Hey Big gunz

so you are in the rental biz, and you do-not make your money of fliping properties

 

In 2000 we were sitting on a huge bubble of tech stocks while people ignored signs and kept pouring money in. The bubble burst as it had to and many people saw their net worth shrink by up to 80%. The current bubble is real estate, overvalued in nearly every market and sustained by low interest rates. While it will not burst as the tech market did, it will adjust downward and many who have bought or refinanced will be upside down with no reserves (savings in The U.S. is almost non existent). Any one considering real estate for growth should consider carefully.
Dono

 

Dono your right on the money. I was a casualty of the NASDAQ as well, but I was able to at least break even after doing some smart investing in the folowing year. Some people get cought up in things and want to jump on board when the gettings good. But what they don't realize is by then it's already passed. BigGunz makes some valid points. Buying what he rent will cover with some sort of positive cash flow. Depending on the area you live in this may require a sizable down payment to get a positive cash flow. But it is possible if you are not to discriminating on the neighborhood. There is reasonable means of financing 100% unless the numbers add up. So most do use existing equity and redistribute it as the down payment. Once you purchase one home and want to purchase more most banks require a 20% down payment in any investment or second home. There are some lenders willing to lend 100% on investment properties providing you have a good credit rating, landlording experience, and the property will sustain a positive cash flow with out the benifit of a down payment. I financed one of my own properties this way. It was per say on the wrong side of the tracks, but the numbers made sense and it can only get better in that neighborhood. Some people like being a land lord others higher it out to property managers. I for one beleive in being hands on to know what is going on with my property. Being a land lord is not for the light hearted. Perhaps I'll change if I grow to much. Others just want to buy fix up and then re-sell or flip a property. This sounds very lucrative, but has to many pit falls. Many states have laws making this difficult and the property must be held a year to overcome this. If you bought a house for say 150k did some paint and a minor face lift and 3 months later wanted to sell it for 220k sure someone may want to buy it, but a bank won't lend on it with out a sizeable down payment. How could you the seller justify the 70k gain in such a short time? After one year market move often upward and that makes more sense. But if you had to gut the house replace the kitchen, bathroom, roof, new heating system, (remember to have permits pulled to show its all legal)and re-landscape then you could justify to the bank the 70k gain in value in such a short time. For some hands on investors this can work. You could try to buy and sell to make a profit. But I agree with BigGunz that to hold and rent is the way to go if you can be a land lord. The property will ideally pay for itself in the becinning. You mortgage says the same (taxes may xhange yearly) but rent often increases as well as the property value. So say you bought a place for 150k and your mortgage payment is 1000 a month and you get 1100 for rent you clear 100 a month after expenses. In 5 years say your rent is 1500 a month and at 5% a year in appreciation on the property you house is now worth 191,000 and you make 6,000 a year in rent with a mortgage payment of 1000 a month and rent of 1500 you make 500 a month and the property has appreciated 41,000. I don't know about you but thats not to bad to suppliment your income for essentially a part time job, and you get to deduct any expenses and depreciate the property on your taxes as the value in gaining in the subsiquent years. But remember any depreciation you take now is payed back at the time of sale. Say you did this with 5 proprties and in 10 years assuming loose math 100 rent increases each year you would have a rent role of 60,000 a year and your property collectively would be worth around 250k each times 5 equals 1.25 million and you have aside from what you have paid on principle 500k in equity. This was stricktly for illustrative purposes only and there are to many variables that come into play, but you get the picture from it. Some people over glorify things. You always hear of the tenant from hell which most people use as a reason not to become a landlord, but what about all the good people out there? How many people do you know that rent and are they all bad people? Being a land lord is being able to run your own business. Sorry for the long post.

 

My Gramma was good at this stuff. She tried to pass it on to me when I was in my teens, but it's taken me over 20 years to understand what she was talking about. (Part of her portfolio included 20 houses in the Modesto/San Francisco/Sacramento markets, bought for an average of $12k each, years ago.)

This part of it's was a no brainer for me and it would frustrate her that I couldn't get past this.

What she was trying to teach me was indicators. One of the indicators she would use was presidential politics. She had noticed that when a democrat was in the house, stock prices and interest rates go up, making the housing market soft. On the republican side, the opposite happens and and they drop. This works on a cycle, (do a little research on the big picture around the Carter/Reagan and the Clinton/Bush eras. Or even go further back if you want.)

