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Originally Posted by CarlC
Todd, I too have become a landlord by renting my Dad's old home. It required a LOT more work and cash than yours but the financials were hard to ignore.
During remodeling several people per day come to the house wanting to buy or rent, and there was no sign, advertisement, etc. An on-line rental availability map showed that there were only two similar rental rental properties in a 1.5 mile radius, and outside of that the neighborhood gets really ugly. Hence, premium rental income and a selective tenant process is much easier to get.
If all goes well in 26 months all of the cash outlay will be paid off. Like cars my labor is "free", but for me it's the price of admission and sweat equity since nothing had been done in the house since it was new in 1953. If I had to pay someone to do it all it would have been hard to justify.
My friend and I are now looking at purchasing a commercial building as a combined rental and storage (for us) facility. We both want a place to go after we retire to keep ourselves busy, and our current home properties won't allow expansion. By leveraging the home rental there should be little out-of-pocket expense but a good long-term ROI if the commercial tenant rent can cover the bulk of the loan.
There are advantages and disadvantages in property rentals. Both revolve around the tenant. Get a good one and it's a good deal. Get a bad one and it's a real PITA, especially in California where the tenant has significantly more rights than the landlord. Texas is much more landlord-friendly. To lure in the tenants that I wanted a few more things were added to the property than planned, but they are upgrades that over time will pay for themselves. So far the tenants have been good.
If one can afford to purchase and fix a property for rental it's a great time to do it if the income can cover costs. I don't see home prices going a whole lot lower in most markets, people are always going to need rentals, and as home values rise from the ashes, the appreciation is a great nest egg. Just like stocks though, it has to be the right property, in the right area, with the right tenants, etc., so due diligence is needed to make sure it's not a money looser.
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You bring up some great points. I've heard the CA nightmares from clients over the years. Luckily, Nevada is a landlord state. You can have them out within 30 days of missing a payment. I always say that you pick your tenant when you buy a property. What looks good on paper doesn't always reflect in the real world. I didn't get this one on the market either. The neighbors Dad came over and said, I want it before I was half done fixing it up.
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Originally Posted by GregWeld
Thanks for sharing Todd.... And Carl!!
Real estate should be a part of everyones plans if they can swing it -- or have the stomach for property management. It's certainly a smart strategy for a real estate professional like Todd.
I don't want the potential hassles of the actual management - so choose to invest in LLC's with professional management. There are also real estate ETF's (exchange traded funds i.e., stocks) where an individual can invest - collect a dividend - and have the possible upside appreciation. Just google Real Estate ETF's and you should get all manor of hits for this type of investment.
The property I carry the mortgage on in Oregon --- has yet to find a tenant -- and this month marks the one year anniversary... EMPTY. So it's not all roses and perfection. When my brother in law bought the property -- I asked him point blank - "can you afford the mortgage with NO TENANT" for a year or more?" The answer was "EASY". While it's not my problem - I just collect the payments - I'd prefer to see the investment for Jay go the way it was "planned". Eventually he will get a tenant and things will be fine. Commercial buildings/tenants are a LOT different than "renters" in a house. He's had offers -- but the tenant improvements are baked in the offer and a couple have been over 100K before the tenant will move in. He's not interested in putting out that kind of cash up front but has taken a serious look at the proposals.
I tried for over a year - to buy a commercial building that I could lease out a portion -- and keep 2500 square feet for my own use. The numbers just don't work and the vacancy rates for light industrial are quite high and the prices have NOT come down in order to make them work. Any investment like this must have full consideration of the NEGATIVE CASH FLOW that can be a part of these purchases. They're not like stocks -- if things don't go the way you planned - they can be "white elephants" and you must be able to carry the costs out of pocket. If you're smart - and a little bit lucky - you can get a rental with a great tenant that stays for years... and if you're really lucky the value can double or triple -- all while paying a nice tax benefit (if the idiots in Washington DC don't ruin that).  |
Our commercial market is super saturated with tenants being lured from old properties into new. I don't know much about it but I'm sure there is money to be made, there always is somewhere.
I like your idea on the ETF and I know you have brought it up to me in the past. At this point I'm going to be the grunt but I'll certainly keep it in mind for the day I can take advantage with more liquidity.
County 1 $109,500 10/31/12
County 2 $248,000 07/11/07
County 3 $119,950 02/01/99
I purchased the above property for less than it sold for new in 1999. Interest rates are really the lowest they have ever been. The taxes are $1155 a year. Windows of opportunity are only open so long. This is likely a once in a lifetime opportunity for me. I fully intend to take advantage of it.