Author Topic: Working on being a landlord in a about 8 months, Help!  (Read 5745 times)

FastStache

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Working on being a landlord in a about 8 months, Help!
« on: June 12, 2013, 03:33:11 PM »
Does anyone have any good websites or books to understand the process.  Is it recommended to take a real estate class at the local community college? I am located in the Orlando area.

I have purchased "Building Wealth One house at a time" and waiting for it to arrive.

I'm looking at doing this about 8 months from now.

Also, I plan on calling around to see how much other properties rent for in my neighborhood to get a better understanding.

I would like to avoid suing a property management company so that I am trading my time for more income.

MrMoneyPinch

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Re: Working on being a landlord in a about 8 months, Help!
« Reply #1 on: June 12, 2013, 05:46:41 PM »
Try biggerpockets.  They mostly have sound advice if you know what your objectives are.

Do you want to build cashflow? Accumulate value? Be the lord of all you survey? That will change the general direction of your business.

What is your avaliable starting capital? Do you have any?  Most books with titles similar to yours sell the dream of starting with nothing.  If the cover includes the acronym "OPM", BE CAREFUL.  Extreme leverage (like a 100 percent + mortgage) makes for extreme results, both up and down.  If you lose more than you have, the game is over since the way out is bankruptcy or big debt.

Also, keep in mind that multiple-unit buildings are not just for Trumps, and have a tendency to be less work for more money (all your tenants are close together, and the work to buy a 6-unit or less is comparable to a house).

Another Reader

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Re: Working on being a landlord in a about 8 months, Help!
« Reply #2 on: June 12, 2013, 07:25:40 PM »
Books are useful, but limited in what they teach.  In your shoes, I would join the local real estate investors' association, and seek out some experienced investors.  Spend some time talking to them, and listen carefully to what they say.  Call on every for rent sign and ask lots of questions.  If you get a landlord instead of a property management company on the other end of the line, tell that person you are going to start investing and ask what wisdom they would be willing to share with you.  Hang out at the local home improvement warehouse and get a feel for how much flooring, plumbing fixtures and appliances cost.

You might consider hiring a manager for the first property.  You will learn a lot in that first year of ownership by watching what they do.  If you are not comfortable with dealing with people or you are unsure of how to handle tenant screening, the lease, rent collection, and repairs, a year of letting the manager do it is an inexpensive education.

A general real estate class oriented toward the sales license examination is less useful than a property management class.  However, you may need to take the general real estate class as a prerequisite.  A good property management class will acquaint you with rental contract law in your state and the rights of tenants and landlords.  Knowing these things is critical - you can get sued if you don't follow the law.

Done correctly, there are a lot of advantages to investing in real estate.  Good luck with your new venture!

arebelspy

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Re: Working on being a landlord in a about 8 months, Help!
« Reply #3 on: June 12, 2013, 10:40:49 PM »
Does anyone have any good websites or books to understand the process.  Is it recommended to take a real estate class at the local community college? I am located in the Orlando area.

I have purchased "Building Wealth One house at a time" and waiting for it to arrive.

I'm looking at doing this about 8 months from now.

Also, I plan on calling around to see how much other properties rent for in my neighborhood to get a better understanding.

I would like to avoid suing a property management company so that I am trading my time for more income.

Starting by learning is a good way to go.

Let us know when you finish that so we can recommend some others, especially ones specific to landlording that will help you set up systems you will want to utilize.

Before all that though, you will need to know how to evaluate a deal (which is discussed a bit in that book, IIRC), so start delving into numbers and case studies.  Sign up for blogs and start asking questions. 
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 three kids.
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Daleth

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Re: Working on being a landlord in a about 8 months, Help!
« Reply #4 on: June 25, 2013, 11:54:33 AM »
A shorthand tip that we use (we have five rental properties) is that unless the monthly rent is equal to or greater than the cost of the house, it's not a good deal. And by "cost of the house" I mean the sales price plus whatever up-front investments you need to make in order to get it rented (renovation, painting, whatever).

