RENTALS - mixed messages

[outtarentals]

A tenant just gave me 30 days notice - she has bought a condo across the street from the single family house she's rented from me for 2 years.

She said the price of the unit had come down enough (around $100K) that her mortgage etc would now be almost comparable to her rent when she took into account the tax benefits of ownership. She pays $1650 rent plus all utilities. She has very good credit and a good downpayment so maybe she's not the typical tenant of today because of the downpayment she had.

Still it alerts me as a landlord that I'll have to keep an eye on the direction of rents as we move through this housing downturn. Mine are usually a bit lower than market - I try to have as little turnover as possible.

I put an ad on craigslist and got 11 replies within a few days! One of the big pluses of this house is that it's very close to buslines and shopping - within easy walking distance. In Southern CA that's not easy to find in a nice area. The people who replied seemed interested in that.

I never worry about renting - I've been in the business so long it's second nature - weathered ups and downs in the rental market before, I always remember one thing if I get anxious - same thing my mother said to me years ago when I was in the market for a husband. It only takes one

 

[honobob]

I always remember one thing if I get anxious - same thing my mother said to me years ago when I was in the market for a husband. It only takes one

One at a time. You can have more if you want over time.

So I'm sitting in an ocean front bar in Waikiki sipping my second BM and it's not noon yet. I had a studio come open so I've been here almost three weeks but had four checks in hand before the first week was up. Usually I would have a list of 20-30 applicants for a Diamond Head property and panicked in the nineties when I only had ten. But like you say it only takes one. Biggest problem this time was that all applicants ranked #1. I can usually rank 1-10+ but this time all 4 serious applicants were equally good. Tough to tell the three "sorry"

So the one bedroom needed a new kitchen faucet. Ahhh, the turnoff valve doesn't do it's job. OK shut the water off at the water heater and it's probably due to be replaced. Have to shut down the whole building and the HOA president is scaring me about our high water pressure so I'm thinking it's time for a real plumber. Supervision is my forte. So after he's here and bitching about the cramped space and using his blow torch I'm confident I made the right decision. So now I have an extra faucet because the plumber provided his own. I figured Diamond Head needed a new upgrade and preventative maintenance so yesterday I'm under a sink. Shutoff valves work, I got my special under sink tool and of course everything is all good until the final nut holding the faucet on and I break off the tabs and I'm wondering why I'm trying to save an hour and a half's pay to torture myself under a sink. But being a cheap Bast*d and an Amerikan I fumble forward and make that nut my biotch. The faucets removed, the new one goes on like a champ, I'm high fiving myself and know that I could, if I had to, survive on a tropical island without concierge services!

The tenant comes home and calls with undying gratitude and sends love to me and Honodog. My work here is done.

Flush in the glow of male masterfulness?...I make an offer on a ocean front condo worth almost more than I have received in total WAGES so far in my life! Fingers crossed, I didn't think I'd get here for another 5 years.

Thank you rentals and tenants. Aloha Honobob!

And tomorry I'm swimmin with dolphins and turtles in open ocean.

 

[outtarentals]

Honobob!

Being a landlord isn't for sissies The way things are at the moment I'm glad I didn't get too far "outtarentals" Might even buy another early next year. If I were younger, like you, I'd buy more.

Tenants and Rentals have been very good to me , too. Sounds like we're both addicted - you are a much higher roller than I am, however.

It would be interesting to know how many others on this forum currently have rentals, and how they are faring.

 

[calmloki]

They are paying the bills here. plus a fair tad. Have 2 vacancies in our 16 unit - tenants moved on the 3rd and 4th. Discovered that the ad i thought i had run in the local weekly paper wasn't. Uncommon for our units to stay vacant a week. Should repost our Craigslist ad: Groundfloor Dallas Looking to finance the purchase of a 5 unit up in Portland next week - collecting interest payments will be my version of retirement.

 

[outtarentals]

Calmloki,
Are you going to carry seller financing on the Portland property?

I have thought of using seller financing as part of my exit strategy but I would be concerned about loss of control of the year the new owner would decide to pay me off what with the capital gains and AMT issue up in the air. Do you have any thoughts on this?

If you are selling - what kind of terms are you offering? Also do you have someone draw up all the contracts and handle the myriads of disclosures etc? In other words - a realtor.

Would appreciate anything you'd like to share on this.

 

[tryan]

Kitchen fire a week ago Sunday ... fire dept, says "appliance electrical failure"; insurance reps fire inspector says "maybe the tenant left the stove on". No matter ... we're covered by insurance. Now the fun begins: haggle with the adjuster to not loose $$. Last time it was a big one (full policy pay out) so I used a public adjuster as insurance. This ones too small (~15k?) ... can't afford the 10% hit from the public adjuster. Servpro did a nice job cleaning up. Waiting to get quotes for the rehab. Should be interesting.

 

[boont]

Rentals

I have rentals and have been very lucky with great tenants. During this stock and housing downturn my rental income has gone up substantially.

I can't imagine a better retirement income source than rentals. Built-in inflation protection and cash income.

A wise real estate investor once told me that when you rent a couple a house, they act like they own it. They take on all the small stuff. They don't want the landlord around. I have found this to be true.

That is not the case with an apartment building with more than four units. With apartments people don't take "ownership" of the property and expect someone else to fix things and clean the common areas. That means you need to do it or you need a manager.

In addition, I can move into any of my houses and sell them tax free after two years. It doesn't get any better than that. You invest with leverage (down payment) you write off all expenses, you take paper depreciation against any other profits and you sell for tax free gains up to half a million dollars.

