setbacks and elusive goals

[Aspire]

I have been close to my retirement point for some time, but I don't seem to be getting any closer, because I keep running into major expenses on my investment properties, which are managed remotely by agents. If everything went reasonably smoothly from now on, I could retire today, but I don't have the confidence that that will happen. I had psychologically paced myself to be finishing around now, and instead I don't know when it will happen. It is making me feel depressed. Has anyone had similar experiences?
Selling my properties would remove the uncertainty, but probably isn't a wise move right now all the same.

 

[Senator]

I have some uncertainty with my rentals, but they consistently produce over $150K per year. I manage them myself and maintain them myself. I know the way to do things in a quality fashion, which attracts great renters, and yet be cheap.

You need to expect to spend a minimum of 50% of rents on expenses, which includes 10% for maintenance, 5% for vacancy and 10% for management. Then, pay the mortgages.

Keep saving your money. Know that property managers are out to make themselves money, not you.

You do not say your age, or your budget, but if you are close keep working. Each year you work, should save quite a bit.

If you expect to live on $40K a year, you should be saving $40K while you are still working.

 

[inquisitive]

Are the major expenses on investment properties caused by the agents? If so, can you get someone else who is reliable to manage them?

Many major real estate expenses are foreseeable. Eg, how old is the water heater, the roof, what is the quality of the heating system, is regular maintenance done on it, etc. Are you able to intervene to lower costs?

 

[Aspire]

Thanks so much to you both for responding. I won't write too much now, as I'm about to go to bed. I'm in New Zealand, and my properties are in Memphis, TN USA, so I don't have the option of managing them myself.
I changed agents earlier this year, and some of the expenses I'm incurring now are due to the mishandling (poor tenant selection and total absence of inspections) by the former managers. I do trust the new ones. I had already dealt with them, as I purchased some of my properties from them. But there are issues. They conduct quarterly inspections, but in some cases don't follow up with the necessary maintenance work for months. I have raised this with them, and they have just taken on an in-house maintenance man, and they said this will improve things. The other issue, which I have also raised with them, is that their inspections do not give me an idea of foreseeable expenses. I just had a quote for a rehab between tenants, and there are jobs there that I had no idea were coming up from the inspection reports. They only seem to mention urgent problems like water leaks.
Knowing in advance might not make me feel better, but at least I would know whether or not I can safely retire.
I own 14 properties. I had 4 tenants leave this year, and 3 of the rehabs were around 6-7k. I don't think that is sustainable. In two cases, the tenants had only been there a few months and hadn't paid much rent.
I'm 45. I've never had a very high income, but I've always saved and I'm used to living on a budget. I'm self-employed, and after 'retiring', I plan to continue earning about 8k USD, for reasons related to pension contributions, but I don't want that to be a financial necessity long term. My partner will continue working and sharing expenses. I don't drive. We also share a rental property in New Zealand, which brings in net income for me of about 3k USD. I think I need about 23k USD per year in total, so it's really not much I need from the US properties, but I've got scared by the big rehab bills.
Advantages I have in NZ are that there has already been an exchange rate movement in my favor and there should be some more to come. And bank interest rates here are good, so if I make some gains on the properties and sell them in a couple of years, I should be able to put most of it into term deposits and easily live on it.
Maybe I did write quite a lot in the end. Thanks for bearing with me.

 

[Aspire]

ps the 23k USD I think I need to live on is gross, before tax.

 

[chris2008]

Are the rentals really an appropriate invenstment for you?
Consider ROI, risk, diversification.
I have always avoided becoming a landlord as lots of expenses cannot be controlled by myself and there is not an easy walk away option.

 

[RetireBy90]

I would give the new management team a chance to perform for you. I have a manager that doesn't do things as I would like, so I compensate for that by a larger fund for expenses and asking questions more frequently. Could be you are going through a rough patch. All investments have cycles and this could be a cycle of trouble for you.


However, if it were me, I would map out an exit strategy and a plan for what to do with the funds if you decide to sell the properties. This would give you a chance to think through the alternatives and consider the returns available from them. My plan would be written down so that I could ensure I have thought it through.


Just my thoughts

 

[Aspire]

Thanks for the last two posts. It seemed like a good idea at the time. I'd had some other financial troubles before that, and I was really keen (maybe desperate) to get my retirement plans back on track. But it has been more stressful and less rewarding than I expected. I would like to get out of it, but I think (on my partner's advice) that I'd be better waiting a year or two, until I get some more exchange rate and capital gains (hopefully), a more buoyant market to sell in and better interest rates for reinvesting the proceeds. If I find the rental side is going much better by then, I may rethink and stick with it a bit longer. That might be the time for working through alternatives in writing.

