The Money Mustache Community
Learning, Sharing, and Teaching => Real Estate and Landlording => Topic started by: bearman 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!
-
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.
-
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. :)
-
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.
-
Can someone explain the x% rule to me?
Thanks,
Mr. Oblivious
-
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.
-
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.
-
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.
-
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.
-
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.
-
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.
-
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.
-
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.
-
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?
-
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).
-
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.
-
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.
-
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!!
-
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!!
https://forum.mrmoneymustache.com/real-estate-and-landlording/real-estate-book-recommendations/
:)
-
$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
-
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.
-
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.
-
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.
-
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).
-
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.
-
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.
-
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.
-
$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?
-
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.)
-
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.
-
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).
-
I really enjoyed reading this thread. Thank you arebelspy for giving some examples.
-
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)?
-
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.)
-
When do you want maximum cash flow?
-
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.
-
$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.
-
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.
-
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.
-
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!
-
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.
-
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.
-
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?
-
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.
-
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. :)
-
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.
-
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.
-
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.
-
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.
-
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 :)
-
If it is so easy and requires no work, why isn't some giant corporation buying every house that meets the 2% rule and renting it out? They would have a huge advantage in getting discount labor and efficiency in management due to multiple properties.
If some giant corp is doing this, why not just invest in them?
-
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 :)
It won't be no work (you'll always have to manage the manager), but it should be very little work if you can find a good one.
That's the trick though. ;)
-
If it is so easy and requires no work, why isn't some giant corporation buying every house that meets the 2% rule and renting it out? They would have a huge advantage in getting discount labor and efficiency in management due to multiple properties.
If some giant corp is doing this, why not just invest in them?
Not everyhouse, but there is evidence (or at least anecdotes) that larger investors and private equity groups have been doing just what you suggest while house prices were depressed:
http://www.bloomberg.com/news/2013-12-20/wall-street-unlocks-profits-from-distress-with-rental-revolution.html
http://www.usatoday.com/story/money/business/2013/10/28/investors-home-price-gains/3181339/
-
If it is so easy and requires no work, why isn't some giant corporation buying every house that meets the 2% rule and renting it out? They would have a huge advantage in getting discount labor and efficiency in management due to multiple properties.
If some giant corp is doing this, why not just invest in them?
A bunch of the hedge funds did try this.
They've been having massive management issues. You imply efficiency in management with multiple properties. That's not necessarily the case. They weren't able to scale well on SFRs and have been struggling. Their vacancy rates are through the roof.
Blackstone has returned to straight up lending money to people who can do it via their new lending arm, B2R.
A lot of the hedge funds that were buying a lot in 2012-2013 are sitting on a decent amount of properties right now as they appreciate.
-
If it is so easy and requires no work, why isn't some giant corporation buying every house that meets the 2% rule and renting it out? They would have a huge advantage in getting discount labor and efficiency in management due to multiple properties.
The hedge funds and Blackrock have done ok but not stellar. It does require some work but not as much as you think unless you are doing the rehabs yourself. I have done it for 15 years and have learned a ton as I went along, this year our target is to do 3 houses at a minimum and pick up a gross of $2500-3000 a month, counting on a net of $1250-1500 though I normally do ever so slightly better. When houses are cheap and paper assets expensive, I buy real assets, when paper assets are cheap, I buy paper assets. If they are both cheap I am a happy fellow. If you take it semi serious in ??? or 10-15 years, RE investing alone will fund your entire lifestyle and the safe withdraw rate smokes the 4% rule with a much lower beta that the stock market. MMM funds most of his lifestyle off a high end rental or 2 as I recall. To pick up $1500 a month from my real job is not realistic, in the RE investing world it makes you small potatoes. Independently wealthy yes, but small spuds all the same.
-
If you take it semi serious in ??? or 10-15 years, RE investing alone will fund your entire lifestyle and the safe withdraw rate smokes the 4% rule with a much lower beta that the stock market.
Absolutely. It's my plan for very fast FIRE. It's not for everyone, but if you get the real estate bug and start to enjoy reading and learning about it, it's a great way to fund a moderate lifestyle.
-
All situations are different. Appreciation or cash flow or a combination of both? One of my friends bought a 2 bed/1 bath condo in Orange County, CA for 200K about 2 years ago with no rehab. Similar condos in his complex are now selling for 320K - 330K. He is going to list for 325K in a couple weeks. Even though this is crazy appreciation he has no cash flow as a rental. His mortgage, taxes, insurance and two HOA's amounts to 1700/month and that is about what he could get in rent. I on the other hand have 500/month of cash flow, but only about 2% appreciation so if I sold I wouldn't make much. His makes more sense to "flip" and it makes more sense for me to buy and hold.
-
Hedge Funds were buying very aggressively in the Twin Cities last year but pulled out of the market in December. Just as well since there's hardly any inventory and prices are up substantially.
Not sure you still want examples but my strategy is much different that arebel. I wanted to buy newer townhouses so I'd have no outside maintenance and less inside issues. I also manage them myself and paid all cash. The 50% rule is really more like the 40% rule since I manage them but it's really not much work and I'm handy. Biggest issue is when I have turnover and need a new tenant but they rent very quickly and majority of my tenants renew. Otherwise, I maybe get 1 call every other month (10 units).
Townhouse #2 - bought January 2011
Purchase + Closing + Rehab = $64,500
Rent - $1,025
Projected vacancy + expenses = 41.5% (but actually been much lower as I've never had vacancy and repairs have been half of my projections)
Cash Flow - $7,196/year
ROI - 11.16%
Townhouse #9 - bought February 2013 (very similar property but prices up substantially)
Purchase + close + rehab = $84,500
Rent - $1,090
Projected vacancy + expenses = 39.7% (taxes are less and rent higher)
Cash flow - $7,884/year
ROI - 9.33%
Admittedly, I can't find anything like these in my market right now (on MLS where I bought mine).
-
I thought the point was to leverage your money, not pay cash?
If you are getting a 9% to 11% ROI that seems like a lot of work compared to just buying a REIT that pays 12% or investing in index funds with a historical 9% to 10% return.
My vision of you real estate empire guys was one where you had 20 or 30 properties, all mortgaged at 4% with maybe 5% cash down and you were getting $10,000 a month cash flow after paying taxes/interest.
I guess I should read a few threads on this stuff to be more informed.
-
Being a California native, I am still dumbfounded by the fact that there are properties for <$100k. I guess I should start looking in other states if I want to get into real estate.
-
I thought the point was to leverage your money, not pay cash?
Not necessarily. Different goals and strategies and individuals dictate things like that.
If you are getting a 9% to 11% ROI that seems like a lot of work compared to just buying a REIT that pays 12% or investing in index funds with a historical 9% to 10% return.
I'm not a fan of REITs rather than real property for a number of reasons. BP had an article recently with a few of those reasons: http://www.biggerpockets.com/renewsblog/2014/03/31/passive-real-estate-investments-vs-reits/
And versus index funds the big appeal to me is the steady return. If I can get 7% real return in index funds over the long term, but short term volitility that means I need to cut to a 3-4% SWR, but I can get 12% from real estate and do a WR of something like 8%, that means I can FIRE with half the money (8% SWR vs 4%), and thus nearly twice as fast. Literally years less. And much less sequence of returns risk when you do FIRE.
I understand real estate is not for everyone, but your argument of (essentially, paraphrasing) "one must max leverage, minimize down payment" is not valid, and has nothing to do with what makes rentals great income for FIRE.
-
I thought the point was to leverage your money, not pay cash?
If you are getting a 9% to 11% ROI that seems like a lot of work compared to just buying a REIT that pays 12% or investing in index funds with a historical 9% to 10% return.
My vision of you real estate empire guys was one where you had 20 or 30 properties, all mortgaged at 4% with maybe 5% cash down and you were getting $10,000 a month cash flow after paying taxes/interest.
I guess I should read a few threads on this stuff to be more informed.
I think it depends on your goals and overall plan.
First off, I'm a lot older than some on here as I'm in my early 50's and should be fully retired in a couple years. I view the rentals as a much safer alternative to bonds and basically a replacement to a traditional pension.
In addition to getting the cash flow return I am getting depreciation to protect the income return, inflation protection on my investment as rents tend to rise with inflation and property appreciation (I haven't factored in the 34% gain in the fair market value of the properties but that's what I think I'd get if I sold them today).
Also, in hindsight had I gone all in 3 years ago I maybe could have 10-20 more places at bargain prices but I think it would have been hard to find that many properties while I was working full-time and there's no way I could manage them all.
Basically, it is a much more risk averse strategy than going fully leveraged but right for where I'm at.
-
Does my current house count? :)
I bought it a month ago for $60,000. 4 bedrooms, 1750 sf + unfinished basement. (was a foreclosure that last sold for $107k in 2007)
Renting out the 3 extra rooms for a total of $850/month plus shared utilities.
Not bad returns considering I'm also living here myself and getting a big reduction on some fixed utilities ^^
Oh and it's all financed at 4% interest rate (only put 5% down), so it's not even my money I'm earning returns on haha.
-
If you take it semi serious in ??? or 10-15 years, RE investing alone will fund your entire lifestyle and the safe withdraw rate smokes the 4% rule with a much lower beta that the stock market.
Absolutely. It's my plan for very fast FIRE. It's not for everyone, but if you get the real estate bug and start to enjoy reading and learning about it, it's a great way to fund a moderate lifestyle.
We started less than 3 years ago and are already in a situation where the monthly cash intake from our rentals exceeds the monthly mortgages on our rentals AND the house we live in. Put another way, tenants are paying ALL our mortgages--not just the mortgages on our rentals. Obviously vacancies will put a dent in that, but who here would NOT prefer the occasional, short-term $1000/month dent in an otherwise mortgage-free lifestyle over having a mortgage payment every month for the next 15-20-30 years?
All situations are different. Appreciation or cash flow or a combination of both? One of my friends bought a 2 bed/1 bath condo in Orange County, CA for 200K about 2 years ago with no rehab. Similar condos in his complex are now selling for 320K - 330K. He is going to list for 325K in a couple weeks. Even though this is crazy appreciation he has no cash flow as a rental. His mortgage, taxes, insurance and two HOA's amounts to 1700/month and that is about what he could get in rent. I on the other hand have 500/month of cash flow, but only about 2% appreciation so if I sold I wouldn't make much. His makes more sense to "flip" and it makes more sense for me to buy and hold.
Yes, buy and hold is a lot harder to do in areas with high real estate prices. Flipping is the most lucrative path there, but it's also riskier.
I view the rentals as a much safer alternative to bonds and basically a replacement to a traditional pension.
That's how I see it too. Every time we've bought a rental property I say to my husband, "I can't believe we can just BUY MONEY!" Because what happens when we put $40k or whatever into a property is that total strangers answer my Craiglist ads and fill out applications asking me to please let them not only pay our mortgage for us, but also give us hundreds of bucks a month (per rental) extra on top of that! And two of the mortgages will be paid off in about 12 years--by which time I expect the rent to have gone up considerably--so these houses are basically ATMs that dispense other people's money to us.
And it makes a lot more intuitive sense to me than the stock market does. By which I mean, I can tell a desirable house when I see it, and I can tell whether it's likely to stay desirable (or get more desirable) long term... but I can't tell a long-term desirable corporation when I see it. Stock prices just seem more randomly volatile to me.
-
If you take it semi serious in ??? or 10-15 years, RE investing alone will fund your entire lifestyle and the safe withdraw rate smokes the 4% rule with a much lower beta that the stock market.
