These patterns must be highly predictable. Every single thing was my experience renting low income properties. I had over 30% of my units section 8 at one point. You’re right it’s not that expensive repairing superficial damages especially if you’re doing it yourself or with some other helpers. As I said before, that was the cost of doing business. Now these areas are turning as the neighborhoods become more mixed income resulting in less hassles with tenants.
FIRE and Rentals
- Thread starter livingalmostlarge
- Start date
These patterns must be highly predictable. Every single thing was my experience renting low income properties. I had over 30% of my units section 8 at one point. You’re right it’s not that expensive repairing superficial damages especially if you’re doing it yourself or with some other helpers. As I said before, that was the cost of doing business. Now these areas are turning as the neighborhoods become more mixed income resulting in less hassles with tenants.
To the main point of this thread, the owner of the properties was a Vietnam veteran from NOL who served a 20-year career in the Army by 39yo and then transitioning into a GS position to continue building his pension. At most, he paid $8-10K per building, but others were essentially free (under $1K). Even after repairs, it's unlikely he spent more than $100k per 4-unit building to make them turnkey in the late-90s. When he showed up on site he looked like some alcoholic painter to ensure he wasn't recognized by tenants.
In terms of income, he was earning $3400/mo per building. During a turnover, I would receive 2 months of rent for the turnover, and repairs typically cost another 3-4 months of rent. So anything above about 50% occupancy was positive cashflow.
We haven't communicated since I moved away from DC, but he was just a few years away from wrapping up another 20-years of service before his 60th birthday. He was a very private person, so I'm not sure what else he had planed for FIRE, but he was lining himself up for a full salary pension and just the buildings I knew about are currently worth $2-3M. He had at least one more building that he was working on (and probably more), but he had "his own guys" for those jobs. Either way, if he's still alive he's in his early-70s and enjoying a very healthy retirement.
FWIW I have a duplex where I live and a condo out of state. Condo was the best investment I ever made... put down $8k, now worth $1M, and continuously rented for 22 years. It was the first property I bought and I lived in it myself for 3 years until I was laid off and got a job elsewhere. My duplex has been an OK investment but definitely a lot of work at times. And the rental climate has changed a lot in the last 20 years. I certainly won't buy another rental here in Oregon. Also, it's generally a long game, so better to buy when one is younger and can build up sweat equity.
Another thing now is all the institutional investors have really changed market dynamics. THey have access to more data, so are better able to identify and buy properties with upside potential, shutting out individual buyers. IMO the rental property market has gotten similar to the stock market in that it's hard for individuals to find good deals anymore. Like value stocks, there will always be some properties that individuals are able to buy and make good returns on, but I just feel it's more difficult now.
Another thing now is all the institutional investors have really changed market dynamics. THey have access to more data, so are better able to identify and buy properties with upside potential, shutting out individual buyers. IMO the rental property market has gotten similar to the stock market in that it's hard for individuals to find good deals anymore. Like value stocks, there will always be some properties that individuals are able to buy and make good returns on, but I just feel it's more difficult now.
I owner occupy a rental duplex live in one unit rent out the other. It's in a low cost of living area in the Midwest. I bought the duplex in my '20s had it paid off by the time I was in my 30s. It's in the town I grew up in and most of my family lives here or nearby so I don't see that I would ever leave here. if I did leave I would just rent both units out and have a property management company take care of it. The price difference between buying a single family home and a duplex was about $20,000 more for the duplex so within 2 years it pays for itself.
When I bought it, the monthly rental income was $700 a month. Now it's $1,000. I get to write off my garbage, internet, majority of the repairs, property taxes, insurance, etc. So it builds me equity gives me an income as well as a tax break. I don't think I could live cheaper than I am right now from a housing cost perspective. The rental income covers a majority of my housing costs.
I've only had one eviction and one tenant get really drunk and trash part of the place but otherwise I haven't had too many problems.
I've had to replace the roof. Remove the Orangeburg and do other standard repairs and replacements. I am not handy but I would have had these expenses whether I had a duplex or a single family home.
I don't see myself buying any more rental properties I'm good with one and done. But for me personally this has been one of my better investments.
Something that I did not see mentioned was homestead bankruptcy exemption which is another component to think about. In Iowa Texas and Florida as well as a few other states when you file bankruptcy you are able to keep your home especially if it's paid off. If you get medical or other debts and they get out of control. You'll know you will have a roof over your head for the rest of your life.
When I bought it, the monthly rental income was $700 a month. Now it's $1,000. I get to write off my garbage, internet, majority of the repairs, property taxes, insurance, etc. So it builds me equity gives me an income as well as a tax break. I don't think I could live cheaper than I am right now from a housing cost perspective. The rental income covers a majority of my housing costs.