 

[kgtest]

I visited New Zealand this year. Beautiful country and very friendly citizens. I would advise you to sell your property in the US and look at purchasing rentals in NZ if that is possible. Having remote rentals isn't as lucrative as having rentals in your own neighborhood.

Tax breaks might locally be better and your dollar might go further on the ROI.

 

[Aspire]

I'm glad you like New Zealand. The investment opportunities aren't good here at the moment. I think these property investments will probably be the last I will make. My thoughts when I went into it were that it should be the last (major) thing I ever have to do.

 

[Senator]

...some of the expenses I'm incurring now are due to the mishandling (poor tenant selection and total absence of inspections) by the former managers.

This is the number one reason some landlords succeed, and others fail. It is easy to get great tenants, you just have to know how to recognize them. 625+ FICO scores, 3.5x the rent in income.

Keep bypassing tenants until you find good ones. You can always increase demand by lowering price, or increasing marketing.

If you do have to take a low quality tenant, get at least a 2x the rent for a deposit, inspect every six months, fix any broken items found in the inspection. Then immediately charge the tenant for damages. If they do not pay 100% of the damages in 30 days, evict them.

 

[ESRwannabe]

Thanks so much to you both for responding. I won't write too much now, as I'm about to go to bed. I'm in New Zealand, and my properties are in Memphis, TN USA, so I don't have the option of managing them myself.
I changed agents earlier this year, and some of the expenses I'm incurring now are due to the mishandling (poor tenant selection and total absence of inspections) by the former managers. I do trust the new ones. I had already dealt with them, as I purchased some of my properties from them. But there are issues. They conduct quarterly inspections, but in some cases don't follow up with the necessary maintenance work for months. I have raised this with them, and they have just taken on an in-house maintenance man, and they said this will improve things. The other issue, which I have also raised with them, is that their inspections do not give me an idea of foreseeable expenses. I just had a quote for a rehab between tenants, and there are jobs there that I had no idea were coming up from the inspection reports. They only seem to mention urgent problems like water leaks.
Knowing in advance might not make me feel better, but at least I would know whether or not I can safely retire.
I own 14 properties. I had 4 tenants leave this year, and 3 of the rehabs were around 6-7k. I don't think that is sustainable. In two cases, the tenants had only been there a few months and hadn't paid much rent.
I'm 45. I've never had a very high income, but I've always saved and I'm used to living on a budget. I'm self-employed, and after 'retiring', I plan to continue earning about 8k USD, for reasons related to pension contributions, but I don't want that to be a financial necessity long term. My partner will continue working and sharing expenses. I don't drive. We also share a rental property in New Zealand, which brings in net income for me of about 3k USD. I think I need about 23k USD per year in total, so it's really not much I need from the US properties, but I've got scared by the big rehab bills.
Advantages I have in NZ are that there has already been an exchange rate movement in my favor and there should be some more to come. And bank interest rates here are good, so if I make some gains on the properties and sell them in a couple of years, I should be able to put most of it into term deposits and easily live on it.
Maybe I did write quite a lot in the end. Thanks for bearing with me.

You must be very trusting to have people managing real estate for you when you are on the other side of the planet... My guess is you are going to be ripped off by whoever you pay to manage the places. It is just too easy to do given the setup.

Also many parts of Memphis can be a real dump, very low on the socioeconomic scale. You are not going to get good tenants in those areas.

No offense but I think you are crazy investing your money this way. lol

 

[Aspire]

The former managers ripped me off insofar as they told me they would be conducting inspections and they never did, and they told me they took care selecting tenants but they didn't. I also got somewhat misled as to the condition of some properties I bought, despite getting inspections.
I do have more confidence in the current managers, and I did take advice and do research on the areas of Memphis. None of my properties are in the worst areas.
In retrospect, I wouldn't do it - but I've done it now. And I think it can provide what I need, although it's not as much as I was told the return would be.
I think my new agents are taking care with tenant selection, and I have emphasized to them that I would rather wait for good tenants than rush to find someone.
I am actually thinking I will take the plunge and retire - more or less. I will keep doing a little work, and if things go disastrously I will still have my contacts and I can step it up again. But I don't need things to go well in order for the properties to provide enough for me to live on - just not disastrously, and I think I am ready to take that risk.

 

[braumeister]

Ah, but you'll have to admit that's a sizable risk.
If I were you, I would at the very least engage a good local real estate firm to give me some input on what I could reasonably expect from a sale of the property.

 

[Aspire]

Thanks for your concern, but I don't think the risk is that great. I have reached the point where I feel the risk of not enjoying my life when I could do is greater.
I have heard back from my property managers, and they said I shouldn't carry on getting expenses like these - it is the result of the previous mismanagement.
My budgeting margins allow for things going badly, just not disastrously. And if they do go disastrously, I would have no trouble, for the foreseeable future, picking up more work.
And if all else fails, my partner would support me. He has pointed out himself that plenty of families live on an income like his, and we don't have kids. I wouldn't want to ask him to support me as a plan A, as I has substantial savings and he doesn't, but it's an OK plan C. (If he died, I could downsize my home and costs.)
I would like to know what my properties are currently worth, but I wouldn't want to pay for the information, and I don't think I could reasonably get it without.

