Author Topic: Help Analyzing Rental Property Opportunity  (Read 1903 times)

COlady

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Help Analyzing Rental Property Opportunity
« on: September 24, 2018, 01:12:18 PM »
Please help me decide whether or not to buy this property.  I'll provide the facts I think are pertinent, if you have other questions/points please let me know.

 - 3 bed, 2 bath townhouse with single garage located in small town WY
 - Cost $125,000. Purchasing from close friend that needs the cash. This is market price, wouldn't be getting a friend deal but would be purchasing without a realtor so might ask for 3% off since I wouldn't have a buyer's agent and she doesn't have a seller's agent.
 - Recently painted and has new carpet, in rental ready condition
 - located 4 hours away from where I live (Colorado) but I have family and a number of friends that would be willing to check on the place for me. I could even throw some money to them (would be cheaper and better use of time than driving 4 hours).
 - Oilfield activity is picking up around this city in WY with news of thousands of wells being drilled in the area.  I spoke to 3 realtors who told me there are wait lists for rentals.
 - I have never owned a rental but would like to diversify as all our money is in the market.
 - Could rent property for $1,000/month easily, possibly up to $1,300 or $1,400/month
 - Property tax is $600 per year, insurance also $600ish.  No state tax in WY.
 - ROI if purchased in cash outright = 8.64% on low side , 11.52% high side, I think realistically around 9.5% to 10%. Don't really want to tie up the cash but have it.
 - Could get loan at 5.2% with 25% down. ROI:

Rental Rev 12,000
RE Tax (600)
Ins (600)
Int Exp on $93,750 @ 5.2% = ($4,875)
Net Income $5,925
Cap invest $31,250
ROI  = 18.96%

I need to find out what closing costs would be for the loan...that is of course not factored in. 

Downside: Renting to oilfield service guys is going to be messy. There is a real chance they would trash the place.  Would do background and credit check, first and last months deposit. Thoughts?

My personal financial situation since that's always a factor in these discussions:

Married 34 and 36 years old. 2 young kids.

Assets:
401k accounts $625,000
Inherited IRA (held in my name only) $541,000
Roth IRAs $41,000
Inherited Taxable  (held in my name only) $450,000
Joint Investment account $232,000
FMV primary res $420,000
Total Assets: $2,309,000

Liabilities:
Mortgage @ 4.1% ($130,000)
Car Loan @2.2% ($7,000)
Total Liabilities: ($137,000)

Net Worth: $2,172,000

 - Would purchase property with my inherited funds in my name only to avoid co-mingling with husband. Relationship is good and stable but don't want to co-mingle.
 - We will be upgrading our house in approximately 18 months so will need some cash. If I purchase this rental I think it would be best to get a loan. Thoughts?
 - My mom owns a similar townhouse half a mile away from townhouse I'm looking at and will be selling in about 12-14 months to move closer to us. Assuming the first rental went well, I would buy my mom's property as well.

sammybiker

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Re: Help Analyzing Rental Property Opportunity
« Reply #1 on: September 24, 2018, 01:42:09 PM »
@COlady

Capex, repairs, management (even if self managed/managed by friends) and vacancy are expenses not included in your analysis and will kill this deal.

This may possibly be a deal if you can confirm rents are $1300+/mo and you're buying with cash to increase RE exposure and/or think there is some longer term appreciation coming.

I'd get on the phone with a couple of local property managers and confirm approx. rents.  Better yet, create a similar craigslist ad at your target price and judge responses.

I've played around in oilfield towns - yes, they can be rough on places but you can also sometimes command higher rents, even renting by the bedroom. 

I never advise buying a single rental long distance unless you're planning to buy more or move to be closer.  If you're buying long distance, you want to eventually have a basket of rentals to help even out the cashflow as expenses inevitably pop-up.  It looks like you're planning to buy more, so that's good.
« Last Edit: September 24, 2018, 01:44:09 PM by sammybiker »

COlady

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Re: Help Analyzing Rental Property Opportunity
« Reply #2 on: September 24, 2018, 04:00:26 PM »
Thanks Sammybiker for the feedback.

I called 5 different people, one of which owns 62 rentals in town. He said he has no vacancies.  If anyone knows the market, it's him.  I asked him if I could definitely get $1,200 and he said yes.  He said furnish it and I could definitely get $1,300 or even $1,400.  My dad passed away in March (he lived in the same town) and his whole house is full of furniture I don't know what to do with so this might be the ticket...

