Rental income to FI RE earlier

Have a serious look at industrial real estate. If you can avoid welders, painters, sandblasters, and any other type of business that can blacken the walls or cause enviro damage, then I expect that the returns would be much better and the headaches less than residential. Typically you get a long term lease, like 3 or 5 yrs, in a building that is usually of fairly stout construction, and in my experience, the tenants have to pay for pretty much anything that isn't structural. For example, hot water tank goes, tenant pays is typical.
 
Isn't looking at landlording as an "RE" vocation the same as considering working in a Chinese coal mine to support yourself in RE?
 
Industrial real estate is a better idea. Renting out SFRs or condos seems to me one of the worst possible ways to make money because the cost of the property is too high to make any money. When a multidwelling property is converted from rental to condos the value often increases 50-100%. The reason professional landlords make money is because they are renting out multidwelling units whose cost is much lower than the condos or SFRs that amateurs rent out. Why try to compete with these professionals when your property cost is twice as high and you don't have the same economies of scale?

The rental game is all about lowering overhead to remain competitive, and this means doing much of the work yourself. Renting is a job as well as an investment.
 
I took the plunge into residential RE after I came into some money and the stock market seemed like a good place for part of it, but not necessarily all of it. I did a HUGE amount of research. The books recommended earlier are essential, as is Nolo's legal book for landlords (includes a CD with all their forms). The website MrLandlord.com is a great place to learn, and even to make some helpful connections.

I don't know how anyone makes a SF house cash flow, except perhaps by buying it at enormous discount. I bought a 2-family foreclosure, fixed the burst pipes, replaced the 2 boilers, refinished the floors, tiled the kitchen floors, new linoleum in the bathrooms, new vanities, installed carpeting upstairs, finished the attic - adding 2 more bedrooms, installed a much-needed fence (the yard ends in a cliff), and put on a new roof. Probably would have been cheaper to buy something in good shape!

I have advertised solely on Craigslist (free). I screen like crazy. I allow pets, and have only had one bad experience, which the security deposit has covered. I used VERY conservative figures for figuring the ROI, but even so I was astonished at how high a water bill can go with just one unreported leak!

I hold the property in a(n) LLC. I cash flow!

Since, I have moved to another state, about 1 1/4 hours from the property. I've had to hire people (a friend, my daughter) to show it when it was vacant this last time. I would sell it, except that it keeps making money and of course, prices are down! The tax advantages have been wonderful.

In the area where I live, rents are lower and housing prices are the equivalent or higher. So I haven't gotten into it up here. It's a possibility for the future, though, depending on how low prices go!

Anne
 
I'd love to hear any follow up from the orignal posters of this thread. The real estate world is significantly different right now.

If you are or want to be a real estate investor, what are your views at this stage of the real estate meltdown? I see what appear to be great deals, but I can't dial in on the market for renters. I've been a landlord for 11 years, and have been able to find decent tenants and raise rents (a little) every year....until lately. As the homes values began to tank, I speculated that this might be good for landlords because there would be increased demand because people are displaced due to foreclosures. But rents are not rising. It's a lose-lose paradigm right now. I lowered rent in 2 units to get them rented. (Both tenants are fixed income folks, so i am pretty stuck on the rent rate, but the upside is they are both stuck as well, and may very well be "lifetime tenants" if I want that). Fortunately, I can cover the reduced cash flow, and I sleep better knowing I have no vacancies, but I feel somewhat like I "failed" because I did not do this or that to get the rent I wanted.

And then I struggle with the corner of my brain that whispers, "Queenee, you could really GO BIG now, with all the great deals out there.". Mortgage rates are still low, and the recession seems to be showing signs of letting up.