I've only had one eviction and one tenant get really drunk and trash part of the place but otherwise I haven't had too many problems.
I've had to replace the roof. Remove the Orangeburg and do other standard repairs and replacements. I am not handy but I would have had these expenses whether I had a duplex or a single family home.
I don't see myself buying any more rental properties I'm good with one and done. But for me personally this has been one of my better investments.
Something that I did not see mentioned was homestead bankruptcy exemption which is another component to think about. In Iowa Texas and Florida as well as a few other states when you file bankruptcy you are able to keep your home especially if it's paid off. If you get medical or other debts and they get out of control. You'll know you will have a roof over your head for the rest of your life.
jkern
Full time employment: Posting here.
I retired in 09' and due to the real estate crash I bought 3 rentals in 10' and 11' to provide an income source.
In order to make the land lording experience easier I purchased Condo's less than 5 years old. Additionally, I only purchased very good luxury units in good areas. The end result has been good tenants and low maintenance.
For me over the last 10+ years, I have not had any loss due to tenants not paying, damage or vacancies. Managing the properties, including maintenance and repairs, average about 20 to 25 hours per year. My ROI started at about 8% and has grown steadily. Due to buying during the downturn, the value has nearly quadrupled.
For anyone buying investment rental property today I would recommend evaluating legislation risk. I would avoid all cities and counties that are pro tenant/anti landlord including things like rent control laws. Being from California I'm one or two bad Assembly Bills away from cashing out and quitting.
In order to make the land lording experience easier I purchased Condo's less than 5 years old. Additionally, I only purchased very good luxury units in good areas. The end result has been good tenants and low maintenance.
For me over the last 10+ years, I have not had any loss due to tenants not paying, damage or vacancies. Managing the properties, including maintenance and repairs, average about 20 to 25 hours per year. My ROI started at about 8% and has grown steadily. Due to buying during the downturn, the value has nearly quadrupled.
For anyone buying investment rental property today I would recommend evaluating legislation risk. I would avoid all cities and counties that are pro tenant/anti landlord including things like rent control laws. Being from California I'm one or two bad Assembly Bills away from cashing out and quitting.
First, I agree with you that Condos (and townhomes) in good repair and nice areasoftown are much easier for mom and pop investors - less maintenance and less stress with better tenants.
Institutional buyers entering the game has made it a bit harder in that regards, but sites like Zillow have massively reduced the headache compared to 20 years ago so I'd say net, net its actually significantly easier today than then, even with prices up so much the last two years. Zillow makes it way, way easier to price your rent (both from their estimate and looking at similar rentals in the area - both current and completed rents), market to tenants ($15 for 90 day listing gets you on zillow, trulia and hotpads), take applications (easily get credit/background/income statements from their Zillow application) on the income side and you can of course use zillow on the acquisition cost side as well.
On the 6 rentals I've bought in the last two years (all townhomes), I'm averaging a 12% cash yield on my initial investment and if you adjust all the rents for current market price, would be a 15% cash yield. My all in annual return (with 3% appreciation/yr + principal paydown) is 37.2%/yr on my investment - and given the reality of the last two years appreciation, I've actually made ~100% annualized on my return. All for about 40 hours of work in total on all of them combined.
Well, to paraphrase Tip O'Neill, "all real estate is local". A small time landlord would be hard pressed to get yields like yours in Portland I think.
Recently Zillow bought up tons of SFHs here at prices that had become inflated due to their own algorithms (and human psychology). Now they're dumping them at a loss.
https://www.nytimes.com/2021/11/02/business/zillow-q3-earnings-home-flipping-ibuying.html
That may make it a bit easier for mom & pop landlords to compete, but the property tax and administrative costs here keep increasing rapidly. Cap rates here are pretty low.
Recently Zillow bought up tons of SFHs here at prices that had become inflated due to their own algorithms (and human psychology). Now they're dumping them at a loss.
https://www.nytimes.com/2021/11/02/business/zillow-q3-earnings-home-flipping-ibuying.html
That may make it a bit easier for mom & pop landlords to compete, but the property tax and administrative costs here keep increasing rapidly. Cap rates here are pretty low.
Portland, Seattle, LA and SF have basically the worst cap rates in the country (nyc too). Combined with crazy tenant friendly laws and limitations on rent increases no matter the costs incurred, I’d never ever invest in rentals there. That said, plenty have still done really well there. Just way higher risk than southeast, south, Midwest or anywhere in the west or northeast outside of the mega cities
Zillow was a bit of exception and old news at this point - they were actually buying homes at 20-30% over their algorithm suggest the homes were worth without massive upgrades/repairs needed after a string of good quarters and welp. They didn’t have their own or enough of their own handy men and their costs to renovate and list came in way over as labor got really tight and prices skyrocketed. They also weren’t renting at all.