Absolutely. It's my plan for very fast FIRE. It's not for everyone, but if you get the real estate bug and start to enjoy reading and learning about it, it's a great way to fund a moderate lifestyle.
We started less than 3 years ago and are already in a situation where the monthly cash intake from our rentals exceeds the monthly mortgages on our rentals AND the house we live in. Put another way, tenants are paying ALL our mortgages--not just the mortgages on our rentals. Obviously vacancies will put a dent in that, but who here would NOT prefer the occasional, short-term $1000/month dent in an otherwise mortgage-free lifestyle over having a mortgage payment every month for the next 15-20-30 years?
Give it a few more years and they'll not only pay all the mortgages, but all your other bills too, and then you can start saving 100% of your paychecks! That's a fun crossover point. :)
-
Being a California native Hawaii resident, I am still dumbfounded by the fact that there are properties for <$100k <$200K. I guess I should start looking in other states if I want to get into real estate.
I know how you feel...
-
Do these houses ever need large maintenance like a new roof or do you just budget that into the rent?
What about painting the house, new carpets?
I am not trying to bash here, because I know you guys make this work. I am just curious how it works.
Would it looks something like this?
$80,000 house, $20,000 downpayment, $60,000 financed at 4% for 15 years = $443 a month payment
Property taxes = $1000 a year, insurance = $200 a year, combined total = $100 a month
Maintenance = $100 a month?
Total expenses $643 a month
Rent $900 a month
Profit $257 a month
In order to retire off of these you would need about 10 houses?
-
Arebelspy and other real estate investors, where do you shop for new properties?
-
Do these houses ever need large maintenance like a new roof or do you just budget that into the rent?
What about painting the house, new carpets?
I am not trying to bash here, because I know you guys make this work. I am just curious how it works.
Would it looks something like this?
$80,000 house, $20,000 downpayment, $60,000 financed at 4% for 15 years = $443 a month payment
Property taxes = $1000 a year, insurance = $200 a year, combined total = $100 a month
Maintenance = $100 a month?
Total expenses $643 a month
Rent $900 a month
Profit $257 a month
In order to retire off of these you would need about 10 houses?
Your method looks good, but you also need to subtract the vacancy rate.
-
Do these houses ever need large maintenance like a new roof or do you just budget that into the rent?
What about painting the house, new carpets?
I am not trying to bash here, because I know you guys make this work. I am just curious how it works.
Would it looks something like this?
$80,000 house, $20,000 downpayment, $60,000 financed at 4% for 15 years = $443 a month payment
Property taxes = $1000 a year, insurance = $200 a year, combined total = $100 a month
Maintenance = $100 a month?
Total expenses $643 a month
Rent $900 a month
Profit $257 a month
In order to retire off of these you would need about 10 houses?
Most investors use a 50% rule to project expenses. That means that if rent is $900 you should plan on $450/month in expenses which include taxes, vacancy, insurance, utilities, property management and repairs.
Therefore, that leaves you with $450 and if you take out the $443/mo loan payment you would have no return.
Things that could be adjusted -
- If you take out a 30 year loan instead of 15 it would lower the monthly payment.
- If you can get more than $900/mo in rent the numbers will start to look better
- If you plan to manage the properties yourself you might save on expenses and only plan on 40-45% of the rent going to expenses
-Buy the property for less money
-
Do these houses ever need large maintenance like a new roof or do you just budget that into the rent?
Of course.
To add to what Fishingmn (Lately I keep reading it as nm, after someone mentioned that on the E-R.org forums, they put a bug in my brain) said: You budget for all those things, but most months you won't experience them. So you set that amount aside.
Most months I collect Rent - Mortgage amount - Property Management (some properties I self manage, so I don't have that expense, some properties I don't have a mortgage, so I don't have that expense). And keep the whole amount. But some months I collect no rent (vacancy/credit loss). Some months I pay out for HVAC repairs. Last month I had to pay for plumbing on a burst pipe, a fridge repair, a washing machine repair, and an A/C repair. The last maintenance before that was several months though.
You collect the rent, and set aside money for repairs (and for long term capital expenses, like a new roof) even when you aren't experiencing it.
Long term you will experience those things, so you budget for it, and in the months where you don't experience them, you save towards those future expenses.
-
I'll play.
My Milwaukee 2BR/1BA 900SF SFR that I kept as a rental, worth probably 40-45K right now. (I put in way more than that, but if I were to sell it, that's what it would bring.) so, 45K; Rent of $820.
Duplex I bought for 146K in a nice area of Milwaukee; Rents would've been $825 per unit, but I live in one, rent out the other. 2BR/1BA each unit, about 900-1000 SF each.
Have a relative buying a SFR rental right now, guessing 55K, Rent will be $800ish.
-
I owned this stuff (all SF) since the early 90's ... time is your friend ...
15k with closing, 3k rehab, rented for 1300.
17k with closing, 5k rehab, rented for 1050.
32k with closing, no rehab, rented for 1200.
19k with closing, no rehab, rented for 1200.
Duplexes:
32k with closing, 5k rehab, rented for 1400.
40k with closing, 3k rehab, rented for 1300.
Rents are what I get today ... 20 years ago, cut it in half.
-
Would something like this seem reasonable (southern Florida house):
http://miami.craigslist.org/pbc/reb/4405204645.html (http://miami.craigslist.org/pbc/reb/4405204645.html)
$74,000
Figure $100,000 by the time you factor closing costs/remodel
Rent it for $1200 a month and be at 1.2%?
Or do you look for much much cheaper?
The reason I ask is that if I were going to own rentals, I think it would be Florida as that is the only area I wouldn't mind spending a decent amount of our retirement time in.
-
I owned this stuff (all SF) since the early 90's ... time is your friend ...
15k with closing, 3k rehab, rented for 1300.
17k with closing, 5k rehab, rented for 1050.
32k with closing, no rehab, rented for 1200.
19k with closing, no rehab, rented for 1200.
Duplexes:
32k with closing, 5k rehab, rented for 1400.
40k with closing, 3k rehab, rented for 1300.
Rents are what I get today ... 20 years ago, cut it in half.
That's just plain awesome.
-
Arebelspy and other real estate investors, where do you shop for new properties?
Just want to repost this.
Edit: sorry for double post, forgot this forum doesn't auto merge.
-
Arebelspy and other real estate investors, where do you shop for new properties?
Just want to repost this.
Edit: sorry for double post, forgot this forum doesn't auto merge.
Off topic for this thread, but here's some previous threads discussing this:
https://forum.mrmoneymustache.com/real-estate-and-landlording/any-tips-for-finding-desirable-investment-properties-(aside-from-the-usual-mlsr/
https://forum.mrmoneymustache.com/real-estate-and-landlording/real-estate-shopping-beyond-mls/
-
That's just plain awesome.
Thanx!
Forgot to mention all were bank owned REOs ... some bought at RTC auctions others negotiated directly with the bank.
-
Would something like this seem reasonable (southern Florida house):
http://miami.craigslist.org/pbc/reb/4405204645.html (http://miami.craigslist.org/pbc/reb/4405204645.html)
$74,000
Figure $100,000 by the time you factor closing costs/remodel
Rent it for $1200 a month and be at 1.2%?
Or do you look for much much cheaper?
The reason I ask is that if I were going to own rentals, I think it would be Florida as that is the only area I wouldn't mind spending a decent amount of our retirement time in.
I don't look at the purchase price of the house as my investment, since I don't pay that--the bank pays it up front by giving me a mortgage, and the tenants pay them back. So I don't factor in the purchase price or the portion of rent that covers the mortgage at all.
I look at it like this:
- my investment is the actual money I have to come up with. In other words, down payment, closing costs and any rehab costs.
- my return is the amount of rent that exceeds the monthly mortgage payment. (That payment includes taxes and insurance, but again, since those costs are entirely paid for out of the rent, I ignore them in my calculations).
- from that excess amount, I then subtract maintenance, vacancy and any utility costs I have to cover (garbage pickup, gas/electric when between tenants...). What's left is my return.
So on a $100k house, my investment will be $25k (banks require 20-25% down on investment properties) plus around $5-7k closing costs, plus rehab. The most I've spent for rehab was around $10k and the least was $0--we both work full time so at the moment fixer-uppers are not our thing).
I bought two houses in that price range and one yields about $925/mo after I pay the mortgage (including taxes/insurance) and the utilities I cover, while the other yields about $700/mo. So in total about $19,500/yr, on a total investment (as defined above) of about $78k. Even subtracting 10-15% for maintenance, and 6% for vacancies (average in my area--these places rent fast), that is an enormous ROI, without even factoring in that the tenants are also buying houses for me!!!
I realize how fortunate I am and how these possibilities don't exist everywhere... low purchase prices usually go along with low rents, and when purchase prices get too high (CA, NYC, HI...) the rents don't keep up. But if you can find $100k-ish properties in Florida, that's awesome. Your next step is to check Craigslist to see what comparable places rent for.
-
Would something like this seem reasonable (southern Florida house):
http://miami.craigslist.org/pbc/reb/4405204645.html (http://miami.craigslist.org/pbc/reb/4405204645.html)
$74,000
Figure $100,000 by the time you factor closing costs/remodel
Rent it for $1200 a month and be at 1.2%?
Or do you look for much much cheaper?
The reason I ask is that if I were going to own rentals, I think it would be Florida as that is the only area I wouldn't mind spending a decent amount of our retirement time in.
<long post about calculating a return>
That's all well and good for calculating an investment afterwards, assuming you're financing, but it doesn't help you compare if it's a good deal or not. What if you paid 100k for it after rehab, but you could have got one a block away that's nicer for 80k?
Roland, I can't tell you if that's a deal or not because I'm not intimately familiar with that market. You should start studying what the market is doing there and you'll learn what is a good deal.
And, of course, always start by identifying your market first, because a deal in a market you don't want to be in isn't a deal.
-
Being a California native Hawaii resident, I am still dumbfounded by the fact that there are properties for <$100k <$200K. I guess I should start looking in other states if I want to get into real estate.
I know how you feel...
$200,000?? Hah!! Here is what $345,000 buys you in my neck of the woods (there were NO sfr's under $300,000 for sale), and this is the next cheapest one that came up:
http://www.realtor.com/realestateandhomes-detail/7212-Roosevelt-Ave_Falls-Church_VA_22042_M60587-18920
This is a 1,100 sq. ft. house in a questionable neighborhood at best, described as an "INVESTOR'S DREAM .. CASH ONLY, property being sold strictly AS IS. House is stripped down to the studs in most places." Imagine paying $345,000 cash for this p.o.s. that is stripped down to the studs, in a crappy neighborhood. Needless to say, not exactly a great place for buying cash flowing properties.
Edit: Edited to say I'm not trying to one-up anyone or be snarky, just commiserating on being in a place where local investing is out of the question.
(http://p.rdcpix.com/v01/ld0e09b44-m0x.jpg)
(http://p.rdcpix.com/v01/ld0e09b44-m2x.jpg)
(http://p.rdcpix.com/v01/ld0e09b44-m5x.jpg)
-
House is stripped down to the studs in most places." Imagine paying $345,000 cash for this p.o.s. that is stripped down to the studs, in a crappy neighborhood. Needless to say, not exactly a great place for buying cash flowing properties.
If I'm buying a junker, stripped to the studs can be a selling point. Saves me the work of tearing it out myself.
$345k for that house is crazy!
-
That's all well and good for calculating an investment afterwards, assuming you're financing, but it doesn't help you compare if it's a good deal or not. What if you paid 100k for it after rehab, but you could have got one a block away that's nicer for 80k?
