Just looking for input/suggestions.  I know it's gonna be a pain, but the house is cheap as heck, kinda old 3 bedroom, central heat air put in 3 years ago.  3 bedroom 1 bath.  It should completely pay for it's self in 4-5 years if I can get people to pay rent.  If I collect rent 6 months a year I'm breaking even on payments,taxes,ins.  I want to give this a try, if it goes good I want to buy more places in the future.  Wife and I will both work, but neither is likely to make huge money she is a nurse and I'm back in school after ditching a dead end job with decent $$ (50k-65k) but NO where to go no benifits or room to expand.  So, what has helped you guys that have been successful with rental property?

I don't rent a house, but have read enough horror stories.  Try to find out as much about your renters as you can to determine if you think they will be good ones.  References, credit checks (if it's legal where are you), background checks, etc.  

Are you drafting your own lease?  Having a lawyer or someone look it over?


How close do you live to the property?  Are you a DIY/handy person?

Ican fix/destroy some/ most stuff, worked in residential installation for about 10 years so I know how people are.  I'm about 15-20 min from the house.  I pretty much plan on not having the greatest renters, but I'm getting into the house for less than most people's cars cost so I thought jump.   7k below PVA assessment and that is contingent on central unit checking out.

I have 2 rental houses, one in TX and one in FL.



Biggest piece of advice...if you aren't managing it personally, hire your property manager very carefully.

Make sure you document things well and have a good lease.

Make a business plan, it sounds like you have none. Percentages should be allotted for maintenance/taxes/insurance, improvements, management, profit margin, mortgage, major repairs, and expansion.

You need to figure out what the goal is, the endgame. Work backwards from there and determine what steps have to happen each year to reach that goal.

If you are successful, depending on your goals and market particulars you will likely never buy a single family home again and be tempted to sell that one every time its empty. The numbers look better on duplexes typically and much much better on anything bigger than that.

Single family homes are not bad, we all start somewhere. They just wont cashflow consistently in most markets unless you are doing the maintenance and whatnot all yourself. At that point, its not scalable and you might as well start a handyman business bc thats what your doing.

Its not a bad place to start though. 95% of investors ive known start with cheap single family homes. I only know 1 that ever bought another. He is a loan officer at the bank and has some fucked up fetish for cheap single family homes. I havent figured out his business model yet. Im not sure he has one.

I would like to work for about 10 years, while purchasing additional property and hopefully retire early to manage the property.  High expectations for where I'm at now, but a little luck and it might work.  Multifamily would be good, but we live in a semi rual area and sometimes houses can be bought pretty cheap.  I read an article that suggested to set your rent at 1.1% of the property value, I will be close to 3 times this with this house.

That 1.1 is a pretty old and very generalized number. I dont think you can cashflow at that rate unless you didnt borrow much. If you borrowed 80 percent your mortgage is going over 50% of your rents.

That has kept me away from more expensive stuff in the past. I should at or above 2.5% on this one.

You NEED to set yourself up as a LLC.

They will try to sue you. No LLC and they get everything you own.

I believe you will regret your decision. I gave 2 rentals close to me and it has been a drain financially, emotionally. Can't sell them in the local market except at a huge loss.
You will see (unless really lucky) that renters do not share your values

Yes

I won't do single or doubles.

The more units under one roof the better IMHO

Thats a cop out. Its a vague statement that is true with anything in life. Pick an investment, industry, job, career, marriage, business, anything. There will be a lot of guys ruined by them.

I went bankrupt in my early 20s while owning a decent sized landscaping company. Is landscaping a bad industry? No. I was a terrible manager with no business plan and i failed.

A guy i know that is 1 year older than me was my competition and he had a solid business plan. He has 60 guys now and runs a tight ship. Very good reputation. I know it can be done. I know that i came up short and failed miserably.

