Author Topic: Examples of rentals you own that perform well financially?  (Read 56997 times)

bearman

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Examples of rentals you own that perform well financially?
« on: March 26, 2014, 01:30:47 PM »
There are a zillion threads where people share the financials of potential rental properties, but the numbers aren't strong enough to buy. What I'm curious to know is ... if you currently OWN a rental property, and it at least meets the 1% rule, will you share your numbers? I've read most of the books listed on this forum, and I'm familiar with the rules and metrics, however I have never really heard from anyone who's actually snagged a solid "2% rule" or better property (where the rule was met on day 1, not year 10). Mostly, I'm interested in seeing purchase price, monthly rent and property type (SFR, duplex, etc). Anything else you want to share of course would be greatly appreciated. Thanks in advance to anyone who shares their numbers and helps me have an accurate view of what's possible!

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Re: Examples of rentals you own that perform well financially?
« Reply #1 on: March 26, 2014, 01:43:15 PM »
500sqft SFR, originally bought as primary residence in 2012.  Currently cashflow neutral with 5 yr seller financing with 20% down.  Paid $18.5k, about to be rented for 550 (was until end of March rented to a "friend" for a cut rate while doing a little work on it).  So going strictly by gross rent and cost, it's nearly a "3% rule".  Definitely been an ups-and-downs adventure in small-time landlording for the first time, and at my age (just turned 23 last week).  I basically don't know what the hell I'm doing, but figuring it all out as I go.  This was not originally bought with using it as a rental house in mind.

arebelspy

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Re: Examples of rentals you own that perform well financially?
« Reply #2 on: March 26, 2014, 06:06:12 PM »
Multiplex will generally meet 2% type rules easier.

Some properties I've personally bought (all SFR) that meet the 1% or 2% rule:
33k with closing, no rehab, rented for 750.
58k with closing, 3 rehab, rented for 1000.
68k with closing, 2 rehab, rented for 1350.
72k with closing, no rehab, rented for 1100.
38k with closing, 2 rehab, rented for 875.
37 with closing, 9 rehab, rented for 1050.

One I passed on to a friend:
Duplex, 42k with closing costs, 9k rehab.  Each side is rented for 700.

however I have never really heard from anyone who's actually snagged a solid "2% rule" or better property

That surprises me.  Have you talked with real investors?  Do you attend your local REIA meetups?  I know tons of people who have bought some.

Like I said though, the multiplexes generally hit it a lot easier, 2-3%, especially if the rent is around 500 +/- 50-100.

I generally prefer rents in the 700 and up range for the tenant quality (and most are 900 and up), I find once you get down to the 500 range it's not as good of pickings.  But some like to play there, and to each his own.  :)
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daverobev

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Re: Examples of rentals you own that perform well financially?
« Reply #3 on: March 26, 2014, 07:20:47 PM »
I'll bite:

I have one in the US, $30.5 closing, total after rehab and incedentals was $35k or $36k, rented for $600.

Not as good as ARS', but not too bad for a newbie. Currently looking for another - fingers crossed.

fixer-upper

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Re: Examples of rentals you own that perform well financially?
« Reply #4 on: March 26, 2014, 07:29:30 PM »
Can someone explain the x% rule to me?

Thanks,
Mr. Oblivious

Blindsquirrel

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Re: Examples of rentals you own that perform well financially?
« Reply #5 on: March 26, 2014, 07:52:21 PM »
  Meant to list recent deals.
purchase 25K, $180 in rehab (used fridge) rented at $700 a month we pay no utilities. Tenant has stayed 2.5 years so far.
purchase 20K, $7K in rehab  rented at $720 a month we pay no utilities.
purchase 42K, $6K in rehab  rented at $1100 a month we pay no utilities.
purchase 55K, $15K in rehab Lease option at $1200 a month we pay no utilities or taxes, buyer to close by Feb 2015, at 119K or lose 4K option fee.
I know Arebelspy will cough at my foolishness but all were cash deals, no payments on any of them.

arebelspy

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Re: Examples of rentals you own that perform well financially?
« Reply #6 on: March 26, 2014, 08:09:02 PM »
Can someone explain the x% rule to me?

Monthly rent divided by total price (purchase price + closing costs + make ready/rehab costs) should be 0.01 or higher (1% rule) or 0.02 or higher (2% rule).  Usually more is better, assuming you aren't sacrificing market quality, neighborhood quality, etc. (a big assumption not usually followed).

So a 100k property should rent for at least 1000, 2000 being more ideal.  A 30k property should get at least 600/mo (2%).   

I know Arebelspy will cough at my foolishness but all were cash deals, no payments on any of them.

Not sure where you got that?  I own a number of properties free and clear.  My last half dozen or so were bought all cash (of course a few were flips, but some were buy and holds).

I also have many leveraged.

Different strategies work for different investors based on their risk tolerance, goals, etc.
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Blindsquirrel

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Re: Examples of rentals you own that perform well financially?
« Reply #7 on: March 26, 2014, 08:37:24 PM »
 Areblespy, just that you seem a much bigger fan of leverage than I am. Reformed waaay over leveraged investor that I am. :), now probably swung too much in equity.  All my houses save our own residence and one huge mistake from 10 years ago are free and clear. I may well borrow some more loot in the future as rates are low but for now it keeps me out of trouble. To each his own.

arebelspy

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Re: Examples of rentals you own that perform well financially?
« Reply #8 on: March 26, 2014, 09:34:53 PM »
Areblespy, just that you seem a much bigger fan of leverage than I am. Reformed waaay over leveraged investor that I am. :), now probably swung too much in equity.  All my houses save our own residence and one huge mistake from 10 years ago are free and clear. I may well borrow some more loot in the future as rates are low but for now it keeps me out of trouble. To each his own.

