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Old 08-20-2007, 07:47 AM   #41
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What would the deal look like if you'd held and sold at what you consider the recent "peak"? I would imagine a very different result.

Did you buy the wrong location, product, price, mismanage it or was the failure entirely the result of external forces that were completely unforseen?

From your description you would have went negative even if you started positive because of rent decreases. I've never reduced rents in 25 years. The fact that you bought with neg cash flow didn't cause the failure yet that is what you're condeming. Other than being able to refi to a lower rate what difference would it have made if you'd had 50% equity? Now if you were overleveraged then I would agree that THAT was the problem, not the financing.

The people I see fail generally are people who buy "deals" without asking why it is a deal and how that will effect future income.
Hind-sight being 20/20, I rode into the perfect storm: bought within months of the peak, interest rates on rentals were 10% (or worst), used 100% financing (liquidity too high) ... then the music STOPPED and I had no chair. Economy skids to a stop (i.e recession). Foreclosures flooded the market. Rents were cut by 30%. MA lead laws forced landlords to spend thousands in de-leading or risk a discrimination suit. Of course where there's chaos there's opportunity ... bought a dozen more units for pennys on the dollar via HUD/RTC auction and REOs. The positive cash flow on the "new" purchases help carry the problem properties. Twelve years later the buildings were starving for repairs (one needed a roof - 12K!) so dumping when we could made sense. Throwing good $$ chasing bad did not make sense.

The next 10 years prices tripled. My crystal ball was pretty foggy at the time. Also had a partner who was pushing to get OUT. Certainly for the negative cash flow units DCA all those years into a mutual fund would have saved alot of sweat, blood and tear.
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Rental income to FI RE earlier
Old 08-21-2007, 05:31 AM   #42
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Rental income to FI RE earlier

We used rental income to retire at 40 - if you can call managing your own rentals retiring. I should mention that we thrived on it - found it exciting, just loved it and would do it all over again. But we started nearly 30 years ago when a single family house cost 30 - 40K (now 10- 15 times that) and you could put down 20% and the rent pretty much covered the PITI and you did your own maintenance. Then you'd wait patiently for them to start producing some positive cash flow while you were still working. Gradually you could build up a stable of little workhorse properties and pay them off. After a number of years, perhaps do some 1031 exchanges or live in one for 2 years and take the homeowners exemption. (500K for a couple).

But that was then. Starting today would be a much bigger challenge and would require more creativity though maybe it can still be done if one is very patient. Perhaps start off with a (cosmetic) fixer duplex or triplex in a fairly decent area. We found it was counterproductive to become too attached to a property - you need to be able to move when the time is right and buy & sell without a backward glance.
We didn't put too many expensive high maintenance items in a rental. We used vinyl floor tiles (some look like ceramic tile and much cheaper to replace) and basic carpeting - but we let them have a small to med pet so they didn't mind. Everything worked, was up to code, and was clean, but we didn't provide built in microwaves or garage door openers etc. Told them they could put in their own, and take it with them when they left. Often we rented very slightly below market and rented quickly. After several years we became good at figuring the right price. We did careful screening but many times used our gut feelings and always used a check-in - check out sheet and sometimes photos.
A couple of rules we never broke - still to this day. A tenant had to have paid ALL the first months rent plus the security deposit in CASH before they moved in. The rent is due 1st of the month and late by midnight of the 3rd with a $25 - $50 late fee after that and $5 a day from then on. I tell them (nicely) that this is my livlihood and I need the rent, so I will call an attorney after day 5 if they haven't called me to explain why they're late. The threat seems to work - I haven't had to call the attorney for many years, though I've occasionally worked with good tenants through a rough patch to let them stay in a rental. They know I would turn it over to the attorney if they ignored me.

We found the best tenants for us were slightly marginal. The really bad ones we rejected, and the really good ones didn't work out too well because they quickly moved on and bought their own house. At one point most of our tenants had declared bankrupcy and were rebuilding their credit. We always kept up to date with basic landlord tenant law.
This may be too much information - As others have already said - don't become a landlord unless you enjoy the challenge! It will be interesting to hear where you go froim here.
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Old 08-21-2007, 10:36 AM   #43
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I appreciate all the responses so far and I hope to hear what more people have to say on the subject.

