Interrested in any thoughts you may have . Open discussion ;…………….
How has the economy changed the business of rentals and what should we be looking for in the future ?
We are in a world of the cheapest interrest rates and lumber prices together on record in my life time. Seems that the main fear to keep this dampered down is ” fear of what the future will bring . ” Where is it going ?
How many rentals should one working carp have ? I have no extra time now , unless I grudgeingly take it. There is just so many weekends and evenings , and Im so tired .
Rentals have more competition since the stock market fell. Some people that got out with their money are putting it here for saftey reasons . With so many buying up the old houses and apartments , the rental base is a tight market compared to the demand. Is this to be the next market to pop its bubble? Analists say yes . What will this economy do to inflation ? Will we see our homes go up or down , because it is to unstable to say it will remain the same.
Will SS be enough for you and will it even be there ? Seems the safest of stocks are questionable. Cds arent paying the postage . What are you looking at for retirement ? Of course those that have vested pensions should be fine, but what about the pensions that are dependant on stocks ? I just had a 30 year reunion , and we admitted to losing 30 percent of our retirement across the board. Some lost a lot more , even wiped out . I have had a steady incline in rentals and have not been effected yet by the stock market, but rentals are harder to rent for they are building more and more . Im looking at changing some strategies to stay abreast.
Tim Mooney
Replies
I'm not in the rental biz, so. SIL has a couple house so I hear things.
where are you? (can't remeber if you've said before) think it depends on where you are. Reale estate does pop. had a boss that "lost" 50K on his house when he went to sell back in 1990, Boston area. From some I've heard market is starting to soften here.
folks who get into rentals w/o worring about maintenance (like the 2am call that the furnace is out) probably won't last long. Hire a maintence company? well, that has to be figured in the rent (yea I know your time etc) but the rent has to be in the range that's going for the place.
bobl Volo Non Voleo Joe's cheat sheet
Hey, Tim. You and I have tossed this back and forth before. My latest take on my rental property is that the stock market sure makes the rentals look good. Tenants are paying me the same thing now as they were two years ago, which can't be said about my mutual funds.
I'm a good-natured person, and I have a new problem that's cropped up. The overall state of the economy has affected some of my tenants - layoffs, cutbacks, etc. Even had a tenant of three years injured in a work-related auto accident. He's on Workers Comp at 70% regular pay. I may let folks take advantage of me a little, but I can't bring myself to evict someone with tenure like this. I try to work with them, and generally it comes out in the wash. I have also lost money in these cases.
At 45, I'm beginning to think of the tax repercussions when I go to sell a paid-for property. I've taken depreciation, so the return of depreciation and the capital gains might kill me. I'm considering owner financing for a qualified buyer, thereby spreading the gain over, say, 15 years. Either that, or just leave the properties to my kids.
I'm a pretty busy man, just as you are. I'm pretty comfortable with three duplexes and three single-family houses right now. I've had as many as 16 units at one time, and that turned out to be a bit much for me to manage. I've finally gotten the cash flow running so that I don't have to do everything myself.
15 years of just swapping money turns into a paid-for property, which is pretty sweet. Don't forget to write off mileage along with repair expenses. Interest rates are good right now, but remember that lenders look for a larger down-payment if it's not owner occupied.
I'd especially encourage a young man to buy a duplex and live in one side for a few years. That way, you qualify for a loan as owner-occupied, with maybe 5% down. The only person that will take care of the old man you will become is the young man you are today !
Greg.
WE are pretty closely matched . I have 10 3b2b houses under five years old . Two older homes I bought to bring up cash flow. I bought the houses so that I could sell off "crop" , in time of need . You are right about taxes . I am wondering now if I should build enough units to call it "full time" for the cost of material right now , plus the lowest interrest Ive seen . Or sell the crop ! Ive read books about selling the crop when its time to harvest . This may be a good time , even though of the taxes . People held on to stocks in hopes they would come back , and lost even more .
My problems are the same . Ive got high priced rentals that would also show to sell. People are shying away from the high rent of nice houses and entering your market of duplexes that are massing the city . Competition is here in numbers. I used to be able to rent a house with in the first few hours of the paper comming out . Realators were keeping house buyers in some of them. Now Iv had five houses last winter through this summer that I had vacant for one month at a time each. This is a change from just prior to 911 a year ago. Rec properties is also building 35 new rental homes across town, after a realator told them of my success. They were told we were in a shortage for 3 bd room homes that were nice . Problem with that number is the apartments that are being built entering in competition in these hard lay off times. I could move operation to another area . [hence run ! lol]
Tim Mooney
Now this is a discussion that more people should be paying attention to!! To sell or not to sell, this is the question. I hate to think how often taxes have dictated somebodies financial planning, but it is probably the biggest factor. What if you were to consider a tax deferred exchange, and turned several separate houses into one larger apt. building. Another plan might be to sell one, and then build a new one to replace it. I'm not sure if IRS will let you defer to a vacant lot and then build one though. The good news is you have profits to be taxed, how about the people that have to sell in a down market, they can lose much. I feel that as long as you are showing profits from the rent, you hold on, unless you have to sell to raise funds for something even better. You should be able to outlast any short term down markets, as it seems that eventually Real estate goes up more than down. But on the other hand, it is silly to worry about getting more if you could cash out, and live worry free with money in the bank. Two or three percent annually aint much, but not many problems either. We sold out to get moved, to a higher priced area, and I am not very anxious to start over again. It is my humble opinion it is more trouble than I need right now, but who knows what the future will bring. Lost enought in Mutual funds, that I sure am glad that I am young enough to continue working.
Dan Good start, more later.
I have looked back over my past many times. I have messed up some really good opportunities . I have made some really good money at different times and let it waste . One of the biggest was a couple of tornados . From this I bought a business that didnt make money, so the circle was made . I sratched up enough at another time and built a pretty big painting and drywall business , causing me to travel a lot for the great money. I finally got tired of the motels , and came home to work by my self with a lot of equiptment . I started buying houses with the money saved . I sold a bunch of them , after living in them. Then the rental business was born , while I was buying and building starter specs for resale. I still could lose it all in a depression , or I could have a lot too lose at these prices , because its ever so tempting to go all out building apartments . Rest assurred there will be people who will benifit from this disaster the world is in right now , just as we have already seen people lose all.
Tim Mooney
Are swaps still legal?
It used to be that once you depreciated all you could on a property you'd swap it for a similar property and effectively be able to start all over again with the depreciation schedule.
My father made his living for several years brokering deals like that. Properly done everyone winds up happy, poorly done and it's a pain. You need to develope a long term relationship so that every deal isn't life or death.
I live in Arkansas . I dont really have a reason to be griping . At least Ive been gaining all along , where so many people have not . A lot of manufactors are running 50 percent , and of course several plants have shut down . I dont have the numbers of the people that have lost their jobs , but it is a high number all over. I think the Bush administration has failed at home to provide trust in the economy. Another approach would have been better , although I dont have the answer. What I am seeing more over is fear with in people , not actual problems. The general population has shut this down , not the goverment. The goverment has tried to help, but we have said that "we are not going to buy in to it . " Americas people are showing there power right now in saying NO. About any problem we have from the economy is fear based .
This could be a great chess game in the making , or should I say Monopoly! It is my responsibility to figgure this out and try to learn from it . This is like matching a super bowl team to your own team . Have you ever known someone that bought a dump property , and it turned into a shopping mall, or something that caused the people of the town to say he was lucky ? I have never thought it was luck .
I posted a couple of stupid posts over in the "Bush thread " , because the whole thing has no purpose . I would like to make some good sense here of about the same subject , but a solution to its problem.
What should we do with these low lumber prices , low interrest , and peoples fears?
Tim Mooney
What is fixing to happen to our economy ?
Tim Mooney
Tim,
I didn't see any griping.
Just a question about rentals and to stay or not, and when.
Each market has its own peculuarities.
talked with folks who invested in rentals over the years, as I said earlier each market is different.
Someone mentioned eveictions. Around here (greater Boston) you had better know how the courts are going to look at them. Had a Boss who tried to "work" with a tenent on paying rent. After 6 or more months decided the tenent really wasn't trying to "work" with him. Went the eviction route. Judge said, well you went this long so you must not need the money. Gave the tenent 6 more months "free" rent to move.
Another judge (same boss different tenent, different jurisdiction) issued the eviction notice.
bobl Volo Non Voleo Joe's cheat sheet
If I had to choose on a book subject to write on , it would be rentals , because I WOULD DO A LOT MORE RESEARCH. I have read every book on the subject that I know of , and I've found that the books in all cases don't relate to me . For every person giving support , there will be 20 trying to disarm your new ventures. Since this is a thread on rentals [open discussion] ,I will try to assist others in the subject of "renters not paying ", from my own experiences.
I figure all the facts when I'm in this situation , and I admit that some decisions are a judgement call. The most popular decision for me is to get rid of the problem , as swiftly as possible . I have never used the legal route . Never , not yet , knock on wood . I know that the advantage really belongs to the renter in a court of law . I feel this way because they have no collateral invested , and I have to make payments on what they are using because the bank has collateral on me. Not only that , but I must have excellent credit to make new purchases . So, I have to make payments on time whether they do or not . This has me with full responsibility . A court of law doesn't recognize this in their judgements , offering 30 days past judgement to move , offering me as much as 90 days with out being able to secure the property to get said property ready to lease again .
I play on the renter not knowing the law in my dealings with him or her . I negotiate their exit , by any method that is not illegal. I have been able to talk each one out so far , and this was the number one wife's tale about owning rentals as a negative reason . I have found that it doesn't hold in the top five in problems to be solved.
Tim Mooney
Tim,
I've had several rentals over the years and found it a pain in the arse. I like having ONE house. Do all the work myself and keep moving up. Invest in "myself"! In my craft. Eventually in about six to ten years I'll sell my last one and move down to a less expensive house with money in the bank. Keeps me happy as well. I get to do my craft and REALLY get paid for it in the end. Its a long term investment but theres nothing better then investing in yourself. Something you can feel touch smell and taste. I think it was Donald Trump that said about buying stocks to the novice, "buy what you believe in"! Well thats what I've been doing..its called land and lumber. As much as doing yer own cribs while you live in them can be a misery, it sure has the rewards $$$$$$ and self satisfaction...its an adventure!
