FIRE and Rentals

[luckydude]

I'm sure many used rental properties to FIRE, so I was wondering did you keep your rentals after FIRE? Or did you sell and just chill with investments? Or did anyone do the opposite retire and start buying rental properties? If you FIRE with rentals did you mortgage all and keep the rent covering them?

Trying to decide if I'm too late to get into rentals. I always wanted to and never did. But I'm not sure it's the smart move to invest in rentals (effort).

DH already said he didn't want to (no time). This would be my pet project.

I would advise against it unless you already have (positive) experience and enjoy all the work that comes with owning a rental.

My rather unpleasant experience:

I inherited in a paid-off rental (a nice 3BR 2BA condo in a MCOL city). The last tenant was a complete pain in the ass (he was already there when I inherited the rental). After his lease expired, I left it empty and have left it empty for the last 7 years. I only use it as a place to hang my hat when I go there to visit friends and relatives. I figure I'm probably leaving 30k on the table every year (not counting property tax, utilities, association fees, etc.), but I don't care. I don't need the money and I don't want the headache of dealing with a tenant. Will probably sell it eventually.

There was a good-sized farmhouse (2k sqft) on a farm DW and I bought a few years ago. The tenant was an older gentleman who had a hand-shake agreement with the previous owner to stay there on an open-ended, month-by-month lease at way below-market rate. We were asked to honor this "agreement" when we bought the farm with the farmhouse. Fine. Two years on, we decided to subdivide the farm and sell one of the parcels with the farmhouse on it, and the tenant refused to leave. It took 3 months of haggling and we eventually had to pay him a few k's for him to take a hike.

There was another farm we bought that had an older farmhouse on it. It was empty and run-down when we got it. The realtor advised that we could spend some $ to fix it up and then rent it out for extra income. No thanks. DW and I hired a crew and had that thing torn down and hauled away in a day. Saved us the hassle of dealing with tenants and lowered our property tax to boot. Win-win in my book.

 

[ERD50]

... One of my friends sold his rentals shortly after RE which I really didn't understand because after RE I now have more time to deal with the issues that come up from time to time.

His reason for selling was that he and his wife wanted to do a lot of travelling and he didn't want to have to deal with rental issues while being out of town for extended periods of time. Also with the currently hot real estate market, he got offers he couldn't refuse.

What's not to understand about your friend's decision? Sounds perfectly reasonable to me. He didn't want to deal with it, he'd rather travel unencumbered, and he could get a good price because the market was hot. Win-Win!

I've had mine for over 35 years and no plans to sell yet. Although the depreciation deduction and the mortgage are long gone, I have great tenants and good cash flow so I'm keeping them for now. ...

OK, so if yours are smooth sailing, I could see why you decide to keep them (though I'd still be worried, most landlords are reporting that the landscape is changing in favor of tenants).

Different situations, different paths.

-ERD50

 

[ScoopKona]

OK, so if yours are smooth sailing, I could see why you decide to keep them (though I'd still be worried, most landlords are reporting that the landscape is changing in favor of tenants).

Different situations, different paths.

Mine have been half smooth sailing. And half problems -- from minor annoyances to "house gutted, insurance to the rescue."

Even with the problems, the only reason I'm sitting here on a farm, retired, loving life, is that I put up with the bother of being a landlord for 10 years.

I still would have retired early. But I would never be able to afford to move from what I consider to be hell to what I consider to be paradise.

It takes a certain person to be a successful landlord -- a combination of detective, process server and handyman. Emphasis on the handyman. But there are going to be legal issues to resolve, backgrounds to check, and things to fix. Being OK with that is the entire game, as far as I'm concerned.

The reason I'm gung-ho to do short term vacation rentals here in Hawaii is that I'm reasonably sure they will be easier than what I have been doing for the last 10 years.

 

[livingalmostlarge]

What about landlording but paying a property manager? Cuts returns but if you don't care and just want a steady income stream is that not okay?

Just thinking out loud and do not want bigger pockets. Read there a lot but I don't want to only hear one side. And i prefer to hear from FIRE not necessarily people doing 50 airbnbs and leveraged all the way. This is just a tiny drip in our portolio which i admit has returned very well for us the stocks. we really got into investing in 2006 and bought all the way down and kept on buying. It paid off in spades since we were 100% invested in SP all the way and no bonds (we were 28 and 26). Boring. And DH had played a few tech tocks and 10x everything from pypl, google, fb, intc etc. throw a dart and we did well. Lost yes along the way but that was commodities oil specifically.

