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Old 02-06-2013, 07:25 AM   #21
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Carrying a note (first position) would be enough diversification IMO .... no fear of vacancy there.
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Old 02-06-2013, 08:33 AM   #22
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Carrying a note (first position) would be enough diversification IMO .... no fear of vacancy there.
Carrying the note isn't a fail safe. I can attest to that fact that people can and do walk away from a house they "bought". If they could put 20% down, they'd probably qualify for a conventional mortgage, and wouldn't have to buy from an individual carrying a note at a higher % rate. So, when they walk away from the house, you're stuck with foreclosing, which = vacancy (and legal fees). Cash for keys has proven cheaper for me, but you have to catch them before they abandon it.

A mortgage without equity is just a rental with debt.
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Old 02-06-2013, 09:51 AM   #23
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Just a slight hijack, but I'm curious to hear what you landlords plan to do very late in life with your rentals. EG, leave them to family, liquidate, or?

[disclosure, my wife & I plan to sell ours within 10 yrs, I'm 62 , she 60]
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Old 02-06-2013, 09:59 AM   #24
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Just a slight hijack, but I'm curious to hear what you landlords plan to do very late in life with your rentals. EG, leave them to family, liquidate, or?

[disclosure, my wife & I plan to sell ours within 10 yrs, I'm 62 , she 60]
Plan on selling in10 to 15 years. I am 45 now. My rentals are mostly low income and I don't think my children will have the inclination.
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Old 02-06-2013, 10:08 AM   #25
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If you love your children, you won't leave them real estate.
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Old 02-06-2013, 10:17 AM   #26
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Just a slight hijack, but I'm curious to hear what you landlords plan to do very late in life with your rentals. EG, leave them to family, liquidate, or?

[disclosure, my wife & I plan to sell ours within 10 yrs, I'm 62 , she 60]
We're a bit ahead of you age-wise and havve no kids, so the great tax advantage of leaving them to kids and having the them start a brand new depreciation schedule at the stepped up basis at time of death was no good for us.

Our plan is/was to sell 1/year starting at age 60. Real estate market didn't cooperate, so we brought in a manager for most of the heavy lifting. Reduced our profit each year, but by an acceptable amount. We do expect to sell, but having the rent come in removes any sense of urgency.
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Old 02-06-2013, 10:25 AM   #27
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I'm 55, retired at 52 with 3 rentals netting $25K per year. My total standard of living cost $50K per year. My portfolio is at $850K and expect Social Security to come on-line in 7 years.

My past and current rentals are in Northern California and vacancies have never been part of my calculations. Average vacancy over 10 year period is about 2 weeks.

My plan for liquidation is to sell at 74 years old or when properties triple in value, whichever comes first.
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Old 02-06-2013, 04:04 PM   #28
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If you love your children, you won't leave them real estate.
Why?
If its providing a solid income ! In my case, I do not manage any of my rentals. Its done by realestate agents who charge an 8.5% management fee to find tenants, collect rent and deal with maintenance issues.
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Old 02-06-2013, 04:07 PM   #29
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I'm 55, retired at 52 with 3 rentals netting $25K per year. My total standard of living cost $50K per year. My portfolio is at $850K and expect Social Security to come on-line in 7 years.

My past and current rentals are in Northern California and vacancies have never been part of my calculations. Average vacancy over 10 year period is about 2 weeks.

My plan for liquidation is to sell at 74 years old or when properties triple in value, whichever comes first.
Like your plan. I will sell too at some point, but it will be after I quit work when I will be on a lower tax bracket.
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Old 02-06-2013, 04:09 PM   #30
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I am planing to w*rk another year or two to possibly pay off the last mortgage and/or build cash reserves. That is what I would do if I were you.
Good plan. Thanks for the advice.
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Old 02-06-2013, 04:22 PM   #31
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I just need to make up my mind when enough is enough to RE with minimal downside financial risk. To me - that's a Firecalc result with no failures at an income level that allows me to still put money away for a rainy day (eg tenancy issues, unforeseen maintenance etc)
How would you even model that?

This is one of my big frustrations with using rentals for ER: being unable to reasonably predict the future based on the past. FIRECalc doesn't model rental properties well at all (for good reason, there isn't a ton of data on the subject, and it's so variable and situational).

So let's say I'm going to net 52k (like the OP), and expenses are 50k.... 100% success rate, if that continues (I'm even LBYM). But there's no way to know the actual failure rate, because maybe an economic decline happens in the area where your rentals are located. Maybe a disaster happens that you don't have covered by insurance. Maybe your expenses are higher than projected, or vacancies.

You can try to take all that into account in your net figures, but once you hit a certain reasonable estimate you're left with "my (estimated future) net is higher than (estimated future) expenses.. I have a good amount saved in cash reserves.. guess I'm good to go."

There is no modeling in FIRECalc. You plug in your expenses (50k) and income (52k) and you can have a portfolio of $0 (needing reserves aside) and still hit a 100% success rate.

Now sure, you could be in a situation where net doesn't cover expenses, maybe you get 52k net and have 60k expenses. Well then all you're really modeling is if your portfolio can take 8k/yr (at a 4% SWR, that's 200k, 267k at a 3% SWR).

But FIRECalc, my favorite retirement calculator, is basically useless with FIREing off of nearly all rental income.
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Old 02-06-2013, 04:59 PM   #32
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How would you even model that?

But FIRECalc, my favorite retirement calculator, is basically useless with FIREing off of nearly all rental income.
I cheat. basically plug in a conservative value of my property plus other investments.
I think this gives a reasonable result because:

1.In theory I could liquidate the real estate and invest in equities
2. the rental returns are actually less volatile than stock although returns would be more modest.
3. only way the value of the portfolio can go backwards is if I need to sell and live of capital due to long term vacancies.
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Old 02-06-2013, 07:45 PM   #33
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Oh..its turned into an exit strategy post. I am always pondering exit strategies. I think there are several options and i will probably do a combination of several of these depending on what the market is doing at the time of exit.