She's retired now, (almost 100 - I need to go see her.) She saw that Bush was a strong hopeful a few years before Bush/Gore and sold off a bunch of stock. She saw the crash coming like it was simple math. She's lived on the money. Had she been younger, she would have invested back in real estate after the election. Right now, today, she would be researching the next election. If it looked like things will change hands, she would dump some of her properties as fast as she could to people looking to get into the rental racket and diversify into stocks and mutual funds. (She loved CD's when the time was right. She turned me on to one years ago - 3 year at 14.35%, I was doing a 1040 long when I was 18..)

She has a lot of indicators and is a lifelong student of history. She also has a lot of guts and knows when to fold - is luck marketable?

 

To all of you landlords, how do you overcome the price of fixing what the tenants tear up? I used to be an electrician so I have heard and seen some horror stories about tenants trashing houses. Just wondering if you allow for this somehow or if you just take it on as it comes.

 

Again for as many horror stories as you hear how many good ones never get mentioned. Have you ever had a bad experience in a store and think that it may have been an isolated incident. There is always that chance as to why you get first last and security. A good landlord will have scheduled visits. How many of your friends rent and are rough on their apartments. Some people are just as Joe Peschi (sp) was in the movie "The Super" will take anyone for a tenant. There is always the pontential for a bad tenant, but what are the odds? I for one always visit there old apartment before I rent to them and I pull there credit and take a nonrefundabe application fee. If they are not willing to submit to these than I am not willing to rent to them. I would rather lose a months rent than take on anyone to fill it then be stuck with a bad tenant. You can take some preventative measures but there is always the posibility of gettingt a bad one. You can pick your security deposit of which I for one take First last and security in the amount of the rent. I let it be worked out on a payment plan and then if they are a good tenant they get it all back when they move and it is like a forced savings account for them. To date I've only had to evict one tenant and they only lightly used the premise. I'm not a difficult land lord, but I'm not anyones friend either. I keep it professional and run it as a business, but the customer is not always right in this one. A lot of it has to do with how well you maintain the unit in the first place and how quickly you respond to a problem.

 

My primary focus is on rentals since I'm more concerned with holding the properties long-term as a retirement nest egg. I will flip properties shortly but it will most likely be one that I'm currently renting. I use this strategy to consolidate equity therefore making it easier to use. Remember, This game is about moving existing equity around to your advantage but sooner or later, you'll spread it to far and wide making it harder to tap into. Flipping one on occasion allows you to walk away with a few years appreciation in your pocket to consolidate into a new property. Term "flipping" is believed by some to mean buying a property and immediately sell it for a profit. I believe it makes better sense to hold it for awhile then flip it when you have to. My goal is to have maybe 10-15 properties. Every 1-2 years I'll sell or flip the oldest 2 and walk away with the profit and buy 1-2 more.

 

In reality, this is pretty rare in single family homes and more common in multi-family units. What you need to understand is that people that look to rent a single family home, do so because they have to. They have kids and/or too much stuff to fit in an apartment. Additionally, they're also the folks that can't buy a house because of credit problems. As you can see...they're in a bind...they can't buy one but they need one. In the end, most are very appreciative that someone will rent to them. I have 5 awesome tennants. I combat the problems by providing only nicely kept, clean homes. It gives them a bit of pride to be able to rent a nice place so they're more likely to take care of it. I also visit them at least once a month through a drive-by. It's easy to tell if someone is caring for your house simply by looking at the condition of the yard. I also screen my tennants carefully and call any references they provide.

 

GunZ

That is key, provide a place that is well cared for and scrutinize potential tenants.
It is like anything else, do your homework and you are less likely to get hurt.
Some people are not cut out to be a landlord as it is a lot of work.

 

As noted, the horror stories are less common than you think. My bosses have 8 rent houses, 5 of which are ready to go now in the Brazosport area, but I doubt they will hang in with the 30+ goal they had in mind last summer.

As for buying low, well, they have nothing but fixer-uppers, to varying extents. They should be makiing back their initial investment by the end of the year.

Screen the hell out of tenants, though. They have a Chapter 8 (gubmint pays for housing) renter who has been quite good for them....

As for Carleton's stuff, they had looked into it, but somehting about state law in TX don't make under the table transaxctions in real estate all that legal. Same for Robert Kiyosaki, he didn't make $$$ until he sold books. He struggled to get by until then.