Worth it to pursue Rental Income properties?

[samclem]

Quote:

Originally Posted by RioIndy But from what I am seeing thus far I am probably going to lean towards just getting an easy part time job to create the same income.

That might work out best. Once you calculate the value of your time and the opportunity cost of having dollars in real estate, a part-time job or small business may prove to be better--a lot depends on the particular market, your skills/temperament, and your access to information.
If you eventually decide you want to get into residential real estate it might be a good idea to partner with somebody who has been doing it awhile. As you can see from the responses here, people get burned out on this not-so-passive investment, and that includes people with a lot of properties. If you can find someone who wants to scale back from this business, perhaps you could learn the ropes from the inside while risking little/none of your money.
When a person wants to buy a franchise store, open a restaurant, etc experts advise that the best prep they can have is to first get a job in another store/business of a similar type and see how things work from the inside. They gain some very useful information that can't be gotten any other way.

[pjigar]

By the way, multi-family has better margins than single-family home. Apartment complex has even better margins. For example, my SFH has 8-10% RoR on cash vs my apartment complex has 15-20% RoR on cash.

[intl]

Quote:

Originally Posted by pjigar By the way, multi-family has better margins than single-family home. Apartment complex has even better margins. For example, my SFH has 8-10% RoR on cash vs my apartment complex has 15-20% RoR on cash.

Hence why I only buy multi-families. [emoji2]

[laurence]

Quote:

Originally Posted by intl Hence why I only buy multi-families. [emoji2]

I noted that, too, the cost to rent a SFH is just a bit more, but buying it was a huge price difference.

[RioIndy]

Any difference if one rents out condos? Since the condo building should take care of all maintenance it would remove a lot of the headaches.

[laurence]

Quote:

Originally Posted by RioIndy Any difference if one rents out condos? Since the condo building should take care of all maintenance it would remove a lot of the headaches.

Mine is a condo/townhome, yes they take care of the maintenance outside, but I'm also paying $260 in HOA fees a month, and that was after shopping around. I've gotten into a rhythm and don't find the work to be that bad, but I bought newer, and close to home.

[CaliKid]

I would consider a nice rental in a city you like to visit. Not a vacation rental. Just a regular rental in a city you like. That way, even if you have a property manager (which you should) once a year you get a tax deductible trip to a city you like. Plus, you are diversifying your assets by having real estate in your home city (your home) and now real estate in another city, state or even part of the country. Plus, if it's not local you will not be tempted to be the property manager.

In my opinion true wealth diversification is important and should include real estate (not reits). When property values change rents often don't change much at all. So values can go down and rents may stay consistent.

[Sunset]

Quote:

Originally Posted by RioIndy Any difference if one rents out condos? Since the condo building should take care of all maintenance it would remove a lot of the headaches.

Yes you make less profit due to the monthly fee.
Also the condo board can rule that rentals are no longer allowed, so once your tenant moves out, you can't rent it.
Your tenants break the condo rules (noise, parking in wrong spot, planting flowers) and condo board will tell you to evict them or condo board will fine you.

[JohnT]

I own 2 town homes which I have rented out for 25 years, so they are both paid off and are generating significant cash flow for me and my DW (I am semi-retired).

I avoid the headaches of being a landlord by employing a management company - they take 6.5% of the gross rent. For the first 5yrs, I managed the properties, but grew tired of it, and by then the rents had increased enough that I was able to justify a management company. For me, it's definitely worth paying someone to manage collecting rent, maintenance, and all tenant communications.

Now that the mortgages are retired, my expenses are property taxes, HOA, and occasional maintenance costs - in addition to the property management fee.
If you can swing it, having passive rental income to augment investment income in retirement is great.

It took me 25 years to get there and am glad for the effort. Just have realistic expectations for the near term (say first 10 years).

[laurence]

Quote:

Originally Posted by JohnT I own 2 town homes which I have rented out for 25 years, so they are both paid off and are generating significant cash flow for me and my DW (I am semi-retired). I avoid the headaches of being a landlord by employing a management company - they take 6.5% of the gross rent. For the first 5yrs, I managed the properties, but grew tired of it, and by then the rents had increased enough that I was able to justify a management company. For me, it's definitely worth paying someone to manage collecting rent, maintenance, and all tenant communications. Now that the mortgages are retired, my expenses are property taxes, HOA, and occasional maintenance costs - in addition to the property management fee. If you can swing it, having passive rental income to augment investment income in retirement is great. It took me 25 years to get there and am glad for the effort. Just have realistic expectations for the near term (say first 10 years).

Hey, this is exactly my thoughts, I'm only 3 years in but I'm hoping this is the outcome.