You could:
  • Use a property manager and continue to hold your rentals into old age. If you have kids that have a passion for rentals, then this is a good option.
  • Fix them up as they become vacant and sell them to retail homeowners. You could sell them conventionally or sell with owner financing and keep the monthly income stream. Many don't like owner financing and feel they will just own them again, but this should not be a problem for a landlord.
  • If you are really tired of them you could sell the whole package of your properties to an investor. This will probably give you the smallest return, but it will get you out.
My plan is to sell the turds, keep the good ones, and eventually owner finance them all if the kids don't want them.

Of course if the sky falls, I could sell my primary and move into one of my rentals.

Options everywhere with rentals...
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Old 02-06-2013, 08:00 PM   #34
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Oh..its turned into an exit strategy post. .
Gotta keep your options open at all times. However, I like the steady stream of income that property gives me. It will balance out the income volatility in equities.
I am leaning towards pouring all my surplus cash from now till RE into equities. My investment property portfolio is now worth $1.3M. If I RE in 4 years, my equity portfolio should also be worth around that much. So a 50/50 split with $50k low risk income from property and another $40k in dividends will do me nicely.
Here's hoping - fingers crossed
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Old 02-06-2013, 08:04 PM   #35
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How would you even model that?
I thnk you maybe don't have to model it with firecalc. Seems like the most mileage will come from just managing the rental business. You manage it, and model it the same way. If you operate fairly conservatively, you could almost treat the net income from rentals as a salary.

If you feel that your own experience is inadequate to set a range of expectations on vacancies, repairs, etc. there are many good books that discuss this. Take inventory of your buildings. Look at the roof, the plumbing, the wiring, the foundation, the trends in the neighborhood for each building. Write it all down and date it. Do this once a year. Keep up with zoning. Try to stay friendly with the city zoning and building officials.

In a reasonably stable city, this should be a much more stable foundation for ER than any stock and bond based SWR approach. Remember, SWR is really ?SWR?

In my opinion, a bedrock busines like providing a place for people to live in exchange for rent under a relatively short term lease is about as simple as things get. Not easy, but simple.

Ha
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Old 02-06-2013, 08:41 PM   #36
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Why?
If its providing a solid income ! In my case, I do not manage any of my rentals. Its done by realestate agents who charge an 8.5% management fee to find tenants, collect rent and deal with maintenance issues.
I didn't mean to criticize your plan - I'm glad it's working for you. I inherited my low income investment property, and it has been pretty unpleasant for us, to say the least. I could write a book. I tried the property management route, which also didn't work out. It's just for not me. I'm glad it's working out for you - in fact I'm envious. My dad's plan was flawed, and the mortgage crisis and recession didn't help any. I hope your retirement is early, enjoyable and everything you want it to be.
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Old 02-07-2013, 07:22 AM   #37
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I didn't mean to criticize your plan - I'm glad it's working for you. I inherited my low income investment property, and it has been pretty unpleasant for us, to say the least. I could write a book. I tried the property management route, which also didn't work out. It's just for not me. I'm glad it's working out for you - in fact I'm envious. My dad's plan was flawed, and the mortgage crisis and recession didn't help any. I hope your retirement is early, enjoyable and everything you want it to be.
I have been following your post regarding your rental woes. I invest primarily in low income properties for many years and have considerable experience dealing with the most problematic renters. I too could write multiple books. I have to say that it sounds to me that you are unprepared in how to handle those type of rentals. Your father knew what he was doing. Those are the rentals with the greatest positive cash flow but it takes a savvy investor to make it work. You need to buy right, evict promptly, closely supervise repairs to minimize cost and be prepared to be hands-on and closely manage your rentals, preferably yourself. Presumably, your father had no mortgages on these properties since they were seller financed. Foreclosing, renovating and renting would have given you a nice cashflow providing you managed right.
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Old 02-07-2013, 08:59 AM   #38
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I have been following your post regarding your rental woes.
Thanks for the input Letj. You are right, I was unprepared. This was my dad's passion, not mine. He was retired and this kept him busy. I have a demanding, more than full-time job and taking off to go to court for evictions, foreclosures, etc., doesn't work well with MegaCorp. And due to some health issues with DH, this all falls on me. In the past 5 years, I have sold the three most problematic houses outright, and did not owner finance. These happened to be the three smallest and least desirable houses. The ones that are left are pretty well trained. They pay pretty much on time (often with badgering). In 2039 they'll all be paid off, and I'll be done with it. I do have a nice cashflow from the payments, only paying taxes on the interest which obviously decreases every year. It's just not as much of a cashflow as it was 5 years ago, now that I'm rid of the real problem children.

If these had been true rentals (and not promissory notes) that I inherited, I'd have sold them all ASAP. Note buyers wouldn't touch these notes - the credit scores of each buyer were unbelievably low.

Again, I'm glad you're making a go of this. It just hasn't been my cup of tea.

We should collaborate on a book! lol
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Old 02-07-2013, 10:06 AM   #39
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Completly understand. Managing these type of properties with a regular job is almost impossible unless you have a spouse who is hands-on with them.
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Old 02-07-2013, 10:11 AM   #40
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Just an fyi - many attorneys would evict tenants at no cost to the lanlord except court costs which is minimal. They then go after the tenants for collection. I have never ever paid attorney's fee for eviction nor have I ever had to go to court. The attorney goes alone to court and 99.9 percent of the time, the tenant does not show.
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