In the SF Bay Area if there is a downside to this I have not seen it.

boont

 

[VaCollector]

Got out of the residential rental business and sold (almost) at the real estate peak....put the $$$ in the market and have given it ALL back 'cause I just knew that bank stock was my future....after all, it had carried my kin folk for 40+ years....UGHHHHH!

OK....back to the rental question.....I'm still in the commercial end with a small office condo that provides a nice base for my ER.

I had [-]rotten terrible crappy pi$$ poor $hi**t[/-] bad luck with residential renters and finally decided that I was tired of chasing the $$$ and spending my free time (and $$) fixing up what they did not seem to care about!! ....but the commercial property has more than paid for itself and should be OK as I was lucky enough to buy in what has become our city's new "downtown"....commercial, office space, residential all in one spot!

 

[Marquette]

Minneapolis area... we were looking to rent for the short-term after we sold our house (long and short of it is that I get $30k if I stay in town for 4 months, seemed worth it at the time). We needed to rent a house (most apartments are either not dog-friendly or not kept up). No one was flexable on rental terms but most were very competitive on the amount. I think we were just looking at a favorable time... a lot of people were stuck with houses that stopped selling and were looking to slow down the bleeding.

Bottom line, I could buy a house for $250k or rent it for $1450.

 

[Rambler]

we had bad luck with rentals for most of the 8 years we had them, so we got out and most likely won't be looking back. Had one renter who never took out the trash, just opened the door to the garage and threw the sacks in there...funny thing about this is that we paid for the trash collection.

 

[outtarentals]

Rambler,
I've had a few oddballs along the way too. Sometimes you have to have a strong stomach. I had to learn early on to overlook almost anything as long as it wasn't illegal, immoral or threatening the structural integrity of the house.

The worst thing that we've had to fix (so far) was a mold problem under a sink - cost me $4500 with a mold remediation company, but I didn't want to be sued by a future tenant. Then there was the cat urine.... Now I only rent to dog people.

That being said, as others have shared in their posts, it has proven over many years to be very profitable.

 

[Rambler]

The cash flow was nice most of the time, and still I wonder what to do with our old home base that sits empty due to a whole lot of complex tax issues that mean I would lose to uncle sam, uncle arnold -and various foreign tax authorities where I live- about 90% of whatever (shrinking) capital gain I would have on the sale. While I am posted overseas, rents would be taxed similarly, so we leave it empty.

That said, I have from time to time wondered, in the context of falling home values, if it might be more efficient to rent it out when we return, or live there for the requisite two years and then sell it. Renting it would mean cash flow (good) but also no homeowners tax exemption when we decide to sell (bad). Since we can't sell or rent without taking a tax beating, we just sit on it for now, empty. But we will have to make a decision prior to returning, and with wildly fluctuating (dropping) home values and uncertain tax code changes, it makes the decision difficult. I'm beginning to give some thought to a REIT for the real estate portion of my cash flow requirements. Guess I just have to educate myself and make some assumptions about future returns, guess the price of the house 3-4 years from now, build a spreadsheet to compare, keep it updated for the next year based on what the markets do, and oh, most importantly, decide if I want to be a landlord again...

R

 

[calmloki]

Calmloki,
Are you going to carry seller financing on the Portland property?

I have thought of using seller financing as part of my exit strategy but I would be concerned about loss of control of the year the new owner would decide to pay me off what with the capital gains and AMT issue up in the air. Do you have any thoughts on this?

If you are selling - what kind of terms are you offering? Also do you have someone draw up all the contracts and handle the myriads of disclosures etc? In other words - a realtor.

Would appreciate anything you'd like to share on this.

We aren't the seller or the buyer - we're just loaning the buyer money to make the purchase. Also have considered owner carry contract as an exit mode on our rentals, and there is risk in when you might get paid, but you can maybe make it painfull to pay too early - what we will probably do on the loan we are about to make is to incorporate some language from the loan we took out to buy the 16 unit back when - i'll IM you a scan of the relevant page - para 4, note definition of "prepayment" at bottom of para 4. Terms we are offering are 30 amortization, due in 5, 11%. I guess we're what's called "hard money" lenders. - the place wouldn't finance through a bank, but i loves me some scrappy housing! Kinda like small value stocks i guess.

When we have sold in the past it's been a simple sale through a title company and we were able to come up with disclosure forms we could fill out. Either we've been lucky, sold for too little, had marshmallow buyers or something, but it's been no big woop - 7 places so far. Agent on the first place only, and it was the least favorable deal i have done. While we have considered and may use a 1031 (have once so far), we like simple. May well just take the tax hit and not look back.

 

[outtarentals]

Rambler,

I feel your pain - renting versus selling - and if you do sell - how and when? Lots to mull over and as you said, no one knows what the rules of the game will be.

All we're sure of is that the 15% capital gains rate (Fed) is set to sunset in 2010.....maybe. If I had to bet, I'd say it will go up -at least to 20% - they need that money.

Perhaps someone else has a good suggestion for you - I hope so.

 

[outtarentals]

We aren't the seller or the buyer - we're just loaning the buyer money to make the purchase.

Calmloki

That occurred to me after I'd posted that maybe that was what you meant. Thank you for the information - very interesting. It sounds like a good strategy for some ready cash. In years past I've dealt in a few discounted notes - second trust deeds mostly, so I wouldn't be too afraid to carry a first on good rental units with a good down.

When we dabbled in notes, we knew we had to be ready to step in and take over if necessary and we took all the necessary precautions. I forget the names of the forms we had to record to be given timely notice if payments were not kept up. It's not without risk but the yields are darn good. Beats CD's. It's a challenge too- keeps the juices flowing.

I just got your message - I'll take a look at it. Thanks!