Mortgage or no mortgage? I'm bummed that QBI deduction doesn't apply to rentals. I thought it was going to but my research says no.

COlady

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Re: Help Analyzing Rental Property Opportunity
« Reply #3 on: September 24, 2018, 04:02:27 PM »
Oh I also put up a CL advert so we'll see how that goes. I put $1,500 month furnished.  I'll try that for 5 days and keep dropping it by $100 bucks until I get some bites. That will tell me what the market is - thanks for suggestion.

COlady

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Re: Help Analyzing Rental Property Opportunity
« Reply #4 on: September 24, 2018, 04:12:25 PM »
   Low   Mid   High
Rent   13,200.00    14,400.00    15,600.00
RE Tax   (600.00)   (600.00)   (600.00)
Insurance   (600.00)   (600.00)   (600.00)
Repairs & Maint.   (2,000.00)   (2,000.00)   (2,000.00)
Turnover   (1,100.00)   (1,200.00)   (1,300.00)
Interest Expense   (4,914.00)   (4,914.00)   (4,914.00)
Net Profit   3,986.00    5,086.00    6,186.00
         
Cap Invest   31,500.00    31,500.00    31,500.00
ROI   12.65%   16.15%   19.64%
         
         
Depreciation   (4,352.73)   (4,352.73)   (4,352.73)
Net Income/(Loss)   (366.73)   733.27    1,833.27

Another Reader

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Re: Help Analyzing Rental Property Opportunity
« Reply #5 on: September 24, 2018, 05:42:35 PM »
Is there an HOA?  How much is the monthly fee and what is included?  Any recent assessments for roofs, parking lots, other capex?

You will pay taxes on any net income after depreciation in your home state.

Looks pretty "meh" to me.

waltworks

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Re: Help Analyzing Rental Property Opportunity
« Reply #6 on: September 24, 2018, 09:09:45 PM »
You have a cool $2 million sitting around. WTF do you want to buy a piddly $1300/mo rental 4 hours away for? SMH.

At your level of wealth, your time is no way worth buying a property like this, let alone self managing or, even worse, asking friends to manage it (goodbye, friendships...)

You won the money game a long time ago. You do not need this deal, nor should you want it. Take a step back and figure out what you want out of life, and go do that.

-W

Cwadda

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Re: Help Analyzing Rental Property Opportunity
« Reply #7 on: September 25, 2018, 11:04:06 AM »
You have a cool $2 million sitting around. WTF do you want to buy a piddly $1300/mo rental 4 hours away for? SMH.

At your level of wealth, your time is no way worth buying a property like this, let alone self managing or, even worse, asking friends to manage it (goodbye, friendships...)

You won the money game a long time ago. You do not need this deal, nor should you want it. Take a step back and figure out what you want out of life, and go do that.

-W

I had a similar thought. Another thought I had was why buy a single family rental if instead you could buy a commercial property?

tralfamadorian

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Re: Help Analyzing Rental Property Opportunity
« Reply #8 on: September 25, 2018, 12:14:48 PM »
   Low   Mid   High
Rent   13,200.00    14,400.00    15,600.00
RE Tax   (600.00)   (600.00)   (600.00)
Insurance   (600.00)   (600.00)   (600.00)
Repairs & Maint.   (2,000.00)   (2,000.00)   (2,000.00)
Turnover   (1,100.00)   (1,200.00)   (1,300.00)
Interest Expense   (4,914.00)   (4,914.00)   (4,914.00)
Net Profit   3,986.00    5,086.00    6,186.00
         
Cap Invest   31,500.00    31,500.00    31,500.00
ROI   12.65%   16.15%   19.64%
         
         
Depreciation   (4,352.73)   (4,352.73)   (4,352.73)
Net Income/(Loss)   (366.73)   733.27    1,833.27

You're still leaving out management and principal payments. As stated by others, friends helping out are not going to cut it when sewage starts coming in into the bathtub at 1am on Christmas Eve. You also should be including principal payments; even if they are going into your property equity (balance sheet), they still need to be paid to the bank and are part of your ROI (income statement/CF statement).

Smart move on the CL ad.

COlady

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Re: Help Analyzing Rental Property Opportunity
« Reply #9 on: September 25, 2018, 01:01:55 PM »
I got a response to CL ad for $1500 within 24 hours from an energy company. They want to sign NOW! Their guys are in hotels for the week and will be house less next week as there are no hotel rooms available.  He asked about furnishings. I said, how about $1,700 furnished? He said that's even better.  I might buy another one.....

