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

[pj.mask]

Seems like a decent amount of work here and there as opposed to just a few hours a month. At least to me, confirms that for high income people it is better to invest in your job and stocks unless you really enjoy the real estate gig. Low income can really improve your situation if you have the time to work at it. Know your strengths and opportunities though - is it better to run a rental and work or train/become a plumber or electrician (or other job)? Especially early on, getting a certification or degree could easily outpace that investment on your first rental.

That is during working years - in retirement it is time to re-evaluate if you have enough or again want to put in effort to increase finances. Personally I would just OMY at work but some people want to have something to keep them busy in retirement.

 

[SumDay]

My dad started flipping houses in the 1960's. He loved the flipping, the tenant screening and the maintenance because he had someone to talk to when he went to do the work. As he got older and my mom was diagnosed with Alzheimer's, he decided to offer to "sell" the houses to the current tenants - he'd gladly carry the note at 8+%. Not everyone is cut out to be a home owner - they could barely afford the house payment, taxes and insurance, let alone home repairs.


This & SS was their retirement income. FULL DISCLOSURE: these were <1000 square feet 1930's and 40's homes in Class D neighborhoods.


When he died, I inherited all of these notes, and the families attached to them. Dad was a softy, and many were behind or incredibly slow, needing LOTS of encouragement. Did I mention he died in 2007? Many of them lost their jobs thanks to the Great Recession, and expected me to be as soft as dad was. Problem was, I needed that monthly income to keep mom in memory care. DH and I already had full-time jobs and it was exhausting listening to their endless stories du jour on why they needed just a little more time.


One by one, they walked away without warning, or I offered cash for keys or went through a couple of VERY painful evictions. I do not like throwing people out of their homes. I also don't like having a gun pulled on me when asking for their payment, or kooks who sue me to try to gain Quiet Title because they said my parents' estate hadn't been probated properly. I sold these houses for far less than they'd be worth today, but I knew with the quality of properties I was dealing with, I'd just be lather, rinsing & repeating with the type of occupants who would be willing to live there.


I'm down to two properties now, I refinanced one widow at a ridiculously low interest rate to help her pay it off in <10 years (risk management for me), and I've worked with the other couple to help them understand personal finance, and they very likely will be able to get a real loan and pay me off by the end of this year. That's the goal.


Real estate is a piece of cake compared to the people occupying it. Real estate is not for me, but it was illuminating and humbling. I had no idea people lived like this and when I retire I want to volunteer somewhere to help people (who are interested) get a grasp on their own finances and stop living hand to mouth. Lofty goals, I know. Gotta start somewhere!


P.S. Sorry this was so long - it was cathartic. And, if you love your children, you won't leave them real estate.

 

[Fermion]

And, if you love your children, you won't leave them real estate.

 

[Letj]

My dad started flipping houses in the 1960's. He loved the flipping, the tenant screening and the maintenance because he had someone to talk to when he went to do the work. As he got older and my mom was diagnosed with Alzheimer's, he decided to offer to "sell" the houses to the current tenants - he'd gladly carry the note at 8+%. Not everyone is cut out to be a home owner - they could barely afford the house payment, taxes and insurance, let alone home repairs.


This & SS was their retirement income. FULL DISCLOSURE: these were <1000 square feet 1930's and 40's homes in Class D neighborhoods.


When he died, I inherited all of these notes, and the families attached to them. Dad was a softy, and many were behind or incredibly slow, needing LOTS of encouragement. Did I mention he died in 2007? Many of them lost their jobs thanks to the Great Recession, and expected me to be as soft as dad was. Problem was, I needed that monthly income to keep mom in memory care. DH and I already had full-time jobs and it was exhausting listening to their endless stories du jour on why they needed just a little more time.


One by one, they walked away without warning, or I offered cash for keys or went through a couple of VERY painful evictions. I do not like throwing people out of their homes. I also don't like having a gun pulled on me when asking for their payment, or kooks who sue me to try to gain Quiet Title because they said my parents' estate hadn't been probated properly. I sold these houses for far less than they'd be worth today, but I knew with the quality of properties I was dealing with, I'd just be lather, rinsing & repeating with the type of occupants who would be willing to live there.


I'm down to two properties now, I refinanced one widow at a ridiculously low interest rate to help her pay it off in <10 years (risk management for me), and I've worked with the other couple to help them understand personal finance, and they very likely will be able to get a real loan and pay me off by the end of this year. That's the goal.