If you're investing for cashflow, shouldn't the ROI on your own $ put in be the defining fact of what is a good deal?
-
What about buying a storage unit property? Those seem to do well even in a down market (people lose jobs and have to move, put their junk in storage). It probably would be great for cash flow but would require significant down payment ($400,000?) for a small one (50 to 100 units).
-
That's all well and good for calculating an investment afterwards, assuming you're financing, but it doesn't help you compare if it's a good deal or not. What if you paid 100k for it after rehab, but you could have got one a block away that's nicer for 80k?
If you're investing for cashflow, shouldn't the ROI on your own $ put in be the defining fact of what is a good deal?
No, because it's relative to what else you could get in the market at the time.
A CD at 4% right now would be amazing. A CD at 4% a decade or so ago would be crap.
If your cash on cash return on a property that costs 100k and rents for 1500 is 9%, that may be great, or it may be crap.
What if you could buy essentially the same property (qualifty-wise, location, etc.) for only 80k (and get just above an 11% return)? Then that 100k one isn't a deal. What if there's dozens of them at 70k? Still like that 9% return? What if the comparables are 150k? That 100k is suddenly looking really good.
You can't just look at ROI in isolation from a market and tell if it's a deal or not.
-
What about buying a storage unit property? Those seem to do well even in a down market (people lose jobs and have to move, put their junk in storage). It probably would be great for cash flow but would require significant down payment ($400,000?) for a small one (50 to 100 units).
It's much more of a job/business than real estate investment, IMO, and a lot more work, but it can be a great strategy for some people.
-
What about buying a storage unit property? Those seem to do well even in a down market (people lose jobs and have to move, put their junk in storage). It probably would be great for cash flow but would require significant down payment ($400,000?) for a small one (50 to 100 units).
It's much more of a job/business than real estate investment, IMO, and a lot more work, but it can be a great strategy for some people.
I wish I had looked into it a few years ago as it would have been a good way to save on taxes. Unlike most other investments, if I managed the property I could be self employed and dump a ton of money into SEP IRA (our tax rate is 33%+). I would have had to pay self employment tax of course but it would have been offset by all of the lovely depreciation you could charge.
Probably not a good idea now as we want to be mobile and I would not have time to manage it.
-
What about buying a storage unit property?
That market looked overbuilt in the mid-90s, wonder how it is now?
-
What about buying a storage unit property?
That market looked overbuilt in the mid-90s, wonder how it is now?
It "looked" overbuilt? According to what metrics? Was it actually overbuilt?
-
What about buying a storage unit property? Those seem to do well even in a down market (people lose jobs and have to move, put their junk in storage). It probably would be great for cash flow but would require significant down payment ($400,000?) for a small one (50 to 100 units).
It's much more of a job/business than real estate investment, IMO, and a lot more work, but it can be a great strategy for some people.
It can be fairly inexpensive and low maintenance in the right situations. A guy I know started buying portable storage units, and put them on a gravel pad on his own (rural) land. As they filled up and paid for themselves, he bought more. Most of his tenants are long term, so he just sits back and collects the rent every month.
-
It can be fairly inexpensive and low maintenance in the right situations. A guy I know started buying portable storage units, and put them on a gravel pad on his own (rural) land. As they filled up and paid for themselves, he bought more. Most of his tenants are long term, so he just sits back and collects the rent every month.
We have a guy doing that in a Central Oahu gulch: Waikele Self Storage.
http://waikeleselfstorage.com/
The "property" started in the 1940s as a series of caves drilled into the bedrock lava rock to store ammunition for Navy ships. This continued up through the 1980s with nuclear TOMAHAWK missiles. When this part of the base was shut down, he subleased the land from the state and filled the caves with storage lockers. One of the caves is even cool enough year-round to serve as wine storage.
If you're military, ask for the discount. They also store vehicles & boats for deployments.
-
What about buying a storage unit property?
That market looked overbuilt in the mid-90s, wonder how it is now?
It "looked" overbuilt? According to what metrics? Was it actually overbuilt?
Beats me, ergo "looked." And by "looked" I mean my wife and I were looking for real estate/business opportunities in the Norfolk, Va area then. We knew a fair number of people getting into them and it just had that oversaturated (or soon to be) feel.
-
Own 3 rentals right now.
1 Duplex up/down by Temple U. Rented at $2,400 per unit so $4,800 paid $400K with a lot of finagling with money back and taxes/misc paid so I really paid net of $380k. No money in for rehab prior to renting.
1 SFH also by temple rented at $2,400 and bought for $170K last year (they paid transfer tax). I knew the owners had it under rented. I did renovate 1 bathroom and do a little work so say $4K in repairs plus $800 to the tenants who were in it to give me a week early move out so I could do the bathroom.
I do pay lease up fee for the two 3 units in temple of half a months rent for each unit. so $3,600/year. I live close enough to fix or hire out the rest.
1 SFH in a Delaware suburb that I lived in and completely rehabbed. Rented at $1625 (actually $1,700 with a $75 early pay discount) paid $170k and put in another $28K. I figured I would live here and made it my own. Def over did it for a flip and prob will only get about $230-235k for it when I sell this year.
In the middle of flipping a bit of land (could be good or a colossal waste of 11K) so that I can get back into the game once I sell the SFH in DE. Either buy another in DE as a multi to move into or something else to work on.
-
I never knew about the % rules, so that's interesting. We have two, and I guess one follows the 1% rule and the other the 2% rule. After paying the mortgages, we net almost the exact same dollar amount from each one, even though one house originally cost much more than the other.
$56,000 purchase price + ~$4,000 closing costs + ~$8,000 improvements = $68,000 (rents for $700-$800/month)
$160,000 purchase price + ~$3,000 closing costs + no improvements = $163,000 (rents for $1,350/month)
-
I never knew about the % rules, so that's interesting. We have two, and I guess one follows the 1% rule and the other the 2% rule. After paying the mortgages, we net almost the exact same dollar amount from each one, even though one house originally cost much more than the other.
$56,000 purchase price + ~$4,000 closing costs + ~$8,000 improvements = $68,000 (rents for $700-$800/month)
$160,000 purchase price + ~$3,000 closing costs + no improvements = $163,000 (rents for $1,350/month)
Actually home 1 = 1.1% (750/68000)
And home 2 = 0.8% (1350/163000)
If the cash flow is equal on both then home 1 was a WAY better investment property since it cost less than half of the first to get the same returns.
-
I never knew about the % rules, so that's interesting. We have two, and I guess one follows the 1% rule and the other the 2% rule. After paying the mortgages, we net almost the exact same dollar amount from each one, even though one house originally cost much more than the other.
$56,000 purchase price + ~$4,000 closing costs + ~$8,000 improvements = $68,000 (rents for $700-$800/month)
$160,000 purchase price + ~$3,000 closing costs + no improvements = $163,000 (rents for $1,350/month)
This is almost exactly the difference in prices of homes I'm considering -- and I can't decide what to pursue! See the thread I posted about "how to learn a market"…. I don't know how to zero in, don't know how to decide between a neighborhood I'm comfortable with and a price that's attractive / easier to succeed with.
-
I would like to own a small marina one day but I do not know if it could be done mustachian style. I guess it isn't really something you could bootstrap yourself into. Probably you have to run a store/shop to make it profitable.
-
If the cash flow is equal on both then home 1 was a WAY better investment property since it cost less than half of the first to get the same returns.
Indeed, that should mean the return is almost double.
However with the price to rent ratios so similar, it seems odd that this is the case. OP did mention mortgage(s) - I'm guessing not an equal amount was put down on each or something like that, because their rates of return shouldn't be that dissimilar. They probably pencil out within a few percent of each other cash on cash (unless one has some big glaring issues not mentioned - massive HOA fee, ongoing maintenance cost like a pool, or something).
-
I would like to own a small marina one day but I do not know if it could be done mustachian style. I guess it isn't really something you could bootstrap yourself into. Probably you have to run a store/shop to make it profitable.
The nice thing about FI is being able to do things that aren't necessarily profitable just because you want to do them.
-
I never knew about the % rules, so that's interesting. We have two, and I guess one follows the 1% rule and the other the 2% rule. After paying the mortgages, we net almost the exact same dollar amount from each one, even though one house originally cost much more than the other.
$56,000 purchase price + ~$4,000 closing costs + ~$8,000 improvements = $68,000 (rents for $700-$800/month)
$160,000 purchase price + ~$3,000 closing costs + no improvements = $163,000 (rents for $1,350/month)
Actually home 1 = 1.1% (750/68000)
And home 2 = 0.8% (1350/163000)
If the cash flow is equal on both then home 1 was a WAY better investment property since it cost less than half of the first to get the same returns.
In practice, home 1 has been a bit of a pain in the ass, and home 2 has been a dream. Home 1 is 60 years old and in an older part of town, so it can't attract the quality of renter that home 2, which was brand new when we bought it in 2010, attracts. That said, home 1 was purchased as an investment property, but we originally intended to live in home 2. We just got lucky that it rented well instead.
-
arebelspy, how do you go about finding long distance properties? Do you just research random markets, or do you have friends that live in other places with an inside track? I'm really interested in RE investing but I can't make it work in most of Denver on my bankroll.
Thanks
-
arebelspy, how do you go about finding long distance properties? Do you just research random markets, or do you have friends that live in other places with an inside track? I'm really interested in RE investing but I can't make it work in most of Denver on my bankroll.
Good question.
I start by identifying potential markets based on comments from other real estate investors.
Then I start to investigate those markets (demographics, economy, landlord laws, etc.) to narrow them down.
Once I've identified a market I'm interested in I start talking with local investors. Nothing beats boots on the ground. I identify potential neighborhoods and start digging further.
Basically think of it like those stupid maps you see on bad 90s movies where the FBI or whatever has someone on the phone and is like "keep him talking" and they "trace" the location, and it shows a map of the US, and then it zooms into a state, then zooms into a city, then a block, and then they're like "he's at the payphone at 94th street!" - I start with the macro view, identify and zoom in all the way down to the neighborhood and street view, and definitely connect with those who know the market.
Hope that helps!
-
I'm down to one rental property now (former primary residence), and it kicks ass on the 0.6% and 100% rules. Those are the rules I just made up where your monthly rent equals 0.6% of the purchase price, and total expenses are 100% of gross rents. Yessssssss!
No worries though, I'm not hanging onto it for cash flow (obviously).
-
Fantatic, thank you. Are you willing to divulge any hot markets right now?
-
I'm down to one rental property now (former primary residence), and it kicks ass on the 0.6% and 100% rules. Those are the rules I just made up where your monthly rent equals 0.6% of the purchase price, and total expenses are 100% of gross rents. Yessssssss!
No worries though, I'm not hanging onto it for cash flow (obviously).
lol. There can be reasons to hold, even if it's not something you'd have purchased initially.
-
Fantatic, thank you. Are you willing to divulge any hot markets right now?
I don't investing in "hot" markets. I plan on holding for 30+ years, so what's "hot" is less relevant to me than what seems like it will be solid. Even then I do bend that for cash flow purposes, but I also try to have a diversity of markets and categories of rentals in my portfolio.
-
Hey RS, what % of your tenants are sec8/vouchers, if any? Any issues?
-
Hey RS, what % of your tenants are sec8/vouchers, if any? Any issues?
Typically I run 10-20% Section 8.
No issues. Some of my best tenants.
-
one rental property now (former primary residence)
Never seen one of those cash flow .... always bought - and rehabed - for non-investment purposes.