Regarding commercial versus residential...I'm new at this.  I don't know what I'm doing and I'm scared to lose my ass.

COlady

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Re: Help Analyzing Rental Property Opportunity
« Reply #10 on: September 25, 2018, 01:13:38 PM »
   Low   Mid   High
Rent   13,200.00    14,400.00    15,600.00
RE Tax   (600.00)   (600.00)   (600.00)
Insurance   (600.00)   (600.00)   (600.00)
Repairs & Maint.   (2,000.00)   (2,000.00)   (2,000.00)
Turnover   (1,100.00)   (1,200.00)   (1,300.00)
Interest Expense   (4,914.00)   (4,914.00)   (4,914.00)
Net Profit   3,986.00    5,086.00    6,186.00

Good point. Will modify. Talking to bank today about loan specifics.          
Cap Invest   31,500.00    31,500.00    31,500.00
ROI   12.65%   16.15%   19.64%
         
         
Depreciation   (4,352.73)   (4,352.73)   (4,352.73)
Net Income/(Loss)   (366.73)   733.27    1,833.27

You're still leaving out management and principal payments. As stated by others, friends helping out are not going to cut it when sewage starts coming in into the bathtub at 1am on Christmas Eve. You also should be including principal payments; even if they are going into your property equity (balance sheet), they still need to be paid to the bank and are part of your ROI (income statement/CF statement).

Smart move on the CL ad.

COlady

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Re: Help Analyzing Rental Property Opportunity
« Reply #11 on: September 25, 2018, 01:27:55 PM »
Is there an HOA?  How much is the monthly fee and what is included?  Any recent assessments for roofs, parking lots, other capex?

You will pay taxes on any net income after depreciation in your home state.

Looks pretty "meh" to me.

No HOA.....HOAs aren't a thing in this area of the country.  The place has new roof, water heater, furnace.

tralfamadorian

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Re: Help Analyzing Rental Property Opportunity
« Reply #12 on: September 25, 2018, 03:46:45 PM »
Rent  $1700
PITIA: $614.79
Repairs & Maint. $167
Turnover  $100
Management: $170
Additional wear & tear on furnishings: $50
Net: $598.21/mo
ROI: 23%

Ding ding, we have a winner!


waltworks

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Re: Help Analyzing Rental Property Opportunity
« Reply #13 on: September 25, 2018, 09:21:53 PM »
I've got a hot line on a kids' lemonade stand while you're at it....

Seriously, why are you doing this if you're "Scared to lose my ass"?

You. Are. Rich.

You don't need this. It's meaningless in the grand scheme of your finances. Why do you want it?

-W

tralfamadorian

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Re: Help Analyzing Rental Property Opportunity
« Reply #14 on: September 26, 2018, 06:30:06 AM »
I've got a hot line on a kids' lemonade stand while you're at it....

Seriously, why are you doing this if you're "Scared to lose my ass"?

You. Are. Rich.

You don't need this. It's meaningless in the grand scheme of your finances. Why do you want it?

-W

Really? What’s with the pessimism, Walt?

She’s FIRE and wants a little diversification. It’s a completely valid reason for someone new to real estate to start with a ~$30k investment instead of a $400k down payment on commercial when they are learning the ropes. 20%+ ROI is a great return vs the 4% safe withdrawal rate out of an index fund.

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Re: Help Analyzing Rental Property Opportunity
« Reply #15 on: September 26, 2018, 06:49:09 AM »
I've got a hot line on a kids' lemonade stand while you're at it....

Seriously, why are you doing this if you're "Scared to lose my ass"?

You. Are. Rich.

You don't need this. It's meaningless in the grand scheme of your finances. Why do you want it?

-W

Really? What’s with the pessimism, Walt?

She’s FIRE and wants a little diversification. It’s a completely valid reason for someone new to real estate to start with a ~$30k investment instead of a $400k down payment on commercial when they are learning the ropes. 20%+ ROI is a great return vs the 4% safe withdrawal rate out of an index fund.

She is not going to get that return.  First, with that arrangement she is likely providing utilities.  That's common with that kind of short term worker housing and accounts for the high rent.  Second, it's a townhouse with no HOA.  How are common elements maintained and replaced?  Third, wear and tear on the personal property is going to be high.  Fourth, the rental market in energy production locations is cyclical.  Workers need housing now.  Next year?  Who knows?  Look at North Dakota.

