My Pro's and Con's of real estate investing

[Senator]

I understand that to be successful, you can't let a tenant's problems become your problems. But I'm curious, what was the reason for the eviction? If it was lack of payment, I find it interesting that the family members essentially pleaded with you ( a stranger to this woman) to pay her rent, when they (family) apparently were unwilling to do that for her. But they probably made you out to be the devil.

-ERD50

She did not pay, and was behind ~$4K when I bought the building. And she was a real pain for the previous owner, the previous maintenance guy, and myself in the few days after I bought the building.

Exactly the landlord is always the bad guy to the entitlement mentality crowd. I am sure there are even some forum members that would think I was cold-hearted in this case. A relative sent $500, and she stayed until the end of the month. She even attempted to clean the apartment on her way out, not well, but an honest attempt.

Those sympathetic individuals that object to throwing a terminally ill woman on the streets for non-payment can send me a check anytime, I have another single woman that struggles with rent every month too, and she will be out the minute she goes beyond the 5th of the month without paying and if she goes into radio science.

I screen pretty hard, but sometimes a renter will make a poor decision after they move in. Bring in a new roommate without my screening, a roommate moves out, they have a kid, or some other factor that makes it tough for them. I have not had a late rent in a long time, but I have a couple of renters that go until the 5th.

 

[ncbill]

So would you say your success in rental RE has been significantly impacted by:

1. doing (nearly) all the work yourself, vs. hiring a property manager or trades such as plumbers, with the exception of specialized trades such as HVAC?

2. investing primarily in multi-family properties (4-plexes preferred?) vs. multiple SFRs?

3. Looking at a few articles on your blog (thank you very much) targeting class B or C tenants?

 

[97guns]

So would you say your success in rental RE has been significantly impacted by:

1. doing (nearly) all the work yourself, vs. hiring a property manager or trades such as plumbers, with the exception of specialized trades such as HVAC?

2. investing primarily in multi-family properties (4-plexes preferred?) vs. multiple SFRs?

3. Looking at a few articles on your blog (thank you very much) targeting class B or C tenants?

My success with my RE investment was made by buying at the bottom of the crash in 2008, paying $75-$80k for homes that had previously topped out at $350k, now they are back in the $280k range

 

[Senator]

So would you say your success in rental RE has been significantly impacted by:

Definitely. I have been able to exponentially increase my cash flow because of all the items below.

1. doing (nearly) all the work yourself, vs. hiring a property manager or trades such as plumbers, with the exception of specialized trades such as HVAC?

I even install my own furnaces when I have the time (and ambition) and fix A/C units other than adding Freon.

2. investing primarily in multi-family properties (4-plexes preferred?) vs. multiple SFRs?

It is hard to make money in a SFH. The more doors, the more money typicaly can be made.

3. Looking at a few articles on your blog (thank you very much) targeting class B or C tenants?

I target Class B tenants, but occasionally take a Class C blue collar tenant. If a person passes my criteria, I am OK with them regardless. Most tent to be younger people, as we do not have elevators.

I cleaned up a neighborhood, and that increased rents significantly too. We went from a Class D neighborhood to a Class C+, B-.

 

[Amethyst]

Leaving off the terminally ill person...there is simply no end to the sob stories, tears, and promises of "treating your unit like it was our own home" you will hear from people who aren't qualified to rent your place - but are determined not to live in the kind of place they can afford (think grandma's basement).

Also, renters lie even after they qualify and move in. "My friend just needed a place to stay" or "we're having a guest for a couple of weeks" is usually cover for "we're subletting the third bedroom."

Exactly the landlord is always the bad guy to the entitlement mentality crowd. .

 

[Carpediem]

It is hard to make money in a SFH. The more doors, the more money typicaly can be made.

Why is it hard to make money on SFHs? Thanks.

 

[Senator]

Why is it hard to make money on SFHs? Thanks.

It costs too much to acquire them. It is hard to get a 15% return.