-
I am enjoying this thread. Thank you for starting it!
-
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?
I purchased my first property in 2011: 6-unit property for $168k. Rents were $3600. Had a lot of turnover and small repairs and improvements and rent is now $4500. I just did a cash out refinance for a new value of $300k. So percentage of rents to price went down but I got a big chunk of cash to invest. Still over 1%
My philosophy is buy cash flowing properties and leverage as much as possible while maintaining good cash flow.
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)
Lot of shady characters in this industry. Find a realtor you can trust.
-
Lot of shady characters in this industry. Find a realtor you can trust.
I trusted a realtor to be greedy the other day, and it saved me at least $5k on an under-priced repo. It's amazing how fast they'll slam the door shut to new offers once they're assured of getting both sides of the commission.
-
Good point Fixer upper, giving the listing agent both halves of the commission can really make your offer stand out. :) I have done that a couple of times and it does seem to be true.
-
Fantatic, thank you. Are you willing to divulge any hot markets right now?
I don't investing in "hot" markets. I plan on holding for 30+ years, so what's "hot" is less relevant to me than what seems like it will be solid. Even then I do bend that for cash flow purposes, but I also try to have a diversity of markets and categories of rentals in my portfolio.
Yes, I wasn't refering to a market you can flip in a year, I'm just curious where you're able to find decent places for a ~$30,000. I don't think I've ever seen anything like that in my travels around the country and I've lived in a lot of places.
-
A number of places. Much of the South (Memphis, Atlanta, etc.), the Midwest (Indy, Chicago, Michigan), and certain parts of the Southwest (NV, AZ, TX). Plenty of rural or suburban parts in other states as well (and certain urban parts as well, but that may be when you get into areas you may not want to invest in).
You won't find it it downtown NYC, SF, or DC. But there's opportunity in pretty much every market.
I don't know how you don't find places, if you're looking. My guess is you haven't been looking with a real estate investor's eye. Give some places a fresh look, and you might be surprised, once you know what you're looking for. :)
-
I have tried that method of not using a buyer's agent but it hasn't worked out yet. It should work in theory, more money for the realtor so they should want seller to sell to you. It hasn't worked and now I am friends with a good realtor so I will just use him and let him get the commissions. I could become a realtor myself, but no interest.
Prices are pretty high in my area. Money can still be made but you have to expect a lower return or you could be looking a very long time. I looked for about 2 years, sent letters to owners, etc. i eventually just accepted that I have to pay higher than I would like. Still a good investment.
-
A number of places. Much of the South (Memphis, Atlanta, etc.), the Midwest (Indy, Chicago, Michigan), and certain parts of the Southwest (NV, AZ, TX). Plenty of rural or suburban parts in other states as well (and certain urban parts as well, but that may be when you get into areas you may not want to invest in).
You won't find it it downtown NYC, SF, or DC. But there's opportunity in pretty much every market.
I don't know how you don't find places, if you're looking. My guess is you haven't been looking with a real estate investor's eye. Give some places a fresh look, and you might be surprised, once you know what you're looking for. :)
Thanks, do you find re on the mls, or do you use guerrilla marketing?
-
I use lots of methods to find real estate. Networking is my #1 acquisition source.
-
I use lots of methods to find real estate. Networking is my #1 acquisition source.
Any pointers for TX? Looking for another place right now, but the ones that look ok seem to be selling too quickly. Patience, I guess!
How do you feel about having a few properties in one town vs all over - thinking of management fee discounts..?
-
Any pointers for TX? Looking for another place right now, but the ones that look ok seem to be selling too quickly. Patience, I guess!
Nothing specific to Texas, just the usual stuff. Definitely patience - a good deal is worth waiting for.
How do you feel about having a few properties in one town vs all over - thinking of management fee discounts..?
Having them together gives the big advantage of management, not necessarily a fee discount, but only needing to find one good management company, instead of multiple in different locations. It's already a tough enough task to find a good one, now you're looking for several?
I mean, by all means, go where the deals are. But if you do find a great management company, and there are deals in that area, that'd definitely a plus for me.
-
It's already a tough enough task to find a good one, now you're looking for several?
Lol.
I would definitely recommend keeping your properties near eachother. If you do get to a point where you have many units, you will appreciate the short driving distance between them all. Also would be easier to find one property manager for all units.
-
If you do get to a point where you have many units, you will appreciate the short driving distance between them all.
I personally don't care so much about this. I try not to visit my properties 20 minutes away (and I manage those!), why would I care if they're a few hour plane flight away (especially when someone else is managing them)?
-
Well for one, if it is closer to your other properties, you are probably familiar with the area. Also, even with properties I don't visit much, I like knowing they are close just in case some emergency did happen.
My rental properties are all an hour away from where I live but I like them all to be close so when I take trips out I can see them all if i want.
-
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.
holy shit. what's your preferred tactic for digging up leads on homes like that? walk streets, realtor contact etc.
-
House 1- guy who works for me wanted a house, he found that one for me, it was a foreclosure that had not sold, in a long time he said he would fix everything if I let his family stay for a long time at a decent rent, the rent is actually steeply discounted for the house. They will probably stay forever.
House 2- a wholesaler I know had a contract on this house estate sale, he emailed me about it, saw it on his website, checked it out in person, bought it. Rented to a guy I have known for years and years who is a convicted felon (he had a tough time finding a nice place to rent) and he needed a house to rent in the school district for his kid. Rent is still below market by a fair bit but having a long term, low hassle tenant is worth it to me.
House 3- found off the MLS foreclosure , after a woman I know looked at a bazillion houses with the thought that they would rent it from me, she flaked out but the house was underpriced by about 10 K I think even with the amount of rehab needed, repairs were mostly busted plaster, paint and a hideous amount of junk and there was a lot of it that made the house show horribly. Now it looks stunning, 1934 brick Craftsmen style and the narrow plank oak floors have a mirror finish. House is huge. Ad was on Craigslist for less than 12 hrs, phone rang off the GD hook and I had a cash in my hand and a signed lease. I probably underpriced this one a bit at $1100 a month when I placed the ad but the tenant pays like a clock and the place is spotless, (I mean lawn is manicured, you could eat off the floors, and the inside is so well decorated it looks like a magazine ad). She loves this house and has said on many occasions that she wants to stay forever, I hope she does.
House 4- MLS foreclosure, I did not find it, tenant found it for me. The 55K was more than I wanted to spend but a tenant of mine who rented from me for 10 years in the same house got married and he and the new wife wanted another house. They looked at a bunch and they fell in love with this one. Since he bought the other house he rented for me 2x over by paying me rent for 10 years, how could I say no. He found this one and they fell in love with it, it was soo neat in layout and so huge, on 3 lots and 2600 sq Ft ft ranch. Unfortunately, tweekers had stolen almost all of the copper, the HVAC system, and a good chunk of the wiring. I hope they buy it, they are on track as it stands and the 119k sales price is a good 10-21K less than an honest appraiser would say it is worth. If not, oh well, will rent it out or sell it to someone else, I am not going to get hurt on it. (I play the RE game first and foremost in a fashion where it is hard for me to get hurt). I had to paid 4k over the list price to get it and there were multiple cash offers on the place, I mainly did this deal because my tenants wanted it so badly. I would live in this house gladly if I did not love the house we are in. Also, jacked up the rent a hundred a mo on the tenants old house when I re rented it.
-
For those of you who have bought homes in the 30k-75k range and then rented in the 1k-1500 range:
What methods do you use to find leads on homes? preforeclosure? do you have friends that are foreclosure attorneys, pound the pavement looking for empty houses etc.
any insight would be appreciated. I want to start generating some quality leads for homes I can rehab and rent.
-
For those of you who have bought homes in the 30k-75k range and then rented in the 1k-1500 range:
What methods do you use to find leads on homes? preforeclosure? do you have friends that are foreclosure attorneys, pound the pavement looking for empty houses etc.
any insight would be appreciated. I want to start generating some quality leads for homes I can rehab and rent.
https://forum.mrmoneymustache.com/real-estate-and-landlording/real-estate-shopping-beyond-mls/
https://forum.mrmoneymustache.com/real-estate-and-landlording/any-tips-for-finding-desirable-investment-properties-(aside-from-the-usual-mlsr/
https://forum.mrmoneymustache.com/real-estate-and-landlording/what-is-your-best-technique-for-finding-real-estate-deals/
:)
-
I just don't understand how the renter market, in any location, is big enough to consistently rent at 2% or better. I mean, why aren't these renters just buying? I can understand certain situations where maybe they have income but poor credit and can't get a loan, or maybe there are renters who are only living there temporarily, but I can't imagine why any sensible person would rent a $100K property for $2K/month.
-
I just don't understand how the renter market, in any location, is big enough to consistently rent at 2% or better. I mean, why aren't these renters just buying? I can understand certain situations where maybe they have income but poor credit and can't get a loan, or maybe there are renters who are only living there temporarily, but I can't imagine why any sensible person would rent a $100K property for $2K/month.
Worst than that in the above example someone purchased for $20K, rehabbed for $7k and rents for $720 a month. A $27K house (less than the price of most cars) renting for $8,640 a year. Renter must have failed math.
-
I just don't understand how the renter market, in any location, is big enough to consistently rent at 2% or better. I mean, why aren't these renters just buying? I can understand certain situations where maybe they have income but poor credit and can't get a loan, or maybe there are renters who are only living there temporarily, but I can't imagine why any sensible person would rent a $100K property for $2K/month.
Worst than that in the above example someone purchased for $20K, rehabbed for $7k and rents for $720 a month. A $27K house (less than the price of most cars) renting for $8,640 a year. Renter must have failed math.
Yeah. And I'm not saying it isn't feasible (and I'm in Southern California so my perspective on RE is all out of whack), I'm just trying to understand how there are enough people out there who are willing to pay 2% of the home's value each and every month in rent.
-
Indeed. I've been reading through the book list stickied on this sub, and from what I've read it seems as though a house purchased from a distressed buyer 10% below a market price is a great grab as you'll be slightly net positive on cash flow in rent.
However finding these 30k homes that turn around to rent for 1k? seems strange to me. I can understand a 30k CASH investment turning that (leverage) but I'm not seeing where these houses are in any market, at least in the US.
-
Look higher in the thread. I gave examples of multiple places in the US where it exists:
A number of places. Much of the South (Memphis, Atlanta, etc.), the Midwest (Indy, Chicago, Michigan), and certain parts of the Southwest (NV, AZ, TX). Plenty of rural or suburban parts in other states as well (and certain urban parts as well, but that may be when you get into areas you may not want to invest in).
You won't find it it downtown NYC, SF, or DC. But there's opportunity in pretty much every market.
I don't know how you don't find places, if you're looking. My guess is you haven't been looking with a real estate investor's eye. Give some places a fresh look, and you might be surprised, once you know what you're looking for. :)
As far as why, many of the renters can't buy. Most people can't deal with a $1000 emergency. You think they can come up with 30k? Banks won't usually lend on a loan that small, and even if they would, the borrowers wouldn't qualify.
If you don't understand why they aren't buying, you may be out of touch with the bulk of American's financial situations and what the lower middle class life is like. :)
But yes, there's millions of people willing to rent at $800-1000/mo. for a house bought and rehabbed for a total cost of 30-50k.
-
As far as why, many of the renters can't buy. Most people can't deal with a $1000 emergency. You think they can come up with 30k? Banks won't usually lend on a loan that small, and even if they would, the borrowers wouldn't qualify.
