Author Topic: Reader Case Study Proceed with closing on 4th rental property?  (Read 14866 times)

arebelspy

  • Administrator
  • Senior Mustachian
  • *****
  • Posts: 28029
  • Age: -999
  • Location: Seattle, WA
Re: Reader Case Study Proceed with closing on 4th rental property?
« Reply #50 on: September 10, 2014, 07:31:19 PM »
There are days in which I wish all my money was in investments and not tied up in Real Estate.  Mainly on the holidays that I am stuck painting or doing some other maintenance issue that I handle myself.

And to other potential real estate investors possibly scared off by this: it doesn't have to be this way.

I don't paint or handle any property repair issues.  I hire people to work on my properties.  The worst I'll have to deal with is a text from a tenant and then a few minute call to a handyman (and it's rare).

You choose how much you work you want to put in.  Obviously the return on the two properties is the same, you're just boosting your return when you do the labor by adding a "handyman" side gig.  I'm not interested in that, so I hire that out.  But it's certainly feasible if you lie that sort of thing.
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with two kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

arebelspy

  • Administrator
  • Senior Mustachian
  • *****
  • Posts: 28029
  • Age: -999
  • Location: Seattle, WA
Re: Reader Case Study Proceed with closing on 4th rental property?
« Reply #51 on: September 10, 2014, 07:31:50 PM »
I'm not sure if the is the correct place to ask this question, but since I saw it discussed on this thread I will just go ahead and ask it here.

I want to make sure I understand the 1% and 50% rule, and what that would mean in regards to ROI.
If your monthly rent was 1% of purchase price then if you purchased the home for cash you would have a 12% return before expenses? Then using the 50% expense rule you would then expect your final ROI to be 6%? Please let me know if this correct. If this is how it works it makes complete sense that if you are buying cash you really need to be using the 2% rule, but using the 1% rule at current interest rates could still deliver a good ROI if you leverage money.

Correct.  I'd actually estimate, in my experience, a 1% rule to return 4-6%, typically, and a 2% rule property to return 10-12% (just straight cash on cash, ignoring the 3 other potential methods of return, and any extra income it may generate).  And cheap leverage can up that somewhat, but obviously it'll up it more with a 2% property, because of the spread of what you're earning (10-12%) and what you're paying (5%ish for an investment property).  With a 1% rule property, it probably won't boost your returns that much since your return is only slightly above your borrowing rate.

But yes, that's why I don't buy any properties that only hit 1% - the return is just not there for the work, and that point I'd just buy an index fund.

And, from what i've seen, and i'm NOT an expert at all, but most houses that meet the 1% rule are fairly nice) as opposed to say certain houses in a 2% area which could be "slums"

I feel like a lot of people think this way, but it's not necessarily the case.  It totally depends on your market.  I've got some pretty nice 2% rule properties, and seen some pretty shitty sub-1% rule properties.

Heck, for those of you in a market that doesn't hit the 1% rule: can't you think of some terrible slum like properties in your area that don't hit the 1% rule?  Certainly those exist in some markets.  It's not the case that a property is nice just because it's sub-1%.  Ditto the opposite.  It's not the case that a home is terrible just because it  rents for 2% of the purchase price monthly.  It just depends on the market and what's available there.
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with two kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

usmarine1975

  • Guest
Re: Reader Case Study Proceed with closing on 4th rental property?
« Reply #52 on: September 10, 2014, 08:32:32 PM »
Just to note I choose to do the work that I want too.  I do hire some of it out as well.  Depends on what I have going. My comment about sometimes wanting my money out of RE is simply a small minute part of being a landlord. Generally I love it and enjoy improving my properties and providing a good apartment. 

But like anything it has its moments.  And this labor day I spent with my family not working on my properties. I didn't mean to come off so negative in that paragraph. 

Good investments do exist as do bad ones.  You need to decide which they are for yourself. It doesn't hurt to get other opinions but ultimately the decision is in your court.