I am a huge fan of low interest, long term, fixed leverage that can't be called, yes.  :)

But it's not the end all be all, and it's a dangerous tool.  One has to know how to use it.
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fixer-upper

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Re: Examples of rentals you own that perform well financially?
« Reply #9 on: March 26, 2014, 10:21:01 PM »
Can someone explain the x% rule to me?

Monthly rent divided by total price (purchase price + closing costs + make ready/rehab costs) should be 0.01 or higher (1% rule) or 0.02 or higher (2% rule).  Usually more is better, assuming you aren't sacrificing market quality, neighborhood quality, etc. (a big assumption not usually followed).

So a 100k property should rent for at least 1000, 2000 being more ideal.  A 30k property should get at least 600/mo (2%).   


Thanks!

I wasn't sure if it was something new which included property tax rates and other carrying expenses.

Gray Matter

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Re: Examples of rentals you own that perform well financially?
« Reply #10 on: March 27, 2014, 01:28:22 AM »
I find this whole rent-to-price thing so interesting, especially the wide ranges.  My house is valued at 520K (paid 500K), taxes and insurance are expensive ($1025/month combined), it's in a desirable neighborhood near a university, close to downtown, in a low-vacancy rental market, and yet I could only rent it for about $2400/month.  That about covers PI, but doesn't touch taxes, insurance, and maintenance.

It's frustrating.  Not that it matters right now, but it would be nice to know we had the option of keeping and renting out the house should we choose to move overseas for a few years.

arebelspy

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Re: Examples of rentals you own that perform well financially?
« Reply #11 on: March 27, 2014, 07:02:10 AM »
I find this whole rent-to-price thing so interesting, especially the wide ranges.  My house is valued at 520K (paid 500K), taxes and insurance are expensive ($1025/month combined), it's in a desirable neighborhood near a university, close to downtown, in a low-vacancy rental market, and yet I could only rent it for about $2400/month.  That about covers PI, but doesn't touch taxes, insurance, and maintenance.

It's frustrating.  Not that it matters right now, but it would be nice to know we had the option of keeping and renting out the house should we choose to move overseas for a few years.

You have the option.  It's just not one most professional real estate investors would do.  Some might gamble on appreciation, depending on where it is.
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Boz86

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Re: Examples of rentals you own that perform well financially?
« Reply #12 on: March 27, 2014, 07:56:51 AM »
I find this whole rent-to-price thing so interesting, especially the wide ranges.  My house is valued at 520K (paid 500K), taxes and insurance are expensive ($1025/month combined), it's in a desirable neighborhood near a university, close to downtown, in a low-vacancy rental market, and yet I could only rent it for about $2400/month.  That about covers PI, but doesn't touch taxes, insurance, and maintenance.
Some markets are like that, in which case the investor is counting on appreciation. We had to move away for a while and rent our house, and although it didn't make as much as we would have liked, we didn't have all the transaction costs of selling and then buying when we moved back. Kind of an unusual scenario except for military or corporate headquarters, I know.

I've also noticed the more expensive houses in any market tend to not make the 1% rule, much less the 2%. That's anecdotal but I've yet to see an exception.

bearman

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Re: Examples of rentals you own that perform well financially?
« Reply #13 on: March 27, 2014, 10:30:50 AM »
Thanks for all the numbers shared so far! This is really helpful.

Multiplex will generally meet 2% type rules easier.

Some properties I've personally bought (all SFR) that meet the 1% or 2% rule:
33k with closing, no rehab, rented for 750.
58k with closing, 3 rehab, rented for 1000.
68k with closing, 2 rehab, rented for 1350.
72k with closing, no rehab, rented for 1100.
38k with closing, 2 rehab, rented for 875.
37 with closing, 9 rehab, rented for 1050.

Does "3 rehab," "2 rehab," etc refer to $3k and $2k in rehab costs? Do you do that work yourself or hire it out? Also, with so many properties, do you self-manage or have a property manager (or multiple managers?)?

however I have never really heard from anyone who's actually snagged a solid "2% rule" or better property

That surprises me.  Have you talked with real investors?  Do you attend your local REIA meetups?  I know tons of people who have bought some.

Mostly I've been reading these forums and a bit on bigger pockets. I guess I've never really talked with a true real-estate investor. Mostly, it's been with "people who have houses they rent out." I've been talking to the wrong people :) I will make a point to find a local real-estate investor group and learn more, in-person.

Based on the numbers I'm seeing so far, it looks like there's a definite tendency toward $30k-$70k properties. Is that because they have the strongest possibility of having outsized returns? Or because it's "easier" to do that as an individual (doesn't take as long to save and buy)? I guess what I'm asking is, are the "2% rule" returns EQUALLY as possible with a $200k property? Or are there more opportunities in the $30k-$70k range?


arebelspy

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Re: Examples of rentals you own that perform well financially?
« Reply #14 on: March 27, 2014, 10:53:17 AM »
Does "3 rehab," "2 rehab," etc refer to $3k and $2k in rehab costs? Do you do that work yourself or hire it out? Also, with so many properties, do you self-manage or have a property manager (or multiple managers?)?