If you don't understand why they aren't buying, you may be out of touch with the bulk of American's financial situations and what the lower middle class life is like. :)
But yes, there's millions of people willing to rent at $800-1000/mo. for a house bought and rehabbed for a total cost of 30-50k.
I can't wrap my head around how someone who can't scrape together $1000 to cover an emergency would make a good reliable tenant on a $800-$1000 a month lease. They are just one fender bender or stubbed toe away from being in default and a lengthy 60 day eviction.
If OTOH they have good credit and can handle several $1000 in emergencies, then why would they pay $8,000 a year to stay in a $27,000 house?
Edit: Maybe we are in section 8 territory here though? That would make a difference in them having monthly cash flow but no accumulated assets.
-
Quick question to ARS or others with multiple properties (say +5). Are you holding title to all of your properties individually (including with spouses and revocable trusts), or through an entity like an LLC?
I would probably start thinking about limited-liability strategies if I held multiple properties.
-
@200k the properties are titled to an LLC
@Roland If OTOH they have good credit and can handle several $1000 in emergencies, then why would they pay $8,000 a year to stay in a $27,000 house?
. In this case the guy works very hard, however, he has a giant chunk of cash to pay for child support every month. He is also a convicted felon so the number of land lords willing to rent to him is greatly reduced. The house is large, very nice, and not in a bad neighborhood at all. He is actually paying below market rent by about $180-250 a month for the house and he knows it as he looked at/tried to rent a number of places before asking me to find one for him. He has jack for credit, and has been kicked very hard by both the child support folks and the insane US justice system that incarcerates people at a rate 4X the rest of the world. ARebelspy is right, it is terrible just how F'D the average American is in the finance department. Shameful actually. Also, when you say to a person I will pay cash, as is and close as soon as the title work is done and show them proof of funds it goes a long way as far as getting your offer accepted. The rental market for nice single family homes is generally very strong. If you rent big ones 3-5 bedrooms, the market is shockingly strong most of the time.
-
Also, when you say to a person I will pay cash, as is and close as soon as the title work is done and show them proof of funds it goes a long way as far as getting your offer accepted.
+1
Cash can get you a good deal on a decent house, or a screaming deal on fixer-uppers that won't qualify for a loan.
-
Quick question to ARS or others with multiple properties (say +5). Are you holding title to all of your properties individually (including with spouses and revocable trusts), or through an entity like an LLC?
I would probably start thinking about limited-liability strategies if I held multiple properties.
Do what makes you feel comfortable.
Umbrella insurance makes me more comfortable than companies, but consult with a lawyer (several, actually) and insurance agent and see what fits your situation best.
-
Also, when you say to a person I will pay cash, as is and close as soon as the title work is done and show them proof of funds it goes a long way as far as getting your offer accepted.
+1
Cash can get you a good deal on a decent house, or a screaming deal on fixer-uppers that won't qualify for a loan.
I didn't realize you were for sale. ;)
-
As far as why, many of the renters can't buy. Most people can't deal with a $1000 emergency. You think they can come up with 30k? Banks won't usually lend on a loan that small, and even if they would, the borrowers wouldn't qualify.
If you don't understand why they aren't buying, you may be out of touch with the bulk of American's financial situations and what the lower middle class life is like. :)
But yes, there's millions of people willing to rent at $800-1000/mo. for a house bought and rehabbed for a total cost of 30-50k.
I can't wrap my head around how someone who can't scrape together $1000 to cover an emergency would make a good reliable tenant on a $800-$1000 a month lease. They are just one fender bender or stubbed toe away from being in default and a lengthy 60 day eviction.
If OTOH they have good credit and can handle several $1000 in emergencies, then why would they pay $8,000 a year to stay in a $27,000 house?
Edit: Maybe we are in section 8 territory here though? That would make a difference in them having monthly cash flow but no accumulated assets.
Because they have cash flow via a job. Most people live paycheck to paycheck. And they do that for decades. They could never save up 30k, cause they'd spend it on stuff along the way. But they can pay rent from cash flow.
But yes, it's quite true that most tenants are just a job loss away from being able to pay their rent (and most homeowners are a job loss away from not being able to pay their mortgage). But when they prioritize rent and are making enough to pay the rent, you're okay.
-
And when they DON'T prioritize the rent, you have to explain it to them through the notice and eviction process. I have one now that pays late fees every month and occasionally has gotten far enough into the process to pay attorney fees. She's a nurse of some kind and met the "verified income of at least three times the rent" criterion. She will be looking for a new place to live in the not too distant future....
-
And when they DON'T prioritize the rent, you have to explain it to them through the notice and eviction process. I have one now that pays late fees every month and occasionally has gotten far enough into the process to pay attorney fees. She's a nurse of some kind and met the "verified income of at least three times the rent" criterion. She will be looking for a new place to live in the not too distant future....
Yup. If you have the 3x income versus rent (hopefully more), they pay fairly regularly (and if they've got a decently long history at the job, you're looking better in terms of stability). I have plenty of tenants who make 50k/yr, rent a house for 1000-1200 that they could have bought for 60-80k within the last few years, but they couldn't qualify for a loan, nor save up enough to buy. They can afford the rent, even though they have no savings.
-
Hi all, it's been a while! Anyway, here are some basic numbers on our properties.
~100k total cost for downpayment, closing, rehabilitation and repairs, et cetera
Rent is currently $3900 total, but it will get up to $4200 starting May 1st.
~90k total cost for downpayment, closing, rehabilitation and repairs, et cetera
Rent was $3350, we have a vacancy that brought it down to $2450, but it should be rented out within a week or so
Cash flow is pretty good, even with the vacancy. The next action point is to get a live-in handyman or something and give him free housing in exchange for a predetermined amount of work per month. What do you guys think of that?
-
What do you guys think of that?
Sounds like multifamily.
Not my thing, but can definitely have its advantages. :)
-
My first deal was a short sale, listed as "prequalified" for the short sale. Owners paid 100, and then paid for a new roof and HVAC. It was listed for 75 and I offered 72 cash, which the owners accepted, but the bank would also need to approve. I then waited and waited (months) and finally did some research on the bank's website. It said that it would only consider one offer at a time and if that offer backed out, would go all the way back to the beginning and the owners would have to start the process to "prequalify" all over again if they couldn't get another offer within a few days. So I withdrew the offer of 72 and offered 65. The sellers don't care what the price is because they just want to walk away, and the bank took it. It now rents for 820 to people with 800 credit scores. It would rent for a lot more if I took renters with low credit, but I have a job and don't want to hassle with evictions. For people who do real estate investing full time, this is a meh deal, but it's 12% return after expenses (taxes are low here and I have a high deductible on the insurance) and it would sell for about 80 now. So I consider this a good investment for me. The house is in my neighborhood and so I can easily manage it myself while working full time.
-
The next action point is to get a live-in handyman or something and give him free housing in exchange What do you guys think of that?
Sounds like a bad idea. Why lose rent on one of your units ever month? Just find a good local handyman that can handle a monthly list of projects or whatever and work out payment. How many units are the properties?
-
The next action point is to get a live-in handyman or something and give him free housing in exchange What do you guys think of that?
Sounds like a bad idea. Why lose rent on one of your units ever month? Just find a good local handyman that can handle a monthly list of projects or whatever and work out payment. How many units are the properties?
Not necessarily, you have to run the numbers. "Losing" the rent on that unit may save you money overall by getting you cheap labor. Bakari, for example, is a live in handyman and gets reduced rent, and I think he's drastically underpaid based on the market, his landlords are getting a steal on a full time available handyman.
-
Sorry I missed this thread for long.
All these in Vegas and I used the terrific Realtor that Arebelspy suggested.
Condo 53K+3K Rent 700-750 current value 89K
SFR 67K+3K+3K Rent 850 current value $115K
SFR 97+4K Rent 1015 current value $155K
I am in the process of selling the condo, the $195 condo fee really kills the return (it was my first property and will probably never buy another condo).
However, none of the properties are in the 1% range anymore and I'm wondering do I sell them. I had terrific appreciation in the last 2-3 years.
I have also found it very hard to find either a good property manager or good tenants. 3 evictions (including one for 4 plex I owned briefly) and the condo was on the second eviction for the same tenant before he dropped of the keys and said I'm out of here. Also when tenants have moved out they have typically inflicted 3 month of damage and only have 1 months security deposit.
I do think if you can find properties in the 1% rental range you can do well with real estate, below that I think the stock market is better and certainly less hassle.
-
I do think if you can find properties in the 1% rental range you can do well with real estate, below that I think the stock market is better and certainly less hassle.
For sure on that last one I could get you $1000 a month on $155,000 in the stock market with fairly low risk. That is only a 7.7% return.
-
For sure on that last one I could get you $1000 a month on $155,000 in the stock market with fairly low risk. That is only a 7.7% return.
Stocks are zero hassle and very liquid, RE not very liquid and it can be some hassle/involvement but the level is up to you. Good rentals for me have a P/E in the 4-5 range which I greatly prefer at present to the 15.5x mean P/E of the SP500. The beta of SFRs in most areas is probably .2-.3 or less. The cash flow from rental real estate can turn into an absolute fire hose of loot headed into your accounts every month after only a few years of taking it seriously. You also should end up with a much higher safe withdrawal rate. Like stocks, you do not have to be a wizard to be very successful, just need to keep at it and not be a total knuckle head. Personally, I am a partial knuckle head so have ended up in a very good way.
-
For sure on that last one I could get you $1000 a month on $155,000 in the stock market with fairly low risk. That is only a 7.7% return.
Stocks are zero hassle and very liquid, RE not very liquid and it can be some hassle/involvement but the level is up to you. Good rentals for me have a P/E in the 4-5 range which I greatly prefer at present to the 15.5x mean P/E of the SP500. The beta of SFRs in most areas is probably .2-.3 or less. The cash flow from rental real estate can turn into an absolute fire hose of loot headed into your accounts every month after only a few years of taking it seriously. You also should end up with a much higher safe withdrawal rate. Like stocks, you do not have to be a wizard to be very successful, just need to keep at it and not be a total knuckle head. Personally, I am a partial knuckle head so have ended up in a very good way.
Well I would be all over real estate with a PE of 4 too! That would be $3200/month in rent on that $155,000 house.
-
The point to owning real estate is not to have a safe withdrawal rate. The point is you never worry about a safe withdrawal rate, because you are not decumulating. You don't run out of money, because you rely on the income of the asset, not the sale of the asset. The asset continues to pump out net income year after year, and over time it usually goes up in value.
-
Another reader, I could not agree with you more! Yeah, the yields can get pretty amazing, current house under contract to close on next week is a big 4 bedroom, puchase 42.5 K, about 10K in renovations, we will rent it for $1100 a month and if recent history proves true again, we will have it rented well before renovations are complete. Even using the 50% rule it will yield about 12.5% as far as our cash invested. For the first 5-10 years or so after a renovation our yields generally beat the 50% rule handily baring a horrible tenant. Should have a real yield of closer to 15-18% for quite awhile. Cash on cash yields would be higher with leverage but we have been paying cash only for houses of late as that is one way to really play not to get hurt. We may sell this one though as a somewhat smaller, very similar house 1 block away just went closed with a SP of 121K vs a LP of 125.5K. That house was only on the market about 6 weeks so they probably had a sales contract in the first 2 weeks that it was listed and the SP stunned me. Much as I like the fast cash from flips, we will probably keep and rent for the next 20 years or so as cash flow is king in my book. Not adjusted for inflation or vacancies, 20 years of gross rent on that house is $264,000. Nothing to sneeze at.