BE well
Namaste'
Andy
It's not who's right, it's who's left ~ http://CLIFFORDRENOVATIONS.COM
Andy , it is a pain , but its a life time investment of payback that is variable with the economy. One day my living would go on with out me working , and not losing principal. There is no investment over a long haul that competes with rentals if you are capable of handleing them . Or of the mind set . IMO. Im getting payed to day ,and its raining out side , and right now Im typing to you . Im getting payed for that , because the rents are all current .
Now enjoyment , is a different discussion ! lol
Tim Mooney
we own a few rentals.... but i've certainly made mistakes..
first.. we are a peculiar market... very desireable and almost impossible for anyone to satisfy the demand.. it's an island.. and there is almost no land left to subdivide..
the rentals are disappearing as fast as they come on the market.. turning into Owner Occupied.. or vacation homes..
two of the mistakes were : not recognizing that a negative cash flow turns positive in about 10 years..
and buying commercial property in a residential community.....
now the market is costly for buying that i'm not actively looking..... but i do keep getting jobs to remodel properties that i've overlooked in the past..
so.. i guess my take would be ..buy properties in desireable areas... they'll weather the economic downturns... and try to stay away from company towns or any community that can be wiped out by one closing... like a large corporation closing...
a lot of people live near former military bases .. that thought when they closed.. evrything would dry up.. but if those bases are near water ( like coastal communities ).. it often turns into a buying opportunity...
right now , in southern RI, residential rental properties are on waiting lists.. commercial properties go begging...Mike Smith Rhode Island : Design / Build / Repair / Restore
Thanks for that message Mike , it was very interresting for me to hear . I just read it three times , the last time to think it over .
I would like to pass this on in this discussion ;
A real old retired broker is a good friend of mine. He has coached me for 10 years now, and I will always remember the influnece hes had on me. What I would like to share with you is this ;
Its a realators job to find a place for every nester , whether it be residential, commercial , agricultral , or industrial. Some times the original need for a property has elapsed , leaving a hole in the market , and of course a useless building in the way . Sometimes a building can be bought for a cheap song , plus a high price for the land under it. The only winning plan is to figgure the building for another use . If a person can do that three times , he is worth his salt as a prospector. That name of course applies to a realator and an investor. I havent done it the first time. But I am inspired . This is a game that has gotten into my blood. I love the game of investing in realestate.
You speak of working on buildings that you overlooked . You are not in that boat by yourself . My competition has taught me a lot too late sometimes , but I wont forget it. I know I dont spend enough time propecting .
Tim Mooney
I have 10 units, and when the interest rates go down, the tenants tend to be able to afford a house of there own. It's easier to rent them in tough times is what I've seen in my lifetime. I have a few long termers that have been in the places for 40 years and one for 37....they aren't going anywhere(at least not standing up).
Has anyone bought a rental with an FHA approved 203K rehab loan? They will lend you 80% of 110% of what the appraised value will be after you do the rehab. VA assumable, too. Sweet business opportunity for anyone with some building facelift skills.
I've often thought a person could easilly make a fulltime business out of buying rentals with these loans and paying themself to do the rehab work.
Capital gains taxes are waived when you sell if the building was your principal residence 2 of the last 5 years. Real good opportunity if you don't mind moving every couple years.
Brinkmann for president in '04
Couple of factoids
Boston 2 bdrm apts avg 1700/mo
Boston mayor looking for some form of rent control TV said limit to 100/mo increase in 1 year, for low/middle income 50/mo in 1 yr bobl Volo Non Voleo Joe's cheat sheet
you're familiar with my posts...
for everything that we are considering from the construction side of the picture, i believe that condo conversion/rehab of apartments makes a great exit stategy for an apartment building owner. this owner purchases properties in lower income areas and resells as affordable housing. this expedites approval by the state of california.
financing is important. they appear to be working with banks draws to finance the conversion (4 drafts for 4 phases, each inspected by bank personnel to insure progress). how would your operating cash stand after sell-off?
cash flow is important. they serve notice on tenants (compliance seems mixed) or relocate them (one building with 6 units remains as rentals - condition of affordable housing conversion?). vacancies are just staying ahead of our crew, so the owner's timing is fairly good - little unnecessary loss of income here. they are experienced at this - you'll have to rely on judgement and visualization in the beginning, maybe the counsel of such an investor/developer.
sales are next. these units were sold before rehab, based on what buyers saw in a model and two production units and they have all arranged financing and have loan approval. they were told that sales completion was dependent on approval by the state (don't know how long this will end up taking - maybe 6 months). , which is the truth...
see their strategy employeed here? the lesson here - timing.
now we're being asked to crank up our production to meet the expected state approval date(s) ie. close of escrow.
timing is everything. can you pull this off before the bubble bursts??? there was a prettty good run here in ca. before the recession in the early 90's (i attribute to the fall of the soviet union and concommitant drop in defense spending, plus a hostile attitude towards business here - more regulations and higher operating costs than neighboring states). then the stock market came back (on the back of the internet phenomenon). now real estate is the sweetheart (low interest rates, benefitting the developer in his costs and his potential clients in their qualifying for loans).
when i put my deposit on my home in so cal, the price was $172K. by the time i moved in, the same home was selling for $230K. 3 years later, valued at $145K...
price is right. condos developed by this developer sell for $150K - $175K, half the median price in san diego. condos may be the only home product first time buyers can even look at here... that makes apartment conversions a good place to invest in.
local economy. while california was flying high in the 80's, houston was in a recession...
buy low, sell high. apartments are sold & purchased with a rent multiplier in mind (in the 80's the multiplier was 10-12x). rent receipts over a year were multiplied by this number to ballpark the sale price. then unit inspections performed to determine the actual condition of the property and to point out all the expense required to rehab for rental, to create an expected budget for upgrading to standard condition, and to negotiate the price down from the asking price.
one partnership that i worked for must have had connections in a bank's trustee department, because they knew the direction that banks were taking with their holdings (condo conversions) and when they planned to do it (within 1 year). they also managed to purchase a $13 million for $60K down...
this is the overview of what the real players do.
hope it helps,
brian
You come to this post with very detailed information as you did in your other . I appreciate that , and admire it . Seems you might have the gained knowledge to make an investor yourself! Things that we are talking about in this post , doesnt cross mosts minds . Read " Board Meeting For All Members ". That in my mind was a serious post that could have been very informative , but fell on only a few. I will rerun it under a different title , because Im hard headed. I hope I get to read more about what you know , as others here . Sonny Lycos helped me a lot with his posts , I just used it in a different way than he meant it. I laugh sometimes thinking about him . The reason I do , is I dont think he knew the diversity in his writing for different people to use it. I always welcome writers here that bring something extra with them , and I hope you stick around.
Condos are not a thing here yet , we are always far behind your state . I did pioneer the nice rental house here , at least thats what my peers tell. I saw a need , and no one was in the business. Now the idea has spread . You have my mind wandering already as with what Mike said , my mind will be prospecting in the morning , if I can put it out of my mind to sleep. Im not a bit afraid to be the first to do it if my studies say GO> . It will take quite a bit of prospecting and research. Sounds like something thats right up my alley. Thanks for your ideas !
Tim Mooney
We have 10 units. (seems to be a popular number) I buy distressed and rehab. I finance the whole thing from purchase to completion then refinance and pay myself back. Been doing it 17 years. Sold a few. typically do 1 a year. I live in a town of about 40k. In our area when I started the town was in such a recession you would spend a month trying to get a few applications. After 1990 rents soared and few were available so everyone was rehabbing. Now the economy has settled with a few lay offs and it is once again competative. I try to be $10 or so below market with the best unit (condition) available. We have a number of long term tenants (14years is the best, hard to compete with Keith!) and cater to that. We average less than a repair call a month. When they are vacant we move in and rehab again. Doesn't take as much as it did when we first bought it but leaves us with a like new unit with few calls.
Our plan is to ride out till the next surge in the market and sell off all but a few of the really prime locations. I don't worry about taxes till the time gets here. The laws change constantly and you can only do so much tax avoidance. How can one complain when someone else paid the mortage off for you, gave you a tax break and in the end you have to pay taxes on free money. Just my view point, flame away if you wish.
I have not used 203 money or grant money of any sort. I have financed in about everyway possible. My only complaint is I am tired of working on the same units over and over, not very interesting anymore. DanT
Ok guys, lets talk about numbers . Im wondering why we are hovering at 10 rentals . What would have changed if there was only three to five ? IN your opinions what would 15 to 20 mean ? 20 to 30? Im thinking 20 could be considered full time for me . Would I get there and want 30? 10 is enough retirement for me ,.....maybe . I also thought I could retire on 5 before I got there. Of course there is differences in numbers between a one bedroom apartment and a nice three bedroom house. Not a lot of difference in transition though . Are you guys trying to work full time in addition to the number you have ?
Tim Mooney
I think that's just it, Tim - most of us are working jobs, too. For me, I do too well on the job to let it go, but there was a time that 15 units would have made it full-time for me. I think I could run 40 as easily as 30, if it came to it. One advantage I have in having an office, a regular business location, is that tenants drop rent checks by here instead of mailing them. No float - it goes straight into the bank, the same day.
I've had to do three or four evictions in 22 years. I had one duplex in a rather undesirable part of town. I bought it right, and made money, but the class of tenants was different. Here in Georgia, we get good cooperation from our Municipal Court. I can actually get a move out order within 10 days. The Deputy will meet me at the property and supervise our placing the furniture on the curb. It may be harsh, but, hey, I'm not a social worker.
I lean toward duplexes. An empty single-family house comes with a big mortgage payment. With a duplex, you might have one side empty but some income from the other side. In my town, zoning allowed for the occasional duplex on a street of single-family, owner occupied homes. I love these properties, because the pride-of-ownership is evident, yards are well kept. I try to maintain the high standards and the neighbors appreciate it. My tenants are happier there than in a duplex development with high turnover.
Greg.
" think that's just it, Tim - most of us are working jobs, too. For me, I do too well on the job to let it go, but there was a time that 15 units would have made it full-time for me. I think I could run 40 as easily as 30, if it came to it."