 

[Luck_Club]

Leaving off the terminally ill person...there is simply no end to the sob stories, tears, and promises of "treating your unit like it was our own home" you will hear from people who aren't qualified to rent your place - but are determined not to live in the kind of place they can afford (think grandma's basement).

Also, renters lie even after they qualify and move in. "My friend just needed a place to stay" or "we're having a guest for a couple of weeks" is usually cover for "we're subletting the third bedroom."

Funny story. early on rented to college kids 1 time. there were 4 of them and they all seemed oK and met the criteria. They left the place in pretty good shape and were consistently on time with the rent.

After they left I was having lunch at a restaurant and mentioned I had the place up for rent to the waiter, who was looking for a place. Turns out he knew the place. There were many parties, and the creative young kid, had been renting out the closets as rooms. I figure they had 6 moved in, but feel I got lucky they didn't really damage the place. Un-written criteria is no more students.

 

[Luck_Club]

So would you say your success in rental RE has been significantly impacted by:

1. doing (nearly) all the work yourself, vs. hiring a property manager or trades such as plumbers, with the exception of specialized trades such as HVAC?

2. investing primarily in multi-family properties (4-plexes preferred?) vs. multiple SFRs?

3. Looking at a few articles on your blog (thank you very much) targeting class B or C tenants?

For me 1 is a must do. Around my neck of the woods, "contractors" all want to retire on your job. And if not retire at least make up for only working 25% of the time. I've gotten estimates that had $100 an hour labor costs more than once.

2) Single family homes are tough to make money. Usually require significantly depressed value (major repairs), to find value.

3) Try to stick with good quality tenants. Ability to pay, willingness to pay, and number of people are primary deciders on tenant selection. I won't buy a property where I wouldn't be willing to live.

 

[Fermion]

In our area there is a 3200 sq ft house for rent on 3 acres with a 30x20 outbuilding/barn. $1250 per month, one year lease.

I do not know how any landlord could make money on this. The property taxes on the place I think would be about $2200 a year alone.

 

[kgtest]

I can count on one hand how many times I've needed to call a landlord over my life.

People act like these calls come in everyday all day and they don't . only the bad apples and squeaky wheels need greasing.

Aim for the low-turnover tenants with jobs and good credit. They go to work, they pay their bills and they don't want to be bothered by landlords as much as the landlord doesn't want to be bothered by the tenant.

Its the tenants with too much time on their hands that get creative and start ruining things.

I too like Senator had a lease broke by a terminally ill tenant, they just simply passed away and I ended up renting to their relatives while they made the arrangements. They were so grateful they had a place to stay during that transition, and of course the money went direct deposit into my checking.

 

[Senator]

Here is my latest project. It will look fantastic when it is finished in a few weeks. Of course, I have a few other projects and a vacation in between.

New electric (CBs, not fuses), new plumbing (pex), new windows (vinyl), new kitchen cabinets, new appliances, remove lath plaster in the kitchen and replace with Sheetrock. Paint, replace carpet with laminate floors, replace a few doors, etc. New laundry closet that cleaned up pipes and wires running on the floor.

There are quite a few things that need to be done, maybe too many to list as I cannot remember all of it. Maybe a $25K remodel.

 

[Curmudgeon]

25K for materials, and you did all the labor yourself? Will you sub any of this out? How long is this taking you?

 

[Senator]

25K for materials, and you did all the labor yourself? Will you sub any of this out? How long is this taking you?

I am paying ~$13K for 20 insert windows, plus making a smaller window an egress window. Already paid ~$2500 for electrical box. These two tasks will be subbed out. All other labor likely me, unless I get a helper or someone that wants work. I will be able to do the rest, it just takes time.

Flooring will be $2,500 in materials. Paint $500. Kitchen cabinets ~$1,000. Counter tops, faucets, sinks, etc. $500. Sheetrock, doors, other supplies ~$1,000. Plumbing materials $250.