-
I have also found it very hard to find either a good property manager or good tenants. 3 evictions (including one for 4 plex I owned briefly) and the condo was on the second eviction for the same tenant before he dropped of the keys and said I'm out of here.
Clif, why don't you talk to me about those things? I have solutions, I know good property managers, I know where to find good tenants. I have more units than you, and have owned them for longer, and never had to do an eviction on a tenant (one time a squatter in a flip I did, but that's a crazy story for another time). :)
However, none of the properties are in the 1% range anymore and I'm wondering do I sell them.
If you do decide to sell, let me know, you can owner finance and I can provide the same steady cash flow you're looking for, without the hassle of tenants, management, etc. ;)
Hell, sell me a half interest and you can share in the cash flow and appreciation and cash out some of the equity. :D
That is only a 7.7% return.
Not counting appreciation. Have clif tell you his IRR for the last 3 years. ;)
(Now no, you can't count on that going forward, or at any time, but it does happen at times.) I'd have fully expected Vegas real estate purchased 2009-2012 to beat the stock market going forward over the next few years - and it's not just hindsight, I bet a lot of money on it.
That being said, yes, going forward one should assess where they're at and what the best move today is. I looked at selling my Vegas properties, but the cash flow is so good and there's just no better alternative places for my funds. I like the diversification of holding them as well. YMMV.
-
I looked at selling my Vegas properties, but the cash flow is so good and there's just no better alternative places for my funds.
Yep, finding alternative investments is the barrier to selling in most cases.
-
I looked at selling my Vegas properties, but the cash flow is so good and there's just no better alternative places for my funds.
Yep, finding alternative investments is the barrier to selling in most cases.
Owner financing is a good solution in that case though. I've thought about doing that years (a few decades?) down the road. You spread out the capital gains hits over multiple years, and you don't need to find an alternate place for the money because it's still invested in the house, and someone is paying you whatever rate you negotiated (6-9%, maybe more?), hopefully matching or beating the market but with much less variance. No need for the SWR, because it's steady cash flow (though you'll want to reinvest some of it to deal with inflation issues, naturally).
I've got it on my mind, just attended a three day conference (Paper Source Seminar) on notes. ;)
-
Yep, finding alternative investments is the barrier to selling in most cases.
Owner financing is something I have not done but may do in the future. The other barrier to selling is recapture of depreciation which is a nasty, nasty part of the tax code. We have 3 houses that we bought on 1031 exchanges that we can never sell outside of 1031 exchanges without getting smoked by the tax man. The rolled forward gain coupled with the appreciation of the new house is a huge incentive to keep forever. My plan is to hold forever until I kick off and then the cost basis will reset to the value when I am pushing up daisies. Thus depriving the evil tax man of a small bit of our loot. I hope. Either way, will not care at that point.
-
Yep, probate is an effective tax avoidance strategy. Leave a smoothly running operation for the heirs.
-
Yep, probate is an effective tax avoidance strategy. Leave a smoothly running operation for the heirs.
Funny how the vast majority of heirs I hear about want nothing to do with that "smoothly running operation." ;)
I agree that it's pretty much the only exit strategy sometimes, especially in cases of 1031s. But for just recapturing regular depreciation on a single property, owner financing spreading that out over 15-30 years helps take the sting out.
-
There are often unused carryover depreciation losses that can be used to offset recapture and gain. If you had high earned income for awhile and could not use all the paper losses or had properties that were cash flow positive before depreciation but cash flow negative after depreciation, you probably have banked some of that.
-
Condo 53K+3K Rent 700-750 current value 89K
SFR 67K+3K+3K Rent 850 current value $115K
SFR 97+4K Rent 1015 current value $155K
I had terrific appreciation in the last 2-3 years.
Wow. That's impressive.
I think you should turn over all your properties to Arebelspy to either manage or sell, or possibly to roll over into new properties!
The other barrier to selling is recapture of depreciation which is a nasty, nasty part of the tax code. We have 3 houses that we bought on 1031 exchanges that we can never sell outside of 1031 exchanges without getting smoked by the tax man. The rolled forward gain coupled with the appreciation of the new house is a huge incentive to keep forever. My plan is to hold forever until I kick off and then the cost basis will reset to the value when I am pushing up daisies. Thus depriving the evil tax man of a small bit of our loot. I hope. Either way, will not care at that point.
If landlords could 1031 a rental property into a REIT then exit strategies would be a lot easier. The NAREIT-sponsored companies that advertise 1031s into managed TIC properties seem to be exploiting elderly landlords (of perhaps declining cognition) with fear marketing...
-
My plan is to hold forever until I kick off and then the cost basis will reset to the value when I am pushing up daisies. Thus depriving the evil tax man of a small bit of our loot. I hope. Either way, will not care at that point.
Swap 'til you drop, friend.
-
Hi, just thought I'd chime in with how I (maybe) got lucky with my real estate investment. I'm writing to share my story and for some advice on what to do next.
I bought a 3800 sq ft property for 200k with a college fund/inheritance I didn't use on school and some family financing (I still am paying about 16k in interest to family members for that loan which will be paid off within another year or two) in a questionable but up and coming neighborhood in 2009. The house was in need or serious updating as it was a crummy 16 bed asssisted living facility when purchased and I slowly converted it into 4 units housing 6 people while living there from July 2009- March 2014 sort of Mr. Money Moustache style with my own labor whenever possible and salvaged items/craigslist deals. Luckily most of the plumbing was intact from prior decades as a rental. From 2009-2014 I spent about 15k in materials and some labor to do the first three units, and then financed 100k over a 10 year period at 2.75% to get 25k to hire out the last 1000sq ft unit rehab and to pay back family members while I moved to a different state for a job.
I currently pull 43200 a year (3600 a month) uitilities included and spend about 10k a year on utitilites, taxes, insurance, and various fees (I still spend more for repairs) although this is only the second month the house is completely full having just finished the rehab of the unit I occupied. I'm surprised at having used your % tool that I'm only at about 1.2% as I feel as if I'm making a killing! I also set rent slightly below the market rate in order to make renting easy and my target is the 22-30 year old demographic who are perhaps recently out of college or in grad school, don't yet have a very high income, want to save their money, want to live in a city, and want to live in an exciting/eclectic/walkable neighborhood but can't quite afford it. I value my tenants and each of their financial situations/quality of life, am flexible when possible to their needs and have never increased rent. They all treat me and the house well and pay on time.
The house will be paid off in about 9 years and barring catastrophe I'm hoping to be able to support a family with my investement and bank my income for the sake of setting up my children in a similar matter that my family did for me. In the meantime, besides paying for improvements and repairs, what should I do with the profit I make? Put it all in an index fund? Try for another rental once I've saved say 20k for a downpayment? Borrow against the house again in the future in order to purchase more property? I feel as if my purchase even though it's turned out well was a big risk and now wish to do something safe, but I do want to grow my investements. What would you do? Thanks.
-
That sounds great, Juicifer. We have some rentals and plan to plow extra money into more, so obviously that's what I would recommend you do. You may also want to max out your 401k, if you have one (and especially if your employer matches contributions). Personally I prioritize cash flow--IOW I would rather put spare money into an income property than my 401k--but you can certainly lower your tax burden with 401k contributions so that's something to consider.
-
That sounds great, Juicifer. We have some rentals and plan to plow extra money into more, so obviously that's what I would recommend you do. You may also want to max out your 401k, if you have one (and especially if your employer matches contributions). Personally I prioritize cash flow--IOW I would rather put spare money into an income property than my 401k--but you can certainly lower your tax burden with 401k contributions so that's something to consider.
Thank you for the response! I have a pension plan and no 401k match from my employer so I guess I'll save up for another downpayment and see what the local market is like when I've got something to invest.
-
I'm just starting out:
$330,000, rehab $4k, monthly rent $1517
Will have to get my head around the 1%/2% rule, as this is the first time I've heard it (unless it's called something else in NZ!)
One of the calculations I did before purchase was for gross yield/net yield:
total rent less rates divided by cost, which brings a percentage that can be compared against other investment classes.
-
I'm just starting out:
$330,000, rehab $4k, monthly rent $1517
I wouldn't touch it. The 1% rule says that house would be worthwhile if it brought in $3340/mo in rent; your numbers put the rent at less than half that.
Is that normal for NZ? Very high purchase prices and low rents?
-
I'm just starting out:
$330,000, rehab $4k, monthly rent $1517
I wouldn't touch it. The 1% rule says that house would be worthwhile if it brought in $3340/mo in rent; your numbers put the rent at less than half that.
Is that normal for NZ? Very high purchase prices and low rents?
The USA is very much the exception rather than the rule when it comes to these things. I don't know of anywhere else in the developed world where 1%+ is the sensible norm. Deals happen, sure, but nothing like the same way.
OTOH in the US and Canada, the landlord pays property taxes, where in other places this is not true.
-
The USA is very much the exception rather than the rule when it comes to these things. I don't know of anywhere else in the developed world where 1%+ is the sensible norm. Deals happen, sure, but nothing like the same way.
Which probably explains why so many foreign nationals invest in US real estate. I know of a number of Canadians, UKers, Aussies, and Chinese citizens investing in US real estate. I do wonder why more foreign Mustachians aren't.
-
I looked at selling my Vegas properties, but the cash flow is so good and there's just no better alternative places for my funds.
Yep, finding alternative investments is the barrier to selling in most cases.
Owner financing is a good solution in that case though. I've thought about doing that years (a few decades?) down the road. You spread out the capital gains hits over multiple years, and you don't need to find an alternate place for the money because it's still invested in the house, and someone is paying you whatever rate you negotiated (6-9%, maybe more?), hopefully matching or beating the market but with much less variance. No need for the SWR, because it's steady cash flow (though you'll want to reinvest some of it to deal with inflation issues, naturally).
I've got it on my mind, just attended a three day conference (Paper Source Seminar) on notes. ;)
Yes, I've thought of this too and believe it to be a good idea. I working on a legal agreement for rent-to-own.
-
The USA is very much the exception rather than the rule when it comes to these things. I don't know of anywhere else in the developed world where 1%+ is the sensible norm. Deals happen, sure, but nothing like the same way.
Which probably explains why so many foreign nationals invest in US real estate. I know of a number of Canadians, UKers, Aussies, and Chinese citizens investing in US real estate. I do wonder why more foreign Mustachians aren't.
In Canada, because of:
1. income tax issues for Canadians investing in RE in the US;
2. restrictive rules on having to hire out repairs and renovations;
3. lack of in-depth knowledge of a market;
4. competing demands on time getting in the way of figure out #3;
5. lack of access to financing.
Of all of the, #5 is the most difficult imo. People I know generally pull out money on a HELOC to invest in RE in the US. You need to have equity first and this takes a lot of time to get in Canada because of high purchase prices and low ROI on rental income. Mostly find this in people 45 and older and then they may have other priorities and a more conservative plan for their investments - like RRSPs and TFSAs and paying off the mortgage.
I considered the US closely in 2008, but rejected this ultimately due to the hassle factor and competing priorities. I can do okay here using my local knowledge, good credit, low-rate mortgages and some sweat equity. Long-term this is enough.
-
I don't know about Mustachians per se, but a lot of Canadians own in Phoenix. It's a combination of snowbirds and investors. There are large concentrations of Canadian owners in areas that got hit the worst in the collapse, such as the City of Maricopa. Snowbirds come for the climate, not the proximity to jobs, so the outer suburbs were very attractive to them. There are agents and property managers that specialize in working with Canadians because it has been a lucrative way to get through the downturn.