Yes, that's what I meant, 3= 3k.  I hire out all work that needs to be done.  I self manage my local properties, have a PM for my long distance once.

however I have never really heard from anyone who's actually snagged a solid "2% rule" or better property

That surprises me.  Have you talked with real investors?  Do you attend your local REIA meetups?  I know tons of people who have bought some.

Mostly I've been reading these forums and a bit on bigger pockets. I guess I've never really talked with a true real-estate investor. Mostly, it's been with "people who have houses they rent out." I've been talking to the wrong people :) I will make a point to find a local real-estate investor group and learn more, in-person.

Yes.  :)  And good idea.


Based on the numbers I'm seeing so far, it looks like there's a definite tendency toward $30k-$70k properties. Is that because they have the strongest possibility of having outsized returns? Or because it's "easier" to do that as an individual (doesn't take as long to save and buy)? I guess what I'm asking is, are the "2% rule" returns EQUALLY as possible with a $200k property? Or are there more opportunities in the $30k-$70k range?

Typically easier in the lower range, yes.  You can find properties in the 200k range that rent for 2k a month or more, but really hard to find them renting for 4k.  People spending that much on rent typically want mansions that cost more than 200k, or they buy.  It can be done, but you may need to buy so cheap and do a massive rehab that it's better to flip and realize the profits at that point.

Most "middle class" people who make 3-5k/mo can afford a rent of $1000, but can't buy (83% of our country can't qualify for a mortgage right now based on current lending standards and credit scores), so you're looking in the 30-100k range to hit the 1-2% rule on those rent ranges.  Most upper class people who can afford a higher rent will be able to buy, and will do so.

That's my thoughts on it, painting with an overly broad brush (there are always exceptions).
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Re: Examples of rentals you own that perform well financially?
« Reply #15 on: March 27, 2014, 03:26:52 PM »
Does "3 rehab," "2 rehab," etc refer to $3k and $2k in rehab costs? Do you do that work yourself or hire it out? Also, with so many properties, do you self-manage or have a property manager (or multiple managers?)?

Yes, that's what I meant, 3= 3k.  I hire out all work that needs to be done.  I self manage my local properties, have a PM for my long distance once.

however I have never really heard from anyone who's actually snagged a solid "2% rule" or better property

That surprises me.  Have you talked with real investors?  Do you attend your local REIA meetups?  I know tons of people who have bought some.

Mostly I've been reading these forums and a bit on bigger pockets. I guess I've never really talked with a true real-estate investor. Mostly, it's been with "people who have houses they rent out." I've been talking to the wrong people :) I will make a point to find a local real-estate investor group and learn more, in-person.

Yes.  :)  And good idea.


Based on the numbers I'm seeing so far, it looks like there's a definite tendency toward $30k-$70k properties. Is that because they have the strongest possibility of having outsized returns? Or because it's "easier" to do that as an individual (doesn't take as long to save and buy)? I guess what I'm asking is, are the "2% rule" returns EQUALLY as possible with a $200k property? Or are there more opportunities in the $30k-$70k range?

Typically easier in the lower range, yes.  You can find properties in the 200k range that rent for 2k a month or more, but really hard to find them renting for 4k.  People spending that much on rent typically want mansions that cost more than 200k, or they buy.  It can be done, but you may need to buy so cheap and do a massive rehab that it's better to flip and realize the profits at that point.

Most "middle class" people who make 3-5k/mo can afford a rent of $1000, but can't buy (83% of our country can't qualify for a mortgage right now based on current lending standards and credit scores), so you're looking in the 30-100k range to hit the 1-2% rule on those rent ranges.  Most upper class people who can afford a higher rent will be able to buy, and will do so.

That's my thoughts on it, painting with an overly broad brush (there are always exceptions).


I too have been trying to get into this and have been reading books etc... I am curious if you dont mind sharing. Did you buy forclosed properties and or when the Market was really depressed being in NV or are you still able to find places in your area.

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Re: Examples of rentals you own that perform well financially?
« Reply #16 on: March 27, 2014, 04:28:37 PM »
Did you buy forclosed properties and or when the Market was really depressedyour area.

I have done some of everything, including but not limited to:
Flips
Buying from MLS
Direct Marketing
Networking
Foreclosures
Short Sales
Auction
Notes (performing and non)

One thing I've never bothered with is wholesaling.  If I find a deal, I want it for myself, not to pass on to someone else to make most of the profit on.
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Re: Examples of rentals you own that perform well financially?
« Reply #17 on: March 27, 2014, 05:01:37 PM »
Did you buy forclosed properties and or when the Market was really depressedyour area.

I have done some of everything, including but not limited to:
Flips
Buying from MLS
Direct Marketing
Networking
Foreclosures
Short Sales
Auction
Notes (performing and non)

One thing I've never bothered with is wholesaling.  If I find a deal, I want it for myself, not to pass on to someone else to make most of the profit on.



I am a newbie to this and as I mentioned doing some reading (currently Building real estate Wealth in a Changing Market). Is there one or more books that you might recommend that I might understand when i read :-). This one is pretty easy reading so along those lines.
Thanks!!