 

[DJRR]

I would like to know what my properties are currently worth, but I wouldn't want to pay for the information, and I don't think I could reasonably get it without.

Any decent real estate agent will give you a free market analysis of your property if you are considering selling/listing. Ask your property manager for 3 referenences of top agents or look for top sellers on the local realtor webpage. You can also run a web report on Zillow and Trulia to give you a value.

With all the information you should get a good enough value for your purposes. The range might be higher than you like, but you can take 5-10% off the average and you should have a solid number.

 

[Letj]

You can easily find out what your property is worth by looking at the comps on realtor.com for your area under the sales section. By the way, I own a substantial amount of real estate in the area I live and some of them are in low socio economic areas and I have the same issues you described. The difference is we manage and supervise/do the repairs ourselves. I am sorry to say but you made a big mistake buying property remotely. The United States is very different from New Zealand. There's a huge disparity in socioeconomic levels and classes and huge drug addiction problem. If you are having these problems neighborhood is likely trash and carries extremely high risks. Most of the tenants will be very poor, drug addicted and/or always on the verge of homelessness. Unless you accept government subsidies, it would be difficult to have stable tenants in any ghetto/trash neighborhood. I have known realtors who go after out of town investors who are naive and don't understand the local markets or don't understand the U.S. just to make a sale. These investors often see houses for the price of a cheap car and think this represents a good value but the reason is simply because the neighborhood is worthless and has little to no prospect for appreciation. I am sorry to be so blunt but I have substantial experience with lower income properties. You may not think they are lower income based in your internet research but you would need to talk to local people and agents to determine that.


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[Rick_Head]

Selling my properties would remove the uncertainty, but probably isn't a wise move right now all the same.

From what I've read upthread, and if selling your properties does not involve a big loss, I'd say it is the wisest move you could make.

Now your risks are:
1) Forex risk, your expenses are in NZ$ and income in US$.
2) You're dependent on finding a good property manager ( you CAN'T do it yourself).
3) (Potential) lack of diversity. It appears you have too many eggs and too few baskets, if your portfolio isn't growing because the US RE isn't working.

That said, the only rental RE we own is farm land. No upkeep expenses and a few visits per year can tell us how the tenant is treating our property (drive by and have a look). We also have family in the area and know the reputation of the tenants but the big one is that rent is paid in advance.

 

[MRG]

Aspire,
My experience with Memphis is from '78. I'm talking from that perspective, lived there for 4 months. Saying the property is not in the worst area in Memphis is like saying you found a cooler place in h*!!.

My DW worked for a "property management company" in Memphis for a short time. The third time she and the other women there were told "get in the back room, lock the doors, and dont make a sound" she quit.

I sincerely hope Memphis has changed a great deal from that time. Hope you're in a great position with your properties.

I'd have a contingency plan too.

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[Aspire]

No more advice please. I'm not coming back to this thread.

 

[daylatedollarshort]

Ask on biggerpockets. See if you get any radically different advice than what was offered here.

 

[mathjak107]

i too can't believe how we got whacked with expenses this year right before retiring. it is like so uncanny how everything came up.

we made a wedding for my daughter , my dental implants got rejected through the years because i was prediebetic and just had 4 new implants put in, my wife needed 3200 in dental this month.

we needed all new estate paperwork and disclaimer trust that cost 5k. a death down in florida last week had my wife and kids paying a few thousand to scramble down there on a days notice.

now it is xmas for 10 people and we just paid our new long term care premium of 8k.

it is like i bet we went through about 100k in one year on just things not even on the drawing board last year.

 

[mathjak107]

I have been close to my retirement point for some time, but I don't seem to be getting any closer, because I keep running into major expenses on my investment properties, which are managed remotely by agents. If everything went reasonably smoothly from now on, I could retire today, but I don't have the confidence that that will happen. I had psychologically paced myself to be finishing around now, and instead I don't know when it will happen. It is making me feel depressed. Has anyone had similar experiences?
Selling my properties would remove the uncertainty, but probably isn't a wise move right now all the same.

we owned quite a bit of real estate but made the decision 12 years to unwind it . no way did i want to be a landlord in retirement , especially dealing with the expenses that come up. i have a hard enough time with just the ones that come up from daily living that we didn't have on the drawing board.

 

[Debinnov a]

FYI everyone, if you notice a few posts back, the OP asked for no more comments and she has left the thread....

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