Ok, lets discuss that . My take on it ;
I figgure that a job is only temporary gain , getting payed one time. How many times are we going to get payed for the work we do rehabbing a rental ? I know that we have to do what we are called on to do to make a living , but it isnt the best multiplier. Lets just say that I put in 2 months in a house and I get a return for 30 yrs , plus I get a raise when the rent goes up because of inflation. Now the renter is paying for the house , so we cant figgure that into play . Where else can we put say five thousand in an investment , and get an instant 300.00 per month back for say 15 yrs ? Then after 15, BOOM ,... we are recieving 600.00 at to days rates , which we should get raises totalling to 1000.00 draws at the end of 15 yrs , but that depends on inflation again and its only a half butt example. When Sonny gave me examples of getting 3 times my wage , this still doesnt compare to time worked on a rental. With this said ;
We settle with what we retire with when we stop, and say , thats enough. We have then set our value . Five houses looked pretty good when I didnt have any , and now 20 looks great . Im like you , if I quit work at 20 to 30 , it wouldnt be much difference to manage . What spends time is running a separate business , family , hobbies , and applying part time to our rentals. You make the example that you make too good to quit , but you are giving up making too good in the futre not to. Its a two sided coin . We never make what we need to in the beginning of a rental , but the future is compounded .
Tim Mooney
There's a guy I've been reading after for a few years now that's says the bear market is half over and the real estate bubble is about to pop. I'm pretty cautious about people's opinions but this guy was shouting this coming recession/depression stuff back in 2000 when Cisco was trading between 50 and 60 and back then he said that before all this was over Cisco was going to be a single digit stock. He said similar things of others and they have panned out as he forecast. So I lend a more attentive ear now.
Here's a few brief summary real estate things he says that I'll relate to you for what it's worth since your original post dealt with something like 'what does the future hold?.'
5 forces will start striking the market in early 2003: Investors who lost much in stocks will be hesitant to jump into new investments.
More job losses and company bankruptcies. Fewer consumers feeling comfortable making new or larger commitments lessening demand.
Panic sales of second and third vacation homes bloating supply and driving down home values.
Mortgage rates to increase. After a blip of more people running to borrow or refinance to avoid higher rates the sky high re prices combined with rising interest rates will hurt consumer demand lower prices, Adj rates on more expensive housing than they could afford, falling behind on payments, throwing homes on market at low prices hoping for quick sale.
Homeowner equity is thin making it easier to walk away. Low interest rates caused many to cash in home equity to get new loans and spent fruitlessly.
'The real estate market is Double the stock market bubble-when it bursts, all hell is going to break loose in the US economy and in the stock market'.
"What to do: Consider selling your vacation or investment real estate. These will probably be hit the first and hardest, once the crash gets into gear.
Make an honest and realistic assessment of the place real estate plays in your overall financial planning. Are you counting on cashing in your home and living off proceeds when you retire?What would happen to your plans if you were unable to sell your home -or if you could only sell it for 20% to 30% less than you think it is worth today?
Log onto the website of the Office of Federal Housing Enterprise Oversight (http://www.ofheo.gov). Go to the House Price Index (the latest is for the second quarter2002), and find the table that lists the percent change in house prices with MSA rankings. This is a list of major metropolitan areas in the US with stats on national housing price increases for the most recent quarter, 1-year and 5-year. If homes in your area have appreciated more than 25% in the last 5 years, you're living in a housing bubble and your real estate equity may be at risk.
If you are counting on your real estate for retirement, and are near or past retirement age, then consider selling. It's a difficult and painful decision, but it could be the most prudent financial step you can take- particularly if you live in an area such as Cal or Florida that has seen enormous increases in home values in the last 5 to 7 years.
If you are considering a purchase yourself, wait. Do not assume more debt than you can comfortably afford. Low interest rates may tempt you, but never forget that the total debt you assume today will be with you for years.
Sell all banking and construction stocks! Sell all REITs! When the real estate crash hits with full force in the coming months, these stocks are going to get hammered."
Disclaimer: I am a self appointed and pacified little guy and thus the situations that may occur as described in the preceding have such little consequence and effect on this life that accusations of self gain, fear spreading, and negativity carry no weight with me. My reason for relaying such data here is if I were standing in the shoes I know many of you are, I would want any data that might help me decipher and make intelligent decisions regarding my finances. This info is meant solely to help balance the ever present market bulls that never die when held in the bear embrace, bleeding profusely with a fanglock on their neck, still shouting it's a time to buy. Let the thunder crack and the waves roar.
We're going on.
Ive read many articles that are on the same line. People turned to realestate when the stock market im my opinion crashed . Theres not really a safe choice out there at this time. People that have had rental property for a number of years are rooted . They could take a 20 percent reduction and keep rolling. I was waiting for someone to bring this up after I asked for it in the first post. I think what we will find is geographical again . We are having 3 percent per year gains . Not a big change . But , this is an issue to be dicussed. In the event you describe , Im playing roulette now . Might as well make it 20 , or sell now. Its not pretty either way.
I want to discuss the duplex idea that was brought up . If have of the duplex is empty the payment is easier . That might have been the case forthe first three, but now their are 10 units , youwould have 9to carry one. So the bigger you are the more coverage you have . Another thing is cap rate . The best investment is the one that brings in the most profit . I always say the sg footage rents for what a square foot ? My homes are 1100 sq ft , and I get high rent . They actually bring more per square ft than a duplex , be cause there are duplxes that big . Infact any new 2 bedroom duplex that has been built lately has 1000 sq ft in them . A few people walk away from my houses because they are too small, but the majarioty rent them. Im getting 30 percent more per square foot than a duplex . These are the things that were in my plan from the beginning , and Im just trying to help, not argue any point. The cap rate should be figgured first .
The reason I have homes is to be able to sell at any harvest time I see , like what Rez mentioned . They are retirement or first time homeowner homes.
Tim Mooney
All,
We are at 10 because...............we just are. Not very techy, huh? I have just tried to do about 1 a year because of the tax advantage. No real plan. 10 does seem to be a good number in terms of management with everyone in the house (mine) employed. Now that I am self employed it is easier as far as renovations. I just schedule it like a customer and go do it instead of working all night too.
I agree on 20 being the magic full time number. I have one friend with 45 and he manages them himself but does have a small crew to do renovations and rehabs. He also has a carpet cleaning business. I have another friend that has 64 units but 40 are all in one building and I think that is a little different situation. He and his wife do this together and have an antique business also. Most of his units are slums. His favorite saying, "theres a lot of money in poor people".
I used to favor duplexes but have found single families have less turn over and complaints. I also have had simply better tenants overall in the single familys. I do try to stick with small ranch style or 2 bedroom units as it keeps the amount of kids down. I also like the fact with single families I feel better taking a chance with pets, with a multi unit if you have a flea problem everyone has it.
I think anyone who thinks they know what the economy is going to do is guessing. Now I think someone is going to guess right but they are still guessing. I mean I read about the impending stock market correction starting in 1997. Sure would have lost a lot of money if you got out then. ( I liquidated in 2000) I also think real estate is as bullet proof as it gets. If you are in an area (mine was in the early 80s) that loses a ton of industry all at once then its going to go down. But if it is a typical recession it usually just stops growing for awhile. Then kicks back in when the economy picks up. During good times you renovate and get good % financing while you can and during bad times you hold the line on expendetures. Same as all business. DanT
Here here !!!! I agree, and very well written !
The biggest problem with rentals or rehab buying is price ratio to rents . Im just like you ! Ive got twelve , because thats what Im up to! I want twenty or more , I just cant do any more than Ive done in four years. But, I would like to have 20 now ! LOL! Im also not in the best area right now , for Im going to have to fight competition . Its not a winning thing to have to fight , theres no winners. I could pick another place that was much better , like a shortage . I will probably stay here and fight wisely I hope. Thats why Im here ! There gonna have to test me I guess . Mean while Ill be looking for advantages over them . Im going to work on what Mike mentioned , and I have another plan already if it gets bad . I guess I will share it .
3 bedroom houses in new condition are the lowest profit margin normally , but the least risk. I could sell them in 30 to 90 days , because they are all ready to show . Im playing as safe as I can , like a football team running the ball. If I get pressed , and I find myself behind in the fourth quarter , I will then go to the air attack! Very risky, low momental effect in value , and short term , but very high profits .
I will purchase 40 acres , and put in mobile homes . If you own 40 acres here , you are not under sanitary restrictions of septics. I could rent a hoe and put in many of them in a row . I would finace the whole smear because of the profit statement.
10,000 per unit . 300 per month pay back in rent . 30 mobiles . Nice peice of change . Wear the mobiles out and replace as necesary . No remodels , only repair . Ill always have the utilities and the land to appreciate. Mobiles are the cost of doing a high price business , figgures differently than permanant structures. I wont lose the ball game , but I will have to work dirty to keep mobiles . Not very satisfying , but I wont go broke. Nuff said about survival .
Tim Mooney
My magic number is 10 because a year ago I sold #11 to a cousin that was BEGGING to get into the landlord business.
Mine are all duplex. All in one general neighborhood, and all brick ranches(circa 1950) 2 bedroom units.It is considered a tough place, most owned by guys like me and the local metropolitan housing authority, so most are section 8 tenants. To give you some sort of value, or perspective I bought one (and they all look alike) 3 years ago for $14,000.00 from a private seller. That's less than a Dodge Neon....for a duplex. That is also the average selling price. So I rent each side for $325, tenant pays all utilities, no appliances included. Turnover is not high, in fact we have not had a vacancy for 3 years(knocking on the table)
So basically, I say....let the bubble burst. I can handle it from a cash flow standpoint.
The insurance man values them at 145,000...so that is my insurance premium base. The bank that I had originally financed a few with valued them from the rental income base, potential thing and came up with a number of $37,000 so I refied them at that rate back then....and bought 4 more with the cash.
I would not want to live there, but it is affordable housing, and I keep them well maintained. I also have no problem going in and chewing some arse when they are not taking care of them too.
I'm not in it for the glory...just the money.
" I'm not in it for the glory...just the money."
Let us all take a moment as the money flag is raised ,.......
I think that is the intention of all . If you were , you wouldnt be a landlord , because its sure not the " love of the work".