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Re: Examples of rentals you own that perform well financially?
« Reply #18 on: March 27, 2014, 05:51:55 PM »
I am a newbie to this and as I mentioned doing some reading (currently Building real estate Wealth in a Changing Market). Is there one or more books that you might recommend that I might understand when i read :-). This one is pretty easy reading so along those lines.
Thanks!!

http://www.mrmoneymustache.com/forum/real-estate-and-landlording/real-estate-book-recommendations/

:)
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Letj

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Re: Examples of rentals you own that perform well financially?
« Reply #19 on: March 27, 2014, 05:56:31 PM »
$18K, $15K rehab, currently rented $1K
$15k, $15k rehab, rented $750
$19K, rehab $20K, rented $1,200
$34K, rehab $30k, rented $1,400

All properties purchased as foreclosures for cash; we do a lot of the labor ourselves

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Re: Examples of rentals you own that perform well financially?
« Reply #20 on: March 27, 2014, 06:07:57 PM »
I wish I were in the US. Here in Calgary, the cheapest place I found, aside from cheap mobile homes on rented land, was a 300 sq. ft. studio apartment in a 40 year-old building without a condo board and no reserve fund whatsover, $250 monthly condo fees, and that still required about $5K renos minimum. Rented for $750 plus electricity. Even fully renovated, and taking a huge risk with a building without reserve fund, it would probably rent no more than $900. Nothing cheaper, and the next cheapest apartment was listed at $139K. As for single home, nothing under $280K, and even at that price point, I would personally not live in that kind of house.

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Re: Examples of rentals you own that perform well financially?
« Reply #21 on: March 27, 2014, 10:11:33 PM »
I wish I were in the US. Here in Calgary, the cheapest place I found, aside from cheap mobile homes on rented land, was a 300 sq. ft. studio apartment in a 40 year-old building without a condo board and no reserve fund whatsover, $250 monthly condo fees, and that still required about $5K renos minimum. Rented for $750 plus electricity. Even fully renovated, and taking a huge risk with a building without reserve fund, it would probably rent no more than $900. Nothing cheaper, and the next cheapest apartment was listed at $139K. As for single home, nothing under $280K, and even at that price point, I would personally not live in that kind of house.

What does it matter where you live?

Some of my investments are nearly 2,000 miles away.

If it doesn't make sense to invest near you... don't invest near you.  :)

I don't currently invest in buy and holds in my local market, as the numbers don't meet my criteria.
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yyc-phil

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Re: Examples of rentals you own that perform well financially?
« Reply #22 on: March 27, 2014, 10:24:22 PM »
I wish I were in the US. Here in Calgary, the cheapest place I found, aside from cheap mobile homes on rented land, was a 300 sq. ft. studio apartment in a 40 year-old building without a condo board and no reserve fund whatsover, $250 monthly condo fees, and that still required about $5K renos minimum. Rented for $750 plus electricity. Even fully renovated, and taking a huge risk with a building without reserve fund, it would probably rent no more than $900. Nothing cheaper, and the next cheapest apartment was listed at $139K. As for single home, nothing under $280K, and even at that price point, I would personally not live in that kind of house.

What does it matter where you live?

Some of my investments are nearly 2,000 miles away.

If it doesn't make sense to invest near you... don't invest near you.  :)

I don't currently invest in buy and holds in my local market, as the numbers don't meet my criteria.

You are right. I have been thinking about investing in the US real estate market, but I have been a little leery especially that I have no clue about the rules of the game there, and the tax implications for a non-US resident. But I have a friend in upstate NY who is doing that almost full time and she asked me to partner up. I got to give it some serious thoughts.

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Re: Examples of rentals you own that perform well financially?
« Reply #23 on: March 27, 2014, 10:43:01 PM »
It's definitely something to do your research and due diligence on, but not something to fear.  Knowledge drives out fear anyways. 

Investing with someone who knows what they're doing is a good method - as long as you vet them, understand why they're doing what they're doing, and put sufficient protections in place.  Still due diligence to do, but of a slightly different kind (though you probably want to do the first kind as well anyways).
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Re: Examples of rentals you own that perform well financially?
« Reply #24 on: March 28, 2014, 05:14:03 AM »
I find this whole rent-to-price thing so interesting, especially the wide ranges.  My house is valued at 520K (paid 500K), taxes and insurance are expensive ($1025/month combined), it's in a desirable neighborhood near a university, close to downtown, in a low-vacancy rental market, and yet I could only rent it for about $2400/month.  That about covers PI, but doesn't touch taxes, insurance, and maintenance.

It's frustrating.  Not that it matters right now, but it would be nice to know we had the option of keeping and renting out the house should we choose to move overseas for a few years.

You have the option.  It's just not one most professional real estate investors would do.  Some might gamble on appreciation, depending on where it is.

You are so right.  Don't want to fall into the whiny, "I have no choice!" trap.  I do/would have a choice.  The rent would pay interest, taxes,  insurance, and maintenance.  We would be paying principal.  And any appreciation would help tilt things in the positive, as well.  Maybe not the best financial decision, but I will admit, housing in one area where my emotions come into play and I let them. 

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Re: Examples of rentals you own that perform well financially?
« Reply #25 on: March 28, 2014, 07:43:56 AM »
You are right. I have been thinking about investing in the US real estate market, but I have been a little leery especially that I have no clue about the rules of the game there, and the tax implications for a non-US resident. But I have a friend in upstate NY who is doing that almost full time and she asked me to partner up. I got to give it some serious thoughts.

I think it's about finding a real estate agent you can trust. I have no idea how to do that (I'm not a people person), but luckily a relative of my wife is an agent down in Texas.