So we haunt Craigslist to see what rents are in our target neighborhoods, which leads us to conclude that in X neighborhood we can get $Y per bedroom per month (we come up with a range for each neighborhood), and then evaluate houses that way. Like, if we can get $400-$600/BR in X neighborhood, and we're looking at an average 3BR in that neighborhood, we figure we could get $1500/mo and therefore the cost must not exceed $150k. (Such things are still possible where we live.)

arebelspy

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Re: Working on being a landlord in a about 8 months, Help!
« Reply #5 on: June 25, 2013, 12:44:49 PM »
A shorthand tip that we use (we have five rental properties) is that unless the monthly rent is equal to or greater than the cost of the house, it's not a good deal. And by "cost of the house" I mean the sales price plus whatever up-front investments you need to make in order to get it rented (renovation, painting, whatever).

To clarify for those not familiarwidth what Daleth is talking about: He means the monthly rent should be 1% of the cost of the house, not equal to the cost of the house.

Multiply the monthly rent by 100, and pay no more than that including all rehab costs.  (I am a bit more strict than 1% personally, but it's a common rule of thumb.)
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 three 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.

Daleth

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Re: Working on being a landlord in a about 8 months, Help!
« Reply #6 on: June 25, 2013, 12:52:20 PM »
Right you are. Sorry. :)
And FYI, "he" is a she.

Marmot

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Re: Working on being a landlord in a about 8 months, Help!
« Reply #7 on: June 28, 2013, 02:44:47 PM »
To clarify for those not familiarwidth what Daleth is talking about: He means the monthly rent should be 1% of the cost of the house, not equal to the cost of the house.

Multiply the monthly rent by 100, and pay no more than that including all rehab costs.  (I am a bit more strict than 1% personally, but it's a common rule of thumb.)

Do you know of any alternative shorthand tips that take into account property taxes? Thanks.

arebelspy

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Re: Working on being a landlord in a about 8 months, Help!
« Reply #8 on: June 28, 2013, 08:41:20 PM »
Broad rules of thumb are just to initially pare out properties.  Things like "50% of gross rents will go towards expenses - vacancy, repairs, management, taxes, insurance, etc."

Always run more in-depth analysis, and yes, if you live in an area where taxes are stupid high (like many places on the East Coast), you will need to take that into account.  Easy enough to fudge your own rule, say 1.3% or whatever.  You'll get a feel for your local market.

Really, you just want to use it to narrow first, then actually use real numbers.
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 three 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.

FastStache

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Re: Working on being a landlord in a about 8 months, Help!
« Reply #9 on: June 30, 2013, 09:34:58 AM »
I have read enough of the book that I have a better idea of what I want to look for.

1. I'd like to learn how to locate good rental units in the 70 to 90k range. By the end of the year I should have enough to put 20% and still have enough reserves I feel comfortable with. What are some of the better blogs to sign up for?

2. If it makes sense, I want to operate as a business to protect my assets. Would the local score agency be a good resource? Would I need to go to an accountant before I get started?

3. For my first property, I am probably going to go with a property management company as I need to work 60+ to earn my higher income. Eventually I want to do it all myself. Given this I need to find a pretty darn good property.


Hamster

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Re: Working on being a landlord in a about 8 months, Help!
« Reply #10 on: June 30, 2013, 10:18:01 AM »

1. I'd like to learn how to locate good rental units in the 70 to 90k range. By the end of the year I should have enough to put 20% and still have enough reserves I feel comfortable with. What are some of the better blogs to sign up for?
Look on Realtor.com or zillow or redfin to get a sense of what is being sold for your target asking price. Look on craigslist to see what people are asking for properties like those. Look at some rental listings (see the units) to see what is being offered for a given monthly rent. Talk to a real-estate agent and ask to look at listings in that price range.
You will probably need at least 25% down for an non owner-occupied investment property. It may be worth talking to a mortgage officer to clarify the requirements.

