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Posted: 1/16/2002 5:14:12 AM EDT
I am thinking of getting into buying cheap houses and then renting them out for 150 bucks a month more than I pay to the bank. Can anyone shed some light on this process. As far as how hard is it to get deadbeats out and stuff like that.
Link Posted: 1/16/2002 5:23:35 AM EDT
If you're gonna get into that business, you better have the following skills: 1. Collection. Depending on the type and price (and area) of the houses you rent, you may need to strongarm to collect the rent. BE WARNED. 2. Repair: Expect to have A LOT of issues with tenants complaining about water, electricity and heat. You can't afford to call a repairman for all of these issues, so you'd better have some toolz and some skeelz. 3. Free Time: See 1. and 2. above. Good Luck.
Link Posted: 1/16/2002 5:52:27 AM EDT
I believe SJSAMPLE hit it right on the head. I would like to add a couple of things, you need a good attorney to write eviction notices and scare letters and a good banker to loan you money when you need to replace roofs or sewer lines or little stuff like that.
Link Posted: 1/16/2002 5:57:18 AM EDT
Shit, I forgot about the lawyers. Hell yes, right on. You're gonna need a couple of those just to stay in business.
Link Posted: 1/16/2002 6:07:55 AM EDT
Be prepared for every freaking sob story you can imagine. Hope you like to clean up shit, 'cause every time a toilet overflows you will be called to do it. Everything will break at some point. I would recomend that you enforce a credit check up front. 2 month rent as a deposit and no pets. You may get lucky, but be prepared for the worst. The better bet would be to buy land & rent trailer spaces. Hard to breat dirt. Then set up a check cashing place across the street. Add a convenience store, a rent to own furniture / TV place. Don't forget the coin laundry. Lastly sell used cars at a but here pay here next door to the others. Just think, you can have all the money....
Link Posted: 1/16/2002 6:13:41 AM EDT
How much does uncle sam take out of the rent profits?
Link Posted: 1/16/2002 6:19:48 AM EDT
Flapjack beat me to my point. Uncle Sam wants his share of your profits. You'll be able to deduct some costs such as repairs, etc. You should consider all this before you decide what to charge for rent. Your mortgage is just one of many expenses in owning a rental property.
Link Posted: 1/16/2002 6:24:10 AM EDT
The only really successful house-renters I've ever seen are: 1. Retired: Only the retired have the assets and time (and desire) to put into this endeavor. 2. Renting in college towns: Lots of students with money, and high turnover guarantees a steady group of new tenants. I've known guys who've rented their old house after they moved up, but ended up selling because of the hassles. This really is a second job. I've known guys who owned as few as two rental houses, and still hated every bit of it, and finally sold out.
Link Posted: 1/16/2002 6:58:34 AM EDT
Originally Posted By SJSAMPLE: If you're gonna get into that business, you better have the following skills: 1. Collection. Depending on the type and price (and area) of the houses you rent, you may need to strongarm to collect the rent. BE WARNED. 2. Repair: Expect to have A LOT of issues with tenants complaining about water, electricity and heat. You can't afford to call a repairman for all of these issues, so you'd better have some toolz and some skeelz. 3. Free Time: See 1. and 2. above. Good Luck.
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I agree. I had rental properties at one time and still have nightmares. Man, they're are all kinds of people out there!!!
Link Posted: 1/16/2002 7:04:50 AM EDT
It's amazing how many negative comments there are on this subject, probably from people who have never owned rental property, they have just heard stories. There are ways to protect yourself from pretty much everything posted here. For example you put in the contract that the occupant is responsible for the $50 of any repair. That way if a light bulb burns out, they don't call you. Also put right in the contract that if they are 15 days late with the rent you will start the eviction process. Then screen the people before you rent to them. You will still have to evict people but it won't be near as bad as what the people here are saying. Have you seen the investment course on TV from Carleton Sheets? If you are serious about doing this I would recommend getting it. [url]www.carletonsheets.com[/url]
Link Posted: 1/16/2002 7:06:17 AM EDT
I have to rent my house out..since I'm in the military and have to move around. The only way I can deal with it is to use a rental management company. They take 1 months rent per year to collect rent, provide basic maintenance, and keep tennants in the property. If somthing "big" breaks (like the waterheater) I get the bill. Keeps me out of the legal stuff too....
Link Posted: 1/16/2002 7:26:59 AM EDT
Unless you put a wad of cash as down payment, it is extremely rare to be able to charge more than your payment is. Normally with rental property, you will have a negative cash flow for up to 5 years before the income is more than the P+I, taxes, etc. Depreciation can help some, but with nothing down, you are lucky to break even Even careful screening is fallible. Some good friends of mine rented out their "mother-in-law house" with a wood stove. The tenants (a middle-aged woman and crippled son) left the door to the stove open, causing smoke damage. I'm getting ready to rent my old house. In talking to people about being a landlord, over 90% of the stories are bad. Some worse than others. One of the stories I heard was of a man renting to a single woman. She started out as an ideal tenant. After some months she got a live-in boyfriend who started working on his Harley in the kitchen. They refused to leave so the landlord came one day and removed all the outside doors off of the house. Probably quite illegal, but they left the next day.