The down payment is not a large part of her stash, so it it's not the end of the world if this investment goes bad.  Just understand the mortgage payment is due no matter what happens with the energy business and she will be paying utilities while the place is vacant.

waltworks

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Re: Help Analyzing Rental Property Opportunity
« Reply #16 on: September 26, 2018, 08:37:16 AM »
It's not pessimism. I'm guessing she'll make a little money. For a decent amount of upfront work (at a minimum, this will be 50 hours of OP's life spent doing the deal), potentially damaging friendships, and then ongoing work to manage a place rented to roughnecks.

With $2 million, just buy some REITs if you want/need diversification. Small scale self-managed (or, friend managed) residential RE is a *job*. It can be a super lucrative job, but there are lots of more meaningful and fun forms of work out there if OP wants a job.

This isn't a critique of the place. I might buy it if I was into WY real estate investing. But I sold all my rentals a few years ago when I realized I was FIRE and my time was better spent doing things I actually like. OP does not need to "learn the ropes" of RE investing, regardless. She has enough money to spend the rest of her life living in what I'd consider luxury (an $80k spend at 4% SWR is double what my *entire family* spends in a year, living in an extremely expensive ski town and vacationing regularly).

Then again, for some people, no amount of money is ever enough. If that's the case, by all means buy an empire of WY condos.

-W

Really? What’s with the pessimism, Walt?

She’s FIRE and wants a little diversification. It’s a completely valid reason for someone new to real estate to start with a ~$30k investment instead of a $400k down payment on commercial when they are learning the ropes. 20%+ ROI is a great return vs the 4% safe withdrawal rate out of an index fund.

clifp

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Re: Help Analyzing Rental Property Opportunity
« Reply #17 on: October 13, 2018, 05:23:30 PM »
I've got a hot line on a kids' lemonade stand while you're at it....

Seriously, why are you doing this if you're "Scared to lose my ass"?

You. Are. Rich.

You don't need this. It's meaningless in the grand scheme of your finances. Why do you want it?

-W

Diversification is important, and starting small in a new area is important.

Her story sounds somewhat similar to my entry into real estate back in 2009.   On one level Walt is right why would a 50 year old with net worth near 4 million, bother with the hassle of buying a $55,000 condo in Vegas. Especially since I'm a 6 hour plane ride away.  But hey Vegas real estate seem dirt cheap at the time, and $700/rent for $55K is very nice rate of return.  I didn't know what I was doing and had rather painful experience getting it renting and finding a good property manager, the first one was awful, and the 2nd one was poor.  Now 10 year later and 4 Vegas and 4 properties near Kansas City, MO later, I'm glad I started the journey.  Even though Real estate is less than 15% my NW, it well over 1/3 of my  dependable cashflow in retirement.

Plus as a bonus I got to met and know @arebelspy during the process.

It is certainly true, that is helluva a lot more working than managing you investment, The 50 hour of time involved to purchase and manage the property for the first years. is a good estimate. But it will be lower the next years.  I'd definitely recommend finding a good property manager, since you don't need to maximize every dollar.

 But $1,200-$1,400/month for a $125K property is above the 1% rule (monthly rent/price).  For that 50 hours, she is likely to make at least $5k more than sticking the money in s safe investment. If she enjoys it or at least doesn't hate it, she'll have her mom's house and then who knows.

Life is like a monopoly game you need 4 house before you can put on a hotel :).




waltworks

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Re: Help Analyzing Rental Property Opportunity
« Reply #18 on: October 13, 2018, 05:31:47 PM »
"Life is like a monopoly game you need 4 house before you can put on a hotel"

SMH. If you have $4 million and you are not out doing fun hobbies or making the world a better place somehow, you fail. Buying cheap property to rent out is neither. Sorry.

-W
« Last Edit: October 13, 2018, 05:35:31 PM by waltworks »

arebelspy

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Re: Help Analyzing Rental Property Opportunity
« Reply #19 on: October 13, 2018, 08:16:42 PM »
Awesome to hear you kept going, Clif, and that it's worked out so well for you. We should catch up sometime. :)

If you have $4 million and you are not out doing fun hobbies or making the world a better place somehow, you fail. Buying cheap property to rent out is neither.