2. If it makes sense, I want to operate as a business to protect my assets. Would the local score agency be a good resource? Would I need to go to an accountant before I get started?
Do you mean you want to form a corporation? There are pros and cons. If you try to take out a mortgage as an LLC, there are very different underwriting rules (you will be working with a business loan officer, not a residential mortgage officer). You won't be able to get a 30 year mortgage with 25% down. You will pay a higher interest rate, likely have a 5 year ARM, etc. If you purchase the property in your own name, then transfer ownership of the property to an LLC, then there are also potential ramifications where the lender could technically call the mortgage due (you are violating the terms of your mortgage by transferring ownership). It would be unusual for a bank to call the mortgage due if you are paying on time, but if interest rates go up like crazy, it would be in their interest to do exactly that and force you to refinance at a higher interest rate if you did transfer the deed to an LLC. Accounting is also more complicated.
(Big caveat: I'm not a legal expert by any means) Forming a corporation may offer some liability protection, but if you are essentially a sole proprieter, and especially if your paperwork, accounting, don't prove that the corporation is a separate entity, then you can be sued personally ( google "Piercing the LLC shield" or "piercing the corporate veil")
I'm not sure what a score agency is.
As for an accountant... The accounting is fairly complicated until you get a handle of the nuances. You can certainly do it yourself if you have a good, current resource to walk you through everything - How to calculate depreciation on the dwelling, purchases, renovations, limits on passive losses, dealing with depreciation recapture when you sell, etc. If you don't feel that you have gained the knowledge to fully understand these issues, then you should have an accountant. Even with an accountant, you'll still need to do a lot of accounting.

FastStache

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Re: Working on being a landlord in a about 8 months, Help!
« Reply #11 on: July 04, 2013, 04:24:07 PM »
Score is an organization that provides free business guidance to people. They have a local chapter near here.

Thanks for all the advice, Hamster.

I have begun to look for some properties near my house. In a month or so I will start to contact a realtor.

I am going to try and go with homepath for my first home. This will allow me to actually invest sooner than I planned with only 10% down + closing costs.

I need to see if I can get the good rates as a corporation, if not, then I need to ensure I am well protected.

Does anyone have any good books on what is involved in being a landlord? I've been reading some on Bigger Pockets which is a great site.

arebelspy

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Re: Working on being a landlord in a about 8 months, Help!
« Reply #12 on: July 04, 2013, 04:47:51 PM »
Does anyone have any good books on what is involved in being a landlord?

Landlording by Leigh Robinson
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 three 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.
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Zamboni

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Re: Working on being a landlord in a about 8 months, Help!
« Reply #13 on: July 04, 2013, 05:01:05 PM »
Thank you for all of the tips here. 

I am in the same boat, but I am planning to do it in 8 YEARS.  By then my kids will all be off at college, and I can sell the big house and use that money to buy rental units.  As long as I can keep my job (which seems very likely at the moment), then I have the unusual perk of being able to live on company property for a few years for "free," sort of like being an adult college RA.  I am going to dramatically downsize even if that doesn't work out.  Less is more and all that.

So, I've got 8 years to figure this stuff out.  I already have a pretty good idea of the rental market in my area.  What I need to learn more about is how to buy 1) multi-unit buildings and 2) foreclosures.  The latter seem to be everywhere these days.

arebelspy

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Re: Working on being a landlord in a about 8 months, Help!
« Reply #14 on: July 04, 2013, 06:28:00 PM »
Thank you for all of the tips here. 

I am in the same boat, but I am planning to do it in 8 YEARS.  By then my kids will all be off at college, and I can sell the big house and use that money to buy rental units.  As long as I can keep my job (which seems very likely at the moment), then I have the unusual perk of being able to live on company property for a few years for "free," sort of like being an adult college RA.  I am going to dramatically downsize even if that doesn't work out.  Less is more and all that.

So, I've got 8 years to figure this stuff out.  I already have a pretty good idea of the rental market in my area.  What I need to learn more about is how to buy 1) multi-unit buildings and 2) foreclosures.  The latter seem to be everywhere these days.

Markets can shift in a matter of months, so I'd worry less about what's the investment de jour (foreclosures, for example, which you say are everywhere these days - will they be in 8 years?), and more about solid, foundational investment information.  Start with reading some good real estate investing books, IMO.
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 three 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.