But overall stocks have been good to us. I just was thinking it might be cool to try something new and see if it would work. I think it would have to be afar landlording and I was thinking if it's cheap enough we could do cash in full on the rental.

Then just hire a property manager? Does no one own rentals with a property manager? Why do you have to do it yourself?

 

[ScoopKona]

Then just hire a property manager? Does no one own rentals with a property manager? Why do you have to do it yourself?

Had one for less than a year. Best day ever when I fired that incompetent POS. Caused more problems than he solved.

If you want it done right, do it yourself.

If everything goes smooth, you don't need one. If things go badly, you don't want one.

 

[luckydude]

What about landlording but paying a property manager? Cuts returns but if you don't care and just want a steady income stream is that not okay?

Just thinking out loud and do not want bigger pockets. Read there a lot but I don't want to only hear one side. And i prefer to hear from FIRE not necessarily people doing 50 airbnbs and leveraged all the way. This is just a tiny drip in our portolio which i admit has returned very well for us the stocks. we really got into investing in 2006 and bought all the way down and kept on buying. It paid off in spades since we were 100% invested in SP all the way and no bonds (we were 28 and 26). Boring. And DH had played a few tech tocks and 10x everything from pypl, google, fb, intc etc. throw a dart and we did well. Lost yes along the way but that was commodities oil specifically.

But overall stocks have been good to us. I just was thinking it might be cool to try something new and see if it would work. I think it would have to be afar landlording and I was thinking if it's cheap enough we could do cash in full on the rental.

If you've done well with stocks (and it sounds like you have), I would question why you would want to get into the rental business at all? If you want a steady income stream, there are many ways to make that happen without having to learn the rental trade and deal with all the associated headache.

FWIW--I am FIRE'd and have zero leverage. The one remaining unit I have represent less than 1% of my HHNW. I would get rid of it in a heartbeat (and it's a great market right now) except it is a legacy with some sentimental value. Otherwise, I wouldn't touch residential rentals with a ten-foot pole.

OTOH, DW and I own a bunch of farm/ranch rentals. Those are a lot easier (and more fun) to manage.

 

[lordjust]

Had one for less than a year. Best day ever when I fired that incompetent POS. Caused more problems than he solved.

If you want it done right, do it yourself.

If everything goes smooth, you don't need one. If things go badly, you don't want one.

Agreed. The management companies just hold their hands out and collect money. Not sure how you dealt with the insurance companies raising rates / canceling after you filed a claim or two. Especially in Vegas where EVERYONE floods their places. Dont get me started on Republic Services (Mafia!!!) and when your renter stops paying the trash bill. I have had half good and half bad experiences with renters. The bad were always really really bad. Like everyone else here, if you own them during booms in housing prices and rents there is a big benefit. recapturing depreciation is horrible

Try to buy your rental in a quality neighborhood where the schools are good. Parents are less likely to make problems that can get them kicked out. Also, you get better quality tenants.

 

[Letj]

I think all property managers are universally bad but that’s just me and my experience. They pad repair costs, don’t respond timely to tenants, take forever to fill vacancies, etc. The bottom line - it’s not their property and they don’t care. They’re only paid a small portion of the rent collections and there’s not much at stake for them. I have attained most of my net worth from real estate and I am successful beyond my wildest dream. The reason - managed and did maintenance mostly by ourselves. We hired out the big job but were closely checking on things. I don’t know how else to do it and be this successful.

 

[pjigar]

The bottom line - it’s not their property and they don’t care. They’re only paid a small portion of the rent collections and there’s not much at stake for them. I have attained most of my net worth from real estate and I am successful beyond my wildest dream. The reason - managed and did maintenance mostly by ourselves. We hired out the big job but were closely checking on things. I don’t know how else to do it and be this successful.

+1. We owe a big portion of our fortune to real estate but like I said earlier, it is a sweat equity.

 

[captain3d]

I have held out of state rentals since 2008. All run by property managers.

