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What should I do.... real estate??
Old 04-22-2011, 10:39 AM   #1
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What should I do.... real estate??

I'm looking for feedback from current FIRE members that were/are landords. I've been a landlord for awhile and view it as a nice part time gig for extra $$ and long term appreciation (hopefully).

I've always worked a full time corporate job while being a landlord and generally received tenant calls while I'm in a foreign country on business. And yes, I've had an ugly situation with a deadbeat tenant on government voucher that threatened me with a gun if I didn't do something, but I'm still in the game.

So when you FI or FIRE, did you liquidate and get out or did you hold a few to supplement your retirement funds.

For me, I see a few options with my window of 6 - 8 years to FI:

A. Maintain what I have... currently $30k cashflow per year now and do nothing.

B. Upgrade current primary residence by buying another, then renting it out (this would be pretty much break even, but I would have a newer/larger home for the family which would be nice, but not required, DW likes the idea)

C. Add 1 - 2 duplex/triplex rentals, 30% down w/ note for the balance, increase cashflow to 40 - 50k per year within the next 12 - 18 months, while maintaining my full time job.

Thoughts:

- Extra cashflow would be nice and all would be directed to retirement
- After retirement, it'll give me something to do for sure, but should be a flexible job
- Current opportunity is good for short sales and foreclosures in my area
- Could impact my current path to FI as it's a risk to be a landlord
- DW is a SAHM and wants to help with calls, etc as the kids are in Pre-school etc.
- If I get laid off from work, the 50k plus unemployment would test my budget for ER =)

Open to feedback... currently working with realtors on a passive search.
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Old 04-22-2011, 11:26 AM   #2
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Trying to move away from day to day management here. One of our plans was to roll all the places into a big place and buy management. didn't do that. Another plan was to sell one a year or so, starting with the rougher older and more distant and ending up with closer and easier as we got older. Manged to sell two houses pretty close to market top, and two at low and lower price points. Currently have an old 7 unit for sale, but with little enthusiasm on either buyer or seller end.

I think this is a fantastic buying time and think that a 6-8 year window should be just about perfect to liquidate as prices bounce back up. You are in a good spot in history with your plan.
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Old 04-22-2011, 09:49 PM   #3
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Quote:
Originally Posted by Aiming_4_55 View Post
A. Maintain what I have... currently $30k cashflow per year now and do nothing.
So if nothing else happens from here then you're still good?

Quote:
Originally Posted by Aiming_4_55 View Post
B. Upgrade current primary residence by buying another, then renting it out (this would be pretty much break even, but I would have a newer/larger home for the family which would be nice, but not required, DW likes the idea)
The trick is to end up with just enough house to keep the family from tripping over each other, yet not so big that your empty-nester lifestyle is interrupted by a bunch of boomerangers.

Quote:
Originally Posted by Aiming_4_55 View Post
C. Add 1 - 2 duplex/triplex rentals, 30% down w/ note for the balance, increase cashflow to 40 - 50k per year within the next 12 - 18 months, while maintaining my full time job.
Open to feedback... currently working with realtors on a passive search.
You're a realtor's worst nightmare: a client who's not in a hurry and doesn't actually have to buy anything.

At the least you're keeping an eye on the market. If this search turns up a screaming buy then you'll do very well.

I've been chewing through the landlord's financial-analysis articles on this website: Six Rules of Thumb for Every Real Estate Investor | Real Estate Investment Blog
Yes, it's not rocket science and yes, he's selling a product. But thinking about the numbers helps put a little fiscal discipline in what could otherwise be a gimme grab in a candy store. It's probably worth comparing your cash-on-cash return (of your actual after-expenses after-tax cashflow against your after-tax equity) to the interest you could collect from long-term CDs or TIPS.
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Old 04-23-2011, 06:06 AM   #4
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Thanks Calmloki for the feedback. I do worry about the exit strategy in the back of my mind. It's something that requires planning. Good luck with your 7 unit.
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Old 04-23-2011, 06:47 AM   #5
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So if nothing else happens from here then you're still good? Yes, thus the passive search. I've used FIRECalc, ORP, Fido's, Vanguard's, and a few others and received positive results with a 6 - 8 year window and conservative returns, getting me to age 48 - 50 assuming no job loss/market crash. Even tho I'll have $$ on hand for kids' college via 529 and healthcare, I'm thinking I would like an income stream via real estate to cover those expenses. Once college is completed, then it can be the kids milk me fund DW has this grand idea of buying them their first place and covering weddings. My general response, I rather smoke it as I paid for mines.. can't spoon feed them for life as it'll create other issues.

The trick is to end up with just enough house to keep the family from tripping over each other, yet not so big that your empty-nester lifestyle is interrupted by a bunch of boomerangers. Agreed, my thoughts are slightly larger for less money and single story. Newer single story is not very common in my area, but we just lost a bid on one two weeks ago. We offered a higher price, but the bank accepted a lower cash offer.

