Rental Real Estate

[jkern]

What are your opinions on investment Real Estate in today's market?

I've recently purchased two condo's in Roseville, CA. Because of the Real Estate crash, I bought these at approx 1/3 of their original purchase price. The return will be approx 7.5% (before taxes) after all expenses including projected maintenance, repairs and vacancy.

If I invested the cash into CD's, I would have only earned 1% to 2% return. I was a landlord for 12 years before so I understand the issues with being a landlord and the potential risks.

Am I alone thinking investing in rental's today is a screaming deal? With a little luck in selecting tenants, I will receive a solid 7.5% return and long term potential for capital gains.

I compared putting the cash into immedaite annuities and the rental return is 25% greater and I retain the assest with potential growth.

 

[calmloki]

...

Am I alone thinking investing in rental's today is a screaming deal? With a little luck in selecting tenants, I will receive a solid 7.5% return and long term potential for capital gains....

you are not alone. others will be along to note that it's not free money. work may be involved, so oooooooo. boogie boogie - if that scares you...

 

[devans0]

I read more and more about underwater foreclosures dragging prices down. California prices scare me, but I am used to farmland prices. I am looking to buy because prices are good but REIT would be a better fit for me. Besides, it doesn't involve that W word.

 

[kcowan]

It all boils down to your comfort with the risk. You seem to be OK with it. So relax and enjoy your 7.5% returns. Many people have made a killing on real estate in the past. You might share in that success.

I lost 50% of my equity from 1990 to 1997 (no mortgage) so I am out until the future is clearer. In 2009, I sold a house for $500k net and put 1/3 of the proceeds in MAPF. So far it is up over 27% after paying my 1% MER. I am consiidering adding to it this year.

 

[clifp]

What are your opinions on investment Real Estate in today's market?

I've recently purchased two condo's in Roseville, CA. Because of the Real Estate crash, I bought these at approx 1/3 of their original purchase price. The return will be approx 7.5% (before taxes) after all expenses including projected maintenance, repairs and vacancy.

If I invested the cash into CD's, I would have only earned 1% to 2% return. I was a landlord for 12 years before so I understand the issues with being a landlord and the potential risks.

Am I alone thinking investing in rental's today is a screaming deal? With a little luck in selecting tenants, I will receive a solid 7.5% return and long term potential for capital gains.

.

My niece is in the process of purchasing a home in Southern California for 165K that a the peak sold for 380K, so I'm inclined to think the bottom is near, since with low interest California homes are more affordable than anytime in my lifetime.

That being said it seems that in some CA markets it is cheaper to rent vs buy. I don't think long term this is a sustainable model. Even if you don't expect housing prices to appreciate, there are obvious advantages to spending $1500/month for a 30 year mortgage payments vs say $1600 for rent. I'd expect either rents to decrease cutting into or even eliminating your 7.5% return or housing prices to appreciate it increasing your investment.

Smarter and far more knowledgeable people than myself have made conflicting forecast of which event is more likely.

 

[arebelspy]

You're not alone OP. My wife and I have been purchasing real estate in Vegas, which was hit hard. Many SFRs that were last sold for the mid 200s are now selling for 40% of that (from 250k to 100k, or from 200k to 80k) or better.

It may not be the bottom yet, but I'd rather not try to time it. As long as the numbers are solid for cash flow, I'm not worried if values still fall a little.

Landlording is work, but returns can be 15-20% if the right deal is found.

 

[Aiming_4_55]

I'm looking to add to my rental properties, but very selective. It appears to be a good time, but any good deal can go bad.

So, I suggest continue to exercise caution and use a tight acceptance criteria in deal evaluation and selection.

I view it as a part time job with some unexpected overtime (emergencies).

Good luck.

 

[nun]

I like rental real estate for the stock/bond market independent income that it produces. However, I probably wouldn't buy in volatile markets like Las Vegas and FL. I own a rental in the New England and it's value is only down 10% from it's high point and I've never had a problem renting it.

The real payback on rental properties is when the mortgage is paid off and the rent provides nice spendable income each month.

 

[Nords]

What are your opinions on investment Real Estate in today's market?
I've recently purchased two condo's in Roseville, CA. Because of the Real Estate crash, I bought these at approx 1/3 of their original purchase price. The return will be approx 7.5% (before taxes) after all expenses including projected maintenance, repairs and vacancy.
Am I alone thinking investing in rental's today is a screaming deal? With a little luck in selecting tenants, I will receive a solid 7.5% return and long term potential for capital gains.

You're not alone, we're just not interested in putting in the sweat equity.

The "purchasing" phase of landlording is easy. "Exit" is the most difficult part of the strategy, although there are times when the landlording ain't so simple either.

 

[deserat]

You're not alone, we're just not interested in putting in the sweat equity.

The "purchasing" phase of landlording is easy. "Exit" is the most difficult part of the strategy, although there are times when the landlording ain't so simple either.