I agree with the first sentence.

The second, well, I think it's probably likely true most of the time. I do think buying cheap property COULD be a fun hobby for some people, and I do think buying cheap property COULD make the world a better place (depending on what you do with it--but being a good landlord and providing safe, clean housing is underrated, generally).

I think if the person in question has 4MM+ and is trying to eke out a bit of extra return, and doing something they don't want to do and have no interest in, yes, they're probably doing something wrong.

If they're interested in learning, growing, and improving their situation and can find a new hobby in it? Well, it's certainly worth starting small and making mistakes, as the OP seems willing to do.

Good luck, COlady! :)
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clifp

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Re: Help Analyzing Rental Property Opportunity
« Reply #20 on: October 13, 2018, 09:38:30 PM »
"Life is like a monopoly game you need 4 house before you can put on a hotel"

SMH. If you have $4 million and you are not out doing fun hobbies or making the world a better place somehow, you fail. Buying cheap property to rent out is neither. Sorry.

-W

What can I say investing is one of my favorite hobbies.  One that enjoyed before I retired, and even more since I retired.  There is much more to invest than just index funds and I've dabbled in many and gotten serious about a few.  Stock picking, options, exotic debt instruments, peer to peer lending, syndicated commercial real estate, residential real estate. hard money lending, and now 20+ angel investments.

As a practical matter, ten years ago this month was the only time in my 18+ years of retirement, that I genuinely was concerned about running out of money.  It wasn't so much that my portfolio had dropped to a level that I wasn't comfortable with (about 1/2 my starting retirement portfolio) , or that I had had outdated skills in the middle of a depression and no reasonable chance of finding a job, although that was scary.  The real scary thing was I knew there was a slim, but non-zero chance that financial markets were going to collapse and I had all of my assets, except for my house, tied up to things that only existed on a computer.   There is a huge difference between having a brokerage statement that says you own 2,500 shares of Realty Income (O) and having a deed of trust showing you owning a specific property in Wyoming or Vegas or where-ever.

89 years ago this month, the Dow started its dropped from 331 to 41, and while, it is true if you just held on you did ok in the long-run, in the short-run you needed to pay for stuff. I'm pretty sure having a few cheap rental properties will help in that situation.  Suze Orman is full of shit, but she is right about one thing. Black Swan's happen.

« Last Edit: October 13, 2018, 09:41:15 PM by clifp »

Another Reader

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Re: Help Analyzing Rental Property Opportunity
« Reply #21 on: October 14, 2018, 08:38:18 AM »
"Life is like a monopoly game you need 4 house before you can put on a hotel"

SMH. If you have $4 million and you are not out doing fun hobbies or making the world a better place somehow, you fail. Buying cheap property to rent out is neither. Sorry.

-W

What can I say investing is one of my favorite hobbies.  One that enjoyed before I retired, and even more since I retired.  There is much more to invest than just index funds and I've dabbled in many and gotten serious about a few.  Stock picking, options, exotic debt instruments, peer to peer lending, syndicated commercial real estate, residential real estate. hard money lending, and now 20+ angel investments.

As a practical matter, ten years ago this month was the only time in my 18+ years of retirement, that I genuinely was concerned about running out of money.  It wasn't so much that my portfolio had dropped to a level that I wasn't comfortable with (about 1/2 my starting retirement portfolio) , or that I had had outdated skills in the middle of a depression and no reasonable chance of finding a job, although that was scary.  The real scary thing was I knew there was a slim, but non-zero chance that financial markets were going to collapse and I had all of my assets, except for my house, tied up to things that only existed on a computer.   There is a huge difference between having a brokerage statement that says you own 2,500 shares of Realty Income (O) and having a deed of trust showing you owning a specific property in Wyoming or Vegas or where-ever.

89 years ago this month, the Dow started its dropped from 331 to 41, and while, it is true if you just held on you did ok in the long-run, in the short-run you needed to pay for stuff. I'm pretty sure having a few cheap rental properties will help in that situation.  Suze Orman is full of shit, but she is right about one thing. Black Swan's happen.

My thoughts exactly. 

I had been retired from a six figure job about 18 months in October 2008.  One day that October I walked cash from one bank to another to pay a contractor because I was not 100 percent sure that banks were not going to fail and accounts and transfers were not going to be frozen.  My IRA's were decimated by December and I still had mortgages on most of the properties, including my house.  If the stock market continued its' downward course, payment of my two pensions was going to be in jeopardy.  Oops.