Koolau
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
I think your answer is in the last sentence. If you are not on the same page with DH you should figure you will be doing all the w*rk associated with rentals - and there is some - maybe lots. Imagine you become ill (perish the thought) will DH be willing/able to handle the issues?
On a more important point (IMHO) if you are handling rentals, you are only partially retired but not everyone looks at it that way. It's true that just handling our own portfolios could be called "work." Of course, I spend about an hour per year on mine so YMMV.
almost there
Thinks s/he gets paid by the post
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- Sep 24, 2008
- Messages
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Odd politics in a particular area (State or County) make it a great investment, or near impossible depending on the area.
Thats new... And not to be taken lightly.
Thats new... And not to be taken lightly.
Bought my NJ shore property in 1988. Now have to sell due to gut surgery I am not
able to take care of it properly. So depreciation recapture, Fed cap gains tax,plus NJ cap
gains tax which is the same as federal. Then you get hit with big a increase in medicare
premiums due to income increase for the year. Not happy with NJ cap gains tax,makes me livid.
I can deal with the other taxes.
Oldmike
able to take care of it properly. So depreciation recapture, Fed cap gains tax,plus NJ cap
gains tax which is the same as federal. Then you get hit with big a increase in medicare
premiums due to income increase for the year. Not happy with NJ cap gains tax,makes me livid.
I can deal with the other taxes.
Oldmike
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Sunset
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
+1
People don't realize that for many in retirement, the income tax rate can be kept low or is just low. But still have to depreciate so save on taxes when at 12% or lower.
Later when sell, the sudden new income pops up the tax rate, so the recapture of the tax savings at 12% is not taking place at a higher rate.
You seen to be forgetting all the benefits you get from NJ Cap gains tax.
I thought about that,but I am a mess physically. I could stop renting after this season,and not sell it,but would still be difficult for me to take care of. The house is old,and I only own half. Would have to put out money for, flood and
building ins,plus realestate taxes.
I sell it then can rent beachfront for a week and treat the grand kids.
With the fed raising interest rates the price escalation will taper off,I am already seeing some sale price reductions on OC facebook realestate groups.
Oldmike
ncbill
Thinks s/he gets paid by the post
1031 exchange instead?
Yields aren't what they used to be but you avoid an immediate tax hit.
Owning rental property has a very large learning curve. I'd urge caution "getting into rentals."
Yes, many people use this as a method to finance early retirement.
But you REALLY need to know what you are doing. The headaches can be legion as can the risk.
Be sure to compare income generating royalty trusts, REITS, and my personal favorite, O, the stock symbol for the Realty Income Corporation, currently paying around 4% dividends.
I would say most people would be better served and live a much more enjoyable life by taking the down-payment money they would put into a rental and just buying O to get real estate exposure.
Dividends, capital appreciation (hopefully) and NO HEADACHES.
It's really not that high of a learning curve anymore with Zillow and sites like Angi's for residential real estate but it is certainly a learning curve. I could probably teach someone 80% of what I know in 10 hours or so and 90% of what I know in double that. In the last 2 months I've bought two rentals and including those leased up a total of 4 new tenants and I've spent maybe 20 hours total on all 10 of my rentals including 2 open houses. The next 3 months will be significantly less than that with no vacancies coming up. Assuming 1 or 2 issues pop up that need fixed, maybe 5 hours for a quarter of a year.
The problem with public REITs is their multiples / values go up and down with the stock market as a whole, not with the private market valuations of real estate. Plus, public company costs is quite significant compared to most public REITs well in excess beyond management for a private firm. That's not to say not to invest in them at all but they are a poor substitute for private real estate ownership, especially weathering a major correction in stocks. Companies like Blackstone have actually made a living of this in - buying public real estate companies when well below private values and sell public real estate companies when well above private values.
SunGuy
Recycles dryer sheets
Planning to start with a fourplex in southern Indiana next year, will get an FHA loan for a lower down payment, live in it for at least a year, and hopefully then do it again.
I know I won't do it more than three times total.
Hopefully by the second one, my parents will be ready to start buying apartment buildings with myself and my brother in a family real estate LLC.
If I end up going full time as a forex trader, and start a youtube/mentorship program, I know this may change my focus.
I know I won't do it more than three times total.
Hopefully by the second one, my parents will be ready to start buying apartment buildings with myself and my brother in a family real estate LLC.
If I end up going full time as a forex trader, and start a youtube/mentorship program, I know this may change my focus.