+1 - and from hard-earned experience!

 

[nun]

You're not alone, we're just not interested in putting in the sweat equity.

The "purchasing" phase of landlording is easy. "Exit" is the most difficult part of the strategy, although there are times when the landlording ain't so simple either.

Owning a 2 family house in Boston is "landlording lite". You live on the premises and only have to deal with one tenant. Selling is also easy as people like the rental income. Also renting is easy. My flat hasn't had a single month empty in 13 years.

 

[kcowan]

Owning a 2 family house in Boston is "landlording lite". You live on the premises and only have to deal with one tenant. Selling is also easy as people like the rental income. Also renting is easy. My flat hasn't had a single month empty in 13 years.

It is nice to hear of major exceptions to the rule. I guess anyone can get lucky!

Are you feeling lucky punk? Make my day!

 

[calmloki]

...

The "purchasing" phase of landlording is easy. "Exit" is the most difficult part of the strategy, ....

[/QUOTE]

much like the stock market, but true nonetheless.

 

[Aiming_4_55]

It is nice to hear of major exceptions to the rule. I guess anyone can get lucky!

Are you feeling lucky punk? Make my day!

Knock on wood... I've had good luck with turnover/filling vacanies too. I have 2 units with residents for over 10 years, both in different states.

When I search for a property, I factor in 17% (2 months) vacancy, a bit conservative, but that gives me a target... time to repaint and clean the unit. It's about planning as I have a good idea if people are staying or going and have potential renters list started a month before an opening.

 

[arebelspy]

Knock on wood... I've had good luck with turnover/filling vacanies too. I have 2 units with residents for over 10 years, both in different states.

When I search for a property, I factor in 17% (2 months) vacancy, a bit conservative, but that gives me a target... time to repaint and clean the unit. It's about planning as I have a good idea if people are staying or going and have potential renters list started a month before an opening.

Just an initial two month's vacancy, or you factor in two month's vacancy every year when you are running your numbers for purchasing?

 

[Aiming_4_55]

Just an initial two month's vacancy, or you factor in two month's vacancy every year when you are running your numbers for purchasing?

Rarely use it, but it's there for me. I toss that vacancy factor in everytime I have a lease expire. Sometimes yearly, but some of my leases are for 2 years.

 

[clifp]

I was intrigued by some of the info arebelsy provided in another thread and dug a bit deeper on the internet. It turns out that by most estimates Honolulu is one of the most expensive places to buy vs rent, and Las Vegas is one of the least expensive. Since I've mostly paid attention local real estate, I've never had any interested in owning rental properties.

I do go to Vegas a 2-3 times a year and I'm somewhat familiar with the city, since I typical spend several nights there. For me Vegas makes more sense than any other place to buy property. I'd also think I'd be able to deduct some of my travel expenses to Vegas on my taxes which is a nice benefit..

My thought is to purchase 2-3 properties in the 50-100K range with cash (seems to be the going price for low end 2-3 bedroom condos/townhouses) and rent them for 650-$1,100 month. Property taxes and insurance are in the 100-150/month range. I'd pay a property manager company 10% to deal with the day to day operations. If figure another 10% for vacancies. The tax benefits of depreciation should cover the cost of repair. It looks like I'd be making 6-10% on cash on cash basis. Obviously its highly distressed market and prices and rents could both continue to decline on the other hand. I seeing plenty of place selling for less than $50/square foot and when I compare that to $300-$500 in Hawaii it is hard to imagine there is much room for them to go lower.

I feel pretty comfortable that I understand finance side of real estate. Where I know I am clueless is the operational side of being a landlord. This includes everything from a finding a good real estate agent, to selecting a good property, hiring a property management company, budgeting/ handling repairs etc.

Any suggestions on books to read, websites to visit would be appreciated. Specific suggestion on property pros in Vegas would be much appreciated. Also feel free to tell me the horror stories about why this would be a dumb idea. Keep in mind that this investment would <10% of my net worth.


I did find this website Investment Property For Sale | Real Estate Investment which is pretty useful for investment property.

 

[samclem]

I feel pretty comfortable that I understand finance side of real estate. Where I know I am clueless is the operational side of being a landlord. This includes everything from a finding a good real estate agent, to selecting a good property, hiring a property management company, budgeting/ handling repairs etc.

You'll be in direct competition with other rental property owners and investors who live right there. They know the area (which way development is headed, which areas are in decline, etc), they can meet and pick the renters themselves, they can drive by their properties to check on things, they can exchange their properties for others when fast-breaking opportunities arise, and they won't be paying 10% off the top for a property manager (who will do everything less competently and at greater expense than they would do it themselves). What is your competitive advantage? LV is presently attractive--are you "chasing yield?"
Would you be better off partnering with someone who has experience there and would do the work in exchange for your assistance with coming up with half of the cash? Their money would be at risk with yours, which always tends to sharpen the attention to detail.

