Author Topic: landlords with low returns  (Read 493 times)

clarkfan1979

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landlords with low returns
« on: November 25, 2017, 09:53:34 AM »
My wife and I looked at a property with two separate houses on it about 2 months ago. It was officially 2 units, but unofficially 4 separate units. The listing agent was able to give us some history on the property because she was the purchasing agent for the owner in 2005.

The owner bought it for 325K in 2005. In my opinion, he didn't do any repairs over the past 12 years. Only 2/4 units are currently rented because the other two units are not livable. There is water damage which is related to structural damage.

One tenant has been there for the past 10 years and still pays her original rent of $450/month. Market rent would be $1600/month in the current condition. Maybe more with small repairs and updates. The other tenant pays $400/month for a unit with a market rent of $1200/month.

Of the two livable units, he is collecting 30% of market rent. I'm guessing the tenants made repairs to keep them livable. If you count the other two units that are at a total loss, he is collecting $850 month on what should be $4600/month across all 4 units. As a result, he is collecting 18.4% of market rent. 

It's currently listed at 599K as a short sale. However, it will probably sell for 450K to 500K as a foreclosure. Why is it a short sale for 599K when he only paid 325K for it? Well, he probably borrowed against it at some point. 

If the landlord kept up with normal repairs the property should be worth about $700K and rent $4600-$5000/month.

Dicey

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Re: landlords with low returns
« Reply #1 on: November 25, 2017, 09:55:44 AM »
What's your question?
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clarkfan1979

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Re: landlords with low returns
« Reply #2 on: November 26, 2017, 01:26:38 AM »
What's your question?

I don't really have a question. I just wanted to share my experience.

I have heard stories of successful landlords buying rentals off of unsuccessful landlords that let their properties decay. I was kind of skeptical about that advice until I saw it first hand.

It is real. There are some properties that are very poorly managed. It almost doesn't make sense to me, but it does happen.

Linda_Norway

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Re: landlords with low returns
« Reply #3 on: November 26, 2017, 08:43:53 AM »
If the landlord had upgraded the apartments, would he be entitled to increase the rent that the 10 year tennant pays? Or are you not allowed to increase the price so much per year?

In general, I don`t understand why people keep these bad investments. It look like he doesn`t want to have anything to do with the property. But he is still responsible if a tennant falls through the floor and get electrified because of crappy electricity.


SwordGuy

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Re: landlords with low returns
« Reply #4 on: November 26, 2017, 10:22:54 AM »
Landlords live pay check to pay check just like other people.  And, just like other people, when they get an up in income they spend it all - or more!

Getting that sweet gross rent check is like boom times for a factory worker who's getting gobs of overtime money.  Up your fixed expenses based on that new income level.

Then be surprised when the overtime goes away or the roof and HVAC need replacement.

Ignorance, foolishness and stupidity are universal.  Landlords aren't immune.