I do know the first time home buyer credits are adding competition for landlords though. As I write, I am thinking...maybe a serious look-see would make sense around March 2010, when most first time buyers going for the credit will have to contract by April 30 2010.
 
calmloki said:
We've been doing rental real estate for a couple decades. Bought ragged places, often on owner-carry-contracts, and dumped $$$ and lots of our own labor into making them something we felt good about renting out. The rentals acted like a big savings account, also like a job we were buying. Spare money above LWBYM went back into the rentals. At 57 we are now about 3% stocks/bonds, 25% money market/cd/secured loans, remainder rental properties/home. I have not been buying property for the last 7 years or so, but imagine that there may be buying opportunities in the next couple years. Given that the market has gone from 14000 to 12750 recently that's where I'm starting to think about shopping for investments. Getting lazy(er) in my elder years and rental property done for profit is plenty of work.
Click to expand...

Sheesh - 2 1/4 years already? Just turned 60 and with 51 units we have exactly one vacancy - a house we've had empty and on the market for one complete year. Apartments get filled within about 5 days of move out, normally less. The biggest limiting factor is how fast cleaning and or paint or other repairs take. Looking back at our rent schedule for August 2007 rents at the 16 unit were $390, now $435. The 7 unit rents were $400, now $445. The old 9 unit student apartments were about $400, now about $415. A house was $850, now $915. Our expenses have gone up for various utilities and repairs - a frig that cost $315 is now $380, a water heater that was $235 is now over $350, but the biggest increase in our costs is paying someone 10% of the fees, rents, and laundry collection to take on the vast majority of all the management and repairs I used to do. So rental profits for us are down, but rental stress is way way down.

We haven't bought anything since the last post, but have been looking at maybe a winter place. Much property looks cheap right now, but we really don't need any more income property. Our rental property wouldn't sell for as much - or as quickly! - as back when, but if the income stays in place and the stress is gone holding on to it doesn't hurt bad at all. Looking at the stock prices from the last post vs. now I have to say that owning rental property feels pretty good right now.
 
I have bought 8 properties over the last year, most of them returning 20% NET. A typical deal is usually a $20K or $30K property that i put $5 K - $15K into and rent for around $800 per month. Have a few that are larger that return less, but obviously love the 20% NET roi properties. I buy all the properties cash. May take out loans at some point to increase the "leverage" and ROI on at least the larger properties. Foreclosures abound in my area (Indianapolis), so its just a matter of finding areas that I like and think that I can attract good tenants. My dad has a ragtag crew that helps me rehab them, so I don't do any of the work myself, same with maintenance. All the tenants so far have been good (save 1 latepayer), most are coming from foreclosed homes and wanting to downsize their payment. So far so good, although think I'm done buying for a while unless I can find a new area that I like.
 
We have 4 duplexes and 1 triplex. All are paid off except for $80,000.00 (final payment July 2010) on a duplex we bought 2 years ago. We aggressively pay off each duplex as it is bought. We will not be purchasing any more as we plan on retiring in December 2010. My husband does most maintenance. We will pull from the properties about $4000.00 per month. We will have sufficient money left in our LLC for taxes, vacancies and repairs. We screen very carefully and do not care about vacancies. We want good tenants. We have a vacancy right now from a woman that lived there 5 1/2 years and bought a house under the $8000.00 tax credit program. We have several long term renters. We keep the rent a little below market. My husband is a very high energy guy and he will be 50 when we retire. He needs more to do since he currently works 10 hour or more days. The duplexes will keep him a little occupied. Works for us. :)
 
Most of the replies seem to focus on multiple properties and all the headaches they can be. I plan to use rental income as part of my ER, but I've done it in a small and manageable way. I own a 2 family and rent out the downstairs apartment for $1500 a month. I live upstairs so I can keep an eye on things, but I've always had super tenants. Also I'm only ever dealing with one person or a couple. Maintenance is minimal and after taxes and insurance I get $10k a year from the place. If I was to move downstairs and rent out where I live now I'd get $2500 a month.
 