Obviously a referral off the internet doesn't mean don't do your homework, but I'm happy to give his details to you if you're really interested. So far, so good with where I'm at... just short of cash for another purchase.

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Re: Examples of rentals you own that perform well financially?
« Reply #26 on: March 28, 2014, 09:35:27 AM »
I find this whole rent-to-price thing so interesting, especially the wide ranges.  My house is valued at 520K (paid 500K), taxes and insurance are expensive ($1025/month combined), it's in a desirable neighborhood near a university, close to downtown, in a low-vacancy rental market, and yet I could only rent it for about $2400/month.  That about covers PI, but doesn't touch taxes, insurance, and maintenance.

It's frustrating.  Not that it matters right now, but it would be nice to know we had the option of keeping and renting out the house should we choose to move overseas for a few years.

You have the option.  It's just not one most professional real estate investors would do.  Some might gamble on appreciation, depending on where it is.

You are so right.  Don't want to fall into the whiny, "I have no choice!" trap.  I do/would have a choice.  The rent would pay interest, taxes,  insurance, and maintenance.  We would be paying principal.  And any appreciation would help tilt things in the positive, as well.  Maybe not the best financial decision, but I will admit, housing in one area where my emotions come into play and I let them.

Your numbers are exactly what mine are and I live in the Artic Midwest as well. Unfortunately , at least where I am I dont see much appreciation coming back either. I have no mortgage but the house at one point was valued 659k and Zillow (depending how reliable it is ) is predicting a 1.5% appreciation. Luckily I bought it well below the Value today but I already have surpassed it with what I have put into it. 3-5 years I want to downsize for the end game so hopefully we will see some improvement.

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Re: Examples of rentals you own that perform well financially?
« Reply #27 on: March 28, 2014, 10:23:36 AM »
$18K, $15K rehab, currently rented $1K
$15k, $15k rehab, rented $750
$19K, rehab $20K, rented $1,200
$34K, rehab $30k, rented $1,400

All properties purchased as foreclosures for cash; we do a lot of the labor ourselves

Those are some impressive numbers! Are these SFRs? Do you feel deals like this are still available today? Or was this well-timed buying on your part, during the darker days of the downturn?

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Re: Examples of rentals you own that perform well financially?
« Reply #28 on: March 28, 2014, 10:28:36 AM »
Did you buy forclosed properties and or when the Market was really depressedyour area.

I have done some of everything, including but not limited to:
Flips
Buying from MLS
Direct Marketing
Networking
Foreclosures
Short Sales
Auction
Notes (performing and non)

One thing I've never bothered with is wholesaling.  If I find a deal, I want it for myself, not to pass on to someone else to make most of the profit on.

Based on your experience, which approach would you recommend for a solid cash-flow rental? (I've owned a triplex before, purchased off MLS in my early 20s. It made money but was not a DEAL. If I'm going to get back into real estate, I want to win from day 1.)

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Re: Examples of rentals you own that perform well financially?
« Reply #29 on: March 28, 2014, 10:33:39 AM »
Based on your experience, which approach would you recommend for a solid cash-flow rental? (I've owned a triplex before, purchased off MLS in my early 20s. It made money but was not a DEAL. If I'm going to get back into real estate, I want to win from day 1.)

It all goes to your goals, when you plan to ER, how much risk you're willing to take, how passive or active you want it to be, if you are comfortable investing long distance, etc. etc.

More information is needed to answer that, basically.  There's no blanket answer just like there's no blanket AA that works for everyone regardless of circumstance.
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Re: Examples of rentals you own that perform well financially?
« Reply #30 on: March 28, 2014, 01:43:15 PM »
Based on your experience, which approach would you recommend for a solid cash-flow rental? (I've owned a triplex before, purchased off MLS in my early 20s. It made money but was not a DEAL. If I'm going to get back into real estate, I want to win from day 1.)

It all goes to your goals, when you plan to ER, how much risk you're willing to take, how passive or active you want it to be, if you are comfortable investing long distance, etc. etc.

More information is needed to answer that, basically.  There's no blanket answer just like there's no blanket AA that works for everyone regardless of circumstance.

Ah, good point. I'd say my goal is cash-flow, ER is 6-8 years from now, risk is moderate, passive now (maybe active in ER) and am comfortable with long distance (I'm in a HCOLA).

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Re: Examples of rentals you own that perform well financially?
« Reply #31 on: March 28, 2014, 01:51:35 PM »
I really enjoyed reading this thread. Thank you arebelspy for giving some examples.

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Re: Examples of rentals you own that perform well financially?
« Reply #32 on: March 28, 2014, 02:37:03 PM »
Based on your experience, which approach would you recommend for a solid cash-flow rental? (I've owned a triplex before, purchased off MLS in my early 20s. It made money but was not a DEAL. If I'm going to get back into real estate, I want to win from day 1.)

It all goes to your goals, when you plan to ER, how much risk you're willing to take, how passive or active you want it to be, if you are comfortable investing long distance, etc. etc.

More information is needed to answer that, basically.  There's no blanket answer just like there's no blanket AA that works for everyone regardless of circumstance.

Ah, good point. I'd say my goal is cash-flow, ER is 6-8 years from now, risk is moderate, passive now (maybe active in ER) and am comfortable with long distance (I'm in a HCOLA).

