My Pro's and Con's of real estate investing

[Senator]

Senator, how often do you inspect your rentals while they are occupied?

I do not inspect while they are occupied. If I have a maintenance issue, I generally look around to see how things are being kept up. When I show an apartment for new tenants, it is sort of an inspection too. I have done smoke detector inspections, and toilet leak inspections.

If I had section 8 properties, I would have quarterly inspections and fix what was broken right away. I would then bill the tenants and expect to be pain within 60 days, or I would evict over unpaid rent. My leases say out standing balances get paid first, then rent.

Any tenant that is worried about an inspection is suspect. My Section 8 tenants were the worst, and I no longer rent to that caliber of tenant anymore. There is a reason why people need these programs permanently, and I am not willing to put up with their issues.

 

[travelover]

Senator, how often do you inspect your rentals while they are occupied?...........

I rented in an apartment complex for 5 months. They had a bi-annual replace furnace filter and smoke alarm batteries entry in which they also did a quick look around for anything shady.

 

[Senator]

Of course, it's not all fun and games... This was a PITA family. Never should have taken them. they stiffed me on rent, which I was able to recover some due to a garnishment. It was in my earlier days. I have more too...

They even clogged the toilet before they left. And left 3 huge goldfish that I left to die in the bucket they left them in. You can see the white 5-gallon pail in the picture. I had to hold the fish for 28 days, but am not obligated to feed and change the dirty water.

This is the way they left it. Even more stuff was in the bedrooms and garage.

 

[Amethyst]

Wouldn't you know it (there's always the exception), the 800-credit-rating guy was the very worst about inspections. We finally got into all the rooms when the unit developed a rodent problem (made worse by their hoarding dry noodles and such in the kitchen - I never saw so much spare food in my life).

He let un-leased family members do "long-term stays" in some rooms, and other rooms were stacked to the ceiling with personal belongings. He even put locks (without asking) on some bedroom doors, as he was so paranoid about our possibly coming in without his being there! There was never any evidence of illegal goings-on. He was simply an egotistical man, who wanted us to know he was King of the Castle.

Landlords have to have the hide of a rhinoceros!

I do not inspect while they are occupied. If I have a maintenance issue, I generally look around to see how things are being kept up. When I show an apartment for new tenants, it is sort of an inspection too. I have done smoke detector inspections, and toilet leak inspections.

Any tenant that is worried about an inspection is suspect. My Section 8 tenants were the worst, and I no longer rent to that caliber of tenant anymore. There is a reason why people need these programs permanently, and I am not willing to put up with their issues.

 

[Letj]

Of course, it's not all fun and games... This was a PITA family. Never should have taken them. they stiffed me on rent, which I was able to recover some due to a garnishment. It was in my earlier days. I have more too...

They even clogged the toilet before they left. And left 3 huge goldfish that I left to die in the bucket they left them in. You can see the white 5-gallon pail in the picture. I had to hold the fish for 28 days, but am not obligated to feed and change the dirty water.

This is the way they left it. Even more stuff was in the bedrooms and garage.

I would be happy if this is how they left my house. How about a house with several inches of trash deep, clogged toilet and backed-up sewer, water and gas turned off for months while they lived in filth? This required a trash out company. The first day we caught 47 mice.

 

[kcowan]

...
They even clogged the toilet before they left. And left 3 huge goldfish that I left to die in the bucket they left them in. You can see the white 5-gallon pail in the picture. I had to hold the fish for 28 days, but am not obligated to feed and change the dirty water.

The toilet was probably clogged by goldfish #4!

Love your pics!

 

[Senator]

The toilet was probably clogged by goldfish #4!

Love your pics!

Thank you. There was a pencil flushed down the toilet. It would work, but clog easily. I finally took the toilet off and saw and removed the pencil.

Even a toilet auger could not get the pencil to break as I had to use it to get the dead goldfish down the drain...

 

[aja8888]

Thank you. There was a pencil flushed down the toilet. It would work, but clog easily. I finally took the toilet off and saw and removed the pencil.

Even a toilet auger could not get the pencil to break as I had to use it to get the dead goldfish down the drain...

After raising daughters, I can assure you that Barbie dolls don't make it around the bend either.

 

[Fermion]

You guys are really making this landlord thing sound good now.

 

[kevdude]

Just my own story - not a commercial for RE investing.