I'm actually finding the rental market to be great right now...got a good tenant within 10 days of advertising our most recent rehab...im hearing the opposite in other parts of the country
 
OP.

I am retired, have 2 rentals. Great income. Units paid off now.

Tips:

1. Find a mentor. Not the local Realtor. ( ie. retired person, who is a landlord, and listen.)

2. Location of unit. Never forget this rule. " location, location, location"
ie. great schools, jobs. Makes it much easier to rent
and you will get better tenants.


3. Do your own repairs. If you cannot. Do not be a Landlord. In the begin
ing, your cash flow is to small.

4. As mentioned earlier. It will be very difficult to find a unit with cash
flow. But if you search you may find one.

In my case, many years ago, I knew the area I wanted buy in. Great location. I knew in advance, the selling prices of units. I also knew what the rents were, and I could estimate the insurance and property taxes.

I found a unit for sale, by owner, did an FHA assumtion, and purchased the unit about 10-15K below market. Reason, the owner had already moved out and bought a house. They wanted to sell, the realtor they used gave them a bad time......etc...

So, deals are out there, but you have to do your homework and know what you are doing.

If you are "lazy", don't want to get your hands dirty, want the R.E. person manage your unit....forget being a landlord.

Just my 2 cents.
 
A typical deal is usually a $20K or $30K property that i put $5 K - $15K into and rent for around $800 per month.
Click to expand...

Those are "no-brainers" ... not finding them in my hood. Did walk thru an REO I used to own. Funny tale: I bought it for $8.5k in the early 90's; flipped to a tenant within weeks for 40k (carrying the note for him); he holds the place for 12 years (renting it out for a couple years); sells at the peak for 243K !! New owner foreclosed on; now offered at a short sale for 68k. Bank has refused to budge (3 investor offers regected).

So I walk into the unit ... the carpet is same stuff I put into it 15+ years ago! Easily needs 15k worth of work. Then it rents for 1k/mo. Numbers are a little tight for me, so I let it go. A betting person will doll the place up then try flipping it for 110-120k.
 
I'm a total rookie considering renting out my city house, while I stay in my country place.

Honestly, it started from realizing I only spent 20% of my time there, and it seemed like a waste. It didn't start from needing or caring about the money. I am considering selling it too, but that doesn't seem likely. It just feels wrong to leave it empty.

My thinking is I may pour any rental income back into the house, like replace the 100 year old cedar shake siding with new cedar shake siding, and replace the ugly white kitchen cabinets. Just give myself a lovely new house after/through it all.

Might even consider renting out one or the other place, for a couple years at a time, with time off in between.

I like the flexibility. No mortgage on either.
 
wolf said:
OP.


If you are "lazy", don't want to get your hands dirty, want the R.E. person manage your unit....forget being a landlord.

Just my 2 cents.
Click to expand...

I think it's good to be handy around the house if you want to be a landlord, but if you do what I did and just buy a duplex or two family home and live in one half and rent the other it isn't hard work at all. There's very little worry and the rent goes a long way to paying the mortgage. Once that is paid off you start taking income free and clear. Also I like be diversified in my investments so I didn't want to sink a lot of money into real estate. Now I'm in a nice situation that I'll be getting $18k a year in rent with minimal worry.
 
OK I’ll kick in my experience. I’ve been a landlord for 10 or so years now with SFRs. They cash flow about 40K/yr. When they’re rented I’ve had very few unusual problems. Most problems are figuring out what rent will attract an acceptable tenant from the local rental pool, collecting the rents from the one or two late payers without alienating them and the sudden expensive repairs (a new AC & furnace just after a 95 F day in an SFR rented as having AC). I’ve got an inexpensive handyman to do all the small repairs, so all I do is tell him what to do, where and when. Right now, I’m using the cash flow as part of living expenses.
 
Thanks for the update, OP's!