Zamboni

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Re: Working on being a landlord in a about 8 months, Help!
« Reply #15 on: July 04, 2013, 09:26:02 PM »
^Yes, I've noticed that.  3 years ago the market here was flooded with homes in the $40K-$120K range.  Now, nada.  I saw one in a neighborhood I watch pop up the other day at $117K and it was gone before I even had a chance to go look at the outside.

But, I have 8 years to watch it, after all.  Should be interesting.

I've put the Landlord book recommended above and also Millionaire real estate investor on hold at the library, but are the other good ones?  Because, alas, in my quest to learn about this I've read several that I thought were total dogs.

Also, what are thoughts on furnishing to rent?  I tagged along with a friend who was looking at low rent furnished places, and just based upon my experience furnishing my own house I know I could come up with more solid furnishing in a week of looking on Craigslist and at local thrift shops.  Is it worth the effort?

Daleth

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Re: Working on being a landlord in a about 8 months, Help!
« Reply #16 on: July 04, 2013, 09:50:25 PM »
We once bought a warehouse as an LLC but have since tossed that idea out with the trash and just bought rental properties ourselves. Here's the problem with doing it as an LLC or corporation:

(1) The numero uno problem is that forming a corporation does NOT reliably protect you from liability for stuff you personally do... and since you're an independent investor, the stuff you personally do is everything. Corporate officers can be personally liable for torts that they personally commit. (Random example unrelated to landlording: I'm an intellectual property lawyer and a couple of years back my client, corporation A, was suing corporation B for trademark infringement... and we were also able to sue the owners/officers of corporation B personally, because they had knowingly made the decisions that caused their company to infringe our trademark).

(2) The LLC was an unbelievable hassle to run. Cost us thousands of bucks in attorney's fees (to set it up--this was before I was an attorney so no DIY), accountant fees (taxes are way more complicated EVEN THOUGH all profits and losses flow through to you), and I must admit IRS penalties (did you know if you file your informational business return late, you get whacked with a massive penalty EVEN THOUGH the LLC or S-corp itself doesn't have any taxes to pay?).

(3) As Hamster mentioned, you can't get normal loans anymore if you're buying as an LLC or corporation. You're in business loan territory, so you can kiss the 30-year fixed or even 15-year fixed goodbye. You're in adjustable-rate territory, which in this age of ultra-low interest rates is just idiotic.

Hamster

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Re: Working on being a landlord in a about 8 months, Help!
« Reply #17 on: July 05, 2013, 02:03:00 AM »

I have begun to look for some properties near my house. In a month or so I will start to contact a realtor.

I am going to try and go with homepath for my first home. This will allow me to actually invest sooner than I planned with only 10% down + closing costs.
 
I wouldn't limit yourself to just HomePath. Certainly keep an eye on their properties, but you'd be limiting yourself to only properties owned by Fannie Mae. If you are looking at foreclosures/REO, there are other options that may be better deals.

We were looking very seriously at a HomePath duplex in our town that was on the FirstLook program (only available to owner-occupants or government agencies for the first 15 days). It went pending on day 13, and I think the buyer rented out both units... If I recall, there was also a little bit of strangeness with the online system for registering to make offers on HomePath. If your real estate agent isn't already registered with HomePath, I'd ask them to sign up as soon as you start looking so they can work out any potential kinks before you are ready to make an offer.   

FastStache

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Re: Working on being a landlord in a about 8 months, Help!
« Reply #18 on: July 05, 2013, 07:43:18 PM »
Does anyone have any good books on what is involved in being a landlord?

Landlording by Leigh Robinson

Would it matter getting the 2006 edition versus the 2010? I can get the 2006 edition from my local library. Thanks

arebelspy

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Re: Working on being a landlord in a about 8 months, Help!
« Reply #19 on: July 08, 2013, 11:09:26 AM »
Does anyone have any good books on what is involved in being a landlord?

Landlording by Leigh Robinson

Would it matter getting the 2006 edition versus the 2010? I can get the 2006 edition from my local library. Thanks

No, it wouldn't.

Landlording hasn't changed that much in four years.  :)

The only things that may have is local laws, but it doesn't give specific legal advice.

2006 version should be more than fine.
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 three 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.