Real estate is a piece of cake compared to the people occupying it. Real estate is not for me, but it was illuminating and humbling. I had no idea people lived like this and when I retire I want to volunteer somewhere to help people (who are interested) get a grasp on their own finances and stop living hand to mouth. Lofty goals, I know. Gotta start somewhere!


P.S. Sorry this was so long - it was cathartic. And, if you love your children, you won't leave them real estate.

This is absolutely real (except the gun part) and happens all the time with low income rentals. Ask me how I know. By the way, I don't think it's wise to go to anyone's door and ask for rent. I plan to sell them all within the next 10 years because I wouldn't want to pass this on to my children. However, with the right temperament and know how, they can be quite profitable. It's definitely not for everyone but it's definitely better than working at somebody else's business full time with no control over your time. Just my two cents.

 

[JoeWras]

It seems to be this is where the introvert/extrovert thing comes into play.

 

[SumDay]

However, with the right temperament and know how, they can be quite profitable. It's definitely not for everyone but it's definitely better than working at somebody else's business full time with no control over your time. Just my two cents.

This is exactly how my dad felt about it. He was self-employed anyway, so the real estate fit in beautifully when business was slow.

I, on the other hand, do not have the right temperament, obviously. DH was very excited to inherit all this, and within 3 months he realized what we'd fallen into.

I'm glad it has worked for you, seriously. I envy lots of things about it (mainly $$) but it's the other stuff I just couldn't handle. Seriously, I could write a book. If Google didn't crawl this site, I'd provide details.

 

[SAtoUS]

Passive income is a beautiful thing

 

[RenoJay]

My dad started flipping houses in the 1960's. He loved the flipping, the tenant screening and the maintenance because he had someone to talk to when he went to do the work. As he got older and my mom was diagnosed with Alzheimer's, he decided to offer to "sell" the houses to the current tenants - he'd gladly carry the note at 8+%. Not everyone is cut out to be a home owner - they could barely afford the house payment, taxes and insurance, let alone home repairs.


This & SS was their retirement income. FULL DISCLOSURE: these were <1000 square feet 1930's and 40's homes in Class D neighborhoods.


When he died, I inherited all of these notes, and the families attached to them. Dad was a softy, and many were behind or incredibly slow, needing LOTS of encouragement. Did I mention he died in 2007? Many of them lost their jobs thanks to the Great Recession, and expected me to be as soft as dad was. Problem was, I needed that monthly income to keep mom in memory care. DH and I already had full-time jobs and it was exhausting listening to their endless stories du jour on why they needed just a little more time.


One by one, they walked away without warning, or I offered cash for keys or went through a couple of VERY painful evictions. I do not like throwing people out of their homes. I also don't like having a gun pulled on me when asking for their payment, or kooks who sue me to try to gain Quiet Title because they said my parents' estate hadn't been probated properly. I sold these houses for far less than they'd be worth today, but I knew with the quality of properties I was dealing with, I'd just be lather, rinsing & repeating with the type of occupants who would be willing to live there.


I'm down to two properties now, I refinanced one widow at a ridiculously low interest rate to help her pay it off in <10 years (risk management for me), and I've worked with the other couple to help them understand personal finance, and they very likely will be able to get a real loan and pay me off by the end of this year. That's the goal.


Real estate is a piece of cake compared to the people occupying it. Real estate is not for me, but it was illuminating and humbling. I had no idea people lived like this and when I retire I want to volunteer somewhere to help people (who are interested) get a grasp on their own finances and stop living hand to mouth. Lofty goals, I know. Gotta start somewhere!


P.S. Sorry this was so long - it was cathartic. And, if you love your children, you won't leave them real estate.

Thanks for sharing your story. Sounds like a nightmare. I always think of Warren Buffett's quote that investing is like baseball, except you're not limited to three strikes. You can stand at the plate all day waiting for perfect pitches. I think this applies to real estate, too. There are, in fact, deals that are quick, easy and painless. They're just not plentiful. I recall buying a house for $300k cash a few years ago, and selling it a month later for $400k without doing ANY work at all to it. Obviously I wish that kind of opportunity knocked on my door every week, but it doesn't. When it does, though, the reward is huge. The hard part is saying no to the myriad decent, average or almost-there opportunities that do come along frequently and keeping the cash available to move quickly when a home run possibility is in site.

Regarding the desire to help people with their finances, I've given up on helping adults. They ask for advice, thank you profusely, then continue spending beyond their means, falling for sales pitches, etc. So I turned to teaching Jr. Achievement in schools. Kids are much more receptive, and haven't yet formed their lifelong bad habits.