I think a good measure for whether you should landlord or not is how flexible you can be in an any given instant. Do you have the ability to cover those large repairs, do you have the time and job flexibility (if emplyed) to deal with vacancies that take days on end to get ready for the next tenant? Do you have a support system (someone to bounce your game plan off of when your tenants misbehave and you want to wring their necks haha)? Are you willing to landlord longer than you desire if the real estate markets are not playing nice? :greetings10:

Also, a sidebar topic for this real estate mess is Section 8. Anyone do this? These days Section 8 is HOT. They don't even take names for waiting lists. Recipients know they have a good thing, and a landlord can use that as leverage (ie; behave or I will report you, which would be devastating to your living arrangement). I have one Section 8 unit. I was fearful of giving it a shot, primarily because of the "inspection" part, but in hindsight, that is no big deal. An annual nuisance, but not a big deal. I have a somewhat unique situation in that my unit is the only one in the community that is Section 8 (not a typical Section 8 suburb, but the unit is very small so my rents fall within their payment ranges). When this unit goes vacant and I advertise as Section 8, I get 10's and 10's of calls. It will never stay vacant long. I get my checks on time every month, and my Section 8 tenant has minimal complaints. The only downside is that Section 8 tenants are hard on the property. Not a judgement, I'm just sayin that's my experience. I have lots of clauses in the lease, but sure enough, they will make that one bad move that I didn't think of (yet) to spell out in my lease. Example: I now have to add a clause that says "no standing on the bathtub soapdish" (that actually happened, it broke, giant hole in the wall into which water spewed until I learned of it much later...).

One added benefit to landlording....nothing shocks me anymore, no amount of "firedrills" can cause me to panic. That's actually a lesson that spills over into all aspects of life. :clap:

I am rambling...
 
We used to have a building with a couple of disabled section 8 tenants on SSI. They were both long term and neither was hard on the property. Rent came directly from the county. We bought the building with the tenants already there, and we sold the place a number of years ago. One of those tenants still lives there, probably has for 25 years. The inspections were never an issue. In our community all rental properties are supposed to be inspected every three years (they are now behind due to budget cuts). I liked the inspections. It helps you know that you are keeping things safe and up to date.
 
Our section 8 housing gets inspected annually. Seems that every time I got a rent increase the inspector wanted a "large" repair (new flooring, vanity, or counter top ...). But this year the increase was rejected due to budget constraints and the inspection was almost nothing. Fair enough.
 
I am 45 and have embarked myself. I have 11 buildings totaling 35 units. I separate out cash flow from the managment fee (8%) that I pay myself. the cash flow is hwat i get for putting my money into it, the mgmt. fee is what I get for putting my TIME into it. (and if I want to fix things myself, I'd make or save more there too, but I make $50-$70 per man hour doing web design and running my lawn care busienss, so paying others to do the maintenance makes snese for me personally) -- our plan in a nutshell is to "debt snowball" the mortgages one at a time, lowest balance to highest starting with $1,000 extra per month, then increasing by the amount of the "FIRE'd" mortgage amount. Right now, cash flow and mgmt. income is around 50k and will increase steadily. I bought the buildings at a decent discount, so I use 2% per year appreciation to account for any possible appreaciation as well as fudge for the discount-to-value. So far it's an adventure, but I do appreciate owning MANY units vs. a few, because you can have a couple vacancies here or there and it won't kill your cash flow, whereas one 4 unit with 1 vacancy is 25% empty and probably not going to do much more than break even.
 
I've owned rental properties for 7 years and have been satisfied with the results.I'm not the landlord type so I pay 10% to a local company to handle this for me.Their service is priceless.....To this day,I've always received payments on time and the homes have been well taken care of,for the most part.Tenants are often intimidated by property managers and know they mean business.

I do an occasional drive by,but I keep personal contact to a minimum.I'll send them each a Christmas card with a $50 gift card,just as a way of saying thanks.