Sometimes that happens. Out of all the people ive known that failed at rentals (including my parents and brother, they merged their 3 rentals into mine) i havent met one yet that even had a business plan. Most people, by nature are not good at managing things and even when they are there is a good chance of failure. Rentals are no different. They are a business and a majority of businesses fail within a few years.

I cant even count how many rental owners ive talked to that didnt even know what percentage of rent went to maintenance. Its always a response like "oh, we try to keep it low". I can tell you within .1% what every portion of my expenses are and i work to keep them in check.

Its easy to get discouraged and condemn an idea bc you failed at it. Its human nature. The only way to get better is to swallow the tough pill and figure out why others succeeded when you failed.

The most important week of my life was when i shut the doors on my first business. I sat down in the evenings and made a list of every single reason why i failed and what i should have done. Had i done that before i bought and grew the business, i wouldnt have failed. Thats how i got better as a manager. Or even became a manager. Before that i just worked hard and stupid.

That will be done before it is up for rent.

I have been looking a buying rentals also.  This is what I have found.

- Property management issues are the big drain usually.  Finding a good company is key, especially if you have other things that take your time and/or you can't be the fixer man all the time.  They need to be trustworthy, not careless or you will lose cash to their carelessness.  Ask for references.  Call the references, ask hard questions.  

- Taxes are crazy on rentals.  Basically on this one small multi-tenant unit I was looking at - it is for sale for 114,000, but the taxes are 4200 a year.  That is almost 400 a month right off the top of your rental income.  Income currently from that unit was around 1500-1600 if all 4 units were rented.

- If a unit is for sale for a good price, ask yourself why this unit is being sold.  People just don't give up a good income unit without good reason.  

- Maintenance can be a killer.  A new roof or a new HVAC system on a small multi tenant unit can wipe out a years profit easy.

It is discouraging.  But there are folks that do rent property, and folks that rent it to them.  I think it needs good research, planning and advice before you get into.  It can definitely work, but not always easy for sure.

I think I have a better idea than many how people treat stuff, lots of residential installation of cable/BB/Sat TV, like 10 years.  I have some high hopes, but I'm starting off with a CHEAP piece of property so as to not overburden myself.

Good for you dempsy1.

Real Estate is a great way to go!

Starting off with an inexpensive rental that won't overburden you on mortgage and taxes is excellent.
You WILL have to put in loads of sweat equity which I'm sure you are aware of.

I've been in the rental biz for 30 ish years, among other businesses, and this business will be passed
on generationally to my kids and hopefully theirs as well.

Well, house it bought, cleaned and listed for rent!  We shall see

Good luck to you sir. Keep us updated. It could make for an interesting thread.

V

Good Luck and keep us posted!

Just remember that when it gets bad and frustrates you, a guy from ar15.com named fella once bought a rental in a town with a very large slaughterhouse. In this rental he inherited some somalian renters employed by the slaughterhouse that decided to slaughter a horse in the living room and break out a part of the slab for a fire pit.

He found out about it when his bug guy came and noticed roaches on a window. Somalians had since skipped town.

It can always be worse. Another landlord here had a guy commit an ugly auicide in a rental from what i recall.

biggerppockets.com    it's like arfcom for real estate!
Rental properties and real estate are really the only way we mere mortals have the ability to "level up" in this world.

You haven't lived until you own a home that the crackhead son and whore daughter freeze their own mother to death that is confined to a wheelchair by leaving the windows and doors open and heat off during subzero temps in Winter. Meanwhile pissing and shitting in random areas in the home because the utilities have been turned off all while stealing power and water from a neighbor.
Welcome to the game.

I have several close friends that own rental properties as do I and my parents.  The one thing I find consistent is we all have different methods of finding houses and formulas for what we'll bid and where the rent needs to be.  There is no exact science to it.  I'm comfortable with what I do.  My dad is comfortable with his system.  We do things totally different and therefore will never compete with each other.  I seem to find most people that try to get into the rental business and fail are because they buy the wrong house or the right house in the wrong area.  Don't underestimate how much something as simple as a school district can affect monthly rent.  