All I do is manage emails and monthly statements. Over all investment returns have averaged close to 20% annually after all expenses.

Management costs around 10% of gross income averaging out all the different expenses.

Rentals have also given great flexibility for tax management each year.

I just sold one after twelve years of ownership but having never seen it in real life.

Worked out great.

 

[Letj]

Real estate is definitely a good way to become wealthy very quickly if you know what you’re doing and you buy right. It’s isn’t easy to get out of and you have to have the personality type for it. My properties are mostly located in low income areas which are now slowly being gentrified. I’ve had horrific experience with tenant damages and drama but I chocked it all up to the cost of doing business. The upsides have been great and there’s so many ways to make money in real estate so I have no regrets but again it’s not for the faint of heart, especially low income properties. Buying right is the key.

 

[NgineER]

What about landlording but paying a property manager? Cuts returns but if you don't care and just want a steady income stream is that not okay?
Then just hire a property manager? Does no one own rentals with a property manager? Why do you have to do it yourself?

I have found that tenant screening is critical, so I wouldn't leave that to a property manager who only cares about filling a vacancy and collect their pay. The one bad tenant I have had been in the property for 14 years when we bought it and I should have seen the signs, but chose to keep her and now I'm kicking myself... None of the tenants we chose have missed a payment or caused problems (so far). I would not hand the property management over to someone who is not really vested in your financial success and probably has many other properties to worry about.

We have five properties with 12 units total, so small potatoes compared to many on bigger pockets etc. Significant time investment for getting some of the properties ready to rent, others were turn-key.

We have used leverage (but conservative) to acquire properties and bought a property per year 2015-2019.

Invested: $X (down payment, improvements - financing after fixing)
Mortgages: 2.5X
Value: 5X
Equity: 2.5X
Net Cash Flow: 11% of X

 

[livingalmostlarge]

I prefer not a landlording site but the good and bad of experiences not only just owning rentals but both ways. It's super easy to go on bigger pockets and go rah rah yes! Only see successes. I know there are failures but I like to think more success

 

[l8_apex]

What about landlording but paying a property manager? Cuts returns but if you don't care and just want a steady income stream is that not okay?

Handing things off to a PM would be great, except I have yet to find one that's going to care as much as I do.

I fired mine last year. IMO there is no way to justify their monthly fixed costs vs what they do. If they fail to upkeep a home of yours, figure out how to recoup the costs of repairs...

 

[OldShooter]

I prefer not a landlording site but the good and bad of experiences not only just owning rentals but both ways. It's super easy to go on bigger pockets and go rah rah yes! Only see successes. I know there are failures but I like to think more success

@livingalmostlarge, I don't think you were looking to have your OP question answered. I think you were looking for ratification that getting into rental real estate was a good idea in retirement. I haven't try to mark a scorecard but I think the majority opinion you're getting on the thread is that it is not.

So, hey, you want to do it, so do it (as long as you're not betting your retirement on it being successful)! Buy for success; maybe that upmarket duplex that trades financial numbers that are not so good for lower tenant hassles. Buy nearby, not an hour away. Be ready for the downsides reported here and hope for the upsides.

 

[Another Reader]

LAL - Why don't you run some numbers on a property you would consider buying and post them here? Purchase price, down payment, mortgage P&I, taxes, insurance, HOA, allowance for vacancy and collection loss, property management or leasing commission, and market rent for the proposed property. Let the experienced landlords weigh in.

 

[clifp]

I'm sure many used rental properties to FIRE, so I was wondering did you keep your rentals after FIRE? Or did you sell and just chill with investments? Or did anyone do the opposite retire and start buying rental properties? If you FIRE with rentals did you mortgage all and keep the rent covering them?

Trying to decide if I'm too late to get into rentals. I always wanted to and never did. But I'm not sure it's the smart move to invest in rentals (effort).

DH already said he didn't want to (no time). This would be my pet project.

When I was working, I refused to get rental properties, despite my mom's urging. After all, stocks were doing just fine, why do I need the hassle?

After suffering through the Great recession and 2008-9 stock market crash, I started buying places in Vegas. I know conventional wisdom is to buy places near you but I didn't for several reasons. In my case. Honolulu condos started at $300-400K and had only gone down modestly 10%, property values in Vegas had crashed 75%. So I could buy a condo for $53K, and SFH for 67k, rents were well over 1% of the price, vs not even 1/2% in Hawaii.

