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  • 97guns
    replied
    + the mortgage interest is tax deductible so who really cares how much it is, the tenant pays the mortgage and you get the tax break, positive cash flow is what makes or breaks a RE deal

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  • sv2007
    replied
    Originally posted by kork13 View Post
    One thought... on the idea of leveraging from one of the recent real estate threads (I can't keep them straight)... It seems that a 30-yr mortgage is much better for a rental property than a 15-yr mortgage from a cashflow perspective... We have 15-yr mortgages on both of our homes, and the rental's expenses are only just covered by the income. If I'd have used a 30-yr note, I would have a $300 buffer between the income & expenses. Sure, you're paying more interest, but if you have the tenant covering the mortgage, it seems to your benefit to have the higher cashflow. With that said, I haven't been able to talk myself into a refinance to lower my monthly costs, so this is purely a mental exercise... I *have* considered (still am, kinda) a recast, but I still don't quite understand how (if) it would be of benefit to me, so I'm hesitant with it. So for now, I'm just counting on paying off the rental's mortgage in the next 6-9 years, then let it be pure income at that point.
    There's always different types of risks. Right now, we are in a great economic growth, so everything seems very easy. Your rentals can be rented out for top dollar and very little vacancies (at least in the areas I'm familiar with). During this time, it isn't too bad is your cash flow is near zero. Now, assume it becomes a downturn, if you have trouble renting out the house, cash flow may become critical. You have to pay mortgage and repairs, etc. So a lot of landlords look at it from a cash flow perspective; more staying power in case things go south. E.g. if your mortgage is lower, you can also charge lower rent, in case rent drops. Or your job might be able to sustain a few mortgages if your rentals takes longer to rent out.

    So, unless you are financially strong relative to your responsibilities, the 30-yr mortgage is generally the safer route. Sure, you pay higher interest rate for a 30yr loan and refi does cost your some money even 0fee/0points, maybe the safety is useful for you?

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  • Gustavo.Woltmann
    replied
    Well it's always better to invest in the real estate cause it raises the value of your money even though cash value falls down. so I bought an apartment in a compound for personal use and rental as well I use it 3 months of summer cause it has pool and the area and so on. and in the winter I rent it also for people who needs it to get cash too. I tell you it's very efficient investment.

    Kind regards,
    Gustavo Woltmann

    Leave a comment:


  • ~bs
    replied
    ^

    do not rent to family or friends, do not do under the table stuff.

    If something goes wrong, it's gong to cause a lot of friction among the parties involved. My brother found out first hand when he tried to play captain save a cousin (who's wife had cancer and needed a place to stay closer to the treatment center). The dispute was over 1 month rent, for $1000 it caused all sorts of trouble between families. not worth it.

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  • amarowsky
    replied
    Originally posted by sv2007 View Post
    How did you first get involved?
    How many did you end up?
    Rental locations?
    Price/tenant types?
    Like landlording?
    1) Inherited a house from my mother when she passed away.
    2) 1 house.
    3) Suburb inbtween Ann Arbor and Detroit in Michigan. (same house I grew up in)
    4) Currently renting to best friend. Use to rent to my little brother and his family.
    5) Currently my renters (friend) are great. No real complaints as they are paying on time and keeping an eye on the place for me. However, when I rented to my brother he quickly and consistently fell behind in payments. At the time he moved in, it was a huge benefit to me because my mom was passing away from cancer and we didn't have time to move stuff out of her house and get everything ready.... She was only 51 and it was very unexpected.

    Now that I have been renting for almost 3 years, I have made the decision to never rent to anyone I know ever again. While it is working well now... I am only renting the place for $1150 a month, the market rental price is closer to $1500-1600. Even after paying my taxes and rental fee, I would still be making more money and not have to worry about any collections, or the emotional support as a close friend or brother and worrying about their well being in the form of my financial support. You wind up enabling people too quickly...

    All in all, it has been an interesting experience and I love the idea of keeping a high value tangible asset alongside with stocks/bonds/securities. I think too much in either side is too much ballast on one side of a ship. Once paid off, they (both homes) could serve as fantastic forms of passive income.

    Long story short, I don't think I'll ever sell a piece of property again... And most likely never rent to anyone I know again. I do plan on buying another piece of property (either to directly rent, or move into and rent my current house. After my current home is paid off, in hopefully ~3 years).

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  • GoodSteward
    replied
    You guys make me want to get into real estate. lol

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  • kork13
    replied
    We are new to the rental business, so I don't have any experience to offer.

    I bought a home in 2012, fully expecting to move after 4-5 years & keep it as a rental. We moved out in October, and our first set of tenants moved in just before the new year. Bought the home for $177k, renting it for $1400/mo (about $100/mo less than we could have gotten if we'd have listed it in the summer, but the timing just didn't work out for us... tenant is on a 18-mo lease, so that'll get us into a summer rental cycle). So we're likely not going to make much profit right now, probably just cover our expenses, but I'm okay with that for the moment as we learn the ropes.