I definitely will purchase a piece of rental property in the next year or so. I think it'll be a single family home to start and when I get a bit more comfortable playing landlord, I'll move into a 2 or 3 flat. But, before I do anything, I need to do a lot more research. I think, if done correctly, rental income can provide a big chunk of my overall income in RE.
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Old 08-21-2007, 12:59 PM   #44
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It was a single mom and five kids.
Each kid received SSI for one or the other of the alphabet syndromes that there are today.She also received sect8 as SSI is not considered earned income.
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multi for FIRE
Old 08-21-2007, 02:22 PM   #45
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multi for FIRE

I am not FIREd yet but hope to be one day.

I purchased some rentals (two fourplexes) three years ago and things have gone well. I was patient, looking for good properties in good locations that were, in my opinion, mismanaged. After a long wait, I found two units owned by the same individual. I approached him and asked if he was interested in selling. Sounded so easy to him that he said yes. I correctly identified the rents as way below market and was able to raise rents during the past three years to a point where I am in a positive cash flow situation.
Expect to put in the time, though. I think of it as a Second third job.

In my case, I mow the lawns, rehab the rentals during vacancies and do the minor repairs. Since I work a full time job, I hire out the big repairs (roof, plumbing, window replacement etc).

I'm hoping that this property will act as additional income in the future or possibly appreciate enough that it could be sold off.

I've also thought of moving into one of my units when the time comes. It would be a lot cheaper than living in my primary residence, although less private.

Something else to ponder, that I never considered, is the risk involved in rentals. I often think that my rentals could be putting all that I work so hard for at risk of law suits, should something bad happen and a tenant sues me. Just something to thing of.

I would also like to read others ideas of the best way to utilize rentals during retirement.
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Old 08-22-2007, 03:25 AM   #46
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We found the best tenants for us were slightly marginal. The really bad ones we rejected, and the really good ones didn't work out too well because they quickly moved on and bought their own house. At one point most of our tenants had declared bankrupcy and were rebuilding their credit. We always kept up to date with basic landlord tenant law.
This may be too much information - As others have already said - don't become a landlord unless you enjoy the challenge! It will be interesting to hear where you go froim here.

I am not a landlord... but well put and Great Comments. Once you weed out the so called bad tenants (which is key to success), the marginal ones probably have occasional problems.

Zero tolerance with exceptions on a case by case basis is probably the only way to manage it.

Besides, for many people, once they fall behind, they cannot catch back up since they are living paycheck to paycheck.
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marginal tenants
Old 08-22-2007, 06:34 AM   #47
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marginal tenants

What I've found that works is to insist that my "marginal" tenants pay their rent by automatic, monthy transfers from their account to mine. In this way, they have less discretion on which day to pay the rent as it is automatically handled by the bank. Secondly, if they do not have sufficient balances in their account, they create problems at the bank and with me (late fees). I spell this requirement out in their lease so if they cancel the auto-withdraw at the bank, they violate the terms of the lease.
It's worked well for me so far.
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liability issues
Old 08-22-2007, 07:04 AM   #48
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liability issues

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Originally Posted by CATAMAN View Post
I am not FIREd yet but hope to be one day.



Something else to ponder, that I never considered, is the risk involved in rentals. I often think that my rentals could be putting all that I work so hard for at risk of law suits, should something bad happen and a tenant sues me. Just something to thing of.

I would also like to read others ideas of the best way to utilize rentals during retirement.
Liability issues stalk us all in this country, especially those with substantial assets. Two alternatives I've used as a landlord.

1. LLC - The Limited Liability Company is fairly easy to set up with a real estate attorney offers some protection from lawsuits that originate from the property it is written for. Downside: the paperwork required. You'll have to maintain separate records for the property, which is probably a good practice anyway, but more work.

2. Umbrella liability insurance policy- These are relatively inexpensive, maybe $100 /year for $1MM. But as assets get larger, the predators get hungry.
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Old 08-23-2007, 07:38 AM   #49
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Problem with the umbrella policy is that no insurance company will touch you if you have 6+ units. Been there, tried that.

