Rental Real Estate Surprises

[kgtest]

I've seen it all, landlording since 2006, my father's been doing it his whole life.

We have 9 units altogether. Most of the time hassle-free.

Bought a six plex after the real estate collapse a cpl hrs away and I swear in the first year we replaced every fridge, stove and tenant in their, and had the boiler repaired.

Realized I hate regulation. Single families in multi-counties seems the way to go to avoid regulations.

Those got in the way of the 6plex cash flow. Tax breaks were nice.

Hoping between me, my sister and my dad we can do some 1031s down the road to reset the appreciation...but dont really need to. All properties cash flow and I would say about once a decade requires significant sweat equity.

We increase the cash flow doing all maintenance and tenant placement our selves. Verify income is over 50,000 and good to go!

[Walt34]

Thank you all for convincing me that never owning rental property was one of the wiser decisions I have ever made. Before I retired and we moved to WV we discussed renting the house in MD - for about 15 seconds.

DW's brother owned a townhouse in Frederick, MD I think for ~20 years. It seemed that almost all of his tenants were "tenants from hell" and we decided the smarter course was to learn from his experience. The last one plugged the sink in the upstairs bathroom, turned on the water, and left. He found out when a person next door (who owned his house) called when he saw water coming out from under the front door. After that one he sold the house.

And of course all the local regulations there and where we used to live very much favored tenants over those "greedy money-grubbing slumlords". No thanks, I'll stick to index funds and my couch potato portfolio.

[movingrightalong]

We do nightly rentals in a couple of tourist destinations that we visit regularly, and generate healthy cash flow using VRBO and local cleaning services, but otherwise managing them ourselves. We also do long term rentals in 3 single family homes, any of which we'd be happy to live in. We only take people with excellent credit (critical) and we managed them ourselves until recently when we started using a management company who charges 5% and does a better job than we have done. We choose tenants very carefully, and have cash flowed nicely from those as well. All of the houses are in growing communities with excellent schools (critical) and were acquired well below market rates during the downtown (also critical.)

The real estate thing has widely ranging outcomes, and we'd never have invested in it if it weren't for historically low asset prices and unusually inexpensive financing combined with the ability to buy growing communities in a state with laws very favorable for landlords.

[Luck_Club]

Quote:

Originally Posted by Walt34 DW's brother owned a townhouse in Frederick, MD I think for ~20 years. It seemed that almost all of his tenants were "tenants from hell" and we decided the smarter course was to learn from his experience. The last one plugged the sink in the upstairs bathroom, turned on the water, and left. He found out when a person next door (who owned his house) called when he saw water coming out from under the front door. After that one he sold the house.

Pushover or A-hole For the most part you get what you give. Too soft and people walk all over you. Too hard dishonest and they trash the property. I've experienced the first, but never the latter as of yet.

On the other hand when dealing with China I got taken left and right.

For the most part land lording has worked for us. We fix properties up to nice conditions, respond to issues promptly, and try and treat our tenants with the respect we would want if renting. For the most part 80%-90% have done the same.

Have a friend (big surprise there) whose try at land lording worked like this. tenant "i'd like to rent your property, but don't have a lot of money."
Landlord "well how much can you afford?"
Tenant "I can afford $800 a month."
Landlord " well I'll tell you what I'll rent it to you for $600, because you seem nice and promise to take good care of it"
Tenant "Oh thank you"
1 year later. Not paying rent for 3 months..
5 years after buying he lost close to $50K on the value (wrong time buy), and collected very little rent. First tenant he let live there for free for over a year just to watch the place. Granted it was an impulse buy as a second home in the peak of the market. Bought a 2 bedroom 1 bath 800 square foot cabin for a family of 7

[sunsnow]

Great responses. Thank you! It seems like I'm not the only one who has been disappointed with rental real estate.

We actually didn't raise the rent much (5% a year at most, and often nothing if the tenants were good), so we didn't benefit all that much from the crazy rent increases happening there. The destructive family wasn't trying to retaliate against us, as they were getting a great deal and knew it. I honestly believe that they thought they were taking reasonable care of the place. It's just that the way they lived was so messy and destructive that after a few years the place was unrecognizable.

Another thing that was getting to be a giant pain was that a tenant could one day just announce that they had a therapy animal and that it was going to be living in our property. The landlord is not allowed to ask about the nature of the supposed problem that requires the animal, and cannot require any certification or references for the animal or proof that there is a legitimate need for it. Of course if it bites someone, I bet we could still get sued...

I'll calculate and post our return once the last place sells, and I figure out (the considerable) taxes we'll have to pay.

[Curmudgeon]

Thanks for posting your story. I was a landlord many years ago, while a grad student, and it worked out really well for me - I owned and lived in a triplex, and so could keep close eye on the tenants. I bought it with 10K down, and walked away with ~100K in equity when I sold it a few years later, thanks to some sweat equity and market conditions.