 

[Amethyst]

More the hardhead/softheart thing, I'd say.

You have to be willing to be seen as the bad guy on occasion. Preferably, before the wrong people talk their way into your property.

It seems to be this is where the introvert/extrovert thing comes into play.

 

[JoeWras]

More the hardhead/softheart thing, I'd say.

You have to be willing to be seen as the bad guy on occasion. Preferably, before the wrong people talk their way into your property.

Oh yeah, sure about that story.

My context was bad. I meant R.E. in general. I think it helps to be an extrovert to manage your real estate. A background in sales helps too.

Or, own the RE and have a management company deal with that stuff. This is what my neighbor does.

 

[Bamaman]

I have been in the process of an eviction on or of my houses. Court costs and sheriff's fees are about $350, and it has taken about a month. Last week, a letter came in from the district attorney saying they're deeming my house a neighborhood drug nuisance and demanded the tenant(s) vacate the premises immediately.

Needless to say, removing personal belongings of a semi-hoarder is a logistical nightmare. I find the house in rough condition with substantial sheetrock and painting required. There are also a couple of bullet holes when a visitor chased a boyfriend down the hall shooting.

I don't know where my daughter is going to live after being thrown on the street without a car or any personal belongings.

Stay away from relatives (and even friends) living in your houses.

 

[calmloki]

Regarding leaving property to your kids or relatives: I agree it is a horrible thing to do to them. They will be much happier with cash. Granted, there is this thing called stepped up basis that allows the inheriting relatives to get the property at the value at decedent's time of death and start a brand new depreciation schedule. This means the $100,000 property can be inherited and sold by the heirs for $100,000 tax free, but it is much less painful for them to have the property sold prior to death, have the decedent pay the $30,000 in taxes, and leave them $70,000. Don't know why old property holding people put their heirs through so much pain for a mere 30% of their estate's value.

 

[euro]

Regarding leaving property to your kids or relatives: I agree it is a horrible thing to do to them. They will be much happier with cash. Granted, there is this thing called stepped up basis that allows the inheriting relatives to get the property at the value at decedent's time of death and start a brand new depreciation schedule. This means the $100,000 property can be inherited and sold by the heirs for $100,000 tax free, but it is much less painful for them to have the property sold prior to death, have the decedent pay the $30,000 in taxes, and leave them $70,000. Don't know why old property holding people put their heirs through so much pain for a mere 30% of their estate's value.

They can always decline the inheritance if 30k isn't enough incentive to call a CPA or lawyer... that way its no burden at all

I assume you are being facetious..... right?

 

[Letj]

Regarding leaving property to your kids or relatives: I agree it is a horrible thing to do to them. They will be much happier with cash. Granted, there is this thing called stepped up basis that allows the inheriting relatives to get the property at the value at decedent's time of death and start a brand new depreciation schedule. This means the $100,000 property can be inherited and sold by the heirs for $100,000 tax free, but it is much less painful for them to have the property sold prior to death, have the decedent pay the $30,000 in taxes, and leave them $70,000. Don't know why old property holding people put their heirs through so much pain for a mere 30% of their estate's value.

I agree with you in general but if they are class A or B properties managed by professional PM, that could be a great thing for your heirs; it really just depends on the location.

 

[aja8888]

Regarding leaving property to your kids or relatives: I agree it is a horrible thing to do to them. They will be much happier with cash. Granted, there is this thing called stepped up basis that allows the inheriting relatives to get the property at the value at decedent's time of death and start a brand new depreciation schedule. This means the $100,000 property can be inherited and sold by the heirs for $100,000 tax free, but it is much less painful for them to have the property sold prior to death, have the decedent pay the $30,000 in taxes, and leave them $70,000. Don't know why old property holding people put their heirs through so much pain for a mere 30% of their estate's value.

As an example, it (the pain you mention) depends on whether it's 30% of $5,000.00 or 30% of $500,000.00.

On another note: My EX passed away leaving DD with a ~$150,000 house (paid for), needing $30,000 in repairs (roof, siding repair, paint). DD fixed it up for 1/2 of that and sold it for $155,000. It was worth it.

 

[Texas Proud]

Regarding leaving property to your kids or relatives: I agree it is a horrible thing to do to them. They will be much happier with cash. Granted, there is this thing called stepped up basis that allows the inheriting relatives to get the property at the value at decedent's time of death and start a brand new depreciation schedule. This means the $100,000 property can be inherited and sold by the heirs for $100,000 tax free, but it is much less painful for them to have the property sold prior to death, have the decedent pay the $30,000 in taxes, and leave them $70,000. Don't know why old property holding people put their heirs through so much pain for a mere 30% of their estate's value.