Location,location,location!I target homes in quiet family neighborhoods,with good schools.They may not cash flow as well on paper,compared to multi family homes,or those in less desirable areas,but in the long run should have less wear and tear,vacancies and headaches.

Good luck!
 
Great response!

LiveItUp,
It was great to read this post! It rung very true for me, especially the location vs. cash flow. I have enough buildings that I "experimented" a bit with some lower income areas and have found that there are alot of "hidden" qualities and limitations that simple COC return don't illustrate:

1. 3 out of 4 people you show it to won't live in the lower income / undesirable area
2. The properties are less marketable and can hinder your "exit" plan
3. Psychologically, for an uptight anal retentive like me, I don't like being in those neighborhoods!
4. Despite the fact that it's prudent to include an 8% vacany rate across the board when analyzing properties, the truth is, lower quality will turn around more.

This is why I have this "idealistic idea" that multi family properties in certain areas, purchased at a discount, will deliver 75% of the cash flow and return for 50% of the aggravation (as lower quality). People tend to look at cash flow in a vacuum, without looking at the number of phone calls, late rent payments, and other headaches each $ of cash flow comes bundled with.

I appreciate the Christmas card and gift card comment. I haven't done this yet, as my wife warns me about getting too personal with the tenants, but the truth is, I'm grateful for them, so I'd like to express that gratitude.

I did an analysis, by the way, of the actual return on money invested, assuming ZERO (neutral) cash flow, no increase in income and ZERO appreciation. Simply putting 25% down payment on a property and having tenant pay it off over 20 years, as long as there is no negative cash flow, yields 7% return on money invested. (i.e. you buy a 100k property, put 25k down, 20 years you have 100k free and clear property) -- doesn't account for buying and selling costs, but I think these can be overlooked given the "no appreciation" factor.

Thanks for your post. It was great to hear a positive spin on RE investing.
 
I have quite a few sec. 8 and so far so good. I have "shown up well" in town, taking good care of my tenants and units, and inspections, really, are quite innocuous, at least in Waterville, Maine. I think it behooves to spread it around a bit, and not have TOO many eggs in one basket, though, becuase budget cuts, law changes, etc. could affect that income.
 
Clicked on the calendar and hey! Happy Birthday Eyerishgold! And tommorow is Citrine's - where is that girl?

calmloki said:
Sheesh - 2 1/4 years already? Just turned 60 and with 51 units we have exactly one vacancy - a house we've had empty and on the market for one complete year. Apartments get filled within about 5 days of move out, normally less. The biggest limiting factor is how fast cleaning and or paint or other repairs take. Looking back at our rent schedule for August 2007 rents at the 16 unit were $390, now $435. The 7 unit rents were $400, now $445. The old 9 unit student apartments were about $400, now about $415. A house was $850, now $915. Our expenses have gone up for various utilities and repairs - a frig that cost $315 is now $380, a water heater that was $235 is now over $350, but the biggest increase in our costs is paying someone 10% of the fees, rents, and laundry collection to take on the vast majority of all the management and repairs I used to do. So rental profits for us are down, but rental stress is way way down.

We haven't bought anything since the last post, but have been looking at maybe a winter place. Much property looks cheap right now, but we really don't need any more income property. Our rental property wouldn't sell for as much - or as quickly! - as back when, but if the income stays in place and the stress is gone holding on to it doesn't hurt bad at all. Looking at the stock prices from the last post vs. now I have to say that owning rental property feels pretty good right now.
Click to expand...


Been about another year - our managment guy is doing ok - he doesn't get the places filled as fast as I would, and he has a different management style, but there is something to be said for just going to his account and transferring thousands of dollars into ours. We haven't bought any more rentals, but did just buy a winter home in La Quinta California. Now is the time to be hunting owner-carry-contract places. May make a small effort to sell a couple places this summer and carry contract on them. I expect inflation to stabilize and start bringing home prices back up. Prices we've been paying don't convince me that we have had negative CPI.
 
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