I'm in the Portland area now as well. I've thought about getting back into rental property, but with the changing laws - such as you mentioned - I don't think I will in this state. The local and state politicians seem completely disconnected from the reality of market forces. They complain (perhaps legitimately) about a housing crisis, but don't understand that making it more difficult and less profitable to rent out property is going to make the problem worse, not better.

[Souschef]

When I got married I moved out of my condo to our new home. The real estate marked sucked. We got the place painted, etc and rented it out. The first tenant was there for 3 years, and that was great. My next 2 were there for a year each, and every time one moved out I had to get a bunch of stuff fixed. One year i had a positive cash flow of $400!
I finally sold it when the market improved, but took a 65 K bath on the original appraised value. Never again!

[FIREd]

I was an accidental landlord for a few years (had to move for DW's job, could not sell the house quickly due to poor market conditions but found a good renter, and now moving back in the house). I am glad that this is behind us. We were actually quite lucky. The tenants always paid on time and left the house in pretty good condition. But I am not cut out for this. And I was always concerned about the possible liabilities. When I created my Investment Policy Statement last year, I specifically noted that we shall never be landlords again. At this point I prefer completely passive and liquid investments.

[calmloki]

Quote:

Originally Posted by Souschef When I got married I moved out of my condo to our new home. The real estate marked sucked. We got the place painted, etc and rented it out. The first tenant was there for 3 years, and that was great. My next 2 were there for a year each, and every time one moved out I had to get a bunch of stuff fixed. One year i had a positive cash flow of $400! I finally sold it when the market improved, but took a 65 K bath on the original appraised value. Never again!

Heh. We sold a little house owner carry contract to our tenants of the last 10 or more years in October. Had owned it almost 28 years. Didn't collect much down and then had to reach deep into our pockets to pay the capital gains tax to the state and feds in December. Paid them more in taxes than we paid for the place back when we bought it.

OTOH, rentals have paid all our bills for decades and we are now in our winter house down in SoCal. Net worth is adequate, we loan out money to house flippers and builders, and we are trying to figure out whether we want to pay off our PenFed 3% loan or take their refi offer just to have yet more cash to have a still fatter cushion. Rentals have been very very good to us.

[Winemaker]

I have been a landlord since June 1999, and have not regretted it yet. A duplex, 4 unit apartment building and a single family home. The key is that rentals are an investment in time and money. I provide very nice housing for an affordable price.

The units must cash flow positive immediately, and do not rush to approve tenants to help them out. It usually means they're screwing somebody else. Make a set of standards, do not waver or bend, and do NOT weaken at the knees when they wave cold hard cash under your nose.

You do your due diligence when you buy a stock, mutual fund, ETF or bond, and you must do DD on the person who is going to pay you your rent.

[nun]

Quote:

Originally Posted by scooterdog Thanks for this Sunsnow. Did you do a calculation of your return (a percentage is fine) over the time you were a landlord? As a remote landlord myself I made certain choices that there are no regrets (i.e. Buy-and-hold now going on 25 years as a primary residence and for the last 15 years as a rental). Very different than the ordinary method of stocks and bonds, but I've been working that angle at present.

The annual gain of (5.5%) is just what is required to compound the original cost to what the apartment is worth now. After costs of renovations, new furnace, taxes etc over the 20 years I estimate I've also netted $160k in income. Right now the place is mortgage free and I get $19k/ year in rent and the annual expenses are around $3.5k and because of depreciation I take another $3k off to get the taxable income.

All my tenants have been quiet and easy to deal with. I've got them through Craigslist or personal recommendations. One of the couple renting right now works for my next door neighbor. She saw I was renovating the place, told her employee and he put a note through my letter box the next day....so I didn't even have to advertise it this time.

Having $19k/year in income without having to make any retirement account withdrawals is great particularly as it will be a few years before I'm 59.5. I also have a $20k/year pension that just started and together they more than cover my annual spending.

[Sunset]

Quote:

Originally Posted by Lucky-Sperm-Club ........... With that being said. As a landlord myself, getting a 4% raise from 1 year to the next is like pulling teeth. I never raise rent during a tenancy, but will raise it when a unit turns over. ...................... With rental real estate you make your money when you buy. Set the rents at the start and leave them there unless the market gets way out of wack, then only adjust between tenants. Your costs are pretty much set from the start and the small nickle and dime increases you are talking about aren't worth the aggravation of changing tenants to recoup. For example insurance and taxes 5% on $4000 is less than $20 a month. Turning over an apartment is typically 1.5 months rent........

It's more like 5% on $6,000 for insurance and property taxes = $300 per year. For that one house in 10 years that is $3,000 extra expenses for not raising the rent.
Then next year that same cost going up 5% is = $300 per year for 9 years it is $2,700.
You add all that up and it's a lot of $$$$$ you are paying out because you don't try to keep up with your costs.