The funny thing was that the renters continued to pay their rents during the Great Recession while their neighboring homeowners were short selling or being foreclosed out of their houses.  As things settled down after the initial shock, those that had jobs needed a place to live.  Occupancy and rents went up.  House prices dropped 70 percent in my investment market and I was able to raise the cash to buy four more rentals in 2009 to 2012.

Investing in a diverse universe of assets has proven to be effective in surviving a prolonged downturn over the decades.  Although owning rentals is very aggravating at times, in my case the financing is structured so I pay very little in taxes on them because of interest and depreciation.  The cash flow is still strong. 

I like investing, although I am nowhere near Clif's level of sophistication.  My results have been pretty good, in terms of both income and net worth.

The OP's investment concerns me because the the expense side of the property is fuzzy and it's in a volatile market dominated by energy production which is highly cyclical.  Having $4 million and wanting to invest in real estate does not concern me in the least.

Jon Bon

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Re: Help Analyzing Rental Property Opportunity
« Reply #22 on: October 14, 2018, 02:00:27 PM »
What kind of lease terms are you are looking at with these oilfield guys?

If these are short term leases even at 2k a month it would not be worth it. You are going to have a whole bunch of coordinating turning this place over 4x a year or more, getting in cleaners, handymen etc.  This kind of feels like folks who think an air BNB home is going to make them rich, and it just makes for a pain in the ass.

In terms of wanting to diversify, is this not the opposite of diversification? You are concentrating a sizable portion of your wealth in a single asset. Buy REITS or stocks in a build home building company.  There are mutual funds for everything! I realize this is boring and not 'fun' investing. There are lots of business that need investors that would be an interesting investment for you.

Full disclosure I own rentals and it is a great business. But I can't think of a situation where I would want to own one 4 hours away.

If you still want to invest in real estate and be a landlord GREAT, I just think you should do it closer to home.

clifp

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Re: Help Analyzing Rental Property Opportunity
« Reply #23 on: October 14, 2018, 04:31:16 PM »
What kind of lease terms are you are looking at with these oilfield guys?

If these are short term leases even at 2k a month it would not be worth it. You are going to have a whole bunch of coordinating turning this place over 4x a year or more, getting in cleaners, handymen etc.  This kind of feels like folks who think an air BNB home is going to make them rich, and it just makes for a pain in the ass.

In terms of wanting to diversify, is this not the opposite of diversification? You are concentrating a sizable portion of your wealth in a single asset. Buy REITS or stocks in a build home building company.  There are mutual funds for everything! I realize this is boring and not 'fun' investing. There are lots of business that need investors that would be an interesting investment for you.

Full disclosure I own rentals and it is a great business. But I can't think of a situation where I would want to own one 4 hours away.

If you still want to invest in real estate and be a landlord GREAT, I just think you should do it closer to home.


Some good points.  It always cost me at least a month in repairs and cleaning between tenants, plus the place is vacant for 2-4 weeks. So if you don't get at least a 6-month lease the extra $200/month won't pay for the turnover.  The chances of single (at least situationally single!) male oil worker not trashing the place are pretty slim. So I think her repair estimates are low.

I think it's a fallacy to believe that REITs get you diversification.  REITs are interest rate sensitive stocks period.   Correlation between REIT and the broader market is ~.75 and has increased considerably over the last years. If the financial market fails like it almost did in 2008, there isn't going to be a bit of difference what the stock symbol is VTI, BND, SPY, and O are all going to have liquidity troubles.  In contrast, except for the great recession where we saw an unprecedented nationwide drop in housing, the correlation between stocks and real estate is pretty low.    Real Estate prices are driven by interest rates, inflation expectation, the economy but mostly real estate is local.  Which is good and bad.

I agree in an ideal world your rental properties should be nearby.  Local knowledge of the real estate is a definite advantage for buying and selling, and while you can outsource the expertise to a good RE agent it is still advantageous.  But the OP has a mom that lives in the town and friends and sounds like she's spent a fair amount of time there.

I'm just not convinced that big advantage operational.  Now if you are the type that does your own repair work than sure close is best.  But I don't even do my own repair work on my own house, and I'm guessing the@COlady isn't the type to lay her own carpet install new toilets. and paint the house.  A good property manager will coordinate all maintenance for you. For 8-10% of the rents which considering how good this place cashflows out is not a big deal. Not to mention she in the same time zone which beat me having properties 3 and 5 hours away.