Initially, just keep the liability rider available on most fire policies ... add a commercial liability policy only if necessary (cost prohibitive).

But, we can all agree, going bare - uncovered - is a fools game.
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Old 08-28-2007, 11:37 AM   #50
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I found this article today.

Top Tips: Try your hand as a landlord - Aug. 27, 2007
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Rental income to FIRE earlier
Old 08-29-2007, 12:50 AM   #51
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Rental income to FIRE earlier

Eyerishgold, Thanks for this website:

Top Tips: Try your hand as a landlord - Aug. 27, 2007

I need a new tenant screening company - the one I've been using is now servicing large complexes only. I will look into the one listed.

Does anyone know of any others?
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Old 09-04-2007, 02:26 PM   #52
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Found another interesting article.

To rent or not to rent your home - Sep. 4, 2007
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Old 09-04-2007, 07:23 PM   #53
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Have a serious look at industrial real estate. If you can avoid welders, painters, sandblasters, and any other type of business that can blacken the walls or cause enviro damage, then I expect that the returns would be much better and the headaches less than residential. Typically you get a long term lease, like 3 or 5 yrs, in a building that is usually of fairly stout construction, and in my experience, the tenants have to pay for pretty much anything that isn't structural. For example, hot water tank goes, tenant pays is typical.
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Old 09-05-2007, 02:37 AM   #54
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Isn't looking at landlording as an "RE" vocation the same as considering working in a Chinese coal mine to support yourself in RE?
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Old 09-05-2007, 07:32 PM   #55
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Industrial real estate is a better idea. Renting out SFRs or condos seems to me one of the worst possible ways to make money because the cost of the property is too high to make any money. When a multidwelling property is converted from rental to condos the value often increases 50-100%. The reason professional landlords make money is because they are renting out multidwelling units whose cost is much lower than the condos or SFRs that amateurs rent out. Why try to compete with these professionals when your property cost is twice as high and you don't have the same economies of scale?

The rental game is all about lowering overhead to remain competitive, and this means doing much of the work yourself. Renting is a job as well as an investment.
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Old 09-08-2007, 10:33 AM   #56
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I took the plunge into residential RE after I came into some money and the stock market seemed like a good place for part of it, but not necessarily all of it. I did a HUGE amount of research. The books recommended earlier are essential, as is Nolo's legal book for landlords (includes a CD with all their forms). The website MrLandlord.com is a great place to learn, and even to make some helpful connections.

I don't know how anyone makes a SF house cash flow, except perhaps by buying it at enormous discount. I bought a 2-family foreclosure, fixed the burst pipes, replaced the 2 boilers, refinished the floors, tiled the kitchen floors, new linoleum in the bathrooms, new vanities, installed carpeting upstairs, finished the attic - adding 2 more bedrooms, installed a much-needed fence (the yard ends in a cliff), and put on a new roof. Probably would have been cheaper to buy something in good shape!

I have advertised solely on Craigslist (free). I screen like crazy. I allow pets, and have only had one bad experience, which the security deposit has covered. I used VERY conservative figures for figuring the ROI, but even so I was astonished at how high a water bill can go with just one unreported leak!

I hold the property in a(n) LLC. I cash flow!

Since, I have moved to another state, about 1 1/4 hours from the property. I've had to hire people (a friend, my daughter) to show it when it was vacant this last time. I would sell it, except that it keeps making money and of course, prices are down! The tax advantages have been wonderful.

In the area where I live, rents are lower and housing prices are the equivalent or higher. So I haven't gotten into it up here. It's a possibility for the future, though, depending on how low prices go!

Anne
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Old 11-15-2009, 08:53 AM   #57
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I'd love to hear any follow up from the orignal posters of this thread. The real estate world is significantly different right now.

If you are or want to be a real estate investor, what are your views at this stage of the real estate meltdown? I see what appear to be great deals, but I can't dial in on the market for renters. I've been a landlord for 11 years, and have been able to find decent tenants and raise rents (a little) every year....until lately. As the homes values began to tank, I speculated that this might be good for landlords because there would be increased demand because people are displaced due to foreclosures. But rents are not rising. It's a lose-lose paradigm right now. I lowered rent in 2 units to get them rented. (Both tenants are fixed income folks, so i am pretty stuck on the rent rate, but the upside is they are both stuck as well, and may very well be "lifetime tenants" if I want that). Fortunately, I can cover the reduced cash flow, and I sleep better knowing I have no vacancies, but I feel somewhat like I "failed" because I did not do this or that to get the rent I wanted.