About 6 years ago, I started doing hard money lending and end up forming a partnership with a friend and bought 7 places and 10 doors in Kansas City, MO. In Vegas, I had to fire two property managers, but the third one was good. In KC, my friend lived there and he did all the work of finding property managers, and so it has been a completely turnkey operation. I collect my share of the rent every month, check the books occasionally, and pester him to get tax stuff to our accountant. It is no more work than owning individual stocks or a sector ETF.

I think bonds, are ridiculously overpriced, or as Warren Buffett calls them return free risk. I think stocks are also overpriced, but they could still go up a lot before the next bear market comes, so I still maintain a large stock position. But diversification is super important, in retirement especially once you have plenty of money. At some point, I expect to see a bear market and stocks drop 50% maybe even 75%. It is also conceivable that Russian hackers take over the stock exchange and brokerage accounts, and all over assets are mysteriously owned by young Russians, and we have no proof that we own the shares. If any of those events occur, I have enough rental income to maintain a reasonable lifestyle.

Modern portfolio theory says you want to own assets that are not highly correlated. That used to mean you owned stocks AND bonds, because when stock prices fell, bond prices would rise and vice versa. In the time of rising interest rates and high inflation, and after 20+year bull market in bonds, I think this will no longer apply.

People claim that you can get exposure to residential real estate by purchasing REITs, that's really not true. The vast majority of REITs purchase commercial real estate, which I think is going have a hard time due to e-commerce and work at home reducing the demand. But more importantly, REITs are highly correlated with stock while residential real estate has a very low correlation.

No question, that managing your own properties and doing your repairs for properties in the same city, is a lot of work. But, it isn't the only way to purchase real estate.

 

[kgtest]

I agree with everything you say. 100%.

However, there are a few other things that are specific to real estate. A rental property can be insured. And if the landlord does his or her homework it can be insured for damage *and* lost rent caused by the damage. We have invoked that policy twice in 10 years.

If there is a way to insure 1,000 shares of Enron against loss, I am unaware of it.

Speaking of Enron, houses very, very rarely lose all value. Even if the structure burns to the ground, the property still has value -- often a fire is the best thing that could happen to a landlord. (Don't try that at home. Leave it to TV shows like The Sopranos.) It takes erosion, sinkholes, radiation and similar to zero-out a real estate investment.

As I said above, all my rental properties quadrupled in value over 10 years. And I received roughly 100 months of rent from each. (with gaps due to non-paying tenants, evictions, turnover and similar). That's not a bad gain and not bad passive income. We have plenty of equity positions, too. But real estate was the main springboard for our early retirement.

It is NOT for everybody. But for someone who isn't afraid to get their hands dirty, it is a reliable way to generate wealth.

Nicely done! That's impressive that it quadrupled in value over 10 yrs. Neither my personal property nor my rental have done that ever.

 

[ScoopKona]

Nicely done! That's impressive that it quadrupled in value over 10 yrs. Neither my personal property nor my rental have done that ever.

I'd like to claim that I was smart. But I bought at the very bottom of the Las Vegas housing bust because that's when I had the money to do so. I also only bought crack houses, "multiple dogs damage" houses and similar.

Every place I bought had issues. Issues I could fix. But issues nonetheless. They're selling for $400K a pop now.

 

[Letj]

I'd like to claim that I was smart. But I bought at the very bottom of the Las Vegas housing bust because that's when I had the money to do so. I also only bought crack houses, "multiple dogs damage" houses and similar.

Every place I bought had issues. Issues I could fix. But issues nonetheless. They're selling for $400K a pop now.

I did the same. I went on a spending spree from 2008-2015. They kept us very busy. Houses that I bought for $35K if fixed up now can be sold for anywhere from $$350-$450K. My only regret is that I passed on many of the houses that were selling for $60-$70K in slightly better parts that today are easily selling for $500K and more. I focused more on anything under $40K to build my portfolios quickly.