Tim Mooney
I think a trailer court is the best rental property in the world. They are difficult to build here with sewage being and issue and the school systems have figured out they offer little in the way of tax assesments and yet add many students. So the public in our area usually turn out enmass to fight them. If I were in your shoes (they probably wouldn't fit) I would start building tommorow morning. You can tell I always liked them.
Like I said in my post to Keith I think sticking with a system is the key. I do agree that competing is not a good business move. I don't go to auctions because of that. I see once in a blue moon people get a good deal but in general they pay more than I would anyway. DanT
I just had a conversation today with a new landlord. I told him just what you described. There are 50 or 60 ways to make money in real estate. The trick is to find one you are comfortable with and understand clearly and duplicate the effort. Must be an Ohio thing as far as being able to still find inexpensive property. I bought one last year for 10k and the year before bought one for 28k that needed little. DanT
I hesitated before I posted, because I figured everyone would think I was a BSer about the costs, but I don't know if it's an Ohio thing or what. Last year I passed on the opportunity to add 6 duplex and 4 single units in the same neighborhood for $180,000. I figured that would be a bit much to add and still run my company. It would be nice slow time work in theory, but the fact is we have'nt had any time to work on the existing 10 for a few years anyway. I can swing a guy or two every once in awhile to go and break window trim, or change windows, and I can load one up with guys to paint and carpet when someone moves out...but that's about all.
I just did the same thing 2 months ago. Passed on a nice rehabbable (is that a word?) 4 plex, 6 plex and tri plex for 130k. Same conclusion. Nice thought if I could do nothing else but trying to fit it in with everything else, and manage it all at once would be a bear. Thought about a partnership but nixed that idea. My brother and I also have a duplex, a single, and a small commercial building together and it works ok but not many people I want to be partners with. I really enjoy doing rehabs as I like taking buildings that look real bad and making them look good and be functional. But balance is where its at in my mind. I forgot to mention earlier that I agree with the point of chewing a little behind is a great tool with tenants. My wife is the warm/fuzzy person in our deal. She handles the tenant thing month to month. If you are late or need something fixed you get me. Usually not a warm and fuzzy experience for anyone. My usual late rent speach includes " I will throw you, your wife and kids out in the street and step over your bodies bringing in the new tenants". Works well so I stick with it. DanT
It must be nice to be able to buy rentals cheaply enough to recapture the investment that quickly!! I had to go back a bit and reread the prices to make sure that I had not misplaced a digit or two. To me, it would be very hard to not get more involved in rentals at that price, does your job really pay that much better? or is it the security thing? I would second your vote on partners, other than finance company, or bank, I would nt want anybody else involved if at all possible. Very good to hear that some of you guys are doing so well. I have got to get on with the program.
Dan
Handy,
Well it is nice to have them priced so well. And amazingly I don't have to look or do any research people just show up at my door with great deals. :-) They are really good deals but you have to look for them. And it is all relative to the rents recieved. One of our bigger cities has rent levels that would make me a very wealthy man if I could get them. And the prices quoted are pre-rehab. I bought a side by side, 3 BR 1 bath units in 1995 for 10k, but then had to put 27k in material in it. Great property and great cash flow but a lot of work getting it there. Most of mine required complete rehab before being inhabitable. I prefer this as I can build more sweat equity with less cash. I also know what I have when I am done. The only properties that have caused me maintenance headaches are the ones that were "ready to rent" when I bought them. DanT
Many people have learned what I give for properties , and some of those people get to see them , such as friends , and family . What they didnt see [or smell] was how that some of them made me run out side and gag! I remember one in particular that I couldnt stay in it with the windows and doors open . I left it wide open for a day and night , until I was able to pull the stuff on a trailer . It got a lot better after the carpeting was out . One funny story people enjoy hearing ;
In this house , I had removed every thing , and then called for utilities to be turned on on. So as always , I check to see that all #### are turned off , so I can check each by itself. The washser is the most famous because its always removed after the untilities were turned off on them , leaving the #### open. [I probably should have used the word "shut offs " , we will see hehehe']
Any way it was dark in the bath room , so I got my trusty joblight . This was the time to check the cammode . I lifted the lid ,and found the bowl FULL! No water either I will add was left in it because the house had been sitting for over a year as most repos are. After several trips out side to gag , I was able to pull it out to the trailer to be hauled off . My plumber friend died laufing at me because I didnt clean it up, and use it . I explained my low tolerence for such things in that area . It didnt help his laughing . Then there were a million roaches next to deal with . Slime , filth of the dirtiest forms . I would really would have like to have removed the bath tub . I tried to sick my housekeeper on the walls to clean them [ roach poop every where ] , but she just laughed and refused . She told me that she didnt need "extra work " that bad ! There were many things wrong with this house , but the cleanup was to be noted on record as the worst I had ever encountered . It still stands as the worst on record . I also pulled the stove out side to clean it , if that gives yall any clue .
So the giving price is not reflective of the properties worth , after rehab . LOL!
Tim Mooney
Wow, Tim - you're so descriptive. My wife has offerred on occasion to come help me "clean up an apartment", I just say no thanks, I'll handle it, without going into details.
Have you ever noticed that whenever the power is turned off, and you don't know about it for several days, without fail, they've left a couple of pounds of ground beef in the refrigerator ? This has been my experience time after time.
With low-rent housing, the little things make all the difference. My prospects are so tickled to see ceiling fans !
Good thread. Greg.
Rules to live by in property investment. 1) Never open the fridge of a property you are looking at. 2) Always undress outside of your home before you go in after viewing potential purchases. 3) Never take a friend with you to look. (A deal!? You call this dump a deal!?) 4) Never go into a basement you can't see into. 5) Assume all plumbing is junk. (If its good the surprise is worth bragging about)
I bought one a couple of years ago that had been vacant for a few months. The tenants left there Rotweiler in the house for 3 weeks straight with only food and water to get back at the landlord. Bought that one cheap! Looked at one that had all the plumbing cut off just below the floor line and they ran garden hose point to point. Looked at another with and 80 gallon aquarium mounted in the wall. Went to one that said "some" termite damage. When I put a shoulder to the door to get in the door, jamb and all fell right in on the floor. The kitchen floor had been eaten up 3 times, they just kept putting new floors on top of old. Must have been 3 inches thick, not very firm and light weight as hell. DanT
Tim,
How do you avoid renting to the same kind of tenants after you've done the rehab? Especially if they pay the rent on time and you never have to go see the unit. That possibility is one of the things that keeps me from owning rentals.
Because there is NEVER a reason that you don't have to go see the rental unit. The lease says we have to give 24 hour notice and I do....and I go, and I inspect once every 2-3 months, and I do raise a stink if they are not taking care of MY property. I will make them embarressed, and feel humiliated if they are living like animals. If you walk in and it smells, you ask...what stinks?
There are rarely poor people, but there are many people with "poor ways". It doesn't cost money to keep a place clean and tidy, and when you start respecting yourself and your surroundings, then you are on your way out of poorness.
Thats a good question because we havent covered that subject.
My tennats sign a lease and also give me a deposit . Now , in the lease it gives out rules and regulations . I also am allowed in the house during working hours , so its legal to unlock their home to check the furnace filter. I do it when they are at work because I want to have a good look with out them watching me . I "walk" my properties once a month and fill out an inspection report on each property . Work orders are written off the inspections , and reply forms to tennats are written off the inspections also. Each function is kept on file for that address. I call the tennat with a problem as little as the trash piling up in a carport . I put a stop to it imediately. I have to because they are in nice neiborhoods and the houses show new . I demand what I want or demand they leave immediately . There is no option, for me or for them . A pet caught in the house is an automatic eviction. If they break the lease in any way they are evicted and lose all deposits. Now I play this way because Ive got new properties , and Ive got a product they normally want . There are plenty of run down houses that are cheaper if thats the way they want to live , and thats exactly what I tell them . Im not a bit bashful , infact Im looking them in the eyes the whole time.
The other guys probably do it differently .
Tim Mooney
Ditto on everything else already said. Good screening is the most important defense. There are tenants that screen well at all income levels. I personally don't care about credit ratings. If they have excellent credit they sure don't need me. I make sure they have no evictions, can get the utilities turned on, and make enough to pay the rent. I let the furniture rental place fend for themselves.
I also agree with everyone that you must manage the place. I drive by every unit monthly and get inside a few times a year. And you must be comfortable as Keith said with pointing out issues you want corrected. I am a fanatic on lawn care and no junk vehicals in the yard. On blocks or otherwise. If I find one they have 24 hours to handle it or its towed. On the lawn if you don't mow it every 2 weeks I call once with a warning and if in 24 hours its not handled I mow it. And charge $50 for doing so. I don't have a yard you can't mow in 20 minutes. I tell them up front I don't want your money but if I have to do it I am going to get paid well enough to enjoy it. Only mowed 6 yards in 17 years, and never mowed a yard for the same tenant twice.
It is really a good business, but you have to manage it like a business and it is a people business. So understanding people and creature habits is important. DanT
I kind of figured you had a" little " work to do, but they still look like much better numbers than can be had here. In my area, the cheapest homes are around two hundred thousand, and they rent for about a thousand a month. Neighbors are currently asking 1600 monthly for a house that is worth 330,000 if it is for sale. To me those numbers don't make for a good situation for a long time. What sort of ratio of market value to income do you expect to achieve. I always figured monthly rent should be at least 1% of value on market to make it worth considereing. You?
Dan
Well, I think 1% is a good ball park to work from. However there are many factors. If I just finished a total rehab I can make less profit as I will have few major repairs in the first 5 years. I typically figure, on a rehab, that I need to make $100 a month over payment, taxes and insurance. Thats my minimum and it had better be a potentially nice house in a decent area to go that low. Usually I can do $150 to $250 right away. This allows immediate cash flow as I am not a negative cash flow investor. (some feel ok with that, I don't)
Another factor is interest rates. As recent as 3 years ago an investment rate was around 10%. Now I can finance most projects at around 7. This year I bought a house with a small commercial building located on the back of the lot. Nice corner lot location so I had seperate access to the building for my business. I bought and rehabbed the house. Purchase price was $62,500 and rehab costs were about 10k. I refinanced for 30 years (usually do 15) and my payment including taxes and insurance was only $587 for a loan of about 74k. As you can see that is a lot lower that 1%, actually about .79%. I knew that I could rent the house for $600 so my goal was to structure it so the rent covered the base cost and I still had use of the building for my business essentially for free. So as you can see it can be done in different ways for different circumstances.