And what amount are you looking to invest over that 6-8 year timeframe (how much at the beginning, then how much spread out)?
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Re: Examples of rentals you own that perform well financially?
« Reply #33 on: March 28, 2014, 03:46:58 PM »
Based on your experience, which approach would you recommend for a solid cash-flow rental? (I've owned a triplex before, purchased off MLS in my early 20s. It made money but was not a DEAL. If I'm going to get back into real estate, I want to win from day 1.)

It all goes to your goals, when you plan to ER, how much risk you're willing to take, how passive or active you want it to be, if you are comfortable investing long distance, etc. etc.

More information is needed to answer that, basically.  There's no blanket answer just like there's no blanket AA that works for everyone regardless of circumstance.

Ah, good point. I'd say my goal is cash-flow, ER is 6-8 years from now, risk is moderate, passive now (maybe active in ER) and am comfortable with long distance (I'm in a HCOLA).

And what amount are you looking to invest over that 6-8 year timeframe (how much at the beginning, then how much spread out)?

Let's say $30k now and $30k per year after. That's cash available for RE, whether used as a downpayment or lumped for a cash purchase (though I'm completely open to reasonably priced leverage).

(Thanks for all the feedback, btw.)

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Re: Examples of rentals you own that perform well financially?
« Reply #34 on: March 28, 2014, 08:11:46 PM »
When do you want maximum cash flow?
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Re: Examples of rentals you own that perform well financially?
« Reply #35 on: March 28, 2014, 08:16:54 PM »
   I agree on the cash flow. Cash flow is king though I know some go all in for appreciation. I am of the view that appreciation is a good bonus and you do not want to buy in areas that are really dropping in price but cash flow is king. I want residual income that is there whether I go to work or not for buy and hold houses. For flips, I want to get in, get out, and not burn too much cash on rehabs vs targeted after repair value. Flips kind of make me nervous when they are on the market but I generally price them a tad low vs the competition and am really flexible with buyers.

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Re: Examples of rentals you own that perform well financially?
« Reply #36 on: March 29, 2014, 03:21:27 PM »
$18K, $15K rehab, currently rented $1K
$15k, $15k rehab, rented $750
$19K, rehab $20K, rented $1,200
$34K, rehab $30k, rented $1,400

All properties purchased as foreclosures for cash; we do a lot of the labor ourselves

Those are some impressive numbers! Are these SFRs? Do you feel deals like this are still available today? Or was this well-timed buying on your part, during the darker days of the downturn?

They are available but require some elbow grease.

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Re: Examples of rentals you own that perform well financially?
« Reply #37 on: March 30, 2014, 10:05:51 AM »
When do you want maximum cash flow?

Ideally, at the beginning of ER.

   I agree on the cash flow. Cash flow is king though I know some go all in for appreciation. I am of the view that appreciation is a good bonus and you do not want to buy in areas that are really dropping in price but cash flow is king. I want residual income that is there whether I go to work or not for buy and hold houses. For flips, I want to get in, get out, and not burn too much cash on rehabs vs targeted after repair value. Flips kind of make me nervous when they are on the market but I generally price them a tad low vs the competition and am really flexible with buyers.

I'm with you there. I'd like to ensure cash flow, and treat appreciation as a bonus. If I had money AND time (like in ER), I'd consider flips, but not at this point.

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Re: Examples of rentals you own that perform well financially?
« Reply #38 on: March 30, 2014, 10:39:56 AM »
  For the  last 2 flips we did and 3 rehabs, I did nothing other than clean junk out of the house and burn it in the back yard to get rid of it. We used an older handyman who did all of the work very reasonable. The house construction market imploded in our area and thus the supply of skilled workers without much work increased. (Supply and demand works in all things). I work a full time job and value my leisure and family time quite highly. The first 6 houses I did, I worked my a$$ off, got burned out and took a few years off buying more. Big fan of outsourcing labor. Not moustachian per say but if you have a high income and not much time it is the way to go. Really depends on the local market. We are in a very low COL area but the market for renting out nice SFRs has been shockingly strong. Our toughest years were 2005-06 when they were writing loans to anyone who could fog a mirror. My advice is go with 3 bedroom and above as most folks with a couple of kids get inertia and do not move as frequently as 1 bedroom tenants. SFRs can be pretty low turnover and pretty low hassle if you set them up that way from the start.

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Re: Examples of rentals you own that perform well financially?
« Reply #39 on: March 30, 2014, 01:00:06 PM »
Ah, good point. I'd say my goal is cash-flow, ER is 6-8 years from now, risk is moderate, passive now (maybe active in ER) and am comfortable with long distance (I'm in a HCOLA).

Let's say $30k now and $30k per year after. That's cash available for RE, whether used as a downpayment or lumped for a cash purchase (though I'm completely open to reasonably priced leverage).

When do you want maximum cash flow?

Ideally, at the beginning of ER.

Okay, given all this, a plan I'd write for you would look roughly like this:
Year 1: Purchase a property for 100k putting 25% down (25k) and using 5k for closing costs/rehab costs.  Get a loan for 75k.  Make sure it hits at least a 1.2-1.5% rule (rents for 1200-1500/mo).
Year 2: Purchase a second one, same terms.  You now owe 150k in mortgages.
Years 3-7ish: Put the $30k/yr you have to devote to this + the cash flow from the two properties into paying off their loans.  They both should pay off around year 7-8, right around when you ER.

You'll then have two properties free and clear cash flowing a total net amount of about 18k/yr after expenses, management, etc. - a return of about 9% (that should be a real return, not nominal, as the property itself should appreciate with inflation, and the rents should rise with inflation as well).  It's not amazing, but it'll provide solid ER cash flow to cover a decent chunk of your FIRE budget (maybe about half, depending on how much you're planning to spend in ER).

