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Any landlords on here?


Guest kawikaho
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Guest kawikaho

Just curious if anyone on here has any rental investment property, or knows about that line of business.

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I have also owned and rented.

I will tell you, (hindsight being 20/20) if I would have (instead of buying that rental property) purchase with proceeds 25% FFH, 25% BRK 25% RY and 25% MCD (just an example - without having to know to much) I would be infinitely better off.

 

Not to be debby downer but the truth is people dont realize Realestate increases mostly with just inflation and has a depreciation aspect. Yes, they throw in "someone is paying your mortgage" but the reality is, most rental homes are occupied maybe 50-60% of the time and the added costs and frustration... to me, it was not at all worth it.

 

Note: This is just want to give you my own opinion - every situation is different.

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Not to be debby downer but the truth is people dont realize Realestate increases mostly with just inflation and has a depreciation aspect. Yes, they throw in "someone is paying your mortgage" but the reality is, most rental homes are occupied maybe 50-60% of the time and the added costs and frustration... to me, it was not at all worth it.

 

True, unless you do a good job at buying undervalued properties or there is some sort of shortage, relative to demand in your area...

 

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We own one residential rental property in a resort town that is currently rented to family - we get below market rent, but get to use it whenever we want.  I don't regard it as an investment, even though we did buy at 25% below market value.  Properties in my city are not cheap by any measure of value - cap rates, multiples of gross rents etc.  even after they have dropped by 20-25% from peak levels.  But I figure if I can expand my circle and learn about owning/managing rental property, at some point in my lifetime I am fairly certain that I will have a few opportunities to purchase real estate at no brainer prices.  If I am unprepared, I will not be able to make the quick decision that will probably be required.  I think learning about the rental property industry has improved my investment thought process outside of real estate as well. 

 

On that note, anyone have any good books on residential single family or multi-family rental properties.  I have read a few by William Nickerson (good), Ozzie Jurrock (waste of time), Al Lowry (OK), H. Roger Neal (good), and I have Leigh Robinson's Landlording (I have glanced through, and it looks good), and also everything free on John T. Reed's site (good).  I have browsed through a few of Jay DeCima's books (seemed good) and John Schaub's (seemed good) and Don Campbell Canadian Real Estate books (seemed like a waste of time).  Any other recs?

 

Chip

 

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Guest kawikaho

Sorry for the late response, guys, and much thanks for all of the replies.  I was just wondering, because I've known several folks who have told me that they used to invest in stocks, but after investing in residential real estate, they think stocks are for "suckers".  These folks have been renting out multi-residentials for quite a while.  It got me curious, and after I did some simple cash flow analysis, it seemed like you could do alright if you bought a place with just enough cash so the cash flow generated from the rentals would cover the mortgage and expenses.  In terms of capital appreciation, I think the underlying asset, the multi-residential, accumulates based on region and district.  For example, most housing markets appreciate at the rate of inflation ~ 4%, but some markets, e.g. SF Bay Area, New York, Seattle, Vancouver, appreciate at much higher rates.  In San Francisco, CAGR averages 8-9%.  Taking interest rates into consideration, tax advantages, etc, you still come out ahead by 4% a year.  Also, in terms of inflation, that can work for and against you.  You can use inflation to jack up the rents YOY.  So, your cash flow increases.  I know this is a simple analysis, so I was wondering if there were any guys here with real experience that could offer a much better means of analyzing the value of such an investment.  I'm looking at buying a multi-residential in the Kelowna, BC area maybe 1-2 years from now. 

 

Oh yeah, back in the day, when I was renting a 3br apartment, I used to sublet the rooms out.  I have had no problems in finding renters, and never had less than 100% occupancy, but one year I got slammed by some bad renters.  I know that finding the right tenants are important, and you could get stuck with some horrid ones.  I would just rent out to professionals and families.

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Hi kawikaho,

 

I had an 8 unit building in a small town and also owned and lived in one half of a duplex.  The duplex was my own house and the second unit I rented at slightly below market rate to local college students.  I threw in some perks like no rent in the summer etc to get them back in the fall.  I also never rented to anyone who didn't show up with their parents.  That criteria was very successful in the student rental business as was the fact that I lived there.  I would never consider being an absentee landlord for student rentals.  It was mainly to offset my household costs so no extensive ROI or anything was contemplated or done.

 

Let me address your criteria on types of renters. (families professionals etc).  I found that turnover is a big money and time sucker.  Professionals = turnover.  As soon as they are stable in their new job they go and buy a house or condo of their own and you're scrubbing and painting and showing all over again.  It's a natural to think you want someone with a good job who will pay the rent on time etc. but they don't last and an empty unit is unpaid rent.