 

[ScoopKona]

I did the same. I went on a spending spree from 2008-2015. They kept us very busy. Houses that I bought for $35K if fixed up now can be sold for anywhere from $$350-$450K. My only regret is that I passed on many of the houses that were selling for $60-$70K in slightly better parts that today are easily selling for $500K and more. I focused more on anything under $40K to build my portfolios quickly.

I 100% identify with that underlined sentence. But thinking back, I don't beat myself up about it. Spending $60-70K more then would mean considerably fewer houses to sell today. Keeping it cheap and keeping it distressed turned out to be a decent strategy. I'd recommend it to my younger self, so there's that.

 

[Letj]

I 100% identify with that underlined sentence. But thinking back, I don't beat myself up about it. Spending $60-70K more then would mean considerably fewer houses to sell today. Keeping it cheap and keeping it distressed turned out to be a decent strategy. I'd recommend it to my younger self, so there's that.

Yes that’s the way to think about it. I really lucked out because my medium size City in the Southeast has become quite popular and areas that was once the hood is quickly gentrifying.

 

[Magus]

OP - don't do it.

If I knew then what I know now, I would have not gotten into it.
At first it seems great, the depreciation while working is terrific but it's a sneaky bad thing.

Now retired, and if I sell, I have to sell the entire building at 1 shot, paying tax on my increase in value + all that depreciation I was FORCED to take.

If I had just bought stocks instead, I could dribble out the selling, spreading the taxation over many years, not jumping into a new tax bracket.

The other issue is while everyone wants to be careful, it's a matter of luck as to the quality of tenants, the turnover, the neighbors, the neighborhood, crime rate change, the local gov't taxation, storms, etc...
All these things affect how well a landlord will do, and they can't really be controlled.

As for travel, I've been lucky, when on a trip nothing big has happened, but imagine the stress when on a cruise or in Europe and you get an email/text/phone call that some emergency has happened that needs to be fixed today. (broken pipe, plugged sewer, roof leaking in rain, smashed window by vandals, etc).

Really not that big a deal - between sites likes Angi's list and TaskRabbit, its pretty easy to find someone to fix something on a rental. And it most definitely is NOT a matter of luck with quality of tenants. Use Zillow (or others) to screen! Require 680+ credit, clean background and reasonably stable job history and you will cut out 90% of your tenant issues. I prefer to buy Townhome units rather than multi-unit for the reason you can sell one at a time rather than be forced to sell a bunch and they typically have a lot of the maintenance covered by the HOA. I spend very, very limited time per rental property. My now 9 rentals cause about 1% of my stress vs 70% corp job, 25% wife/family, 4% everything else.

It's certainly not for everyone though but is a very good diversification tool and more RRE /rental income is much more stable than the stock market. I would not put all your eggs into one basket with it and I'd nibble on it being new. You could try Fundrise or Crowdstreet if you want dabble into real estate without the hassle. Public REITs are not great ways to play Real Estate as they are a lot more volatile on valuations than private valuations.

 

[MIKERE]

I acquired small rentals as I worked a full-time job. I slowly traded into larger ones. Eventually I bought out of state small complexes and hired a property manager. I’ve sold some properties & I take back a mortgage and get interest income which is pretty secure.

I’ve definitely had my share of issues along the way like everybody else but in total it allowed me to build significant wealth and to retire early. I’m sure I’ve forgotten some of the headaches but in total I consider myself pretty lucky & I’m glad that I owned rental properties along the way.

I would not recommend ever buying a negative cash flow property with the hopes that someday you will have cash flow - at a minimum you should have some minimal cash flow immediately. Returns are very low now and prices are high but as interest rates increase returns on properties should rise as well. Therefore it may make sense to wait to buy.

 

[almost there]

Guess I have been lucky. Picked up a 4 bedroom home in 2011 for 270k. (bottom of the market) Left the job in 2013 at 51. Paid it off with the severance package. Tenants have been easily manageable. Last ones left in Feb. after 7 yrs. Never really raised their rent. Had over 100 applications in 2 weeks. Lost 1 months rent. Fast remodel and now its back to current rental market value at $3200/month. Home value now close to $800k.
So, to me its easily worth dealing with the minor issues that come along with it. All part of my home made 4 prong retirement plan. Rental, annuity, and soon SS and IRA & roth IRA. Am banking zero % on the stock market.