Now that the Canadian dollar buys less and the Phoenix market has appreciated, the purchases are down substantially.
-
I don't know about Mustachians per se, but a lot of Canadians own in Phoenix. It's a combination of snowbirds and investors. There are large concentrations of Canadian owners in areas that got hit the worst in the collapse, such as the City of Maricopa. Snowbirds come for the climate, not the proximity to jobs, so the outer suburbs were very attractive to them. There are agents and property managers that specialize in working with Canadians because it has been a lucrative way to get through the downturn.
Now that the Canadian dollar buys less and the Phoenix market has appreciated, the purchases are down substantially.
Agreed. I know of a lot of foreign investors buying US RE, or investing in it in other ways. It doesn't seem common among non-US Mustachians though.
Pretty much currency risk is the only reason I can think of why I wouldn't invest elsewhere in that scenario, but if you aren't worried about the US currency, and you're getting like 0.3% gross rent to purchase price at home but can get 1-2% (i.e. 3-6x the return) in the US, why not go for that? In essence turn your 3-4% return into at least 9-12%.
-
I don't know about Mustachians per se, but a lot of Canadians own in Phoenix. It's a combination of snowbirds and investors. There are large concentrations of Canadian owners in areas that got hit the worst in the collapse, such as the City of Maricopa. Snowbirds come for the climate, not the proximity to jobs, so the outer suburbs were very attractive to them. There are agents and property managers that specialize in working with Canadians because it has been a lucrative way to get through the downturn.
Now that the Canadian dollar buys less and the Phoenix market has appreciated, the purchases are down substantially.
Agreed. I know of a lot of foreign investors buying US RE, or investing in it in other ways. It doesn't seem common among non-US Mustachians though.
Pretty much currency risk is the only reason I can think of why I wouldn't invest elsewhere in that scenario, but if you aren't worried about the US currency, and you're getting like 0.3% gross rent to purchase price at home but can get 1-2% (i.e. 3-6x the return) in the US, why not go for that? In essence turn your 3-4% return into at least 9-12%.
The same thing happened in Florida. However, Florida is currently passing new laws to encourage the Canadians to keep buying Florida real estate.
-
Arebelspy,
Where do you find good tenants? I have rentals in the Midwest and with 30+ units, I was evicting at least 10% each month. Sold "slum" properties in 2007 and 1031 exchanged to better locations. Now I have only a couple of evictions per year. However, it is still pretty hit or miss whether I get good applicants. What are your tricks?
-
Arebelspy,
Where do you find good tenants? I have rentals in the Midwest and with 30+ units, I was evicting at least 10% each month. Sold "slum" properties in 2007 and 1031 exchanged to better locations. Now I have only a couple of evictions per year. However, it is still pretty hit or miss whether I get good applicants. What are your tricks?
10% a year? Good god. How do you screen your applicants? What checks do you run, what references do you request (and call)?
-
If it is so easy and requires no work, why isn't some giant corporation buying every house that meets the 2% rule and renting it out? They would have a huge advantage in getting discount labor and efficiency in management due to multiple properties.
If some giant corp is doing this, why not just invest in them?
They exist, it's called Blackrock. Great investment.
-
I had a rental that cost me 44k and rented for $1900/mo and everyone here told me to sell it (http://forum.mrmoneymustache.com/real-estate-and-landlording/seeking-rental-property-evaluation-advice/). What counts as "performing well" is pretty subjective.
-
Daleth, If you own in the slums in my area, it really isn't possible to get good tenants. They are living in the slums for a reason. I would call references, etc. but I would have had an empty house for 2 years if I waited for a qualified applicant. Younger self was able to buy 60 units in very short time period (since slum houses are cheap) with the plan of living off the cash flow when loans were paid off in 10 years. My Midwestern state lost a lawsuit regarding its property tax system and the result was that the property taxes on all older homes took a huge hit. (Example: House had $400 per year taxes and the next year it was $3200 per year. This was a house where gross rents were $7000 per year.) My older slum houses were no longer cash cows, so we sold them. Best education in how to manage rentals that you will ever find. If you can manage slum houses, nice houses are a piece of cake!
Older and wiser self owns newer houses in a nice area where we can get good tenants. I was just wondering how others find good tenants. Always looking to learn.
-
Daleth, If you own in the slums in my area, it really isn't possible to get good tenants. They are living in the slums for a reason. I would call references, etc. but I would have had an empty house for 2 years if I waited for a qualified applicant. Younger self was able to buy 60 units in very short time period (since slum houses are cheap) with the plan of living off the cash flow when loans were paid off in 10 years. My Midwestern state lost a lawsuit regarding its property tax system and the result was that the property taxes on all older homes took a huge hit. (Example: House had $400 per year taxes and the next year it was $3200 per year. This was a house where gross rents were $7000 per year.) My older slum houses were no longer cash cows, so we sold them. Best education in how to manage rentals that you will ever find. If you can manage slum houses, nice houses are a piece of cake!
Older and wiser self owns newer houses in a nice area where we can get good tenants. I was just wondering how others find good tenants. Always looking to learn.
Yeah, location is key. That said, one of our houses is in a... let's say... "transitional" area, in other words it's on the nice side of a very borderline neighborhood. I say "borderline" because it's not like it's high-crime--no drive-bys or anything--but even on the nicer side where this house is, stuff does get stolen off porches, leaving the door unlocked is not a good idea, etc. But that's why it was cheap to buy and that's why we can rent it out for a couple hundred less a month than people would pay in nearby nicer neighborhoods, and we've found that the tenants we get are young professionals, like the kind who just graduated from nursing school and are starting their first job at the local hospital, or have just moved from a fast-food career into something more substantial. We also get some terrible applicants but since there are good ones, that's obviously who we pick.
And I think the reason we get good tenants despite the area is that the house is gorgeous. Hardwood floors, big kitchens with gas stoves and nice cabinets, nice paint jobs (not all white/beige; there are accent walls, nice colors etc.), garages... basically the place has amenities that would cost hundreds more a month in a better neighborhood, and it photographs well so people who care about such amenities respond to the Craigslist ads. If it had drop ceilings, fluorescent lighting and 24" electric stoves stuffed into awkward little corners, as many houses in bad or transitional areas do, we would never get these good tenants to even look at the place, much less fill out an application form and pay me $30 to run the credit and criminal background check.
-
Where do you find good tenants?
Good screening processes.
You answered your own question:
If you own in the slums in my area, it really isn't possible to get good tenants.
Own decent properties in decent areas. Charge just below market. Get decent to good tenants.
What are your tricks?
I don't know that I'd call them "tricks" per se, but make your property as attractive as possible. Curb appeal, good photos for your listing, good advertising (multiple avenues/venues), slightly below market rent, etc.
-
Section 8 might be a good option for you. Look up gosection8.com to list your rentals there.
My best luck has been with nice, well screened tenants that want a nice home. I listen for phrases like "I'm a real clean freak". We don't remodel our rentals like a flip house, but we do make them nice... clean, well repaired, smelling good, windows sparkling. I also do a minor staging (flowers, art, champagne glasses, fake fruit basket, clean towels in the the bathroom with ribbons tied around them) when I take my photos.
Beware the bargain seekers. My worst house is also my worst rental.. the thing is a wreck and the tenants are real whiners. These complainypants tenants now have mom (not on the lease) moved in on a full time basis. I'd kick them out except we'd have to remodel the whole thing to get the type of renters that we'd want in there.
-
Yeah, location is key. That said, one of our houses is in a... let's say... "transitional" area, in other words it's on the nice side of a very borderline neighborhood. I say "borderline" because it's not like it's high-crime--no drive-bys or anything--but even on the nicer side where this house is, stuff does get stolen off porches, leaving the door unlocked is not a good idea, etc. But that's why it was cheap to buy and that's why we can rent it out for a couple hundred less a month than people would pay in nearby nicer neighborhoods, and we've found that the tenants we get are young professionals, like the kind who just graduated from nursing school and are starting their first job at the local hospital, or have just moved from a fast-food career into something more substantial. We also get some terrible applicants but since there are good ones, that's obviously who we pick.
And I think the reason we get good tenants despite the area is that the house is gorgeous. Hardwood floors, big kitchens with gas stoves and nice cabinets, nice paint jobs (not all white/beige; there are accent walls, nice colors etc.), garages... basically the place has amenities that would cost hundreds more a month in a better neighborhood, and it photographs well so people who care about such amenities respond to the Craigslist ads. If it had drop ceilings, fluorescent lighting and 24" electric stoves stuffed into awkward little corners, as many houses in bad or transitional areas do, we would never get these good tenants to even look at the place, much less fill out an application form and pay me $30 to run the credit and criminal background check.
Our experience with our SFR in a similar area has been the same. Nicely redone inside, nicely done backyard. Get tenant applicants that are all over the map so far. Some great, some terrible, but so far we've been able to easily choose great tenants.
-
I had a rental that cost me 44k and rented for $1900/mo and everyone here told me to sell it (http://forum.mrmoneymustache.com/real-estate-and-landlording/seeking-rental-property-evaluation-advice/). What counts as "performing well" is pretty subjective.
I just read the linked thread to find out about this amazing situation... and found that you left out a pretty important detail. It rents for $1900/mo, but there's a monthly mortgage payment of $1700+.
It still might be a good deal, but your description of it here was misleading (to me, at least).
-
found that you left out a pretty important detail.
Yes, I'm sneaky like that.
-
found that you left out a pretty important detail.
Yes, I'm sneaky like that.
(http://www.lifeinprogress.ca/.a/6a0120a95a88d5970b01a3fca9acc2970b-800wi)
-
We talk a lot about the 1% rule and making sure that properties will generate good cashflow, but there is another element to consider: tenant quality.
According to my observations, tenant quality and returns are inversely correlated. Properties in cities that are doing well (SF, NY) often cashflow 0.3-0.5% while those in areas of no hope can throw off 4-5%. I suspect that this is because everyone wants to buy in areas that are doing well and government programs (section 8, etc) provide a floor on rents in economic dead zones.
Unfortunately, you pay for those high rates of return with evictions, damage, tenant craziness and sleepless nights. Also, maintenance and repairs are a bigger deal on cheaper properties: a $500,000 1500 sqft property that rents for $4000/mo needs the same dollar amount in maintenance and repairs as a $120,000 1500 sqft property that rents for $1000/mo.
The point that I am slowly getting around to: cash flow isn't everything. Somewhere out there is an efficient frontier curve that relates tenant quality and rate of return. Beating that efficient frontier is quite an art.
-
There's a correlation between tenant quality and property quality, certainly. You want properties that are decent.
The problem is that there are both good and bad tenants everywhere. It's not like all the bad tenants moved out of SF and DC and NYC and into Detroit and Memphis and Vegas.
Get decent properties in the good cash flowing areas and you'll get decent tenants. Just because you buy in an area where cashflow sucks (SF, for example), that doesn't mean you'll get good tenants.
Learn to screen tenants and price just below market rent, and you'll be happy. Don't compromise on returns and counting on appreciation.
-
There's a correlation between tenant quality and property quality, certainly. You want properties that are decent. <snip>
Learn to screen tenants and price just below market rent, and you'll be happy. Don't compromise on returns and counting on appreciation.
...
These are the words that I live by as a landlady- and yet we've been lucky enough to have terrific appreciation, too.