I have heard that people live in areas where property can not be bought and rented for profit. I do think that based on economics it happens in some areas during boom times. (silicon valley comes to mind) But most areas have property that can be bought, you just have to look. I used to look at 30 to 50 houses a year. Would make offers on 6 or so and buy 1 or 2. Part of getting good deals is not being embarrassed to offer really low. I have no pride in this matter, I figure if my first offer doesn't offend you I am probably not low enough. My realtor rolls her eyes at my offers everytime. And you also probably should not use your neighborhood as an area to compare. Head for the lower priced areas. Not slums, but lower middle to middle class areas. Might be surprised what you find. Another idea is most areas have investor clubs, great place to start out and learn the area and market. DanT
Ok guys , lets talk about what would be profitable to rehab with .
Carpeting is tearing me a new one . Too much of it is getting ruined . Ive been on this hunt for a while. Not a lot of game to show for my efforts as yet , so lets discuss it.
Commercial carpeting has been easier to clean , but not a lot of flair involved. Glue down with no pad involved helps in the recovery of water . Ive had many problems with water. I wont list them all unless some one wants me to.
Ive laid some VCT tile which is like commercial floor tile with the patteren going all the way through. Easy to replace. Not a lot of flair , and it can be tracked by heavy objects that have been dragged across the floor .
Right now Im considering ceramic tile . I just bought a large tile saw to do a big job and I was thinking about continuing it on rentals. Im thinking about tileing the whole rental or stopping at the living room . I think the renter could buy a floor rug for the living area. I just seen a resturant burn down in the last year and the tiles stayed intact. They not only weathered the fire but many rains through out the year it was down. I was really impressed with this story and the amount of abuse it took and cleaned up to open a new resturant on top of it. My cost is 79 cents per sq ft on seconds, which are put in specs all the time.
Tim Mooney
Tim,
I lay commercial tile in kitchens and baths. On lower end rentals I may lay it in a hallway or dining area too. For lower end living rooms and bedrooms I paint the floor with floor enamel and put down a $100 area rug. Easy to clean, simple to pitch if its ruined and no laying fees for the next one. Basicly the more middle class the property the more carpet it gets. I did lay sheet vinyl in my nicest house last year but all the others have commercial tile. I have read your issues in the past about water damage but I haven't had that much. An occasional bathroom over flow but little in the kitchen, if any.
I try for an updated look with off the rack products and try my best to keep everything interchangeable. I use the same color paint on walls and trim in every unit, in every room. White ceilings. I plastic coat the outsides with vinyl everything unless it has aluminum or some other low or now maintenance finish. Insides get drywall and paint unless they have something else. If its paneling I generally clean and paint it. I use the same Lowes low end cupboard in every unit. Same sink, samd faucets etc. etc. Ceiling fan light are popular here and it is inexpensive to do as well as long lasting.
What do you consider your life expectancies of finishes? I figure 7-10 years on carpet, 3-5 years on paint with touch ups or an occasional wall repaint, 5 -7 years on a faucets. I use steel tubs, easy to replace if needed and only $100 here.
Do you guys provide appliances? That was a big thing here in the 80s but seems to have changed with the advent of rental appliances so I quit providing them except on the on upstairs apartment I own. I don't want them dragging appliances up the stairs. DanT
Hey Tim; For what is worth, the last job I had in Seattle was doing maintenance for sombody who had about 150 units worth of apartments. He rplaced carpet a lot in most of the lower cost units because of the type and turnover of tenants. Bought about the cheapest you can get, so if we through it out in a year it didnot bother so much. It does not seem right to me, but he made a LOT of money, mostly on rentals.
As for me, I would consider the porcalin tile for flooring, color goes all the way through so chips don't show as bad. It also seems a bit harder than the ceramic, so it should wear even better. It will feel colder on your feet during cool weather, so figure on area rugs for barefoot rooms, or higher heating cost if you pay for utilities. In hot areas I love tile on my toes, cools me down!
The lot that the repo is on, would probably sell for 80,000 so there must be some value in the structure that exists now, though not enough to interest me very much. The only rundown commercial building that I know of is a Pretty Large hotel that is way beyond my means, and the experts say it will neeed to torn down, what a shame. I had better finish my own home first, then we can take a better look at what to play with.
Small two bedroom apartments start at about 750 or 800 a month and quickly get to over a thousand. Not many buildings around though, mostly Condo's, so they can sell and get money back sooner.
Dan
I will check on the cost of the other tile , but Im thinking its about 500 percent higher. My plan was to keep several boxes for repairs. For every dollar per foot = 9.00 per sqaure yard .
I hope you get something figgurred out .
Tim Mooney
"What do you consider your life expectancies of finishes? I figure 7-10 years on carpet, 3-5 years on paint with touch ups or an occasional wall repaint, 5 -7 years on a faucets. I use steel tubs, easy to replace if needed and only $100 here.
Do you guys provide appliances? That was a big thing here in the 80s but seems to have changed with the advent of rental appliances so I quit providing them except on the on upstairs apartment I own. I don't want them dragging appliances up the stairs. DanT"
Wow Dan ! No wonder Im getting killed here .
Carpet has an average of four years . I totally repaint with every change of renter.A lot of them are 6 months. I upped the mininum lease to 1 year , but they still move. I have some that stay , but I had one house turn over three times this year . That was an eviction . , a no money so you better move , and one that lost his job . ugh!
I provide all major appliances , and they are always needing repaired. I dont want people moving appliances on my floors .
Looks like I should have chosen lower end rentals , as Im not making more money on the upperclass rentals , they just rent easy. Anyone they are shown to wants them . Its then is a case of how they can get in them , not whether they can afford them. They all drool when they see them . Thats what I went for in the beginning , and havent changed yet . I now see the problems .
In my defense , I will remind you that I wanted a house that will sell also, so all of them are ready to show . I guess I needed that option for my mind.
Tim Mooney
Tim,
Hmmmm. I have to admit I would be bothered by that type of turn over. I mean we occasionally have someone move out quickly but not often. In my mind I always wondered if higher end rentals were just folk waiting to get their own house. I don't know. I think there are good tenants at every level, just a matter of finding them.
We have many long term tenants. Right now we have 1-14 year, 1-7 year, 2-3 year and just lost 2 recently that were both in the 6-7 year area. I only average a little less than 2 turnovers a year. I am sure some of it is market but I wonder why these folks leave so quickly? Just curious, not being critical.
During our paint life period we do touch up or will paint a wall or two if needed. Since we use the same paint all the time it looks basicly new. After a few years it gets dirty and ages some so we repaint at that time. I was thinking after my last post that one other area of concern for me is bathroom vanities. I do buy cheap ones but have used good ones in the past. Even went so far as to build one out of exterior plywood to try and get some life out of it. Books still out on that. I have never had a bathroom vanity fail in my house and yet change them every 5 years or so in rental. Go figure. Does sound like your overhead would be rather high. I bet you would find folks would be just as thrilled if you backed off some of the repaint. Sounds like you have nice stuff. DanT
I operate like DanT where paint is concerned. I use Porter High Hide and stick with two colors, white and Antique White. It's easy for me to go into a bedroom and paint just one wall, cutting into the corners. The bed wall usually has dirt and bumps, while the other three walls are okay. Same color, same source - a day later, the room looks (and smells !) freshly painted. I hardly ever paint an entire apartment.
It's kitchens and baths that sell the tenant, just as they sell the prospective buyer. Tim, I worked with repairing appliances for years and finally got my cash flow to the point that I could begin to buy new as things wore out. It was a good move. Icemakers make the prospective tenants smile, and stay a while. Little things make so much difference - I mentioned ceiling fans before, but also blinds on all the windows. I used to buy the $6 vinyl blinds, but now I'm using aluminum. Just like the paint, I buy the same brand so that, if I have one damaged blind in a bank of three windows, I can replace only one.
You'd be surprised at how people react to a new toilet seat ! I always leave the box out so they can see it. I've used the same box 4 times ! No, just kidding !
Greg.
OK.
I use antigue white every where . Same brand , and same color. I have been upgrading faucets to premium . The reason is that a service call in the future pays the difference. I use the same cabinets every where so that I can buy parts or replace one cabinet. Ive tried to spend money wisely in these rentals while not trying to be cheap , but effective. Now on my extra work;
Many times my homes are shown with many others . The client may look at 10 houses in a days time . I have seen homes not rent from week to week, because I see them advertized in the paper . I lost a month on one I could not "get to". I was working a job that called for seven days a week until completion. I cleaned the house barely with out doing the carpets , and mopping the floors. The competition beat me , because I showed it but did not rent it till I got the time to polish it. Which meant the works . Once I was done with the polish , it rented immediately.
With that said , it might be the market Im in that causes this response. Might be the three bedrom house rental thing too. I may have been better off in apartments , but I dont know because I have never owned one.
Normally my rentals rent the first day they are ran in the paper. They are just not as profitable .
Tim Mooney
Tim,
It must be more competative at that level then I see here. I still wonder why the turn over once they are in. I price mine at market or $10-20 below market and have the nicest, cleanest unit in the market I am in. So we are doing the same thing just a different economic leve. I also put a little more in them and make a little less than some of my direct competition so I understand the not as profitable deal. But everything else you are saying screams "doing the right thing" so maybe its just a matter of waiting for the market to swing up and allow you to drive your rates up. You might look at some cheaper units for the future. Then maybe you could recycle your old stuff from your nice house to the cheaper houses! :-) Really have enjoyed the discussion and have learned alot. Thanks all. DanT
A client decided to try the new heavy wear carpet made from recycled plastics like 2 liter bottles and such. Suppose to be very durable. Anyone had any experience with this in their rentals?
Let the thunder crack and the waves roar.
We're going on.
You are the first to crack the news to me .
