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pitfalls of rental real estate
Old 03-16-2006, 04:35 AM   #1
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pitfalls of rental real estate

well one of the things i always say about rental real-estate is its freat ,until its not.as long as your tenant pays the rent things couldnt be better but here in new york city what a nightmare when the tenent stops paying.to get a tenant out is a horror,it takes months,,you almost always must have a lawyer and the fees are crazy..
heres some tips i learned...the hard way.

make sure you always give the tenant a lease.i got sloppy after the origonal lease ran out and didnt do a new one with my tenant .i figured what the heck no lease i can do as i please now...wrong!..when she stopped paying the rent i couldnt prove what the rent even was supposed to be.

make sure you both swap signed receipts on payment of rent.you need a receipt from the tenent so you can show a pattern of rent payment if you have to go to court.its needed to get your case rolling .the judge cant just ask the tenent for their proof showing they paid the month in question..you need to bring enough proof of a rental pattern so the judge can open the case for you and then is able to question the tenant

watch out about pushing to hard ,,if the tenant declares bankruptcy game is over for you.no back rent and the judge may even let them stay longer..


theres a few more tips i learned the hard way but ill post them later.....
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Re: pitfalls of rental real estate
Old 03-16-2006, 09:10 PM   #2
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Re: pitfalls of rental real estate

I owned residential real estate for almost 15 years before I finally decided it just wasn't worth the trouble.

From court appearances, tenants leaving in the middle of the night, eviction proceedings, repairs to property,* etc, etc.. I even had to evict a tenant who landed in jail..........Would have been better off putting my money in an index fund.
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Re: pitfalls of rental real estate
Old 03-16-2006, 10:53 PM   #3
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Re: pitfalls of rental real estate

Their are certain States that are Tenant friendly, and there are States that are more Landlord friendly. Arizona is Landlord friendly, Florida , New York, and New Jersey are not.

Buying low end property in bad neighborhoods, is deffinately asking for trouble, as the tenants willing to live there, are not the tenants you want. (always exceptions, of course)

But as a landlord for over 40 years, I can tell you it is a hasstle. I do think your investment in the long run is safer in Real Estate. (Rarely do you lose money if you buy right) but it is in no way a passive investment. It is work.
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Re: pitfalls of rental real estate
Old 03-16-2006, 11:08 PM   #4
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Re: pitfalls of rental real estate

Our extended family has had rental property of various kinds. It sure enough takes work and the situation has to be right.

REITs sure look good to me. Especially Vanguard's fund. That is as close as I want to get to rental property at the moment.
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Re: pitfalls of rental real estate
Old 03-17-2006, 06:48 AM   #5
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Re: pitfalls of rental real estate

For those of you talking about hassles (which I am very mindful of), how much would your opinion change if pricesdropped 25 to 40% and properties could be bought that would flow cash pretty much from the start?
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Re: pitfalls of rental real estate
Old 03-17-2006, 06:57 AM   #6
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Re: pitfalls of rental real estate

Why always residential RE and never commercial RE
Why not NNN if you do not want to be the landlord (with all the hassle) ?
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Re: pitfalls of rental real estate
Old 03-17-2006, 07:23 AM   #7
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Re: pitfalls of rental real estate

brewer,

You mean like Buffalo, NY? You still get the hassles.
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Re: pitfalls of rental real estate
Old 03-17-2006, 07:33 AM   #8
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Re: pitfalls of rental real estate

Commercial cap rates have plummeted along with residential appreciation.

Not talking about Buffalo and other rust belt basket cases. I'm talking about actual desirable places to live where RE is currently vastly overpriced.
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Re: pitfalls of rental real estate
Old 03-17-2006, 07:41 AM   #9
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Re: pitfalls of rental real estate

Quote:
Originally Posted by poyet

Why not NNN if you do not want to be the landlord (with all the hassle) ?
I've owned NNN for several years,,, a very nice dividend and they have a record of increasing dividends for many, many years !
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Re: pitfalls of rental real estate
Old 03-17-2006, 07:44 AM   #10
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Re: pitfalls of rental real estate

Problems will always persist in the rental game but that is the price you pay for trying to achieve a higher return than a REIT index. *Young person's game if you ask me. *I think I would keep the number of properties limited to what I could control, especially if I had a day job. *Instead of holding 20 SFHs, I would rather own a 20 unit building - one building, same number of tenants. *RE is and should be a diversifier in addition to other financial assets.
*
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Re: pitfalls of rental real estate
Old 03-17-2006, 07:44 AM   #11
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Re: pitfalls of rental real estate

Quote:
Originally Posted by bennevis
I've owned NNN for several years,,, a very nice dividend and they have a record of increasing dividends for many, many years !
.
Just curious, where do you find NNN opportunities?
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Re: pitfalls of rental real estate
Old 03-17-2006, 08:57 AM   #12
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Re: pitfalls of rental real estate

Quote:
Originally Posted by brewer12345
For those of you talking about hassles (which I am very mindful of), how much would your opinion change if pricesdropped 25 to 40% and properties could be bought that would flow cash pretty much from the start?
That's my goal. I feel that within 5 years some better investing opportunities should present themselves....
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Re: pitfalls of rental real estate
Old 03-17-2006, 09:00 AM   #13
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Re: pitfalls of rental real estate

Quote:
Originally Posted by Ed_The_Gypsy
Our extended family has had rental property of various kinds. It sure enough takes work and the situation has to be right.