It will take maybe 200 hours. I am selling in the Spring, and taking the Winter in FL. So there will be a lot of downtime. Plus I get a bit lazy these days. It's funny after you retire, you are less efficient. I used to make every second count, now I barely make the hours count.

Each day I make progress, but only 4-5 hours each day.

Here is a before and after of a different remodel I did. It's hard to see the wall that was removed, but it is much more spacious and open. And rents for $300 a month more. That was a 6-week project. The original 30-year old particle board cabinets were falling apart. New all wood, RTA cabinets replaced them.

 

[Senator]

Here is a quick remodel I did this July. The tenants told me about a saggy bathroom floor. The I-Beams used in construction were placed 24" apart, they should have been closer near the toilet.

I did not want to do it when he told me, as there were people in the apartment. I waited until he was on vacation for 10 days. Having an open floor and packing/unpacking up tools every day is a pain.

I replaced some sub-floor, added some joist supports near the toilet, and tiled the bathroom. I added a new ADA toilet. And, for good measure I replaced the furnace. It costs less than $600 for a new furnace, delivered to the door, and would have cost as much as $2,000+ if I hired it out. The tile job and new toilet was ~$300, would have cost maybe $800+.

Total savings over $2,000 for a few days work.

 

[Scuba]

I am paying ~$13K for 20 insert windows, plus making a smaller window an egress window. Already paid ~$2500 for electrical box. These two tasks will be subbed out. All other labor likely me, unless I get a helper or someone that wants work. I will be able to do the rest, it just takes time.

Flooring will be $2,500 in materials. Paint $500. Kitchen cabinets ~$1,000. Counter tops, faucets, sinks, etc. $500. Sheetrock, doors, other supplies ~$1,000. Plumbing materials $250.

It will take maybe 200 hours. I am selling in the Spring, and taking the Winter in FL. So there will be a lot of downtime. Plus I get a bit lazy these days. It's funny after you retire, you are less efficient. I used to make every second count, now I barely make the hours count.

Each day I make progress, but only 4-5 hours each day.

Here is a before and after of a different remodel I did. It's hard to see the wall that was removed, but it is much more spacious and open. And rents for $300 a month more. That was a 6-week project. The original 30-year old particle board cabinets were falling apart. New all wood, RTA cabinets replaced them.

Wow! Looks beautiful.

 

[may pop]

Hello Senator
My son is just starting in RE investing. This year we (he and I) are doing the same kind of rehab on a 115 year old home (duplex) in Milwaukee. Yours looks like his did a few weeks ago. 15k for the house and about 12k for the materials. All work done by us. This 27k investment should bring in 13-1400 per month. In a class c or d neighborhood. In less than 2 years he should 100% paid back. By then I (a 2018 graduate) will be there helping rehab the next ones. This looks to be a way for us "simple folks" to add to our incomes.
Thanks for taking all the time responding to this thread. I was leary at first when my son said what he was doing but respect his ideas. Now it looks like a viable income.
As time goes on I hope to assist all 5 of my kids in getting this low cost added income. Milwaukee has some great opportunities that we hope to grab.

 

[Amethyst]

I'm curious - how does one "classify" a neighborhood as a, b, c, d, etc.?

I assume it's some combination of the age and type of housing and the income of the residents, but based on what data source?

 

[Luck_Club]

Hello Senator
My son is just starting in RE investing. This year we (he and I) are doing the same kind of rehab on a 115 year old home (duplex) in Milwaukee. Yours looks like his did a few weeks ago. 15k for the house and about 12k for the materials. All work done by us. This 27k investment should bring in 13-1400 per month. In a class c or d neighborhood. In less than 2 years he should 100% paid back. By then I (a 2018 graduate) will be there helping rehab the next ones. This looks to be a way for us "simple folks" to add to our incomes.
Thanks for taking all the time responding to this thread. I was leary at first when my son said what he was doing but respect his ideas. Now it looks like a viable income.
As time goes on I hope to assist all 5 of my kids in getting this low cost added income. Milwaukee has some great opportunities that we hope to grab.