[COcheesehead]

Quote:

Originally Posted by JohnT I own 2 town homes which I have rented out for 25 years, so they are both paid off and are generating significant cash flow for me and my DW (I am semi-retired). I avoid the headaches of being a landlord by employing a management company - they take 6.5% of the gross rent. For the first 5yrs, I managed the properties, but grew tired of it, and by then the rents had increased enough that I was able to justify a management company. For me, it's definitely worth paying someone to manage collecting rent, maintenance, and all tenant communications. Now that the mortgages are retired, my expenses are property taxes, HOA, and occasional maintenance costs - in addition to the property management fee. If you can swing it, having passive rental income to augment investment income in retirement is great. It took me 25 years to get there and am glad for the effort. Just have realistic expectations for the near term (say first 10 years).

^^^THIS^^^

[calmloki]

We spent about 35 years buying rental property, making the places decent, renting them out, paying them off... The rentals have been a forced savings account and ended up giving us a real regular and pretty fat income. We found, as another poster said, that multiples were far more profitable than single family. Reached 50 odd units, mostly one bedroom apartments. That is a bunch of tenant/customers to keep happy.

We had in mind to sell off everything around 2008. Oops. Kept renting places out and collecting money - the rentals did just fine through the real estate crash - we had pushed money at our mortgages and were debt free - sometimes it is good not to be leveraged up to your eyeballs. Got kinda tired of dealing with all the units all the time and brought in a manager who takes 10% of the rent collected, which is about 20% of the profit.. We get to do about whatever we want. Some advantages over handling the duty rental phone and taking care of plugged up toilets long distance from the beach in Sayulita Mexico.

Strongly suggest buying in your home town - people tend to know the markets they are in. If self managing, keep your holdings within a 15 mile radius. Drive time is a killer for showings or maintenance.

[pjigar]

Quote:

Originally Posted by calmloki Strongly suggest buying in your home town - people tend to know the markets they are in. If self managing, keep your holdings within a 15 mile radius. Drive time is a killer for showings or maintenance.

I second that. All my rentals are within 25 minute drive from my home.

[pb4uski]

My views are mostly a function of observing my Dad, who have a variety of real estate. He eventually got out of residential, multi-family due to the hassle of dealing with tenants. He had a nice, single-tenant commercial property that we still own that is pretty easy... and quite lucrative.

[jw72]

I agree with the comments, positive and negative. My first rental house was purchased in Detroit, 1980 at age 18 for 4500, rented it for 300 a month for 3 years and sold on land contract for 16K. My last purchase 8 months ago condo San Clemente, CA 405K and rents for 2700. Grand parents had rentals, parents and Aunts have rentals, friends have rentals and I have them too. The number one reason is they keep up with inflation, our rents have only gone up. Sure it is a pain to do a repair on a Sunday morning but I take a son and use it as a bonding time. 5 miles is my limit any further i get a property management company. I buy in good school districts, no slums for me. Keep the rent below market to great tenants and they stay (never an eviction). I like single family condo's with low HOA or homes for resale. With duplex or apartments investors look at cap rate, single family home mom falls in love with it and do not care what it rents for, sold!
Good luck what every you decide and you guys that are thinking of selling, shoot me a message before you list, always looking for a good investment before it hits the MLS, especially in Orange County CA.

[Markola]

I've thought about it and, so far, decided against it in favor of focusing on increasing my salaried income and my savings rate. No doubt some do very well with it but I've observed that real estate investors generally seem to be either trying to get in, trying to get out, or working their tails off. YMMV.


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[Danmar]

I have a significant amount of real estate. Also have great tenants, me! Would never consider having strangers for tenants as it is enough hassle having personal use real estate. In a strong market like Toronto or Vancouver you can certainly make s lot of money. Much more difficult normally and probably not consistent with a trouble free retirement.

[bclover]

Following along as I'm also thinking of acquiring a rental property

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[Koolau]

Quote:

Originally Posted by RioIndy My current situation is that I am pretty much in the OMY stage, as my portfolio of equities is not too far from being (theoretically) enough on it's own. But doing another 0-5 years of salary would add some nice additional cushion and/or luxuries.

My gut reaction is to do OMY (literally) at something you are already good at and already have the j*b. Firm up your portfolio and insure your cash flow for ER doing what you know. Learn to cut your expenses if you have to.

Trying to "change j*bs" (becoming a land lord) or adding another j*b might work great, but it might not. I wouldn't want to bet my ER on something "new." Stay with what you know, run your numbers until you are comfortable with ER and retire. Just my 2 cents and not worth that much as it's you're decision and YMMV.

[jkern]

I had a SFH rental from 1992 to 2004. One tenant for 11 years and one tenant for one year. I had zero days vacant and averaged about 10 to 15 hours per year on maintenance. I had some issues with the last tenant and it cost me about $1500. I sold in 2004 and made a very large profit.

When the RE market crashed, I purchased 3 condos in 2011. All 3 were less than 6 years old. They are located 120 miles from my home. I have had zero vacant days and I average about 10 to 15 hours per year for maintenance. I do not use a Property Management company. I net about 9% ROI and the properties have more than doubled in value. My biggest challenge has been showing the properties to new tenants since I'm located 2 hours away. So far so good, I've been able to do it with only one trip each time.

I believe I have been fortunate and a little lucky, but RE has been very very good to me. When I'm older I will probably hire a Property Management company.