Nords

  • Magnum Stache
  • ******
  • Posts: 3199
  • Age: 59
  • Location: Oahu
    • Military Retirement & Financial Independence blog
Re: Reader Case Study Proceed with closing on 4th rental property?
« Reply #53 on: September 10, 2014, 11:25:52 PM »
There are days in which I wish all my money was in investments and not tied up in Real Estate.  Mainly on the holidays that I am stuck painting or doing some other maintenance issue that I handle myself.

And to other potential real estate investors possibly scared off by this: it doesn't have to be this way.

I don't paint or handle any property repair issues.  I hire people to work on my properties.  The worst I'll have to deal with is a text from a tenant and then a few minute call to a handyman (and it's rare).

You choose how much you work you want to put in.  Obviously the return on the two properties is the same, you're just boosting your return when you do the labor by adding a "handyman" side gig.  I'm not interested in that, so I hire that out.  But it's certainly feasible if you lie that sort of thing.
The caveat to that is taking a long-term approach to building a reliable team of contractors.  Otherwise it takes just as long to find people to work on the property, to have them visit the site, to get an estimate, to get the work done, and so on.  It's frequently quicker (and less hassle) to do for yourself instead of hiring others. 

However by taking the time to research & hire others, you eventually build a group of contacts who you can call and expect to do good work, promptly, and without worrying about upselling or price gouging.

It's always faster to do something yourself than to build a team.  But DIY does not scale.

arebelspy

  • Administrator
  • Senior Mustachian
  • *****
  • Posts: 28029
  • Age: -999
  • Location: Seattle, WA
Re: Reader Case Study Proceed with closing on 4th rental property?
« Reply #54 on: September 11, 2014, 08:00:13 AM »
There are days in which I wish all my money was in investments and not tied up in Real Estate.  Mainly on the holidays that I am stuck painting or doing some other maintenance issue that I handle myself.

And to other potential real estate investors possibly scared off by this: it doesn't have to be this way.

I don't paint or handle any property repair issues.  I hire people to work on my properties.  The worst I'll have to deal with is a text from a tenant and then a few minute call to a handyman (and it's rare).

You choose how much you work you want to put in.  Obviously the return on the two properties is the same, you're just boosting your return when you do the labor by adding a "handyman" side gig.  I'm not interested in that, so I hire that out.  But it's certainly feasible if you lie that sort of thing.
The caveat to that is taking a long-term approach to building a reliable team of contractors.  Otherwise it takes just as long to find people to work on the property, to have them visit the site, to get an estimate, to get the work done, and so on.  It's frequently quicker (and less hassle) to do for yourself instead of hiring others. 

However by taking the time to research & hire others, you eventually build a group of contacts who you can call and expect to do good work, promptly, and without worrying about upselling or price gouging.

It's always faster to do something yourself than to build a team.  But DIY does not scale.

Good point.  Initially that's true.  (Assuming you're handy - I'd have to YouTube how to unclog a toilet or change a lightbulb. ;) )  After one or two instances, it may be worth spending the time up front.
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with two kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

usmarine1975

  • Guest
Re: Reader Case Study Proceed with closing on 4th rental property?
« Reply #55 on: September 11, 2014, 08:18:04 AM »
I generally try to handle what I can.  I do have a list of contractors that I use.

A Locksmith (I have a master key for all my properties) with a 2nd key to give to tenants.  I only have to carry 1 key.

A plumber  (I actually have 3 that I can call)  All three are trusted and do not gouge me on price.  (they also are not the cheapest)

Electrician (I have 2 of these)   Again both are highly trusted and do not gouge.  (they also are not the cheapest I can find)

I have found with a plumber and electrician the cheapest is not always the best.  I try to find people that I know charge a fair rate but also do not gouge on price.  One of my plumbers is a neighboring landlord to one of my properties so he get's what I am trying to do he also is my 2nd to call for Electrical as they do Electric as well.