And then I struggle with the corner of my brain that whispers, "Queenee, you could really GO BIG now, with all the great deals out there.". Mortgage rates are still low, and the recession seems to be showing signs of letting up.

I do know the first time home buyer credits are adding competition for landlords though. As I write, I am thinking...maybe a serious look-see would make sense around March 2010, when most first time buyers going for the credit will have to contract by April 30 2010.
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Old 11-15-2009, 02:19 PM   #58
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We've been doing rental real estate for a couple decades. Bought ragged places, often on owner-carry-contracts, and dumped $$$ and lots of our own labor into making them something we felt good about renting out. The rentals acted like a big savings account, also like a job we were buying. Spare money above LWBYM went back into the rentals. At 57 we are now about 3% stocks/bonds, 25% money market/cd/secured loans, remainder rental properties/home. I have not been buying property for the last 7 years or so, but imagine that there may be buying opportunities in the next couple years. Given that the market has gone from 14000 to 12750 recently that's where I'm starting to think about shopping for investments. Getting lazy(er) in my elder years and rental property done for profit is plenty of work.
Sheesh - 2 1/4 years already? Just turned 60 and with 51 units we have exactly one vacancy - a house we've had empty and on the market for one complete year. Apartments get filled within about 5 days of move out, normally less. The biggest limiting factor is how fast cleaning and or paint or other repairs take. Looking back at our rent schedule for August 2007 rents at the 16 unit were $390, now $435. The 7 unit rents were $400, now $445. The old 9 unit student apartments were about $400, now about $415. A house was $850, now $915. Our expenses have gone up for various utilities and repairs - a frig that cost $315 is now $380, a water heater that was $235 is now over $350, but the biggest increase in our costs is paying someone 10% of the fees, rents, and laundry collection to take on the vast majority of all the management and repairs I used to do. So rental profits for us are down, but rental stress is way way down.

We haven't bought anything since the last post, but have been looking at maybe a winter place. Much property looks cheap right now, but we really don't need any more income property. Our rental property wouldn't sell for as much - or as quickly! - as back when, but if the income stays in place and the stress is gone holding on to it doesn't hurt bad at all. Looking at the stock prices from the last post vs. now I have to say that owning rental property feels pretty good right now.
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Old 11-15-2009, 04:46 PM   #59
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I have bought 8 properties over the last year, most of them returning 20% NET. A typical deal is usually a $20K or $30K property that i put $5 K - $15K into and rent for around $800 per month. Have a few that are larger that return less, but obviously love the 20% NET roi properties. I buy all the properties cash. May take out loans at some point to increase the "leverage" and ROI on at least the larger properties. Foreclosures abound in my area (Indianapolis), so its just a matter of finding areas that I like and think that I can attract good tenants. My dad has a ragtag crew that helps me rehab them, so I don't do any of the work myself, same with maintenance. All the tenants so far have been good (save 1 latepayer), most are coming from foreclosed homes and wanting to downsize their payment. So far so good, although think I'm done buying for a while unless I can find a new area that I like.
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Old 11-15-2009, 06:14 PM   #60
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We have 4 duplexes and 1 triplex. All are paid off except for $80,000.00 (final payment July 2010) on a duplex we bought 2 years ago. We aggressively pay off each duplex as it is bought. We will not be purchasing any more as we plan on retiring in December 2010. My husband does most maintenance. We will pull from the properties about $4000.00 per month. We will have sufficient money left in our LLC for taxes, vacancies and repairs. We screen very carefully and do not care about vacancies. We want good tenants. We have a vacancy right now from a woman that lived there 5 1/2 years and bought a house under the $8000.00 tax credit program. We have several long term renters. We keep the rent a little below market. My husband is a very high energy guy and he will be 50 when we retire. He needs more to do since he currently works 10 hour or more days. The duplexes will keep him a little occupied. Works for us.
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