Worth it to pursue Rental Income properties?

[laurence]

Any difference if one rents out condos? Since the condo building should take care of all maintenance it would remove a lot of the headaches.

Mine is a condo/townhome, yes they take care of the maintenance outside, but I'm also paying $260 in HOA fees a month, and that was after shopping around. I've gotten into a rhythm and don't find the work to be that bad, but I bought newer, and close to home.

 

[CaliKid]

I would consider a nice rental in a city you like to visit. Not a vacation rental. Just a regular rental in a city you like. That way, even if you have a property manager (which you should) once a year you get a tax deductible trip to a city you like. Plus, you are diversifying your assets by having real estate in your home city (your home) and now real estate in another city, state or even part of the country. Plus, if it's not local you will not be tempted to be the property manager.

In my opinion true wealth diversification is important and should include real estate (not reits). When property values change rents often don't change much at all. So values can go down and rents may stay consistent.

 

[Sunset]

Any difference if one rents out condos? Since the condo building should take care of all maintenance it would remove a lot of the headaches.

Yes you make less profit due to the monthly fee.
Also the condo board can rule that rentals are no longer allowed, so once your tenant moves out, you can't rent it.
Your tenants break the condo rules (noise, parking in wrong spot, planting flowers) and condo board will tell you to evict them or condo board will fine you.

 

[JohnT]

I own 2 town homes which I have rented out for 25 years, so they are both paid off and are generating significant cash flow for me and my DW (I am semi-retired).

I avoid the headaches of being a landlord by employing a management company - they take 6.5% of the gross rent. For the first 5yrs, I managed the properties, but grew tired of it, and by then the rents had increased enough that I was able to justify a management company. For me, it's definitely worth paying someone to manage collecting rent, maintenance, and all tenant communications.

Now that the mortgages are retired, my expenses are property taxes, HOA, and occasional maintenance costs - in addition to the property management fee.
If you can swing it, having passive rental income to augment investment income in retirement is great.

It took me 25 years to get there and am glad for the effort. Just have realistic expectations for the near term (say first 10 years).

 

[laurence]

I own 2 town homes which I have rented out for 25 years, so they are both paid off and are generating significant cash flow for me and my DW (I am semi-retired).

I avoid the headaches of being a landlord by employing a management company - they take 6.5% of the gross rent. For the first 5yrs, I managed the properties, but grew tired of it, and by then the rents had increased enough that I was able to justify a management company. For me, it's definitely worth paying someone to manage collecting rent, maintenance, and all tenant communications.

Now that the mortgages are retired, my expenses are property taxes, HOA, and occasional maintenance costs - in addition to the property management fee.
If you can swing it, having passive rental income to augment investment income in retirement is great.

It took me 25 years to get there and am glad for the effort. Just have realistic expectations for the near term (say first 10 years).

Hey, this is exactly my thoughts, I'm only 3 years in but I'm hoping this is the outcome.

 

[COcheesehead]

I own 2 town homes which I have rented out for 25 years, so they are both paid off and are generating significant cash flow for me and my DW (I am semi-retired).

I avoid the headaches of being a landlord by employing a management company - they take 6.5% of the gross rent. For the first 5yrs, I managed the properties, but grew tired of it, and by then the rents had increased enough that I was able to justify a management company. For me, it's definitely worth paying someone to manage collecting rent, maintenance, and all tenant communications.

Now that the mortgages are retired, my expenses are property taxes, HOA, and occasional maintenance costs - in addition to the property management fee.
If you can swing it, having passive rental income to augment investment income in retirement is great.

It took me 25 years to get there and am glad for the effort. Just have realistic expectations for the near term (say first 10 years).

^^^THIS^^^

 

[calmloki]

We spent about 35 years buying rental property, making the places decent, renting them out, paying them off... The rentals have been a forced savings account and ended up giving us a real regular and pretty fat income. We found, as another poster said, that multiples were far more profitable than single family. Reached 50 odd units, mostly one bedroom apartments. That is a bunch of tenant/customers to keep happy.

We had in mind to sell off everything around 2008. Oops. Kept renting places out and collecting money - the rentals did just fine through the real estate crash - we had pushed money at our mortgages and were debt free - sometimes it is good not to be leveraged up to your eyeballs. Got kinda tired of dealing with all the units all the time and brought in a manager who takes 10% of the rent collected, which is about 20% of the profit.. We get to do about whatever we want. Some advantages over handling the duty rental phone and taking care of plugged up toilets long distance from the beach in Sayulita Mexico.

Strongly suggest buying in your home town - people tend to know the markets they are in. If self managing, keep your holdings within a 15 mile radius. Drive time is a killer for showings or maintenance.

 

[pjigar]

Strongly suggest buying in your home town - people tend to know the markets they are in. If self managing, keep your holdings within a 15 mile radius. Drive time is a killer for showings or maintenance.

I second that. All my rentals are within 25 minute drive from my home.