Some of it just comes from experience too.  Being able to walk into a fixer upper and know how much you'll be out of pocket instantly will help you beat out other, less experienced investors.  Having a good realtor that will jump when you call to get you inside a house quickly helps too.

A friend of mine that owns 5-6 properties convinced his brother to get into it.  The brother put his first house under contract and ending up backing out during the inspection process.  I believe he was unrealistic about his renovation costs.  It came back on the market yesterday and I put it under contract today.  He didn't feel comfortable with it.  I see it as easy money.  

I'm right around 25 doors purchased since 2013.

80% of my rentals are in 'not nice' neighborhoods if most people were to really look at them.

Last year out of the 25 units we had a total of 5 or 6 vacancies, two of which were due to an eviction.

Alot of people say you can't make money on slummy houses, others say it's a no brainer. For me, I love it and want to have 50 by the end of the year.

Here's what we did last year financial-wise on the properties.

I have 18 and my numbers mimic yours pretty closely. I'd say those are solid.

I'm trying to pay down debt for the next 3 years on some grassland I bought then i'm going to buy as many as possible for a 5 years before I retire. I'd like around 150 to 200 units.

I managed all of mine at first, then i let a management company manage half as a trial the last 14 months.

I started the rentals by myself, now our family owns them and some other investments (nothing major, i still own over 50% of everything) so anything i manage i get paid a management fee just like our management company does. That was not the case when i owned everything. I reinvested the savings.

That has swung my opinion 180 degrees. I was going to sub the rest out, now im probably going to take back over soon because that cash has been nice.

Property management (or being your own manager) is what makes or breaks folks. Im a strong manager and have been learning how to beat up on contractors all of my career (im a contractor with demanding customers ) so i feel comfortable with either method.

Congrats on getting in the game. I find deals, find an overseas investor with cash, buy and assign the contract to them, and then manage the rental for them. It's profitable, but make sure you have the patience for it. Don't think of tenants as a friend. Also, do a good job pre-screening. I was able to pass a deal to a client that had an 8.5% return annually on it today, which was great. Higher potential, but my estimates are very conservative.

I manage all mine. Takes about a hour per rental per month to take care of all the stuff that comes up. I figure if I make $150-$250 per unit per month it's certainly worth my time.

Eventually will get my brokerage license and start up a property management company to utilize what I'm doing on the next level.

The Horror. Pepper your Angus and prepare for drama, deadbeats, evictions, renters leaving with no notice, trashed house with no recourse. I rented for 10 years and was a hard ass on doing diligence and the best day of my life was selling that house and waving bye bye to the hassle of being a hands on landlord. You can do the best job possible picking tenants and you will still end up with a professional couple cutting circles out of your window screens to use in their hash pipe. The things I've seen....

with the current rental market growing leaps and bounds rentals can be a solid choice.

several people i know have numerous rentals and have NO problem filling them

their advice to me was......

check potential renters credit

people with decent\good credit, pay their rent and don't trash houses

In the past year I've had fleas, bedbugs, roaches ants, a meth lab, tenants poop on the floor, tenants fill up 3 35gal trash bags full of pooped on clothes because they broke their to let and didn't want to call me, under dog eat through floor. This is off the top of my head.


Still best career choice I've made and absolutely love it.

Well I go to pick up the 2nd month of rent next week (due on 15th) can't wait, fingers crossed.  

I didn't spend much on the house and even with a few repairs if I collect rent for 6 years taking $100 out a month the house will be paid for including taxes and ins.  Even if there are few bumps, now if I get rent paid just 6 months out of the year I am out nothing that covers all associated payments.