That's a fairly conservative version.  If you wanted to go more aggressive, I'd purchase 3-4, and pay off 1 of them and keep the other two mortgaged, but that's a more complicated strategy.  (Even more aggressive would be purchasing 7-8 of them in the next 6-8 years, not paying any off.)

It's more intricate than that, and we'd want to lay out all the variables in a spreadsheet (what pays off when, the affect of reinvesting cash flow from the rentals, etc.), but that's a rough plan that should do you well.

Hope that helps!
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Re: Examples of rentals you own that perform well financially?
« Reply #40 on: March 30, 2014, 03:41:10 PM »
Okay, given all this, a plan I'd write for you would look roughly like this:
Year 1: Purchase a property for 100k putting 25% down (25k) and using 5k for closing costs/rehab costs.  Get a loan for 75k.  Make sure it hits at least a 1.2-1.5% rule (rents for 1200-1500/mo).
Year 2: Purchase a second one, same terms.  You now owe 150k in mortgages.
Years 3-7ish: Put the $30k/yr you have to devote to this + the cash flow from the two properties into paying off their loans.  They both should pay off around year 7-8, right around when you ER.

You'll then have two properties free and clear cash flowing a total net amount of about 18k/yr after expenses, management, etc. - a return of about 9% (that should be a real return, not nominal, as the property itself should appreciate with inflation, and the rents should rise with inflation as well).  It's not amazing, but it'll provide solid ER cash flow to cover a decent chunk of your FIRE budget (maybe about half, depending on how much you're planning to spend in ER).

That's a fairly conservative version.  If you wanted to go more aggressive, I'd purchase 3-4, and pay off 1 of them and keep the other two mortgaged, but that's a more complicated strategy.  (Even more aggressive would be purchasing 7-8 of them in the next 6-8 years, not paying any off.)

It's more intricate than that, and we'd want to lay out all the variables in a spreadsheet (what pays off when, the affect of reinvesting cash flow from the rentals, etc.), but that's a rough plan that should do you well.

Hope that helps!

Huh, I hadn't really considered how just two paid-off properties could cover most of my expenses. Plus, it's pretty simple (not too many to think about / overhead), which I'm a big fan of. Thanks for all the help! This gives me a good direction to research and analyze.

I know this thread has morphed to cover quite a few topics, but thanks everyone for sharing thoughts, financial details, etc. I've learned quite a bit.

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Re: Examples of rentals you own that perform well financially?
« Reply #41 on: March 30, 2014, 04:38:59 PM »
I am loving this conversation.  Around the middle of 2013, I got very interested in real estate investing and read several books…  but…  I got scared.   I was going to work with an experienced broker who does turnkey in Texas, but it started to smell like a bad deal all over, so I ran away from it.   (I had to pay a deposit to even get property info, (red flag), and then I noticed that many of the properties in the subdivision were not rented, so getting tenants would be difficult / competing with other owners), and it started to look like an appreciation deal, not a cash flow deal…  I think I absolutely made the right choice to get away from that.  The person I was talking with was a fantastic salesperson.   No doubt, knew their stuff, but not the right fit for us.

I started to get into stocks/ options and I'm dabbling with that.  My husband wants nothing to do with real estate, nothing, nothing.  He wants to do his job, come home and relax.  So if I do anything, I must be able to handle it.

I am back to building up cash to have enough of a 'stache to really consider real estate.  And I don't quite have enough time yet.  But I am still fascinated by this option. 

Right now I don't even have time to get to the REIA meetings, but hopefully in the future I can.





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Re: Examples of rentals you own that perform well financially?
« Reply #42 on: March 30, 2014, 04:41:30 PM »
I am loving this conversation.  Around the middle of 2013, I got very interested in real estate investing and read several books…  but…  I got scared.   I was going to work with an experienced broker who does turnkey in Texas, but it started to smell like a bad deal all over, so I ran away from it.   (I had to pay a deposit to even get property info, (red flag), and then I noticed that many of the properties in the subdivision were not rented, so getting tenants would be difficult / competing with other owners), and it started to look like an appreciation deal, not a cash flow deal…  I think I absolutely made the right choice to get away from that.  The person I was talking with was a fantastic salesperson.   No doubt, knew their stuff, but not the right fit for us.

I started to get into stocks/ options and I'm dabbling with that.  My husband wants nothing to do with real estate, nothing, nothing.  He wants to do his job, come home and relax.  So if I do anything, I must be able to handle it.

I am back to building up cash to have enough of a 'stache to really consider real estate.  And I don't quite have enough time yet.  But I am still fascinated by this option. 

Right now I don't even have time to get to the REIA meetings, but hopefully in the future I can.

If it's taking more time than stock options, you're doing it wrong.  The real estate strategy outlined above should take you a few hours a year.

Unless you want to landlord them yourself.  Then you're choosing to take that on, it should take about an hour a month, and it'll pay an extra few thousand on top of the numbers that I said.

I'm curious who the Texas individual was, would you be willing to share?
« Last Edit: March 30, 2014, 04:43:26 PM by arebelspy »
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Roland of Gilead

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Re: Examples of rentals you own that perform well financially?
« Reply #43 on: March 30, 2014, 05:16:20 PM »
I am not so sure the rental thing works very well in hot markets like Seattle.  We have some friends who tried it and are trying to get out of it without a big loss.