 

[pb4uski]

My views are mostly a function of observing my Dad, who have a variety of real estate. He eventually got out of residential, multi-family due to the hassle of dealing with tenants. He had a nice, single-tenant commercial property that we still own that is pretty easy... and quite lucrative.

 

[jw72]

Love this subject, thank you to all who contibuted

I agree with the comments, positive and negative. My first rental house was purchased in Detroit, 1980 at age 18 for 4500, rented it for 300 a month for 3 years and sold on land contract for 16K. My last purchase 8 months ago condo San Clemente, CA 405K and rents for 2700. Grand parents had rentals, parents and Aunts have rentals, friends have rentals and I have them too. The number one reason is they keep up with inflation, our rents have only gone up. Sure it is a pain to do a repair on a Sunday morning but I take a son and use it as a bonding time. 5 miles is my limit any further i get a property management company. I buy in good school districts, no slums for me. Keep the rent below market to great tenants and they stay (never an eviction). I like single family condo's with low HOA or homes for resale. With duplex or apartments investors look at cap rate, single family home mom falls in love with it and do not care what it rents for, sold!
Good luck what every you decide and you guys that are thinking of selling, shoot me a message before you list, always looking for a good investment before it hits the MLS, especially in Orange County CA.

 

[Markola]

I've thought about it and, so far, decided against it in favor of focusing on increasing my salaried income and my savings rate. No doubt some do very well with it but I've observed that real estate investors generally seem to be either trying to get in, trying to get out, or working their tails off. YMMV.


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[Danmar]

I have a significant amount of real estate. Also have great tenants, me! Would never consider having strangers for tenants as it is enough hassle having personal use real estate. In a strong market like Toronto or Vancouver you can certainly make s lot of money. Much more difficult normally and probably not consistent with a trouble free retirement.

 

[bclover]

Following along as I'm also thinking of acquiring a rental property

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[Koolau]

My current situation is that I am pretty much in the OMY stage, as my portfolio of equities is not too far from being (theoretically) enough on it's own. But doing another 0-5 years of salary would add some nice additional cushion and/or luxuries.

My gut reaction is to do OMY (literally) at something you are already good at and already have the j*b. Firm up your portfolio and insure your cash flow for ER doing what you know. Learn to cut your expenses if you have to.

Trying to "change j*bs" (becoming a land lord) or adding another j*b might work great, but it might not. I wouldn't want to bet my ER on something "new." Stay with what you know, run your numbers until you are comfortable with ER and retire. Just my 2 cents and not worth that much as it's you're decision and YMMV.

 

[jkern]

I had a SFH rental from 1992 to 2004. One tenant for 11 years and one tenant for one year. I had zero days vacant and averaged about 10 to 15 hours per year on maintenance. I had some issues with the last tenant and it cost me about $1500. I sold in 2004 and made a very large profit.

When the RE market crashed, I purchased 3 condos in 2011. All 3 were less than 6 years old. They are located 120 miles from my home. I have had zero vacant days and I average about 10 to 15 hours per year for maintenance. I do not use a Property Management company. I net about 9% ROI and the properties have more than doubled in value. My biggest challenge has been showing the properties to new tenants since I'm located 2 hours away. So far so good, I've been able to do it with only one trip each time.

I believe I have been fortunate and a little lucky, but RE has been very very good to me. When I'm older I will probably hire a Property Management company.

 

[timemoveson]

Great comments on here

To add, I have substantial personal use real estate now only, but have gone through phases with substantial investment property as well.

What worked:

- Same city only as where I live for the investment properties
- Condos only with virtually zero maintenance required by me and incented tenants to take care of minor things, which worked perfectly. Made my investment virtually turnkey over many years
- Modest (relative to very expensive market) investment properties in high demand, transit served city locations created immediate interest and secured great tenants in all cases
- Moderate your rent increases to keep the great tenants happy and staying at the expense of a few dollars. Time, effort and vacancy way more expensive to deal with
- Hold in a corporation if you have significant other assets, for protection. I have significant other assets. I kept this completely separate
- I stayed away from all stock market related real estate investment while I held these as part of my total portfolio. I have now opened the real estate window since the hard investment properties are gone. Math always considered level of personal use real estate in hand as well.

What didn't:

- Vacation rental in another country. Cash flow disaster. No end of small issues. Got out as soon as practical. Saved only by currency swing in my favor. Would NEVER recommend this to anyone for any reason. Way too many easier and cheaper options now, to not have this type of albatross around your neck
- Mixed use property with commercial and residential. Likely would have done well on capital gain over time but couldn't easily replace lost residential tenant and the commercial tenant was nothing but trouble and was not paying market rate (inherited him). I learned a lot about what and what not to do on that one!
- Cash flow returns make it not worth holding at this point, I have determined. Capital gains significant given that renters paid me to own so I have sold. The CAP rates on my chosen property type (YMMV of course) not worth holding at this point. I find I can do the same or better with no effort in a diverse, dividend growth stock portfolio with significant tax advantages and complete liquidity

This is all in a Canadian tax context and Toronto is the city, and the context matters of course to every decision. Multi-family and commercial have very different nuances here and wherever you may be.