Tim Mooney
Glad to see this topic back in here (Hope I'm not too late and the thread's gone stale on me...). Blue and I used to talk rentals quite a bit before he left. Nice that others are in the same boat as me and want to share.
I've got 8 units (yep, hovering around that majical "10" unit number!). I live in a college town and rent to only professionals or grad students. I have managed 100 unit apartment complexes in the past, and have worked for a company doing section 8 housing previous to that. Now working full time doing proj management, and doing my rentals on the side.
I'm hovering around the 10 unit # because I'm too busy to commit to more. I would LOVE to quit my job ad do this full time. I've got experience, and am confident that I cold make it work. Trouble is, I haven't figured out how to afford the amount of housing stock I'd need to make it fly (My magic # is 30 units to keep my income the same).
Anyone out there taken this leap? How can I add the 22 units I need without a HUGE cash outlay? With conventional financing (ie 25% down) I'd need roughly $171K capital outlay. Creative suggestions anyone?
Actually, I do, go over to http://www.richdad.com and ask this same question on their real estate forums...they were down this morning...but perhaps should come back up. Lots of REAL talented RE investors over there with lots of ideas and experience.
Stray,
Another good investment BB is http://www.creonline.com. I have a couple of second mortages on my older properties that I use as a credit line. I buy the next one using the credit line, rehab it, then refinance and pay off the credit line. Has all the advantages of using cash and no cash outlay for the property. Simple, without the smoke and mirror techniques some use. (they do work though) I have used this method for the last 5 properties. Hope it helps. DanT
Excuse me for butting in here, but something you mentioned a while ago is really bothering me. I am a long term renter. You said that you don't provide appliances in your rentals (except one upstairs). I checked with a couple of friends, some neighbors that I know rent, (mainly duplexes in my area, like me), the paper, etc. Thankfully this is not the trend here in Orlando.
I then went to the yellow pages to find out how much it cost to rent appliances and ended up having to google to find prices. Checked the rental rate of my fridge (couldn't find my oven- pretty old and lame- another story). The fridge is $92 per month. A simple stove is $48 per month. (Dishwasher is $60 per month) So, for a fridge & stove it would be 140 per month. Do you take this off your rent? If you rent for $600, could I take the $140 off for these necessities?
This must not be illegal, since you are doing it, but it just doesn't sound right not providing basic necessities. I think you said that others in your area are doing this too, so I am not just picking on you, I just want to know.
Adele, 20+ years renting WITH appliances
But, but, its SUPPOSED to taste like that!
I dont want to butt in on your question , but I will tell you that there are many differences geographically. The more time you spend here , the more that will sink in . I got pounced on in one post because I didnt consider it. Did you know that in some areas a house for sale only lasts a few minutes ? Other places a year or no sale at all is common . This keeps comming up in our discussions. Some one in California is drawing 50 dollars an hour while some one in Texas is drawing 15, doing the same thing. As to the appliances , he is in a good lanlord area , while mine is a little shaky. Ive seen areas in worse shape than me offer free first and last months rent to get someone in their unit. See my point ?
Tim Mooney
I'm sure a house or apartment complete with appliances will rent for more than an otherwise identical unit without appliances in areas where both are available. There may be exceptions. As Tim points out, every geographical area is unique. However, the difference is unlikely to be anywhere near the cost of renting a full set of appliances, and the reason is that either the landlord or the tenant could buy appliances for about the cost of a year's rent.
The cost that the landlord avoids by not providing appliances is much less than the cost of renting them, and the landlord is highly unlikely to offer a discount greater than the avoided cost. On the other hand, the tenants are unlikely to pay a premium anywhere near the cost of renting appliances because it would make much better economic sense to move into the cheaper apartment and buy their own appliances, even if they have to finance them.
Adele,
If you read my post completely you will notice I said I used to provide them. The reason I stopped is people kept asking me to remove mine so they could use theirs. Or they would set theirs out on the porch. So I just stopped providing them. If I am asked to provide them in order to secure a good tenant I would do so. Buying them is cheaper by far than rent them. I can buy a nice 14 cubic foot fridge here for about $300 and a stove for the same. I always bought new unless I just happened across one that was a year or two old. I can't repair them so new was the way to go in my mind. And finally, no I don't discount to get my rent rate as I am competitive in my area without lowering rent. It is a matter of geographics as the others have pointed out.
Tim,
I too use the 70% figure as a base line. I too do all my own work and can usually get it done with buying and rehabbing and still be under 70%. Sometimes less. I have had working relatationships with banks in the past but get frustrated as they change policies, people etc. So then my deal changes. I now use a mortage broker. Cost me $750 a deal but usually save me .5 a point in interest and can get me up to 90% if I need it. Since I do rehabs and am a careful shopper (cheap!) I don't need the increase but it is good to have if needed. I did buy a house with a shop in the rear and use the shop for my business. I paid the asking price (painful experience I wouldn't recomend) but I had looked 2 years for a shop and I could still get this package and rent out the house for payment, taxes and insurance. It took moderate rehab and the shop needed rehabbed to but it has turned out well. (read that the shop is rent free) I did need 80% on that one. Sounds like your financing is strong and in place. Thats what it takes. Again I thing to be successful you find a program you are comfortable with and duplicate it . DanT
Dan & all-
Thanks for the reply.
It obviously bothered me and I appreciate your answer(s). I'm sure they do things down here that would seem off the wall to you. (Like not providing heat - LOL)
Y'all have a good day.
But, but, its SUPPOSED to taste like that!
Tim/DanT thanks for the input.
The crux of my problem is: I could afford to buy another rental, but I don't have the time to rehab and maintain another one "one the side". I'm looking to either do this full time, or just maintain what I've got.
I've thought about the 2nd mortgage credit line for purcase and rehab, but that doesn't give me any regular income to buy diapers with.
I know I'd have the pot-o-gold at the end of the rainbow (ie sell the house or rent and refinance when I'm done), but what do I live on for the 1st 12 months?
WEll , you touched on another way . Its actually in print . Its a book by Mc Millian . I forget the name of it . I done have my library as Im building a new office .
Any way , you buy a house and move into it and rent the one your in. As soon as this house is on a long term loan , you move again by buying another one. You have low equity in each home with a 15, 20, or 30 yr low mortgage. This is something thats hard for a lanlord to get , is fixed finacing with a low rate. This is not a fast way to do it , but its sure. I moved 4 times in 6 months once and my wife quit me ! I wasnt keeping them . I was trying to pay for our main residence where ever we stopped. I almost got it done. Of course there were several before that incident too. I read the start of the post "what the whacko has been up to lately". Now there is a woman that is standing beside her man !!!!! I kept reading and kept thinking "DAMN ". What sacrifices they are making , but they are still young. [ which would help ]
Tim Mooney
Stray,
Growth is a tough deal no matter what business you are in. I always felt I could rehab one in 60 to 90 days if doing it full time. Maybe less. And I buy pretty rough stuff. And I think that if I shopped carefully I could pay myself a salary out of the rehab money. The question is your location. I am in a town of only 40k and doubt I could continue to find units at the right price. Now if your in a town say 300k or so probably wouldn't be hard at all. And if you sold one off once a year or so I think it wouldn't be that hard to do. So I think location is the key.
You know, nothing comes without a price. I decided to go into business and spent a year and a half working my day job and business at night to save cash, buy equipment and get a clientel built up. How bad do you want it is usually what it comes down to. Its been my experience that everyone seems to have time to do what they really want to do, and no time to do what they don't. DanT
That's it, Tim. You buy a home to live in for a while, move on, but keep it and rent it out. If it works one time, it'll work again and again. I was hanging some blinds in a duplex the other day, and realized I'd been doing this sort of thing at this particular property for 22 years !! It's been paid for for years.
Maybe this is why I've always been partial to duplexes. This one we lived in for six years, while the folks on the other side slowly helped us pay it off. We moved into a single family house, kept the duplex, then a few years later, we bought larger, and kept the old house, too. Lots of sweat equity, but for me, it was easier to do major improvements when it was ME that was being inconvenienced.
One thing I haven't mentioned - I've always thought that, if worst comes worst, my kids will always have a place (or their choice of places) to live. The economy can continue to cr*p out, but I can set them up in an apartment if I take the notion. Even myself, hey -it's nice to know I could move back into a paid-for property if I were to lose my job or become disabled.
Greg.
I guess I may be loading my mouth on this one .
I think every carpenter should work toward doing this . I realize that a little money comes first , but really its the only advantage we have over other folks of bettering ourselve. I will say it needs to be a goal of a carpenter anyway. Even if they sell every two years and pocket that capital , its much better than getting taxed on the job for the same work. We have spoken of paying up to 70 percent of an investment because that works. At the end of two years , that could be 30 thousand dollars cash on a 100.000 dollar house that is tax free. 1 million dollars would translate to 300 thousand tax free. The later would be a pretty nice 2 yr income for me.
I dont say this with caution of the thread we have going in" up side down in my house " . Bosses thread of "spec house " , etc. This isnt possible with out learning the things that are necesary to make this a business. For severall here it has worked just fine. As long as they stay with good numbers and business principles , it will work. So when I loaded my mouth above , I have to add this paragraph. Because realestate can eat you too.
Tim Mooney
Hi all. Great thread! I just turned thirty last spring and spent the summer building my first home. I'm living in the basement this winter and plan to finish the first and second floors this coming sumnmer. I'll rent out the basement in the fall and begin looking at buying a repairable rental property or building new. I'm cash poor with very little debt, and i'm staying busy with my new business as a contractor renovating other people's homes. In other words, I'm just getting started.
I've heard a lot about single families and duplexes, but not much about four/six plexes. I figure it would be cheaper to build a new six plex in an area with high rental demand and access to federal neighborhood rehab loan programs. It's a cold climate, and I figure one utility room serving all of the units would make more sense than upkeeping or building multiple utility rooms for single family duplexes. Also, building a new six plex myself would theoretically give me ten or so trouble free utility/roof/structural mainenance years.
Am I missing something here? I haven't done a lot of the numbers, yet. Most of you sound like you have rentals down to a science. i guess it's the benefit of years of experience and when you got into this game you felt just as uncertain as i do.
Any advice would be greatly appreciated.
David
Since you titled me I will answer but the other guys here could do it too.