Im down to one rental house at this point but have had 3. The biggest thing in my mind is being close enough to know thoroughly whats happening. Even good friends will pull one over on you. Or more common is they just have different standards of hownto take care of stuff. I drove by one day and one of my tenants was using the satelite dish on the roof as a tie point for a sunshade tarp. If the wind had picked up it would have ripped a hole in the roof. This had to be explained. Even more common is just not maintaining something vital. And the worst is just deciding its ok to renovate or mess with electrical on their own without asking. Got to have some way to watch em. Out of state landlording is asking for a nightmare.

Edit to add. I do enjoy it now that i have good tenants. And will buy more as time goes on if there is a good deal to be had.

Have 2 rentals, both 1 bed 1 bath condos.
Paid cash for both.
Did most of the renovations myself except for carpets.
2nd year and I'll probably get 10% ROI.
So far so good.

I havent done it myself, but i heard its a good idea to setup your llc under a trust and not use anything in the llc or trust to indicate who you are (ie; using your last name in the name of the llc). If you have a tenant trying to sue, lawyers will pass due to the difficulty of tracking down the property owner.

I  have a couple questions.
Why do you pay utilities for your tenets?
I noticed you don't have any cells for mortgages. Are you paying cash for these houses?
What happened in column E that required 1.3K in legal fees, if you don't mind sharing.

I pay utilities on a few tenants. One of the big costs was my stupidity this year in not transferring utilities to the tenant the second they moved in. INstead I let them do it , and then had people tell me ' well you can't just turn them off! '  when in fact you simply can just do that. So, that was about $7k I lost last year due to that mistake.

I don't have mortgages on that list , but do have a few mortgages which were deducted. I didn't include those numbers because they're absurdly complicated, becuase all properties I have were bought with cash, then a couple were refinanced out.

$1.3k for legal fees, half of which was re-reimbursed to me by the county because they require that you pony up $300 for eviction trashout. If it gets to the point and you do it yourself, you get the check back. So, that number more or less was really about $700.

I'll add this tidbit on how I track mine, for the new guys that are interested.

I have a column for interest on each property, that I show as an expense on that property, but the mortgage principle doesn't actually show up on the profit and loss statement because that is depreciated over time starting when I bought it.

Lets say I made 50k in profit, but paid 45k in mortgage principle, I only cash flowed 5k on a profit of 50k. The rest is technically a profit, but it's shown by increasing my equity value of the property on the balance sheet. Those numbers I gave are exaggerated to show a point.

Take my core business (i'm a manager, not an owner), there have been times we were making a profit of 100k a month, but after inventory additions, and bank payments we were actually cash flow negative and struggling to keep the doors open.

"Profit" can be very deceiving for a modern business that uses financing aggressively. It's easy to say that someone is making record profit, it's not as clear if they are cash flow positive.

My terminology may not be right, my accountant constantly corrects me but that is my knowledge from working in the trenches.

Cashflow vs 'profit' and equity are all things you have to be very much aware of and understand if you look at properties.

I've seen many property management/turnkey properties offer properties with 10%-12% "Returns" that were actually losing $200-$300 per month as far as cashflow went but made it back only in appreciation and principal repayment. You have to be very careful with negative cashflow as if something like a roof needs replaced,it can be hard to pony up the money when you're spending $5k/yr out of pocket to keep it working.

In a lot of areas, id guess over 50%, its impossible to cashflow anything other than the best properties (lots of units) if you finance 80% on a 20 year note. Thats always been my gauge. If i cant finance something on those terms and make cash then i cant afford to do it. I evaluate it on that basis, then i try to go for a longer note to free up more cash.

Im okay with half (i shoot for a third but thats tough) of my "return" being in the form of equity and appreciation. The rest has to be cash.

Ive seen my boss struggle for 20 years to stay cash flow positive in our business. Thats why im so hyper focused on cash flow. I refuse to work for 20 years and have all of my profit tied up in inventory, equipment, or property. Cash flow is all that matters. I'll take less profit if it means more cash. If its not cash, it may or may not exist. Values can tank, you can get sued out of business tomorrow. Equity in a business is the race. Cash in your personal account is the finish line.