 

[arebelspy]

Any suggestions on books to read, websites to visit would be appreciated. Specific suggestion on property pros in Vegas would be much appreciated. Also feel free to tell me the horror stories about why this would be a dumb idea. Keep in mind that this investment would <10% of my net worth.

Read through some of these threads:
http://www.early-retirement.org/forums/f47/faq-archive-landlording-real-estate-investment-43700.html

They contain some decent book recommendations.

If you get to the point about being serious about Vegas Real Estate, feel free to pm me if you'd like to discuss.

I'm no real estate expert, but I am local (the wife and I are both teachers here in Las Vegas) and I own 4 properties here in the valley.

In the meantime, good luck with your explorations!

 

[arebelspy]

You'll be in direct competition with other rental property owners and investors who live right there. They know the area (which way development is headed, which areas are in decline, etc), they can meet and pick the renters themselves, they can drive by their properties to check on things, they can exchange their properties for others when fast-breaking opportunities arise, and they won't be paying 10% off the top for a property manager (who will do everything less competently and at greater expense than they would do it themselves). What is your competitive advantage? LV is presently attractive--are you "chasing yield?"

All good points, and things to consider. Not necessarily a deal breaker. Better to make some money elsewhere (though maybe not as much as those living there) than none where you're at.

Really gonna have to run the numbers and figure NOI. If it makes sense, including the property management, etc. etc. it doesn't matter what others are doing. IMO.

(Before you attack, reread my first two sentences of this post. )

 

[Nords]

I'd also think I'd be able to deduct some of my travel expenses to Vegas on my taxes which is a nice benefit..

Yes! When we were exiled to San Diego we regularly visited our Hawaii rental. Of course you can't use your same travel expenses to offset both your rent receipts and your poker winnings.

Overall I'd have to conclude that absentee landlording sucks all out of proportion to the profit potential.

Where I know I am clueless is the operational side of being a landlord. This includes everything from a finding a good real estate agent, to selecting a good property, hiring a property management company, budgeting/ handling repairs etc.

My hangup is knowing how to figure out when the property manager is giving his brother-in-law a place to crash while telling you that the property is vacant. It's also difficult to figure out whether something was really broken in the first place, let alone whether it needed to be fixed or if you paid the proper price. At least you'd have the benefit of being able to drop in unannounced.

One suggestion would be to look as close to a military base as you can get. You may find a better quality of tenant and they'll certainly be more interested in a year's lease.

Any suggestions on books to read, websites to visit would be appreciated.

I'm intrigued by the archives of this blog (Real Estate Investment Blog | Analysis, technology, resources and more), especially their financial analysis. But they are selling a product.

I got a lot out of these books:
(1) Investing in Real Estate, 4th edition or later, by Andrew McLean & Gary W. Eldred (who's taken over the new editions) and
(2) Landlording by Leigh Robinson (7th edition or later).

Looks like the Hawaii library system has Eldred's 2009 edition in the catalog, so maybe it has some perspective on the Great Recession's real estate crash. The Hawaii library only has the sixth edition of Robinson but it might still give you a good taste of the subject.

 

[SVHoper]

I am small scale to many on this board but have found mrlandlord.com to have very sane advice
Welcome to MR LANDLORD for free rental forms, management software, real estate books and landlord advice to better manage and lease rental property.

and Nolo was good for state specific lease; applications etc.

By the end of this year I expect to be selling properties which have had two long term tenants (truly a pleasure) and not sure whether I will roll the landlording dice again. Problem is that I cannot identify a better place for $... got my fill of two year high stocks and never really like bonds.

 

[clifp]

Thanks all for all of the suggestions. I look for Eldred's books and I logged onto to Mr Landord which at first glance seems to be what I am looking at. I certainly get in contact with any LV locals before buying anything. I figure it is only fair for the Hawaii advice I've given over the years.

@SamClem
You are exactly right I am at competitive disadvantage to any local investor, plus the many folks who know more about real estate than I do. On the other hand, I am not really competing with them other than finding good deals. I would like to find a non-public REIT or as you suggest a partner that invests in Las Vegas real estate.

However, the real competition isn't other investors it is my/our current crappy investment choices. Stocks are somewhat overpriced and given that 85% of my liquid assets are tied up in them, clearly I don't want more equities. Right now cash offers a negative real returns and bonds and CDs offer <1% real return with the distinct possibilities of going below zero. The investment in startups that I and Nords have been making/investigating aren't paying off. So I figure my choices are precious metals, oil, or real estate. I think Vegas real estate my be the best of these choices.

 

[Nords]

The investment in startups that I and Nords have been making/investigating aren't paying off.

However we're rich in intellectual stimulation, personal fulfillment, and social bonhomie!

 

[calmloki]

You two are angels?