REITs sure look good to me. Especially Vanguard's fund. That is as close as I want to get to rental property at the moment.
Do you thing vanguard's REIT index still has a lot of upside? I've been considering adding this fund to a tax deferred account...but I'm not so sure....it seems to be a bit toppy, but I also thought that over a year ago....
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Re: pitfalls of rental real estate
Old 03-17-2006, 09:06 AM   #14
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Re: pitfalls of rental real estate

Quote:
Originally Posted by brewer12345
For those of you talking about hassles (which I am very mindful of), how much would your opinion change if pricesdropped 25 to 40% and properties could be bought that would flow cash pretty much from the start?
Keep in mind that the things taking prices down 25-40% also tend to take rental rates down by the same amount. *Hawaii watched the Japanese RE bubble end as more houses came on the market and the military reduced its size. *The result was lots of real estate for sale or rent, not so many customers.

Another problem with a RE sale may be mortgage rates. *Although prices may be down, mortgage payments may rise disproportionately. *So a cash buyer would make the numbers work (and avoid a mortgage hassle) although cashflow would be greatly reduced.

So cash flow in any market at any price is good! *But having a 25% off sale would always make me more interested in jumping in. *

The landlord hassle issue can more easily be resolved by an 8% investment in a property manager.

For everyone who doesn't want to learn how to be an experienced landlord, there's REITs.
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Re: pitfalls of rental real estate
Old 03-17-2006, 09:14 AM   #15
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Re: pitfalls of rental real estate

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Originally Posted by Nords

Another problem with a RE sale may be mortgage rates. *Although prices may be down, mortgage payments may rise disproportionately. *So a cash buyer would make the numbers work (and avoid a mortgage hassle) although cashflow would be greatly reduced.
The kind of environment that would have me getting out my checkbook involves banks making mortgages on VERY attractive terms to people willing to take foreclosures off their hands.
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Re: pitfalls of rental real estate
Old 03-17-2006, 09:39 AM   #16
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Re: pitfalls of rental real estate

Quote:
Originally Posted by brewer12345
Just curious, where do you find NNN opportunities?
Here, there are several commercial RE brokers offering opportunities, including buying 1/10 shares and such.... The vacancy rate deters me at this point - our area is greatly overbuilt and tenants aren't willing to pay the prices for the expensive new stuff.
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Re: pitfalls of rental real estate
Old 03-17-2006, 12:40 PM   #17
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Re: pitfalls of rental real estate

Home prices went up, but rental rates didnt around here.

I'd have to see more than a 50% drop before a rental income under favorable circumstances started to look better than investing in a REIT (valuation concerns aside) or another investment vehicle.

Houses selling for $400k+ around here generally rent for about a thousand bucks a month... :P
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Old 03-17-2006, 12:57 PM   #18
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Re: pitfalls of rental real estate

Quote:
Originally Posted by Cute 'n Fuzzy Bunny
Home prices went up, but rental rates didnt around here.

I'd have to see more than a 50% drop before a rental income under favorable circumstances started to look better than investing in a REIT (valuation concerns aside) or another investment vehicle.

Houses selling for $400k+ around here generally rent for about a thousand bucks a month... :P
Here, I could snatch up a house for about 130k and rent it for the same.....
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Re: pitfalls of rental real estate
Old 03-17-2006, 01:07 PM   #19
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Re: pitfalls of rental real estate

Its an interesting phenomena to live in. I cant wait to see what happens.

Look at this baby
http://tinyurl.com/nxero

$525k for a 50 year old home on 2 acres, not far from my house. Doesnt sound too bad. But I saw it before they 'remodeled' it by smearing stucco on it to make it look new. It was a partial manufactured/mobile type home that had been added on to, and I can guarantee that it structurally will not support that stucco exterior for long.

But you should see the neighborhood. Theres a mini-mobile home park a few lots up that according to the sex offenders database houses a few rapists and child molesters. Except for one other home on the street, the others all have yards full of dead cars, dead jetskis, old water heaters, chunks of wood, etc. Everyone has a vicious looking dog that isnt fenced or leashed.

I just drive down the street with the dogs in the back of the truck so they can bark at all of the other dogs. We end up at the other end of the street with a trailing flotilla of mad barking dogs running as fast as they can. My dogs favorite thing to do...

I bet I could rent that for maybe $800 a month. A thousand would be pushing it. But thats the 'best buy' within a 25 mile radius due to the size of the lot.
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Re: pitfalls of rental real estate
Old 03-17-2006, 02:45 PM   #20
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Re: pitfalls of rental real estate

Quote:
The kind of environment that would have me getting out my checkbook involves banks making mortgages on VERY attractive terms to people willing to take foreclosures off their hands.
90% of what I buy are foreclosures. Typically you can get them for 70% LTV with little work needed. There are still deals out there to be had as I am sure my market is not unusual. Real estate is a lot of work if you don't buy right. As far as I am concerned if a property doesn't return my initial investment within a year and a half then I pass. I still don't understand "investors" that buy rental properties that barely cashflow or negative cashflow. By buying cheaply you can afford to hire out the management and still get great cashflow. Here's an actual example of buying right:

100k for a fourplex in the hood (no other way to say it)---Appraised for 145k
5k downpayment and finance the rest

1850 per month in rental income
900 PITI
185 MGT fee
765 est. net income per month

So with a 5k downpayment our annual income is 9k, not including vacancies and repairs, which would bring it down to about 5 or 6k per year. Don't forget the 45k in equity that required 3 HVACs and some carpet.
This guy sold 13 total units just like the example I illustrated. Him and his dad owned over 150 units across town and these units were not worth their time to manage so they were your typical "don't wanters" but with plenty of money.

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