It is helping people like you and your son, why I "bible thump" real estate.

 

[may pop]

I looked it up on google. Experience with the neighborhood?

 

[may pop]

Thanks Luck Club

 

[Senator]

I'm curious - how does one "classify" a neighborhood as a, b, c, d, etc.?

I assume it's some combination of the age and type of housing and the income of the residents, but based on what data source?

It is a bit subjective, but if you are in a class D neighborhood, you know it....


https://www.multifamilypro.com/multifamily-housing-classifications/
Class A properties are luxury apartments. They are usually less than 10 years old and are often new, upscale apartment buildings. Average rents are high, and they are generally located in desirable geographic areas. White-collar workers live in them and are usually renters by choice.

Class B properties can be 10 to 25 years old. They are generally well maintained and have a middle class resident base of both white and blue-collar workers. Some are renters by choice, and others by necessity.

Class C properties were built within the last 30 to 40 years. They generally have blue-collar and low- to moderate-income residents, and the rents are typically below market. This is where you’ll find many residents that are renters “for life.” On the other hand, some of their residents are just starting out. And as they get better jobs, they work their way up the rental scale.

Class D properties are where you’ll find many Section 8 in the US or government-subsidized housing residents. They are generally positioned in lower socioeconomic areas.

 

[jollystomper]

Real Estate is not for everyone, and certainly should not be anyone's first investment, at least not in a typical landlord sense. Maybe a REIT, but not being a landlord. Maybe you get lucky, maybe not. If you get a bad tenant, it could wipe you out. I have had many bad ones, until I figured it out.

I kicked out a woman with stage 4 terminal breast cancer that several of her family members called to plead me to drop the eviction. Nope, out she went. She died six month's later. I have no regrets, other than I should have done it sooner. As it was, I only owned the building four days when I filed the eviction. I should have done it day one.

Stories like these are why my Dad got out of real estate. He had trouble viewing things objectively when folks were in trouble and always wanted to give them the benefit of the doubt. My brothers and I were his work/maintenance/protection crew, and we'd see folks give him sob stories of not being able to meet the rent, but noticing how they were buying cars and spending money and just plain lying to him in all kinds of way. You do need to hold the line to be successful.

I have also seen the other side, where a family friend had a severe illness, lost her job and was in a similar situation of being evicted. We and 2 other couples payed her rent for a few months, and her landlord was very appreciative of us helping her out. When she got back on her feet and was able to support herself again her landlord gave her terrific treatment, "extra special" in her words.

 

[Amethyst]

Didn't realize this pertained only to multifamily housing. I gather we had Class B places.

It is a bit subjective, but if you are in a class D neighborhood, you know it....


https://www.multifamilypro.com/multifamily-housing-classifications/
Class A properties are luxury apartments. They are usually less than 10 years old and are often new, upscale apartment buildings. Average rents are high, and they are generally located in desirable geographic areas. White-collar workers live in them and are usually renters by choice.

Class B properties can be 10 to 25 years old. They are generally well maintained and have a middle class resident base of both white and blue-collar workers. Some are renters by choice, and others by necessity.

Class C properties were built within the last 30 to 40 years. They generally have blue-collar and low- to moderate-income residents, and the rents are typically below market. This is where you’ll find many residents that are renters “for life.” On the other hand, some of their residents are just starting out. And as they get better jobs, they work their way up the rental scale.

Class D properties are where you’ll find many Section 8 in the US or government-subsidized housing residents. They are generally positioned in lower socioeconomic areas.

 

[97guns]

Well my con list just got a little longer, finally got the eviction finalized and took back possession of the house today. It's a little trashed, didn't appear so 6 months ago when I did a walk through, couple of broken doors, a broken window, a dump load of their trash and a lot of filth to clean up, nothing a couple more thousand can't handle, would be a lot less if I wanted to do work myself but nah, don't want to get dirty.... It's my 2nd eviction in 8 years