 

The most stable and reliable tenants I had (and therefore slowly converted 6 of the 8 units to them with the exception of the top floor which was a climb) were single females over 50 years old (just watch out for drunks).  They want a nice quiet place to live (forever), usually have extended support systems (family and children) who help with rent expenses if need be, and they give you a call and let you know the moment a little thing goes wrong.  This way you can fix it quick before it becomes a big issue.  They each gave me 12 post-dated cheques a year and offered me home made cookies and coffee when I'd go to fix a dripping tap or some such thing.  Then while you're enjoying the coffee and company they let you know every little detail of what's going on in your building while you're not around.  Absolutely ideal tenants.

 

Believe me I've seen the tile falling off the shower wall in a young professional guy's unit who never even bothered to call cause it was no big deal to him that the underlying everything was getting rotted out every time he took a shower!!

 

Also, before you buy the place, check to see if there are any outstanding work orders with the local fire department.  They'll inspect a multi-unit building and write up any violations and then stick them in a file and get on the owner once or twice a year.  It seems these can sit in a file forever and are not registered on title or anything so your lawyer won't find them unless he actually calls the local fire department and asks.  This is not a standard thing so make sure you request it.  In my case it cost me $10K to have a secondary means of egress installed for the third storey, but more important than the money is that you want the place to be safe.

 

When all was said and done I would describe the experience as a part-time job performed during hours of your choosing that bleeds away a bit of disposable income from time to time and returns a great big fat payday at the end which makes you forget all about the work and BS and only remember the nice old ladies and their home-baked cookies!!

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Leigh Robinson's Landlording is a great book in my opinion; I read it cover-to-cover back when I was learning about Real Estate, and thoroughly enjoyed it.  I also learned a lot on the real estate board at fool.com back in the early 2000s.  There was a poster there, Jiml8, who owned a few dozen properties and eventually sold them all to focus on his landlording software business.  I eventually met him in person and owe him a lot.  If you have access to fool.com and Jiml8 still posts, do read him and ask tons of questions.

 

 

Now, for a few quick lessons learned:  you want the monthly rent to be at least 1% of the property cost - anything less and you are looking at a regular cash outflow.  Money is made when you purchase the property; I was lucky to find an area where rents were 1.2 to 1.5% of the purchase price, and I have generally made money over time in spite of not raising the rents for over 5 years (I have been sloppy of late).  Over time, my mortgage gets paid of and the price of the property will eventually rise; I have no idea what the market for them is right now but don't much care - they are not for sale anyway. 

I also agree with the previous poster that renting to a professional is not necessarily the best thing to do - reducing turnover is very important, and is actually part of why we didn't raise the rents for a long time:  our prices were a little above market initially and we found ourselves constantly having to find new tenants; now that we are priced under market, our tenants just stay for a few years at a time.  This is piece of mind, less work, and ultimately good business.  Finally, maintenance is ultimately much cheaper than repairs :)

 

 

PS:  I would be very worried if my "business plan" required the property value to increase by 4% a year.  In my book, capital appreciation will be the sweetener (if it happens at all), absolutely not the core investment rationale

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Keeping your tenants is very important to your cash flow.  When they were building the Alaska pipeline, everyone was raising their rents to the max. I had one client who had about 20 single family homes and his rents didn't go up. I asked if he was skimming, and he stated that when the others had vacancies he would be full.  Said that over the years he had found that when he raised rents, a few people would move, then he would have to go in, paint, clean up, etc. This took time and he might miss a couple of months until he found a new tenant.  It would take quite a few months to make up the missed rent. He had many folks who rented from him for over 30 years and had actually paid off his mortgages for him.

Sure enough when Alaska went into its recession (depression) after the pipeline was built, he was full.

He also said that buying was where the money was made.

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Guest Broxburnboy

As a one time owner of a commercial real estate brokerage and having some experience with personal rental properties, I learned a few things

about this industry:

 

Don't buy a residential rental property if you are not prepared to put up with the many problems of property management (I found this out the

hard way).

Another poster mentioned that you make your money when you buy the property... this is the golden truism of real estate investment.

Buy when real estate prices in your locality have been low but stable for a while...buy when interest rates are high, and all the easy spec. money has

been forced out of the market. That money will come back when interest rates are lower and will drive prices up.

Try to put up as much equity as you can... 30% equity serves a cushion against temporary cash flow problems like a rise in interest rates or a decrease in rents.

Buy to hold for the long term, the big payoff is by having the renters pay off the mortgage.

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