But the thing is that it can be sold... and quickly if needed...

I guarantee that if you have a $100,000 value property and put it up for sale at $90,000, you will get plenty of interest in it... put it up for $80,000 and it will be sold quickly...

There is no reason to worry about inheriting real estate... just plan on dumping it if you do not want to be a landlord...


OHHHH, edit to add... if it is valued at $100K and you sell it for $80K then you have a capital loss that you can use for offsetting gains etc... not the worst thing to deal with...

 

[97guns]

Regarding leaving property to your kids or relatives: I agree it is a horrible thing to do to them. They will be much happier with cash. Granted, there is this thing called stepped up basis that allows the inheriting relatives to get the property at the value at decedent's time of death and start a brand new depreciation schedule. This means the $100,000 property can be inherited and sold by the heirs for $100,000 tax free, but it is much less painful for them to have the property sold prior to death, have the decedent pay the $30,000 in taxes, and leave them $70,000. Don't know why old property holding people put their heirs through so much pain for a mere 30% of their estate's value.

Yes, I did this with my dads house, the purchase price reverts to the date of his passing, put in on the market the next month and sold it with zero capital gains, in this case it would have been a capital gain of $700k and we would have paid at least $150k in tax

 

[SumDay]

I have enough carry over losses to last far beyond the last 1040 I ever file.

 

[calmloki]

But you are all ignoring the effort it takes for the heirs to make a mere $30k - or $300k on a million worth of property. Think of the chilllldren! My tongue has been firmly lodged in cheek BTW..

 

[Winemaker]

But the thing is that it can be sold... and quickly if needed...

I guarantee that if you have a $100,000 value property and put it up for sale at $90,000, you will get plenty of interest in it... put it up for $80,000 and it will be sold quickly...

There is no reason to worry about inheriting real estate... just plan on dumping it if you do not want to be a landlord...


OHHHH, edit to add... if it is valued at $100K and you sell it for $80K then you have a capital loss that you can use for offsetting gains etc... not the worst thing to deal with...

But think of all the enemies you will quickly acquire. Dumping a piece of property, messes with appraisals, sales, taxes and impressions of the neighborhood. Yeah, you walk away with cash smiling like a Cheshire cat, but you broke it off in a lot of people.

 

[MichaelB]

OHHHH, edit to add... if it is valued at $100K and you sell it for $80K then you have a capital loss that you can use for offsetting gains etc... not the worst thing to deal with...

You sure about that? I thought the only time you can take a capital loss on the sale of real estate is when it is used for business or investment.

 

[Texas Proud]

I have enough carry over losses to last far beyond the last 1040 I ever file.

Sorry to heat that...

 

[SumDay]

I don't know where my daughter is going to live after being thrown on the street without a car or any personal belongings.

Stay away from relatives (and even friends) living in your houses

Bamaman, this really struck me. I am SO sorry you are going through this. Very hard to watch your kids go through this. Good luck - I hope she gets it figured out.

 

[Senator]

Forget about carry over losses....

Here is a place after a section 8 tenant moved out and the junk I had to get rid of. You really cannot see the damage to the cabinets that was left. (I can only upload three pictures...)

And a picture of the remodel picture afterward. I wish I could have gotten rid of the pole in the kitchen altogether, but it carried up a lot of electric wires.

New cabinets, new appliances, new ceiling panels, new floor, changed gas stove to electric, added many three way light switches, changed main entry to other side of duplex, etc. And a bunch of other improvements. I used a white fiberglass panel just above the counter tops, rather than the knotty pine wood that was there.

 

[Amethyst]

Senator, how often do you inspect your rentals while they are occupied?

As mom-and-pop landlords, we found inspections to be a fraught issue. Even though we had them written into the lease, every tenant resented them openly and some were obstructive ("it's not convenient, you are supposed to wait until it's convenient, no you can't come in while I'm away - you'll set off the alarm"). And in fact, we did, and the police came! And said we could not go into our own property!

While we were overseas, the property managers either did not inspect at all (except when people moved out) or they were shoddy about it, b/c we found 6 people living at a townhouse with only 2 people on the lease. The leaseholder was nonchalant about the futons everywhere..."Oh, these are my friends, they needed a place to stay."

This was what you would have called a "Class B" neighborhood and property.