We bought our first rental property (4-plex) in 2003 using a $60k line of credit on our residence, which was 25% down. That borrowed $60k has grown into approximately $525k in equity (not including any selling costs/taxes as I'm not selling). We have grown our portfolio to 24 units currently, down from a high of 34 units (a mix of apartments, SFRs and condo units). We currently have approximately $3MM in equity in our rentals (again prior to selling costs/taxes). Our total out of pocket to purchase was about $500k, including cashing in (2) 401ks for separate purchases. Yes, we've certainly invested more money in them over time. Our gross rents are slightly more than $25k per month and we receive $7k-8k net at this time, essentially tax free. And yes, this does take into consideration all expenses, whether actual or economic.

We could've grown larger but decided we didn't want to be any busier than we are. Unless we're turning over a vacant unit, I spend on average about 10 hours per month taking care of issues. Over the past few years the turnover has been relatively low for us, maybe 2-3 units/year. And typically we rent out the unit in about a week or so.

We're certainly lucky to be investing at this particular time and in our particular area, which is Seattle and is one of the best rental markets in the nation at this time. We have seen significant rent increases over the last several years due to the major influx of technology jobs in the area. But we've also made a lot of the "luck" ourselves by taking advantage of opportunities presented along the way. During the downturn, we really were not affected at all by the financial crises as we did not sell anything and since there was zero building going on, vacancies did not increase and in fact went down

We've also had our share of bad luck, mostly due to tenants I should not have moved in or that we inherited. The "best" of these stories involves me showing up at one 10-unit building only to find the local SWAT team there, along with many other police and emergency vehicles lined up in the street, all with assault rifles pointed at one of my tenants (one that we inherited and subsequently asked to leave). We've had 2 formal evictions over the last 15 years and have asked a few other tenants to leave, which they did on their own.

In my previous life I financed commercial real estate and still keep up with the market on a regular basis. The equity I mentioned above is real, and not just based on a guesstimate of values, as commercial valuations were part of my everyday life.

So, yes, rental property has been good to us but I would not say it has come easy. And it has provided us with a nice semi-retirement since 2013, when we were both 49. My own $.02...

 

[Fermion]

Of course in Seattle you could have just bought two $250,000 houses, held them for 10 years and sold them for $1,500,000 each.

 

[hesperus]

Real estate is a piece of cake compared to the people occupying it.

Well said

 

[kevdude]

Of course in Seattle you could have just bought two $250,000 houses, held them for 10 years and sold them for $1,500,000 each.

Well, sure, but what fun is that? And I probably would not have met the wonderful deputies from the King County Sheriff's office. Or had near the cash flow we have had. The numbers I mentioned don't include the equity in our residence we purchase 15 years ago. So, maybe I should add another $1.5MM in equity to those numbers...

 

[NW-Bound]

This is a great thread. When my parents upgraded to a larger home they kept the old one as a rental. My sister did the same. They had some "interesting" tenants but nothing like those I read here.

My stock shares, if I don't like them I can evict them from my portfolio with a mouse click. Used to cost me $7 for that click, but it is now free with the new broker. Even if RE brings in more money, it's not for me.

PS. By the way, my relatives do not have the rentals anymore. After the trouble with the last tenants, they left the homes stay unoccupied to wait for RE market to recover. They recently sold them.

 

[JoeWras]

My grandmother funded her retirement with rentals. She had mostly long term tenants that she was even friendly with. That helped. She had one unit that rotated.

One set of tenants just left town, and left about everything. After the time-out period, my aunts and uncles helped clean it out and split whatever was left. Surprisingly, there was some half-way decent furniture. I had an end-table in use from that event for 30 years.

They also gave me the cassette tapes they left behind. I popped them in my player, and found out they were seance sessions. Super creeped out by that.

 

[Ready-4-ER-at-14]

Senator, what are your plans re Real Estate as you age? I've known some people who hold until they are too feeble to walk and others that cash out in mid 50's.

 

[Senator]

Senator, what are your plans re Real Estate as you age? I've known some people who hold until they are too feeble to walk and others that cash out in mid 50's.

I am in the process of getting ready to sell two properties on a 1031 Exchange and buy a single property in FL. Probably in the Cape Coral area, with water front gulf access. Built in 2002+.

I will do the vacation rental for two years, then maybe move into it. Maybe still rent it out 14 days a year. I may do the same with a few more properties, maybe in different areas. I might pick up a home on Marco Island.

For now, the money is hard to beat. My taxes stay fairly low. The work is not too bad, and I can get away 2=3 weeks every month.