Taxes, low rents compared to purchase price.

When the cheapest 2bd houses sell for $200,000 and rents are going for $1600 to $2000 I don't see 2% working at all.

I'll take my risk with investing.  10 hours a week and had 44% returns last year in the account I managed with half of it being all cash the entire year.

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Re: Examples of rentals you own that perform well financially?
« Reply #44 on: March 30, 2014, 05:57:29 PM »
I am not so sure the rental thing works very well in hot markets like Seattle.

Then don't invest there?

We have some friends who tried it and are trying to get out of it without a big loss.

Your friends are an example of someone who didn't do their research and didn't have the necessary knowledge to succeed.

When the cheapest 2bd houses sell for $200,000 and rents are going for $1600 to $2000 I don't see 2% working at all.

2k for 200k isn't terrible, but yeah, not something that interests me (1600 rent definitely not).

Naturally some people can invest locally, because they live in a rental market where the numbers make sense.  Others have to invest long distance.

Obviously investing in real estate doesn't mean "buy any random piece of property because it happens to be near you."

I'll take my risk with investing.  10 hours a week and had 44% returns last year in the account I managed with half of it being all cash the entire year.

I love me some equities, but that sure isn't my strategy for investing in the stock market.  Index funds, baby.  Best of luck to you though.  Hope you make lots of money.  :)
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Roland of Gilead

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Re: Examples of rentals you own that perform well financially?
« Reply #45 on: March 30, 2014, 06:22:49 PM »
I love me some equities, but that sure isn't my strategy for investing in the stock market.  Index funds, baby.  Best of luck to you though.  Hope you make lots of money.  :)

It is all reward for risk.  I like index funds also and that is the primary vehicle for our main accounts but I manage a few of our IRAs with pretty good results (2500% return over the past decade).

Just as you might pick the wrong stock or hold onto a bad stock because of inexperience, I would probably pick the wrong house and end up with a tenant that does not pay rent and lets their 8 cats pee all over the house.  Everyone has something they are good at I guess.

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Re: Examples of rentals you own that perform well financially?
« Reply #46 on: March 30, 2014, 07:41:31 PM »
Just as you might pick the wrong stock or hold onto a bad stock because of inexperience

Inexperience is not the reason why I favor index funds.

I manage a few of our IRAs with pretty good results (2500% return over the past decade).

I'll take my risk with investing.  10 hours a week and had 44% returns last year in the account I managed with half of it being all cash the entire year.

I tip my hat to you, if your 37% annualized is sustainable.  I have reasons to believe it isn't, but I wish you the best of luck.
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Roland of Gilead

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Re: Examples of rentals you own that perform well financially?
« Reply #47 on: March 30, 2014, 07:55:18 PM »
I tip my hat to you, if your 37% annualized is sustainable.  I have reasons to believe it isn't, but I wish you the best of luck.

I have the same reasons to believe real estate investing/rentals are not quite as easy as some people make them out to be, although it *is* inexperience there that keeps me away.  I am going to guess that the successful people have a bit of luck and/or put more sweat equity into the houses than they represent.

The investing gains were through some use of leverage, but not to the extent that I was ever in danger of a margin call (excepting a 80% drop in the whole market).  I was not willing to use that leverage in our main accounts, thus I went with index funds there.

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Re: Examples of rentals you own that perform well financially?
« Reply #48 on: March 30, 2014, 07:59:10 PM »
The investing gains were through some use of leverage, but not to the extent that I was ever in danger of a margin call (excepting a 80% drop in the whole market).  I was not willing to use that leverage in our main accounts, thus I went with index funds there.

Gotcha.

I have the same reasons to believe real estate investing/rentals are not quite as easy as some people make them out to be, although it *is* inexperience there that keeps me away.  I am going to guess that the successful people have a bit of luck and/or put more sweat equity into the houses than they represent.

What do you mean by sweat equity?  What is commonly meant by that is doing unpaid work yourself - i.e. picking up a hammer or paintbrush or wrench and doing work on the house yourself.  Is that what you mean?

If so, I think you're mistaken there - I, and most successful real estate investors I know, hire out all our work.  Some do the work themselves because they enjoy it (and pay themselves a reasonable wage, if they're accurate about it), and others who are doing a single rental or two and want the extra money as a side gig (MMM style) may do that, but I wouldn't consider them professional investors.

And I certainly wouldn't attach any luck to it.  Finding good tenants has nothing to do with luck, for example.  Doing due diligence on properties has nothing to do with luck.

It takes knowledge, yes. 
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Re: Examples of rentals you own that perform well financially?
« Reply #49 on: March 31, 2014, 11:54:33 AM »
I am not so sure the rental thing works very well in hot markets like Seattle.  We have some friends who tried it and are trying to get out of it without a big loss.

Taxes, low rents compared to purchase price.

When the cheapest 2bd houses sell for $200,000 and rents are going for $1600 to $2000 I don't see 2% working at all.

I'm in the Seattle area. Because of the cost/rent ratios you're referencing, I've given up looking for cash-flow rentals here. I suppose you could make money with flips or on appreciation, but that's not for me. The plan I'm building is based on buying elsewhere and using a property manager. It may take a while, but I plan to not buy anything until I find something with the returns (after costs including PM) similar to the 9% Arebelspy mentioned. In theory, after that, it should be virtually no work, which is what I want :)