    We bought a home again here in Alaska, and when the time comes for us to move on, we will likely rent this one out as well.

    One thought... on the idea of leveraging from one of the recent real estate threads (I can't keep them straight)... It seems that a 30-yr mortgage is much better for a rental property than a 15-yr mortgage from a cashflow perspective... We have 15-yr mortgages on both of our homes, and the rental's expenses are only just covered by the income. If I'd have used a 30-yr note, I would have a $300 buffer between the income & expenses. Sure, you're paying more interest, but if you have the tenant covering the mortgage, it seems to your benefit to have the higher cashflow. With that said, I haven't been able to talk myself into a refinance to lower my monthly costs, so this is purely a mental exercise... I *have* considered (still am, kinda) a recast, but I still don't quite understand how (if) it would be of benefit to me, so I'm hesitant with it. So for now, I'm just counting on paying off the rental's mortgage in the next 6-9 years, then let it be pure income at that point.

    Leave a comment:


  • sv2007
    replied
    Originally posted by TexasHusker View Post
    I know people who do very well with low income housing. Their returns are much greater than mine, and there are some distinct advantages to low income housing.
    .
    We've bought some houses in bad/lower income neighborhoods between 2009-10, so based on 7 years experience, here's what I can say.

    The ROI is very good in those area; there's actually not as big difference between rents in bad area vs good area as the differences in house price. And none of our tenants bother us much; but problem is non-payment of rent in the cheap houses. They make enough money but they don't manage it well. They are living on thin ice; when something don't go exactly well, they default and can't pay (that includes rent too).

    None destroyed the houses. One of them we feared he own leave when we want to sell (we gave him 6 month notice; he's lived there for 5yrs on month-to-month lease since his original 1-yr lease expired); but come moving day, he did move out and caught up with rent too. But... not a clean move as he left a ton of stuff that we had to get rid of (costed $400). So far, we've returned !00% of all our tenants' security deposits, so we pay for clean up, etc. ourselves.

    I think if somebody really wants to make money landlording and don't mind putting in a bit more work, then the low-cost areas offer much better returns with much less investment.

    Oh, the insurance was also a bit troublesome with those cheap houses. One of the houses had tar roof (cheap) and many insurance co. won't cover it. W/o insurance will cause problems (besides the obvious one when the house burns down or occupant injuries); so be sure to check insurance.

    Leave a comment:


  • sv2007
    replied
    We got involved with rental accidentally; we moved and weren't able to sell our house at the price we wanted, so we rented it out.

    Then we did that a few more times, ending up with 4 rentals.

    So far, we've only rented out houses that used to be our primary home.

    Next, we bought 3 more just to be rentals and 1 that we planned to live during retirement. So we have a total of 8 rentals in Austin, SF bay area, and Hawaii Kai/Oahu. (I'm not counting the house we bought for my parents to live when they visit us or our primary home, of course.) All mortgage-free except the first house (which was carrying a small mortgage for flexibility that we finally figured we don't need the mortgage flexibility and just paid it off).

    There are 2 types of tenants: paying on time and those that don't So far, they've been entirely based on the type of houses (and therefore, rent costs). The expensive homes got good tenants; what's a good tenants? Well, mostly it's just that they pay on time.

    Used to be Criagslist worked well up until around 2007ish; since then, it wasn't working so we use realtors who take 1-month rent for renting out. How long is our long term renters? Our TX houses had tenants in there for 10 and 7 years. Our CA houses had 5 and 6 years.

    We've don't use property manager except for the HI house. We managed our CA and TX rentals long distance, which worked out OK. If there's problems, we ask the tenants to take care of it and we'll reimburse them or they can take it our of the rent payment.

    Glad to have bought the bad-tenant houses locally as they demand that I post 3-day pay or quit notices and even an eviction procedure (which isn't hard to do, takes about an hour at the clerks office and $250 fees if you do it yourself). Interestingly, there's never complaints from those tenants about the houses. But still, a pain to deal with remembering what's paid or not. They are good people, just can't seem to manage their money well (we are partly to blame as we almost never ask for late fees. I only asked once because a tenant showed up with a new motorcycle, I wasn't amused).

    Our rents are usually pretty low because we raise them infrequently. here's some hard numbers as we've sold pretty much all of our rentals:

    TX house 1 sold for $250k, rent was $900/mo (this was a special case though)
    TX house 2 sold for $280k, rent was $2000/mo
    TX house 3 sold for $215k, rent was $1600/mo
    TX house 4 sold for $250k, rent was $1500/mo

    Note that TX has property tax eff. 3%/yr, and there's HOA fees between $25-$300/house/yr. Insurance of $800-$1000/house/yr. TX (at least in the Austin area) isn't a good landlording state.

    HI house sold for $900k, rent was $3800/mo

    HI prop. tax is low at .3% but has a rental tax that's pretty high, maybe 1.5%? can't remeber.