The reason we seem to have it together is that we did what we "could" to do it . It is kinda funny we run close to one another in thoughts. We are all from the same industry though, brought together by this site. So, I give credit to that mostly. Realitive in meaning. We all seemed to follow the path that would let us travel .
Now to your question about a bigger apartment building. You speak of building it.
Most of us have found our answers through research. Here would be my problem with your idea that certainly holds value.
Duplexes carry a R2 zoning , or residential or quiet commercial. A three plex or larger is R3 zoning , which is covers commercial zoning with traffic problems to consider for the city. Some of those would be eating places , funeral parlors, churches , apartment buildings , etc. R3 zoniing is very high priced property , and you would be expected to pay for it in full before securing a loan to build apartments on it. You would also have to go in front of planning and zoning for your request . You would have to submit plans for the building and the parking. They have a choice with commercial property to accept it or reject it. Thats right , they may choose to decline your request even though you own it. You couldnt do that large a project by your self , and in this state you have to be a licensed contractor with the state. This is commercial. You couldnt use sweat equity on a project like that , or interrest would eat you alive. Have I went far enough?
Tim Mooney
Of the ten largest bankruptcies in US history, five happened in 2002. What just might be gaining on us is a deflationary depression. If it is, it is a bad time to be bellying up to the credit bar, no matter how low the interest rates are. Just recently, the Fed lowered interest rates a half point, which, if I'm not mistaken, is the 12th time they've lowered the rate, and still, the stock market is in the doldrums. If you look at the most active stocks on the upside and the downside, you will note far greater volume on the downside. As the stock market goes, most likely the other markets will go. Where is the stock market going from here? At the market bottom of 1974, the P/E (Price-to-Earnings) ratio of the Standard & Poors 500 (S&P 500) was 7. At the market bottom in 1982, the same was at 8. At present, the P/E of the S&P 500 is somewhere in the 30s. Which way does this suggest to you that the real trend is?
Real estate strategies should anticipate a significant decline in the value of the property if current economic trends persist. What happened to the cable stocks, high-techs, airlines & telecoms can happen to real estate, too. There is a humongous credit card bubble out there, waiting to happen-- little microEnrons waiting to happen. Nearly 5% of credit card holders are delinquent. Foreign loans are defaulting everywhere and those that haven't are a house of cards. I read not long ago that there has been more money lost in the present stock market decline, as a percentage of the Gross National Product, than was lost in the crash of 1929 --the "Great Depression." Banking stocks have been clobbered by so many credit defaults.
Hey now here's a thinking man.
Facts and to the point.
But I got to tell you owl, if you say anything like the Dow will hit 5000 or Nas 800 most folks around here will shoot you down.
But I'll bet you know your stuff and really don't give a -ahem- hoot.
Let the thunder crack and the waves roar.
We're going on.
:) Thank ya Rez. But I think more and more are starting to believe this just might be the economy Grandma was warning them about!
David, I don't have rentals now, but did in the past, and worked for a man that owned close to 200 units worth at one time, so I have a little experience to speak from. Leverage is the quickest way to riches in Real Estate, but it can also be the fastest way to failure. Have you ever tried to pry something up with a long bar, only to have it be to heavy and come back down! So called experts love to invest as little as possible and work on others money, which works good on the upswing. What a lot don't brag so much about is what happens in the bad times mentioned above. I would guess that financing a six unit will be a LOT harder than single family homes. The best way, will varie from situation, but I would consider either fixer houses that you can buy under market value, or build a new home for your self, rent out the old one, then start over. Owner occupied financing is by far the easiest and cheapest to obtain, so take advantage of it. Of coarse if you have enough money to just build what you want, then you are already smarter than me and should follow somebody elses advice!! One other thing to consider is that maintenance is much more related to tenant behavior than roofing/structural problems. I think if you ask, painting interiors, carpets, and appliances are where all the money ends up being spent. Good luck, and welcome aboard.
Dan
David,
I have run the numbers on new construction many times. I have figured everything from single family to multi units. I have never been able to beat the price per unit of existing buildings. The one fact in real estate investment is that what ever money you put in up front, you will never recover in profit. What I mean by that is if I pay 18 k a unit and you pay 20k for the same property, same condition etc, I will always have 2k in resale available to me that you won't as well as 2k in equity. Now that sounds simplistic but it is one of the most forgotten principles. If you do 1k in repairs extra you at least have a chance of reouping your money, not true with overpaying. The going in price really matters. Also in Ohio anything 4 units or larger that is new construction is immediately on the State Commmercial Code map. You must have all the same inspections, fire systems, egress lighting etc that a hotel or large apartment complex would have which really drives up the cost. I think most investors would agree that the dream is to own a 40 unit somewhere with a manager in place, a capital improvement plan and you just stop in once month or so and see how its going. And that is possible but you are then competing against institutional buyers (insuarance companies, large REITs etc) and so the cost per unit is higher where as the actual profit per unit is lower.
Owl,
While I believe everything you stated and agree that your conclusions are possible the one fact remains. Real estate (good ones at any rate) investors profit more in down times than during upswings. Frankly the best purchases are during down times and they hinge greatly on other peoples mistakes and misfortunes. When I started investing it was the early 80s and the rest of the country (our area did not)was recovering from a major recession. Inflation was huge as were interest rates. I bought property carefully and rehabbed. We struggled at times to keep them full as there were many units on the market and unemloyment was double digit. My area never did recover until the 90s. Everything I bought during that horrible time in the 80s is now gold. Low going in cost combined with lots of used or cheap new material as well as pick up labor being available everywhere really adds up to low costs. Good times simply brings the prices back up so your equity position is better or of course you can sell and profit. Well managed down turns are not bad.
Handydan,
While I appreciate your opinion I would like to point out that I have never put any money of my own in my real estate investments. I have put in my labor but all else has been done with leverage. There are many ways to handle investments but the principles of using other peoples money are tried and true and you might investigate them (or try them) more. I believe strongly in being a conservative investor, getting in at a low cost, only buying property I believe to be a "home run" and so I have never lost money on a piece of real estate. I did break even once. But I have always used leverage and have prospered accordingly. DanT
Again we travel the same path . Ive put very little of my own money in and Ive already got that out plus Im working on my labor. I was taught to use leverage with the houses and not my money . The reason being is that I would run out too soon .
If I go down , I didnt have it to start with. If I would have bought stocks I would have purchased it with income taxed money that I earned . So at a rate of 49 percent total for ss and self employment tax combined , I would have worked twice the hours necesary to purchase them.
I have never been taxed one hour on a rental purchase , except for the small amount of money I put up and that was written off . Of course if I sold one the story would change .
The only way new construction works is get the land free from the other land that was sold off on a deal. I have found no deal on constructing rentals paying top dollar for the property. Like you said its less of a payback.
Tim Mooney
a little side note.
Boston (and a couple other cities) is looking to reinstate rent control.
avg 2 bdrm is going for $1700/mo. advocate for rent control says in order to live need to make $32/hr to live in Boston.bobl Volo Non Voleo Joe's cheat sheet
Would you explain this a little more please ? Does this mean that there is a overall limit on rent or what ? This is a new one for me .
Thanks ,
Tim Mooney
Tim,
A lot of cities or even some smaller communities try the govt regulation thing with regards to rents when conditions get poor or rents get high. I can understand and agree from a health standpoint that rentals should be clean and liveable. That is a good form of rent control. But others do get into setting rates. Inevitably, this leads to scarcity of supply and icrease in demand which will not be met since they have made it unprofitable to create or provide rentals. .
Excellence is its own reward!
"The first rule is to keep an untroubled spirit. The second is to look things in the face and know them for what they are." --Marcus Aurelius
I thought you lived close to there and you had supprized me in the past when you quoted some labor prices . I thought they were very low for that area . I would have thought the people in Boston could have afforded it . Boy was I wrong . Of course we get 300 for a 2bed room apt here . Theres plenty to choose from in new form. Older ones rent for 275. Maybe folks here are doing better.
Tim Mooney
When we went into Beantown for DW surgery we stayed at a friends apt which was basically a one bed efficiency with the sleeper sofa and a corner shower. He paid a hundred thou for it and then made it livable. I was probably about 14' x 32' in a condo situation in Beacon hill area - old brick building. I saw lots of ads for room sharing etc. at about 1200per ea in two bedroom apt.
My labor rates are headed way up soon but I'm way out of Boston. .
Excellence is its own reward!
"The first rule is to keep an untroubled spirit. The second is to look things in the face and know them for what they are." --Marcus Aurelius
I opened the paper this morning and California is having the same trouble . I dont have the numbers beside me but it was something like three times what the people could afford. I was taught in school that houseing costs with utilities included should never exceed 25 percent of a house hold incme providing proper management. California as a whole are spending 48 percent of their total income for house payments or rent , not including utilites. They posted some unbelievable numbers for houseing costs. Im wondering now since they laid it on construction costs if the code things we been hearing about has pushed it up out of reach.
Tim Mooney
There was an article today in the Orange county register (southern california) all about home sales.
Here are just a few facts.
median sale price
resale single family home $393k up 20.9% from last year this time.
New single family home $539.5k up 16.1% from last year this time.
Median price by home size
1501-2000 $390k up 17.1% from last year this time
2001-2500 $488k up 22% from last year this time
2501+ $630k up 17.8% from last year this time
Average down payment 20.1%
average monthly payment $1,534
Median price per sqft $235
6 months ago, there was a house for sale across the street from me, 35 years old, original owners, never did any work on it. It was in complete shambles, had a large crack/heave in the slab in the living room and all the finishes/fixtures/cabinets where original. This house needs a complete gut/redo. We all thought the new owners where crazy when they paid $390k for it. Last month the same floorplan house down the street sold for $529k. I have the same floorplan also, bought it 6 years ago for $212k. The wife and I are so tempted to sell.
Volume of sales is way up, people are cashing out and there are plenty of buyers just waiting to purchase. Orange county just had the busiest october in 14 years.
Everyone talks about the bubble popping but prices just continue to rise.