[gerntz]

Quote:

Originally Posted by Winemaker I have been a landlord since June 1999, and have not regretted it yet. A duplex, 4 unit apartment building and a single family home. The key is that rentals are an investment in time and money. I provide very nice housing for an affordable price. The units must cash flow positive immediately, and do not rush to approve tenants to help them out. It usually means they're screwing somebody else. Make a set of standards, do not waver or bend, and do NOT weaken at the knees when they wave cold hard cash under your nose. You do your due diligence when you buy a stock, mutual fund, ETF or bond, and you must do DD on the person who is going to pay you your rent.

Excellent advice. Agree on the immediate cash flow. Previous owner wanted a higher sale price & we made the cash flow point & he stopped pushing.

My BIL manages our jointly-owned 4 duplexes & does all these things. He's found Section 8 subsidized renters to be excellent tenants as they don't want to lose their subsidy. Usually stay for years so not dealing with turnover. At times he accepted them at $50/mo lower rental price for their stability. When he's run into problems on occasion, county agency is willing to withdrawal subsidy & we can evict.

Another thing: Our 3-BR units are rare & thus in high demand. Good choice.

[street]

Interesting stories on life of a landlord! Lol I always wanted to buy a small apt building or a few homes and fix and rent with intention of selling but it never worked out for me. My wife was never in favor of that so that is that.

The next best thing was to buy land with no structure etc. and rent the land and that is what I did. I bought a small irrigated farm and worked a small part of it and rented most of it to a farmer in the area. My landlord years where very good with small problems and was a fun venture. They paid me what we agreed on in a signed contract and things worked great. No plumbing, heating or other things to deal with. I made good rent and got to improve the land which was a tax benefit.
I got the land at a good price and when I sold it I got 14 times more for the land then what I paid for it. It was a win for me and some fun years working the land.

[CaliKid]

If you are in your 1031 right now I would strongly look at the cash flow cities like Memphis, Kansas City, Birmingham, Indy, etc.... The rents are significantly higher than cities out west. For example let's say you have a $200k rental in Portland and it gets $1,250 a month in rent at best. Take that to Memphis, buy two $100k houses and you'll be getting $2,400 a month because the rents are significantly higher. I am giving real world numbers not hypothetical. That's going to be a pretty decent neighborhood at that price too! Check it out.

[euro]

Quote:

Originally Posted by CaliKid If you are in your 1031 right now I would strongly look at the cash flow cities like Memphis, Kansas City, Birmingham, Indy, etc.... The rents are significantly higher than cities out west. For example let's say you have a $200k rental in Portland and it gets $1,250 a month in rent at best. Take that to Memphis, buy two $100k houses and you'll be getting $2,400 a month because the rents are significantly higher. I am giving real world numbers not hypothetical. That's going to be a pretty decent neighborhood at that price too! Check it out.

Agree. But you do sacrifice appreciation. Most flyover country properties don't appreciate over time - certainly not the way many costals do (West coast, NE, midAtlantic)

[kgtest]

Quote:

Originally Posted by nun She saw I was renovating the place, told her employee and he put a note through my letter box the next day....so I didn't even have to advertise it this time.

One of my rentals perpetually finds itself new tenants...or the tenant moving out usually knows someone. I haven't had to advertise or fix anything for almost four years now...checks get direct deposit to the checking account every month.

Bought this one in 2007 and its now almost paid off. Trick is to payoff early while still maintaining positive cash flow.

Dad had same tenant for 15years....guy paid off dads mortgage and part of his personal mortgage. His son rented it for another 7years after dad moved.

A 22 year tenant. had to do a lot to fix that one up when he moved out but it was paid for.

[Winemaker]

Quote:

Originally Posted by kgtest Bought this one in 2007 and its now almost paid off. Trick is to payoff early while still maintaining positive.

I don't necessarily agree with you on that strategy. While some folks abhor debt, sometimes refinancing and removing equity can be another strategy. It
gives you tax free cash to either spend, or add to portfolio. The interest is currently federal and state tax deductible. Although I also highly recommend umbrella insurance, in the unlikely event of a lawsuit, no one would in their right mind would sue to seize a mortgage laden building. If you bought cash flow positive in the first place, no skin lost.

[Souschef]

Quote:

Originally Posted by Winemaker I don't necessarily agree with you on that strategy. While some folks abhor debt, sometimes refinancing and removing equity can be another strategy. It gives you tax free cash to either spend, or add to portfolio. The interest is currently federal and state tax deductible. Although I also highly recommend umbrella insurance, in the unlikely event of a lawsuit, no one would in their right mind would sue to seize a mortgage laden building. If you bought cash flow positive in the first place, no skin lost.

I agree. I had a Home Equity loan on the house and pulled a bunch of cash out of it. And the interest is indeed tax deductible.

[CaliKid]

Quote:

Originally Posted by euro Agree. But you do sacrifice appreciation. Most flyover country properties don't appreciate over time - certainly not the way many costals do (West coast, NE, midAtlantic)

I agree. No question there has been significant appreciation over time, in the other places, as you indicate. However, most people in retirement want stable income. Checks in the mailbox!