But it is eminently doable and @arebelspy is a perfect example of this.  Unless its changed recently, he has properties in Vegas, where he used to live, in Detroit where he has never lived, and managed them while traveling around the world, and living in Turkey, and South East Asia. 

As far as diversification goes. It's 6% of her net worth, and the importance of the asset is its cash flow, not its value.  If she was buying a $1 million Condo in Aspen, I'd be concerned.





Jon Bon

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Re: Help Analyzing Rental Property Opportunity
« Reply #24 on: October 15, 2018, 07:31:55 AM »
What kind of lease terms are you are looking at with these oilfield guys?

If these are short term leases even at 2k a month it would not be worth it. You are going to have a whole bunch of coordinating turning this place over 4x a year or more, getting in cleaners, handymen etc.  This kind of feels like folks who think an air BNB home is going to make them rich, and it just makes for a pain in the ass.

In terms of wanting to diversify, is this not the opposite of diversification? You are concentrating a sizable portion of your wealth in a single asset. Buy REITS or stocks in a build home building company.  There are mutual funds for everything! I realize this is boring and not 'fun' investing. There are lots of business that need investors that would be an interesting investment for you.

Full disclosure I own rentals and it is a great business. But I can't think of a situation where I would want to own one 4 hours away.

If you still want to invest in real estate and be a landlord GREAT, I just think you should do it closer to home.


Some good points.  It always cost me at least a month in repairs and cleaning between tenants, plus the place is vacant for 2-4 weeks. So if you don't get at least a 6-month lease the extra $200/month won't pay for the turnover.  The chances of single (at least situationally single!) male oil worker not trashing the place are pretty slim. So I think her repair estimates are low.

I think it's a fallacy to believe that REITs get you diversification.  REITs are interest rate sensitive stocks period.   Correlation between REIT and the broader market is ~.75 and has increased considerably over the last years. If the financial market fails like it almost did in 2008, there isn't going to be a bit of difference what the stock symbol is VTI, BND, SPY, and O are all going to have liquidity troubles.  In contrast, except for the great recession where we saw an unprecedented nationwide drop in housing, the correlation between stocks and real estate is pretty low.    Real Estate prices are driven by interest rates, inflation expectation, the economy but mostly real estate is local.  Which is good and bad.

I agree in an ideal world your rental properties should be nearby.  Local knowledge of the real estate is a definite advantage for buying and selling, and while you can outsource the expertise to a good RE agent it is still advantageous.  But the OP has a mom that lives in the town and friends and sounds like she's spent a fair amount of time there.

I'm just not convinced that big advantage operational.  Now if you are the type that does your own repair work than sure close is best.  But I don't even do my own repair work on my own house, and I'm guessing the@COlady isn't the type to lay her own carpet install new toilets. and paint the house.  A good property manager will coordinate all maintenance for you. For 8-10% of the rents which considering how good this place cashflows out is not a big deal. Not to mention she in the same time zone which beat me having properties 3 and 5 hours away.


But it is eminently doable and @arebelspy is a perfect example of this.  Unless its changed recently, he has properties in Vegas, where he used to live, in Detroit where he has never lived, and managed them while traveling around the world, and living in Turkey, and South East Asia. 

As far as diversification goes. It's 6% of her net worth, and the importance of the asset is its cash flow, not its value.  If she was buying a $1 million Condo in Aspen, I'd be concerned.

@clifp you are correct, and I was not making any specific stock picks, really just an example that a mutual fund is always going to be more diversified than a single family home.

Honest question though and it might derail the thread a little. But is there such a thing as a 'good property manager' ? IMO it is one of those jobs where  if you find someone 'good' they are usually very underpaid, will soon realize this and move onto better things! My experience with most handymen is that they will do the job they are paid for. They will show zero initiative after that. For instance he will replace the ceiling fan he was paid to replace, but ignore the leaky toilet, gross furnace filter, and missing shingles.  As in you need to quarterly check on your property and take action on preventative items yourself, no one else is going to do this. No one else has your stake in the property.  My houses are really old, YMMV.

But back to OP, I think real estate is a great businesses to get into especially like someone like yourself who has the time and funds to handle a rental property and its relevant issues. A single/double/triple would be a great way to get your feet wet. But this kind of feels like a bit too needy of a house for your to get started on.