Well now we can see what differences there are in location, huh. Go ahead Tim, lets hear a few facts from your locale. I am sure that others are also in areas of lowered cost's and cannot believe the prices, but they do exist. Makes it very easy to be tempted from a high price area to one of lower cost, but very intimidating to those wanting to go the other way. I think that land cost is the biggest difference, not the codes, but I don't really know. Here in Hawaii, a lot of homes don't have heat, AC, insulation, and mostly only single pane glass, but still they are very expensive. Land cost are high, and most materials must come a long ways. Location location location. Still don't think I am ready to move, as long as I can manage to make the payments.
Dan
I just walked out between posts and read part of the paper and I read the article from Washinton that houseing starts across the nation are down 11 percent . With improved interrest rates, 2003 is expected to be a banner year . Apartment construction is down however by 31 percent . That all comes from record starts of the past year . So in all we are in solid shape nationally. That doesnt show that some areas are doing poorly or exellent. We are booming here with a 36 percent increase in building permits over the last year. WE have gained an estimated 775 jobs locally over the past year , which is a milestone considering the closing of plants nation wide. WE are not union , and still lead the state with low wages in our plants. WE build things cheaper because of lower over head and keep doing it. The baby boomers are moving in to retire .
Im sure that you got mixed signals for what I reported above . Its a great place to retire and it stinks for making a living. I can hire carpenters for 12.00 per hour. I can hire a lead man for 15.00 per hour. [they furnish tools for this money] No benifits . This is the reason Im having some trouble with rentals as they dont make enough to support a 3 bedroom home even though they are cheap nationally.
Tim Mooney
"1501-2000 $390k up 17.1% from last year this time"
You can buy that home new here in one of the nicest subdivisions we have for 75 to 110 thousand. That includes all utilities with curb and gutter streets. White collar neiborhood. I bought a 4000sgft house in a very nice addition to remodel 9 years ago . 1000 sgft heated and cooled shop , 1200 sqft of decks , two lots , two fire places , two car garage in a trade for 90 thousand. Ive put 50 back in it . Its worth 200,000 top market today. It would be listed in exellent condition with many expensive extras.
People come here to retire from California and instantly give the asking price. They have bought houses over the phone after being shown pictures. It happens all the time. Its very hard to make a living here though. We are 75 percent retirement motivated.
Taxes on one of the smaller houses above listed is about 500 per year . I pay 1000 for the one I descriped.
Utilities run from 60 dollars a month for light , water , and sewer to 150 for mine .
I just built a new house last year ; 1100 sg ft , appraised for 65000. They over valued it . Thats the only appraisel Ive ever had they hit high. Ive bought the same house for 45 thousand , but Im an investor.
I can buy them cheaper than I can build them. At least I could the last time I looked . With this crazy market who knows ?
Im glad that we are not suffering like the other industries. I dont think that this market at home will be affected , as it has room to be higher. When people go broke they can always come here to retire , or at least thats been the case.
Tim Mooney
There is no doubt that with the exception of just a handful of other places, you don't get much for your money here in southern california compared to everywhere else. Plus, the houses are built very simple with very little detail. I have been in 3million dollar houses on the beach that weren't built any better then your standard tract house.
Although, it has been sunny & clear and in the mid 80's all week long so at least you get something for all that money.
Right , so you better be making the jack as they say .
Tim Mooney
I don't know all the details
basicly they want to limit the amount of rent that can be charged unless the landlord can prove that expenses aren't being covered.
the way the discussion on TV went, it is tougher on landlords than the old rent control
rehabs and new development under the old was exempt, not under what they are talking about now.
have not read these http://nl3.newsbank.com/nl-search/we/Archives?p_product=BG&p_theme=bg&p_action=search&p_maxdocs=200&s_dispstring=rent%20control%20AND%20date(last%2030%20days)&p_field_date-0=YMD_date&p_params_date-0=date:B,E&p_text_date-0=-30qzD&p_field_advanced-0=&p_text_advanced-0=("rent%20control")&p_perpage=10&p_sort=YMD_date:D&xcal_useweights=no
http://www.google.com/search?hl=en&ie=UTF-8&oe=UTF-8&q=rent+control+boston
bobl Volo Non Voleo Joe's cheat sheet
Edited 11/19/2002 11:18:22 PM ET by bobl
Edited 11/19/2002 11:21:38 PM ET by bobl
WEll, they wouldnt let me read the articles with out paying , but I read enough to understand. As I was thinking the lanlords are really mad. But both tennants and landlords stormed city hall. I guess the people wanted it . Said they could only afford to pay 695 , or something like that. I can see that the lanlords could shut the town down or the town has to pay more income . Maybe I can actually read an article somewhere. I was wondering if this decision by the city council would stand up in front of the supreme court. Very interresting ! Thanks for your help!
Tim Mooney
Thanks for jumping in .
I do it a little different still, than Dan T. ;
I have an income from the 12 I have that I dont touch, except for legetimate expenses. I save that money to pay for the materials on the next one , closing etc. The main reason I have houses is that they are repos sold normally by the US marshall on the court house square. I know the price that they are worth, or the price they will rent for using the 1 percent per month method. I also comp the homes my self on the MLS. Sometimes I go to the court house and look for comparibles , but Im pretty good at guessing the figgure now. I know my market here pretty well, which is important. With this said , I call the bank and ask for a letter of credit for up to 70 percent of the houses worth after the rehab is done. Ive gotten them for lower figgures , but this is all I can go. The banker trusts me to rehab them and thats another big step in having a relationship with a banker you have track record with. I do all of the rehab by myself , unless its air conditioning . Of course I dont get paid a dime back from the bank for my labor and the material. Theres my 30 percent in equity. Two bankers have now told me that I can buy a set of apartments if I want to as long as its the same deal. I havent found such a deal, and wont bother them unless Ive got such a deal. I have verbally gave an offering price for such houses and then called the bank. The thing that keeps me honest with this approach is that , it takes that figgure to operate under the payment. Im done trading money on them , and I have sold those. If the house has some appeal , and its too high to add the the fleet , I sell it for the reasons I stated. I guess theres a lot of ways to do it . I have borrowed it all, but they were very cheap , such as rebuilders.
Tim Mooney
Dan T could be my partner in such as the way we look at investment property . WE are running about the same thoughts.
I will pay for the repairs if I really like the property , and figgure it a future increase in inflation. My bottom line is that it has to cover payment , taxes, insurance, up keep, and management . The ladder two must be a minumum of 100.00 per month, but it has to be nearly a new property , in a good section of town . At the current time my minumum house brings in 250.00 per month , so when I do buy one that is only at 100 I usually sell it . I found out that I cant pass on a deal just because its not a good rental . They will still sell at a higher figgure to another invester. This can bring in extra income while Im out looking and bidding. The deal right now is that a cd is only bringing in 2 percent , so I can sell a nice house rehabbed for more than I will pay for a rental . I guess this is why the competition is getting stronger. The numbers you give would not make the grade in rentals . Im like Dan T , Ive heard such stories , but I would not buy into any of them . My rentals are paying me a carpenters living right now , and the bank owns most of them .
Tim Mooney
Well I am glad to hear that I still am thinking properly. I used to run these sorts of numbers all the time in Seattle, and as you both said, sometimes it works out. Now that I have lived in Hawaii for almost four years, I can assure you that very few of the investments here are showing any profit. The sales prices are just to high to make it work. My neighborhood is actually not very far above average at all, as probably 15% of the homes are rentals, maybe more. The only semi-reasonable explanation that I have heard, is that people want to retire here, so they buy and rent it out while they wait. They must figure that any help paying for it is better than no help!! Any way enough about my problems, glad to hear that you guys are doing well, I hope it continues. I guess that I will have to figure out a way to build a new house and sell for top dollar. Probably could start another thread with Boss on Spec building!!! Thanks for all the info.
Dan
PS I will go search the MLS and post tomorrow the cheapest price here in town. Be ready to be amazed, it is quite silly around here.
Edited 10/27/2002 2:19:43 AM ET by handydan
Handy,
I am sure the options are limited in that enviroment but looking over a period of time will almost always shake something loose. I am speaking of looking in places other than the MLS. I have bought a number of properties from the MLS but many others from individuals, banks etc. By looking for property I mean reading the want adds, asking around to friends, customers etc. One way I have bought 2 properties is to get up on Sunday morning (low traffic) and drive through neighborhoods. When I find a vacant house that looks like it has potential I write down the address and go to the court house. Check the tax records and write the owner and ask if they are interested in selling. Bought a side by side 7 years ago for 10k using that method. If I am seriously looking to buy another property it can take me 6 months to shake out the next deal. Its not as simple as checking the MLS. Also as you have already alluded to the price of a property means nothing, it only matters the price vs income potential. DanT
Well Dan, I would not want to start a contest of storytelling abilities, but I did once list a house for sale, the owner of which was in Jail at the time. Same sort of deal, house was a mess and getting worse, the tax records had as owner occupied, but nobody was there. Got lucky in that there was a new phone listed for the soon to be ex wife, and she told me how to locate him in the slammer. A lot of fun that one was! So I am aware of at least some of the steps involved in bargain hunting. The main problem here is the bargains are still to pricey to make any sense for rental, although fix and sell is looking possible once in a while. I just got done looking at the multiple, and cheapest one now listed is 193,000. 860 square feet of repo that has been stripped out and left. It is a three bedroom on a 7500 foot lot, and not at all special by any set of standards. That was the cheapest currently for sale, and from there it only took ten houses to get to 300,000. I know that there are other options, and you and Tim are wise to use them, but it does indicate the high purchase prices that apply to the area around here. So long and good luck!!
Dan
860/ft stripped for 196? This tells me the land is the valuable part, and the structure is actually a drawback. Buy it, knock down the house, and sell the vacant land for 250, pocket the profit.
Ive been working on your areas problem a little bit . Land is too high for single rentals. However if you could come up with a commercial building that could be transformed , also with fedral money? I have looked here briefly and I havent been able yet to find that type of building. Where we differ is what a building would pay you to transform . I had a chance once at a railroad depot building, I was dumb then . There is also an old jail built of stone that would be nostalgeic [sp?] . I have yet to find out if its for sale. What would a two bedroom apartment bring there , or a condo? You might be in better shape than us if you found the old building that has no further use. Just a thought as I hate for you to give up on something you would like to do. Seems to make your niche would be to find a building no one wants , on some good land .
Tim Mooney