    CA house 1 sold for $200k, rent was $900/mo
    CA house 2 sold for $1.8m, rent was $2500/mo
    CA house 3 still owned, currently valued at $550k, rent is $1900/mo

    It's the CA house 1 and 3 that gave us our first taste of non-paying tenants. These homes are in bad neighborhoods and they were part of the group of houses we bought purely for rentals. Although they return the best in terms of ROI, if given a second chance, we'd not have bought them.

    We were also involved in some land deals just for fun, which actually made some money really fast in the $100k range. Except our biggest deal, which I think will lose us $500k, unfortunately.

    We don't really like landlording; it is ok in that, given decent rentals, there's not a whle lot you need to do (the tenants takes care of themselves and the houses, we've done that for 15 years now). But still every now and then things happen (hail storms in TX, fallen trees, etc. I'm not even too borthered by broken ACs or major appliances; except the HI house, which is another story). And when you get non-paying tenants, it just makes things worse. We were fortunate in that our tenants are all good people; I've heard some horror stories of worse than non-paying tenants. It isn't really passive income; equity market is where that is.

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  • TexasHusker
    replied
    Originally posted by StormRichards View Post
    And that is where setting up the poll properly could have helped answer that question. Knowing who voted for what would have provided some insight to that.

    I know two brothers that have experience with owning low income housing. One has down very well with it. The other owned for a little over a year and got out because of the hassles. Brand new stove ruined, plumbing issues, always late, and other repairs exceeding the security deposit after eviction. His brother has a knack for dealing with the issues that arise from people that don't give two craps about someone else's property.
    might that be the Property Brothers?

    Leave a comment:


  • StormRichards
    replied
    Originally posted by TexasHusker View Post
    I am curious about James's dogmatic assertion to avoid "the bad side of town... it's just not worth the hassle."

    According to whom? Does James speak from experience?

    I know people who do very well with low income housing. Their returns are much greater than mine, and there are some distinct advantages to low income housing.

    Just curious on what basis James is declaring this.
    And that is where setting up the poll properly could have helped answer that question. Knowing who voted for what would have provided some insight to that.

    I know two brothers that have experience with owning low income housing. One has down very well with it. The other owned for a little over a year and got out because of the hassles. Brand new stove ruined, plumbing issues, always late, and other repairs exceeding the security deposit after eviction. His brother has a knack for dealing with the issues that arise from people that don't give two craps about someone else's property.

    Leave a comment:


  • james.hendrickson
    replied
    Originally posted by TexasHusker View Post
    I am curious about James's dogmatic assertion to avoid "the bad side of town... it's just not worth the hassle."

    According to whom? Does James speak from experience?

    I know people who do very well with low income housing. Their returns are much greater than mine, and there are some distinct advantages to low income housing.

    Just curious on what basis James is declaring this.
    Hey Texas,

    Yep - used to own several properties in DC and a couple here in Oregon. Most of my comments about owning in low SES neighborhoods are based on my experience in DC.

    Leave a comment:


  • TexasHusker
    replied
    I am curious about James's dogmatic assertion to avoid "the bad side of town... it's just not worth the hassle."

    According to whom? Does James speak from experience?

    I know people who do very well with low income housing. Their returns are much greater than mine, and there are some distinct advantages to low income housing.

    Just curious on what basis James is declaring this.

    Leave a comment:


  • StormRichards
    replied
    Originally posted by TexasHusker View Post
    James do you own rental property ?
    Now this is where a poll could have come in handy HAD the OP set it up properly.

    "Make votes public: Displays all users who voted, and what choice they voted for."

    Knowing what level of experience someone is speaking from would be very helpful for this type of conversation.

    Leave a comment:


  • TexasHusker
    replied
    Originally posted by james.hendrickson View Post
    Just wanted to weigh in on this debate.

    Owning real estate is a terrific way to build wealth. Why? Several reasons.

    First, typically real estate improves your net worth in three ways.

    1. Income in the form of rents.
    2. Capital gains - increases in the value of your property
    3. Tax benefits. You are typically able to claim partial self-employment and you can take depreciation on the properties to offset your rental income.

    Second, the more you own, the more flexibility you have. For example, if you have equity in your real estate, you can always borrow against it to exploit investing opportunities.

    Third, real estate is typically not subject to technological change risk. Compare owning rental property to being a supplier for iPhone parts. If the model of iPhone you are selling parts for goes out of date, then the demand for your business will decline. This is less the case for real estate. People always need housing.

    Real estate isn't a panacea. To be successful at it, you'll need to be smart about selecting the right property, negotiating, getting rental agreements set up properly, doing accounting, executing good customer service, managing your taxes and cash flow.

    Real estate is also subject to political risk. Well-meaning politicians often seek to impose caps on rents to make housing affordable, which typically results in disinvestment in real estate markets which serve the poor.

    Finally, don't get property in a bad part of town. Low SES (Socio-Socioeconomic Status) neighborhoods typically have more vermin (roaches, rats, etc.), less creditworthy tenants and more problems with repairs. Stay away from bad neighborhoods. It's just not worth the hassle.
    James do you own rental property ?

    Leave a comment:

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