does as well - it has to do better.
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Old 04-21-2014, 04:37 PM   #15
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Purchased two rental homes a little over two years ago. The wife and I renovated them ourselves as a learning experience. I did not pay off the mortgages on them as the rate is a nice low 4%. So far I have not had any issues with tenants or rent collection. Overall, I bring home an extra $1K/month after all expenses.

I constantly think about purchasing more but dont like the aspect of being tied to a specific area. Still, if you can purchase them for the right price they are very profitable.
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Old 04-21-2014, 04:51 PM   #16
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Originally Posted by Amethyst View Post
Calmloki, why do you think this was the case? Were you selling "as is," without fixing up after tenants were gone? or were the buyers somehow disdainful of the properties just because they had been rentals?

Heck, with the way some houses, especially town houses, get bought and sold every few years, how would people even know how many previous owners had rented them out?

Amethyst
We were about ready to sell just as the housing market crashed. Sold a couple houses just before the crash, then another after a year or so with much more difficulty. Just as 2013 ended we sold a 5-plex for cash to someone who really really needed to close before the end of the year, so that was nice.

OTOH, our places are all older - the newest apartments we own were built in '74, so there is plenty to pick at. Just last month a 7-unit huge converted house we had a buyer's offer on got through inspection and then the buyer decided insurance would be too expensive - sure enough, when I talked to our agent he said a new insured would have new requirements. Our plumbing and electrical and heating systems are all over 30 years old, so that's a sticking point for them. I keep things in good repair, the tenants are happy, the price was as low as I wanted to go, and the sale didn't happen - even offering to carry the contract. Guess we'll just have to keep collecting the rent and making money on the place. Maybe we'll try selling this summer.

419 19th St SE, Salem, OR 97301 - Zillow
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Old 04-21-2014, 05:22 PM   #17
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I inherited property when my parents passed several years ago (actually promissory notes, as he sold them & carried the notes). I don't have the hassle of repairs, but these are OLD, small houses, and all the occupants have atrocious credit. Every month it's a new story on why they're late. I find it frustrating and annoying, but try not to look a gift horse in the mouth. I would never buy more. It is NOT passive income. That said, I know lots of people who have been very successful with it and enjoy the interaction with the tenants. I do not. I already have a fulltime+ job. I could write a book about some of the crazy things that happened...
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Old 04-21-2014, 07:23 PM   #18
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I also have a full time job, and manage 24 of my own tenants. Proper tenant selection is the key. Feel free to use my blog for ideas on how to find tenants. [mod edit]
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Old 04-21-2014, 09:48 PM   #19
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DH and I are most likely going to sell our primary residence and move to what is now our weekend home. We've discussed renting it out rather then selling, but not sure we would want the hassle. It is located close to a Boeing plant, train/bus line/ferry/freeway access and within walking distance of schools, the puget sound, shops and restaurants. There is also a Navy base near by. I suppose we should seriously crunch the numbers to see if it financially makes sense.
Senator, I should probably spend some time checking out your blog.
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Old 04-22-2014, 06:19 AM   #20
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We have two vacation rentals, one our old primary home and the other a lakefront property. So far so good, one or two bad guests since we started. Surprised at how well the Atlanta home has done. Managing them is like a part time job though. We do intend to sell them likely prior to DW receiving SS.
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