I spent 15 years in Construction as a contractor so I have a long list of contractors in my area that I can use when needed.

Painting is probably the hardest to find good people.  The ones that are really good are expensive, and at least at this point to expensive for me not to handle it myself.  The ones that are cheaper that I have tried have worked well for a time but then slip away.  One lost a partner and hired a daughter who in my opinion wasn't worth what I was paying.  The next one did well himself but the 2nd job his employee was a disappointment.  I like to paint when I can and it really is relaxing if I am not rushed.  Usually I am rushed.  I did hire my nephews for the last paint job for a day and that made it more enjoyable.  I got to work with them and they got to make some extra money.  That may be my approach going forward.  As they say since they are getting paid to paint they are professional painters.  They both do work well and I had fun.

Sorry for the long responses.  I do just want to clarify, I enjoy being a landlord and providing quality apartments to my tenants.  And it is a big part of my FI plans.  My comment above was more along the lines of like anything being a landlord has it's moments, and it is a job.  I have seen many come and go thinking they would retire very quickly with Rentals only to sell them in a year or so, or let the county take them back for taxes owed. 

Location, location, location and you make your money when you purchase not when you sell.  And that I think is why the emphasis is on the 1 or 2% rule that some are arguing against. 

Further I have no Plans to sell my properties, but I think anyone entering the business should be aware of the many aspects of being a landlord.  It is not all rosie and just cashing checks.  That is part of it but so is taking care of and managing the properties.  And it is a Job, somewhat of a passive job but still a job.

Nords and Arebelspy I appreciate your input and the many comments you make on many of these threads.  I hate that I came off as a complainypants.  It was not my intention.

SunshineGirl

  • Pencil Stache
  • ****
  • Posts: 749
Re: Reader Case Study – Proceed with closing on 4th rental property?
« Reply #56 on: September 11, 2014, 09:47:59 AM »
Truly, all real estate is local, and I think there are plenty of fine reasons for you to keep buying in the location you have.

My main question for you would be how does all this concentrated real estate in one area affect your diversification? Including your primary residence, does it comprise 25% of your net worth, or more? What about when you're FI - are you counting on rental income to provide 100% of your retirement income?

That's where my hesitation might come in for buying not only this property, but any other one in your location. Vanguard provides us all with such easy investment opportunities that anything else has to *really* make sense from a numbers and diversification standpoint.
« Last Edit: September 11, 2014, 01:45:37 PM by SunshineGirl »

arebelspy

  • Administrator
  • Senior Mustachian
  • *****
  • Posts: 28029
  • Age: -999
  • Location: Seattle, WA
Re: Reader Case Study Proceed with closing on 4th rental property?
« Reply #57 on: September 11, 2014, 10:11:58 AM »
Nords and Arebelspy I appreciate your input and the many comments you make on many of these threads.  I hate that I came off as a complainypants.  It was not my intention.

Not at all, I appreciate your input and explanations!
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with two kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

Nords

  • Magnum Stache
  • ******
  • Posts: 3199
  • Age: 59
  • Location: Oahu
    • Military Retirement & Financial Independence blog
Re: Reader Case Study Proceed with closing on 4th rental property?
« Reply #58 on: September 11, 2014, 10:22:33 AM »
Nords and Arebelspy I appreciate your input and the many comments you make on many of these threads.  I hate that I came off as a complainypants.  It was not my intention.
I feel the same way you do.

I'm getting ready to spend the next two mornings taking care of the rental property-- cleaning a hard-to-reach lanai ceiling, fixing some wall dings, rehabbing the kitchen wall behind the fridge (and cleaning the fridge coils too), checking out the cracked ceiling drywall in the entryway (ruh-roh) and watching the roof guys coat the shakes with preservative.  Along with the usual six-week mowing, pruning, and weeding. 

But then I'll come home and work on my spreadsheet to realize that the cash flow is paying me roughly $400/hour for my labor.