become a landlord or more index funds?

[Sunset]

It is a bunch of work, yes it can be rewarding as long as you don't have bad luck.
Now that we are retired, I'm getting out of it and into index funds.

 

[SumDay]

I've been a landlord. I wouldn't wish it on my worst enemy (well maybe...). It can be a lot of work and even more headaches, but as you can see, some people have made it manageable. I could not. The property wasn't the issue - the people were. I could/should write a book.

 

[pjigar]

As you can see, there are common gotchyas: For me staying local, being my own management company and getting good paying tenants in good neighborhoods has been key to success (4 years and counting). Being a landlord is NOT an index funds and you are still working. But to be fair, I spend few days per property in a year because I do my own repairs. If you outsource repairs then all you do is schedule repairs and talk/visit tenants one a quarter. The biggest benefit I see being a landlord is that my returns and market cap will always track inflation (for the most part) if not better. Which means if I can live off the cash flow today then I will be able to live off this income stream forever (in theory). I am working on building another qual sized portfolio in equities as an insurance in case my theory fails.

 

[BreathFree]

The property wasn't the issue - the people were. I could/should write a book.

This is the main reason I have a property manager. He insulates me from the tennent's shenanigans. Well...Mostly anyway.

 

[CaliKid]

I would buy 3 $100k +/- properties in Memphis, KC, Indy or other cash flow city. You should easily get about $3,500 gross rent a month.

 

[FANOFJESUS]

I would buy 3 $100k +/- properties in Memphis, KC, Indy or other cash flow city. You should easily get about $3,500 gross rent a month.

That sounds a little high. Here in St. Louis a 130k house rents for about $1200

 

[Senator]

That sounds a little high. Here in St. Louis a 130k house rents for about $1200

My most recent purchase in 2016 was purchased for $40K and rents for $830. I could easily rent it for $1200, but I had a deal with the owners to rent it back to them for a discount for two years.

A 4-plex I bought in 2012 for $197K, now has a combined rent of $4,620 per month. That will be ~100+ higher next year.

If you are a smart shopper, and get pre-MLS deals, bargains are still there.

 

[NW-Bound]

My most recent purchase in 2016 was purchased for $40K and rents for $830. I could easily rent it for $1200, but I had a deal with the owners to rent it back to them for a discount for two years...

One heck of a deal. My brother just recently got into rental business. He bought a rundown home for $140K, then put $40K into renovating it for renting. He gets $1500/month. The return is nowhere as good as you get.

 

[Senator]

One heck of a deal. My brother just recently got into rental business. He bought a rundown home for $140K, then put $40K into renovating it for renting. He gets $1500/month. The return is nowhere as good as you get.

I bought a contract for deed (land contact). The original owners could not make the balloon payment. After the Contract was assigned to me, I cancelled the contract as the owners expected. Now they pay rent, rather than principle and interest.

The owners paid $60K in 2012, Trulia says it is worth ~$100K. My price in 2016 was $38K. I had to terminate a federal tax lien that prevented the owners from selling. Plus I put a new electrical panel in.

Wen you buy off the MLS, there are no deals. Negotiating with people in foreclosure is where the money is at. Eliminating mortgages and liens makes a person money.

 

[samclem]

In general, I wonder how ROI changes across the property spectrum. I'd guess that very low-cost properties have higher rent-to-purchase price ratios, but they would also tend to have higher numbers of tenant problems, skip-outs, damage, etc. Perhaps finding exceptions to that rule, or reducing the impact of "problems," is one key to making money.

 

[Senator]

In general, I wonder how ROI changes across the property spectrum. I'd guess that very low-cost properties have higher rent-to-purchase price ratios, but they would also tend to have higher numbers of tenant problems, skip-outs, damage, etc. Perhaps finding exceptions to that rule, or reducing the impact of "problems," is one key to making money.

You are somewhat correct. A class D property needs a higher return than a Class A. If you can take a class D property and re-position it to a class B, as I did, you can make a ton.

Of course, if you can get the property at a discount, it's even better.

 

[tryan]

@ Beathfree -

How did you get an umbrella policy with 11 units ... everytime I apply they say 6 is the cap.

 

[Another Reader]

I have my umbrella with State Farm. At one point I had 30 properties.

 

[Senator]

@ Beathfree -

How did you get an umbrella policy with 11 units ... everytime I apply they say 6 is the cap.

I have an umbrella policy too. Both for my business and myself. No problems with my properties. American Family.