 

[97guns]

i looked at my newly vacated unit today and is gonna take a good $2000-$3000 to get it ready to rent. tenant left tons of garbage, gotta rent a dumpster $400, re carpet 4 bedrooms $400, paint $200, blinds and a lot of cleaning.

luckily the high wear flooring in the rest of the house did its job and thank goodness theres no intentional damage, ive seen rentals really torn up intentionally.

people were living like absolute pigs that they covered up well when i walked through 6 or 7 months ago, it looked really good. it appears these people were heroin addicts, property manager found tons of needles and they changed the door knobs on the childrens rooms to lock them inside, 4 kids that were really well behaved when i saw them

 

[Senator]

i looked at my newly vacated unit today and is gonna take a good $2000-$3000 to get it ready to rent. tenant left tons of garbage, gotta rent a dumpster $400, re carpet 4 bedrooms $400, paint $200, blinds and a lot of cleaning.

luckily the high wear flooring in the rest of the house did its job and thank goodness theres no intentional damage, ive seen rentals really torn up intentionally.

people were living like absolute pigs that they covered up well when i walked through 6 or 7 months ago, it looked really good. it appears these people were heroin addicts, property manager found tons of needles and they changed the door knobs on the childrens rooms to lock them inside, 4 kids that were really well behaved when i saw them

I am curious. What were the tenants credit scores?

 

[97guns]

Not sure but she had a good job with the county clerks office, they had been there 3 years and everything was good up until the past 10 months or so when they first started paying a week late every month with a late fee, then stretched it more and more. I'm pretty sure the heroin addiction took over their lives

 

[97guns]

I'm pretty sure the heroin addiction took over their lives

They were stealing building materials from the track homes being built in the area and selling the stuff on Craigslist , lots of roofing material and hog wire for laying cement in the side yard, they built a small shed out of free material

 

[Senator]

Not sure but she had a good job with the county clerks office, they had been there 3 years and everything was good up until the past 10 months or so when they first started paying a week late every month with a late fee, then stretched it more and more. I'm pretty sure the heroin addiction took over their lives

I would guess that their credit scores were low, regardless of what their job was.

My suggestion, next time do a background check on your incoming tenants. No matter how they look and act in person.

 

[Amethyst]

What Senator said, always...but it doesn't take junkies to mess up a unit. The very first tenants we had, were selected by a tenant-finder outfit who checked credit scores, previous landlord and so on. They were, in fact, nice people who paid regularly. But this unit had no garage, so the guy took his motorcycle inside to work on it, and when they moved out after a year the brand-new, once-beige carpet was black. We took photos and kept their security deposit, and they did not fight it (tenants do usually fight flooring deductions because they know judges often side with them). So we came out of it OK.

I would guess that their credit scores were low, regardless of what their job was.

My suggestion, next time do a background check on your incoming tenants. No matter how they look and act in person.

 

[Senator]

What Senator said, always...but it doesn't take junkies to mess up a unit. The very first tenants we had, were selected by a tenant-finder outfit who checked credit scores, previous landlord and so on. They were, in fact, nice people who paid regularly. But this unit had no garage, so the guy took his motorcycle inside to work on it, and when they moved out after a year the brand-new, once-beige carpet was black. We took photos and kept their security deposit, and they did not fight it (tenants do usually fight flooring deductions because they know judges often side with them). So we came out of it OK.

Did the "tenant finder outfit" actually give you the credit scores, or just tell you that the tenants were OK, and collect their commission? Did they check all adults, or only the primary payer?

Did you know that a previous landlords good recommendation is the worst check you can rely on? And a national Criminal Check is not worth the paper is it emailed on? The National Checks are too far out of date, and generally exclude many 'smaller' crimes which are important to a landlord.

You can generally eliminate 99% of tenant problems by getting a decent credit score. For all occupants. You will exclude good tenants too, but that is well worth it.

If you have 10 tenant applicants, and only one is bad but you do not know which one, your perfect criteria would exclude all 10.

 

[pj.mask]

You guys are really making this landlord thing sound good now.

That's what keeps mystifying me. A whole lot of comments about how easy and minimal time and they hardly work, etc. then all these costly horror stories. People claim to be retired early but if I have to refinish a kitchen or suffer the holding costs of a house while I take my time - that isn't retired. That's work.

I'm sure there are times when you could invest in stock and make similar returns - especially with the risk just like rental risk (Detroit, flint, Houston during harvey - I know several real estate people who lost 20-30% of their properties. Some units will be total loss as water sits in the first floor for 3-4 weeks) this is all outside the 500 year flood zone.