COlady

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Re: Help Analyzing Rental Property Opportunity
« Reply #25 on: January 09, 2019, 11:39:01 AM »
Update:

Bought the place. I am renting to a 60 year old oil field foreman that sits in his truck at the job site for 70 hours per week so he is hardly ever home. He was in his last rental for 3 years and always paid on time per landlord.  I am getting $1,500/month in rent, 30 year mortgage at 5% is $525 per month so it's cash flowing really well. I'm paying a childhood friend of mine $25 an hour to show the place (only required this one showing) and make any repairs (he's a handyman). So far it is working out great. I should net about $9,000 on the place for 2019. Purchasing the place and listing probably took around 40 hours so the return on my efforts isn't too bad.  Hopefully it goes as well as I am projecting :)

$9,000/$125,000 = 7.2% return
$9,000/$35,000 = 25% cash on cash return (25% down payment plus closing costs)


tralfamadorian

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Re: Help Analyzing Rental Property Opportunity
« Reply #26 on: January 09, 2019, 02:58:16 PM »
Congrats and thanks for coming back with an update @COlady ! It sounds like the property is a slam dunk.

powskier

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Re: Help Analyzing Rental Property Opportunity
« Reply #27 on: January 11, 2019, 12:04:43 AM »
Just FYI you do already have $290 k in real estate equity on your principal residence, so you were already "diversified in real estate".

It makes no sense to me that you would risk a long distance property ownership for peanuts compared to the wealth you already have. Real estate is great when everything is cruising and but a bad tenant( or tenants drunk friend), random crime, local recession or major unexpected expenses do occur and it sucks. It's why I am currently selling 7 units I own. It's hard to put an actual cost on hassle factor, but it is high.
Good luck to you none the less.

Dicey

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Re: Help Analyzing Rental Property Opportunity
« Reply #28 on: January 11, 2019, 12:29:49 AM »
Just FYI you do already have $290 k in real estate equity on your principal residence, so you were already "diversified in real estate".

It makes no sense to me that you would risk a long distance property ownership for peanuts compared to the wealth you already have. Real estate is great when everything is cruising and but a bad tenant( or tenants drunk friend), random crime, local recession or major unexpected expenses do occur and it sucks. It's why I am currently selling 7 units I own. It's hard to put an actual cost on hassle factor, but it is high.
Good luck to you none the less.

OTOH, we have three SFH rentals in the same community seven+ hours away from our primary home. We love all of our tenants. Given that OP doesn't need to maximize every dollar, why shouldn't she try it? I'll bet plenty of people on this forum still own individual stocks.

waltworks

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Re: Help Analyzing Rental Property Opportunity
« Reply #29 on: January 11, 2019, 07:23:14 AM »
OTOH, we have three SFH rentals in the same community seven+ hours away from our primary home. We love all of our tenants. Given that OP doesn't need to maximize every dollar, why shouldn't she try it? I'll bet plenty of people on this forum still own individual stocks.

Because OP is already rich and FI. There is no reason to take on out of state real estate unless *real estate is your hobby*. OP expressed *fear* of what could go wrong with RE investments in the first few posts!

This is equivalent, IMO, to taking up day trading (for small amounts of money) when you're already FI. If finance is your thing and it's a hobby, great. If you're stressing out even a *tiny* bit about it and it's not actually fun for you, then you've missed the point of this whole website and you need to rethink your life.

-W

Dicey

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Re: Help Analyzing Rental Property Opportunity
« Reply #30 on: January 12, 2019, 01:36:21 AM »
OTOH, we have three SFH rentals in the same community seven+ hours away from our primary home. We love all of our tenants. Given that OP doesn't need to maximize every dollar, why shouldn't she try it? I'll bet plenty of people on this forum still own individual stocks.

Because OP is already rich and FI. There is no reason to take on out of state real estate unless *real estate is your hobby*. OP expressed *fear* of what could go wrong with RE investments in the first few posts!

This is equivalent, IMO, to taking up day trading (for small amounts of money) when you're already FI. If finance is your thing and it's a hobby, great. If you're stressing out even a *tiny* bit about it and it's not actually fun for you, then you've missed the point of this whole website and you need to rethink your life.

-W
Don't get me wrong @waltworks, I'm a huge fan. Your advice is among the very best out there, but given the OP's specific circumstances, traveling this path isn't the world's worst idea.