 

[tmitchell]

Thanks everyone, this is all good info. I'm leaning away from the out of state option for now as it just seems too risky. Also the profit taken by a turnkey provider seems to outweigh the convenience.

I am curious though: in terms of AA do you include your own home as part of the diversification of a portfolio? I do have some equity in mine. I know a personal home isn't typically considered an investment. How do you all interpret that?

Thanks!

 

[pjigar]

Own home = not part of AA. You are going to keep riding that tiger till death. If you get off then he will eat you!

PS: Unless of course you reverse mortgage your home at some point then it becomes part of your "investments".

 

[haha]

This is the main reason I have a property manager. He insulates me from the tennent's shenanigans. Well...Mostly anyway.

It is very hard for me to imagine that a max-low barrier to entry, relatively low skill business like RE rental can offer much return to owners after full expenses. The work is not so obnoxious to explain high returns as compensation for an unattractive pursuit.

Ha

 

[samclem]

It is very hard for me to imagine that a max-low barrier to entry, relatively low skill business like RE rental can offer much return to owners after full expenses. The work is not so obnoxious to explain high returns as compensation for an unattractive pursuit.

Ha

I think that is true overall, but it doesn't rule out the potential for some RE investors making a lot of money if there's something inefficient about the market (probably some special knowledge about available properties for sale). The RE market (and the availability of knowledge to support buying/selling ) is pretty inefficient compared to stocks, bonds, etc. But without an "edge", it would be easy to lose money or get very low returns.

 

[Senator]

It is very hard for me to imagine that a max-low barrier to entry, relatively low skill business like RE rental can offer much return to owners after full expenses. The work is not so obnoxious to explain high returns as compensation for an unattractive pursuit.

Ha

100% correct. In the years 2008-2012 there was a lot of property that could make money. Multifamily units are the best return, and the more doors, the better.

Multi-family properties, especially 5+ units, are purchased ion numbers alone. A SFH or duplex you often get into the competition with someone that wants to live there.

If you can buy a property, and get rid of a mortgage the seller has, without paying the second mortgage anything, that is a sweet spot.

 

[FANOFJESUS]

Everybody and their mother seem to be in the rental business right now. That worries me. That is what I see around me.

 

[pjigar]

Like Buffet says, you make money when you buy an investment i.e. the price paid for an investment is the most important aspect. I have stopped buying RE for last 3 years, no deal for me. Everything I bought has double digit returns on cash invested but only 4% return on current equity. I am seriously considering selling something but then again what am I going to buy using the liquidated cash? So 4% return from inflation protected asset is not bad after all.

I am waiting for a crash which is no where in sight. Or is it?

 

[NW-Bound]

T
I am curious though: in terms of AA do you include your own home as part of the diversification of a portfolio? I do have some equity in mine. I know a personal home isn't typically considered an investment. How do you all interpret that?

One has to live somewhere, and it costs money unless one lives under a bridge. I call my homes the money pit. Not part of any AA.

... I am waiting for a crash which is no where in sight. Or is it?

Where is a crash when one needs it? One needs patience.

 

[brucethebroker]

I would buy 3 $100k +/- properties in Memphis, KC, Indy or other cash flow city. You should easily get about $3,500 gross rent a month.

Indiana doubles property taxes on non-owner occ. single family homes. If you buy an owner occ. house with (prior owner) homestead credit, your taxes (as an evil landlord/investor) could nearly triple in that price range. Take that into consideration when running your numbers.

 

[BreathFree]

It is very hard for me to imagine that a max-low barrier to entry, relatively low skill business like RE rental can offer much return to owners after full expenses. The work is not so obnoxious to explain high returns as compensation for an unattractive pursuit.

Ha

I find it difficult to find a properties where the numbers work in my area. I would not be able to purchase a property in my area at the drop of a hat and make a decent return.

I looked for three years before I purchased my first property and there was a gap of nine years since I purchased my last. I believe the "skill" or barrier to entry may simply be patience. I have seen the same model quad plex in my area sell for $80,000, $200,000, and $320,000.

Of course, I won't really know the actual real return until I have sold the properties when I am done with the rentals. So, you may be correct in the end, but for now, I am enjoying the diversification, tax advantages, and consistent income

 

[NW-Bound]

Everybody and their mother seem to be in the rental business right now. That worries me. That is what I see around me.

My brother has 2 rental homes now, at a total investment of more than $400K.

I am sure people make money in this business, just like anything else. I don't know the rope, and am too lazy to learn it, so I just stay out.