You're a realtor's worst nightmare: a client who's not in a hurry and doesn't actually have to buy anything. Yes (searching for primary and investment properties) and No, but I warned him before wanting to do business with me. The realtor I'm using, we have been out seeing properties 3 times, no more than 3 hours each. He wrote 2 offers and we closed on one deal, the other was a solid offer, but the bank accepted the cash offer. So I like to say, I'm not wasting his time as I do alot of the legwork researching before scheduling a showing. I've actually declined showings as they weren't within my personal match.

At the least you're keeping an eye on the market. If this search turns up a screaming buy then you'll do very well.

I've been chewing through the landlord's financial-analysis articles on this website: Six Rules of Thumb for Every Real Estate Investor | Real Estate Investment Blog
Yes, it's not rocket science and yes, he's selling a product. But thinking about the numbers helps put a little fiscal discipline in what could otherwise be a gimme grab in a candy store. It's probably worth comparing your cash-on-cash return (of your actual after-expenses after-tax cashflow against your after-tax equity) to the interest you could collect from long-term CDs or TIPS. Agreed, I crunch general numbers before viewing a property and have a fair idea of the spread compared to safer options. If I'm interested in a property after seeing it, I get more detailed before a final offer.
Thanks for the feedback.
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Old 04-23-2011, 09:56 AM   #6
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Quote:
Originally Posted by Aiming_4_55 View Post
I'm looking for feedback from current FIRE members that were/are landords. I've been a landlord for awhile and view it as a nice part time gig for extra $$ and long term appreciation (hopefully).

I've always worked a full time corporate job while being a landlord and generally received tenant calls while I'm in a foreign country on business. And yes, I've had an ugly situation with a deadbeat tenant on government voucher that threatened me with a gun if I didn't do something, but I'm still in the game.

So when you FI or FIRE, did you liquidate and get out or did you hold a few to supplement your retirement funds.

For me, I see a few options with my window of 6 - 8 years to FI:

A. Maintain what I have... currently $30k cashflow per year now and do nothing.

B. Upgrade current primary residence by buying another, then renting it out (this would be pretty much break even, but I would have a newer/larger home for the family which would be nice, but not required, DW likes the idea)

C. Add 1 - 2 duplex/triplex rentals, 30% down w/ note for the balance, increase cashflow to 40 - 50k per year within the next 12 - 18 months, while maintaining my full time job.

Thoughts:

- Extra cashflow would be nice and all would be directed to retirement
- After retirement, it'll give me something to do for sure, but should be a flexible job
- Current opportunity is good for short sales and foreclosures in my area
- Could impact my current path to FI as it's a risk to be a landlord
- DW is a SAHM and wants to help with calls, etc as the kids are in Pre-school etc.
- If I get laid off from work, the 50k plus unemployment would test my budget for ER =)

Open to feedback... currently working with realtors on a passive search.
Have you looked into how many (personal) mortgages on non-residence properties your lender will allow you to have? Even though the max the Feds allow is back up to 10 from the 4 they lowered it to during the banking crisis, we couldn't find any in our area last Fall that would loan out to more than 4 total still - new ones by them + any previous - with some lenders at 3 + primary residence. Fortunately we don't have one on our home & were OK getting to 4 total. But we're unable to buy more. I'm not going for over the internet mortgages - too much personal info give outs required.
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Old 04-23-2011, 11:36 AM   #7
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Have you looked into how many (personal) mortgages on non-residence properties your lender will allow you to have?
My mortgage contact says total of 5. I currently have 1, but will probably take a re-fi on my primary for cash out to purchase a rental unit in cash. I probably won't hit the 5 as I would rather take a larger note for more units. But this really depends on the next opportunity or so, openminded to 3 - 4 units but also 6 + units based on opportunity.
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Old 04-27-2011, 08:42 PM   #8
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i plan to sell off most of my rentals when i bail out of my job.
if i were to do it over again i would be much better off had i invested the down payments into the stock market instead of real estate.
don't forget that when you decide to see you pay out a 5 or 6% sales commission!
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Old 04-28-2011, 08:59 AM   #9
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i plan to sell off most of my rentals when i bail out of my job.
if i were to do it over again i would be much better off had i invested the down payments into the stock market instead of real estate.
don't forget that when you decide to see you pay out a 5 or 6% sales commission!
Thanks for the reminder of sales commission. I've been thinking about exit strategy too. Depending on what the market does in 5 , 10, 15 years from now, will impact the liquidation approach.

While the stock market returns can be very appealing, it depends on how one invests. I'm a passive Vanguard Total Stock Market fund and Fido target 2035 fund investor. I do have a very slight tilt on Small Cap and REIT.

When you say better off in the stock market, what is your approach to your stock market investing?

Personally, each appeals to me. I know when I RE, I might want to travel extensively for the summer/winter breaks per school schedule of my kids, but I'm thinking the property management company will have take care of it.
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Old 04-29-2011, 12:31 AM   #10
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don't forget that you will be paying for property management. i have a deal with mine at 6%, i know many people who pay closer to 10%. also remember when vacant you do not get any income, but still have expenses (tax, insurance, utilities, repairs, etc.) none of which you have with assets in the stock market.
also: mutual funds never have clogged toilets on holidays!
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Old 04-29-2011, 05:36 AM   #11
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Knucklehead,
The various expenses are all factored in before I see the property in person. So far my experience has been providing good returns.
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