We opt for well screened tenants (do the best you can, take the time to call the references), and a rent that's priced to be a good deal, which makes for a happy situation. Most of my rentals have a nice edge... several of them border a nature preserve with a duck pond view; the others are clean and/or remodeled. They aren't too big-- there are many estate homes in my area, but the demand is for reasonable rent and smaller homes. There's a huge shortage of nice, affordable SFR for rent.
We treat our clients (aka tenants) well. We buy them baby shower gifts, bring fruit baskets, and the like. We are very friendly without crossing over to being "friends".
As I said upthread, the only tough rental I have is the one that is a fixer upper that is kind of marginal. The type of tenant that I hope for simply wouldn't want that house! I bought it with the tenant in place but--Marginal house = marginal tenant.
-
I purchase my first rental property about six months ago. It was good to go with no repairs needed. I actually had tenants lined up two weeks before I closed on it, and they were okay with me making improvements the first week after it closed (while they were moving in.)
2bdr 2ba w/attached garage (roughly 1300 sf)
All in, total cost = $102,000
Rental amount = $800
Mortgage (all-in) = $715 (includes HOA)
So I'm slightly less than the 1.0% (technically about .8%) and my income flow is about $85/mo. While the margin isn't great at the moment, it is a positive margin. I can raise the rent a little higher when the current tenants leave to cover future expenses.
But for now, the mortgage is low in comparison to my income so there is no issue covering it if needed, it's in a great location near a growing state university, I get the experience of being a landlord and getting my feet wet, and I'm building equity. An added bonus, the water heater and gas furnace are new.
-
I purchase my first rental property about six months ago. It was good to go with no repairs needed. I actually had tenants lined up two weeks before I closed on it, and they were okay with me making improvements the first week after it closed (while they were moving in.)
2bdr 2ba w/attached garage (roughly 1300 sf)
All in, total cost = $102,000
Rental amount = $800
Mortgage (all-in) = $715 (includes HOA)
So I'm slightly less than the 1.0% (technically about .8%) and my income flow is about $85/mo. While the margin isn't great at the moment, it is a positive margin. I can raise the rent a little higher when the current tenants leave to cover future expenses.
But for now, the mortgage is low in comparison to my income so there is no issue covering it if needed, it's in a great location near a growing state university, I get the experience of being a landlord and getting my feet wet, and I'm building equity. An added bonus, the water heater and gas furnace are new.
Ugh.
Rent - vacancy - property management - insurance - interest - repairs/maintenance - property tax - HOA is your cost.
Repayment to capital and anything left over is your 'win'.
-
Yeah, that's a pretty poor deal. It fails the 1% rule of them, as well as the 50% rule of thumb. Sure, you might come out slightly ahead in the long run, but it's not the best way to invest your dollars at all, if you're barely getting a 1% return on it.
You can speculate on appreciation all you like, and some people do that very well, but that's not for me. For me, cash flow is king.
-
All of my units are fully furnished - including pots, pans, bedding, towels, etc.
Townhouse - 2 bed. Paid 36K. 4K reno. 1.5K for furniture. Rent is $2000 but I pay all utilities, Internet & cable TV (about $200 a month). HOA $270. Taxes $490 a year. Net over 1K a month.
Condo - 1 bed. Paid 47K. No reno. 2K for furniture. Rent is $1700 but I pay all utilities, Internet & cable TV (about $200 a month). HOA $220. Taxes $330 a year. Net over 1K a month.
Condo - 2 bed. Paid 45K. 3K reno. 2K for furniture. Rent is $1500 but I pay all utilities, Internet & cable TV (about $150 a month). HOA $310. Taxes $400 a year. Net just under 1K a month.
SFH - 3/2. Paid 68K at auction. 12k reno. 3K for furniture. Rent varies from $1700 to $3200 but I pay all utilities, Internet & cable TV (about $250 a month). HOA $50. Taxes $700 a year. Net varies widely. That was our former home in AZ and we still use it to thaw out in winter. Want to dump it but current value is $170K so tax hit will be high on 75K gain. great house / neighborhood but the schools in AZ are subpar.
-
arebelspy - You own property all over the map. Do you visit before you buy? Do you visit a bunch of places before buying one? Do you leave the visiting to people you trust in areas you know? How does that all factor into your costs per property?
-
arebelspy - You own property all over the map. Do you visit before you buy? Do you visit a bunch of places before buying one? Do you leave the visiting to people you trust in areas you know? How does that all factor into your costs per property?
Great question, and one I've gotten before. I'm going to start a new thread for the answer.
EDIT: Boom. (http://forum.mrmoneymustache.com/real-estate-and-landlording/purchasing-real-estate-you've-never-seen/)
-
A few best
Bought 21 k, $10 k rehab rent $850. House nextdoor is smaller and sold for $108 k 6 months ago. Poor bank lended $110 k on this pre-crash.
Bought 6.5 k, $10 k rehab rent $575. Poor bank lended $100 k on this pre-crash. They walked away with $1500 from closing.
Bought $10 k, $7.5 k rehab rent $825. Poor bank lended $75 k pre-crash.
-
jmmoney, you fricken rock! WTH market is that?
-
Best purchase in my 14 years was last year
58k purchase and closing 1k rehab =rent 895
On our 2nd year with this property.
Have 6 properties with 2 being bought at or near the top of the market.
All properties will be free and clear in 15 years.
Rents cover all mortgages and most expenses including our own home mortgage.
Will clear 60k+/year when free and clear without adding more properties.
I buy local our market is pretty descent for buying. The thought of buying distant is intriguing.
Spent 15 years as a carpenter so I can do most work. I hire plumbers and electricians.
-
First and only purchase (so far): $103,000 that rents for $1400. Definitely not the highest I've seen here, but decent considering I went into it completely green. I'm still pretty green, but have come a long way since.
It's a 4 bed/4 bath condo built specifically for student living. Managing it myself, the cap rate is about 10%. Biggest problem I've run into was the PM company (it was managed the first year) not being careful about tenants and they trashed the place/got evicted for non payment of rent/etc. I'm more selective with tenants (I currently live in the property too) and it's been pretty smooth sailing since. Upside is since it's located a few miles from a public university, vacancy has been near 0.
-
Portable storage units next to my shop. I paid 2500 each, and they rent for $75/mo. Theres no property tax since they aren't permanent structures, almost no maintenance, very little turnover, and never having to worry about eviction is nice, too.
My absolute best performing rental is a "roofing tool kit", with a compressor, scaffold, nail gun, ladder, tarps, shingle stripper, and wheelbarrow. I collect enough money to replace everything as security, and give them 80% back if they return it unbroken within a month. It's been out around twenty times, and takes up very little shop space, since everything fits on the scaffold.
-
All of my units are fully furnished - including pots, pans, bedding, towels, etc.
Townhouse - 2 bed. Paid 36K. 4K reno. 1.5K for furniture. Rent is $2000 but I pay all utilities, Internet & cable TV (about $200 a month). HOA $270. Taxes $490 a year. Net over 1K a month.
Condo - 1 bed. Paid 47K. No reno. 2K for furniture. Rent is $1700 but I pay all utilities, Internet & cable TV (about $200 a month). HOA $220. Taxes $330 a year. Net over 1K a month.
Condo - 2 bed. Paid 45K. 3K reno. 2K for furniture. Rent is $1500 but I pay all utilities, Internet & cable TV (about $150 a month). HOA $310. Taxes $400 a year. Net just under 1K a month.
SFH - 3/2. Paid 68K at auction. 12k reno. 3K for furniture. Rent varies from $1700 to $3200 but I pay all utilities, Internet & cable TV (about $250 a month). HOA $50. Taxes $700 a year. Net varies widely. That was our former home in AZ and we still use it to thaw out in winter. Want to dump it but current value is $170K so tax hit will be high on 75K gain. great house / neighborhood but the schools in AZ are subpar.
May I as where in the Midwest generally and who your target market is for furnished rentals? Are deals like this still possible in this area?
-
Best purchase in my 14 years was last year
58k purchase and closing 1k rehab =rent 895
On our 2nd year with this property.
Have 6 properties with 2 being bought at or near the top of the market.
All properties will be free and clear in 15 years.
Rents cover all mortgages and most expenses including our own home mortgage.
Will clear 60k+/year when free and clear without adding more properties.
I buy local our market is pretty descent for buying. The thought of buying distant is intriguing.
Spent 15 years as a carpenter so I can do most work. I hire plumbers and electricians.
This ROCKS! I love the idea that when the rentals are paid off, life is sweet. Our plan is similar- all rentals (that have loans) are set to pay off in 15 yrs or less.
We have one rental bought at the top of the market, but all the rest have both appreciation and cash flow. It feels like a rock solid life plan, and I sleep well at night.
I, personally would not buy a far away rental, because I would not want to be so reliant on someone else to keep an eye on my holdings. Plus, when opportunity is right around the corner, why trouble yourself to look further afield?
-
I do too. We want to enjoy the 15 years till then. Only wish I would have started the 15 year mortgage deal 14 years ago when I started buying. Mortgage brokers don't sell them as much as the 30,year.
-
There are actually some benefits to getting 30 year mortgages and paying them off in 15. I like the flexibility of not HAVING to make that accelerated payment. Currently I am applying a pay down strategy to my largest rental loan, which also has one of the highest interest rates that I've got. I should have it paid off in 5 more years at the rate I'm going. Like financial people often advise about paying off credit card debt, I'm doing the same with my mortgages. That strategy is focusing on one and shoveling the money in. When this one is paid off, I'll take the thousands of dollars that I've been paying on it, and move to the next mortgage.
Although the interest rate on a 15 year is a wee bit lower, the commitment to pay the bank a lower monthly payment (and adding principle payments) might prove handy when getting more bank loans.
In case somebody doesn't know this strategy, I had this loan "recast", or "re-amortized" when I made a large principal reduction payment. For $250, a one time fee, the loan, which was set to pay off in about about 12 years with the payments and principal reduction payments I was making monthly, was recalculated to bring it back to the original pay off date, some 20+ years out. This lowered my monthly payment by about 1000 per month. (It was a big loan).
Since my goal is FI, I continue to contribute that same extra 1000, except now it goes 100% to principal. The loan mod department does this. This is the only way that I know to bring an existing monthly payment down without refinancing.
-
I think the most important thing to do when considering the type of mortgage you are taking is what your goals are and to make sure that the loan fit's that goal. My retirement goal is 50 to 55. The 15 year mortgage fits this goal. It forces me to make the larger payment and in 1 loan alone the difference in interest is close to 400k. And the great thing is I can also pay more on that 15 year mortgage and repay it sooner if I so desire. The interest rate is a little better and it's amazing how quickly that loan starts to pay down compared to the 30 year loan.
I do however get your point and it makes sense. The problem that I see with getting more loans is that most banks are limiting me to 4 mortgages. They don't care what the payment is or even the debt to value. They consider debt to income and how many mortgages I have. My wife has bought the last two properties in her name alone for this reason.
Some banks will go over 4 loans or make exceptions. But it's getting harder partly because so many have decided to just cut and run on properties they took a risk on.
The rental business is a business it takes time, know how, and money. I have watched many get into the business thinking it would be so easy only to sell in a year or so because of the different challenges landlord's face. It does get easier as time goes on and it is a good solid business if done right. And doing it right isn't always the same for everyone. The 30 year mortgage seems right for you and that's great. For me each time I buy a new property we look at a 15 year and a 30 year mortgage and make the decision that fits us.
-
An old thread but a great one. Motivational. Last deal rented today. Purchase 23k, rehab $6700 (not done by me swinging a hammer for 1 minute) rented $875 a mo within 36 hrs of posting ad on CL.