Link Posted: 1/16/2002 7:32:33 AM EDT
Originally Posted By SWIRE: There are ways to protect yourself from pretty much everything posted here. For example you put in the contract that the occupant is responsible for the $50 of any repair. That way if a light bulb burns out, they don't call you. Also put right in the contract that if they are 15 days late with the rent you will start the eviction process. Then screen the people before you rent to them. You will still have to evict people but it won't be near as bad as what the people here are saying.
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Easier said than done. You may have lots of state and local laws that dictate how you can evict someone, what criteria you can use to choose tenents, and how much you can charge, etc. In CA, it is my understanding that it takes months to evict someone, even after they stopped paying any rent. A talk radio host who has rental property did a show a while back on tenent horror stories. The things that some people do is unbelievable. Check the laws in your area, if they strongly favor the tenent over the landlord, forget about it, or stick to high end property that automatically excludes the Jerry Springer crowd because of its price. Maybe look into commercial property too.
Link Posted: 1/16/2002 7:33:05 AM EDT
The one thing to remember, as with any type of home based business, if it was easy everyone would be doing it. Most people don't want to be bothered with all the time and work it would take, so they don't do it and complain about how bad it would be. But if you learn about it, before jumping in, understand what you are gettting into, and make smart decisions, then you will find that there is a ton of money to be made in rental housing.
Link Posted: 1/16/2002 7:38:28 AM EDT
[b]
Originally Posted By flapjack: I am thinking of getting into buying cheap houses and then renting them out for 150 bucks a month more than I pay to the bank. Can anyone shed some light on this process. As far as how hard is it to get deadbeats out and stuff like that.
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[/b] 12 RULES FOR LANDLORDS !! 1) If you want to be a landlord, get a mini-storage (you have their stuff, but not them!) 2) If you MUST do houses, sell them and carry the contract yourself (if they don't pay, you get the property back and keep the $$!) 3-12) sEE RULE #1 & 2 ABOVE!!! [peep]
Link Posted: 1/16/2002 7:51:31 AM EDT
My rental horror story: While I was stationed in Yuma, AZ my wife and I rented out our house in California. A guy and his sister rented the house, and seemed to be pretty squared away. A month before I got out of the Corps, we got a letter from the guy giving us 30 days notice of his intent to vacate the property, and telling us to keep the security deposit as his last month's rent, which totally went against the lease. We sent back a registered letter accepting his thirty day notice, but telling him that his rent for his last month was now late. We got all of our stuff in Yuma packed and loaded into a truck and found out via an answering machine message at my mother-in-law's house that he was not going to be able to move out on time. He was screening calls with caller ID and would not take a call from us. I left multiple messages telling him that we had no place to live and that he had to get out of our house. I called the Orange County Sheriff and asked if the letter had legal standing and they told me yes. I then asked if I could get a Sheriff's car to go out and tell him he had to pack his crap and get out. I got laughed at. Somehow, my wife spoke to his sister who lived at the house with him, and found out that this jackass had another house all ready to go, but his mother wouldn't let him move into it yet, because it wasn't the most auspicious time of the lunar month to move into a new house. We put our truckful of furniture in storage and I served the dickhead with a three day notice to quit and told him that I was going to the federal courthouse in Fullerton to file an unlawful detainer if he wasn't out of the house by 10pm Sunday night. I explained to him that there was no "ancient Chinese secret" clause in the lease. [rolleyes] He was out, except for a garage full of his shit that he never came back for, by Sunday night, but never did pay the last month's rent. I wrote it off as a lesson learned, and paid to have the carpets cleaned myself.
Link Posted: 1/16/2002 8:03:06 AM EDT
That is where I make the majority of my income. You will not make squat if you do not own it outright. Interest sucks, insurance cost?, how many banks want to loan you money on a rental? Trailer spaces are your best bet. I own the land and provide water. It cost about $3200 for me to put the space in since I am also a contractor. Pays for itself in two years($150mo). All you have to worry about is the sewer and water to the house. If you are on city water the cost to get a tap will probably eat you up though. Check zoning laws. Always have a good contract and be very strict on enforcing. Check your states landlord and tenant lawsand abide by them . Avoid Hud. They are a pain in the ass. Advantage is your check is always in the mail on time. Disadvantage is some really screwy renters. You can write off alot on your taxes. If you are not a handyman this is not the field for you. It is much cheaper to buy and install a hot water heater yourself rather than hireing a plumber. It is always a worry if you plan on leaving town for an extended time. E-Mail me if you have anymore questions. -Cruizer
Link Posted: 1/16/2002 8:19:36 AM EDT
If you are buying cheap how much are you going to have to put back in to it to rent it? Location and quality usually dictates renter type. What do you anticipate the life span of the home to be before you will have to put money back in. What is the insurance cost?
Link Posted: 1/16/2002 8:31:57 AM EDT
I got out of the landlord business... To many HEADACHES![}:(] BigDozer66
Link Posted: 1/16/2002 8:39:21 AM EDT
I've got a few rental properties, mostly houses and condos but also a couple of office buildings. The key is being able to buy below market value and then hire a good property management company to worry about the day to day problems and collections. I get a nice big check every month and no 3am phone calls about stopped up toilets.
Link Posted: 1/16/2002 8:40:40 AM EDT
flapjack, DON'T DO IT!
Link Posted: 1/16/2002 8:44:34 AM EDT
I know a few people that own a bunch of rental properties. I jokingly call them "slum lords". I believe the key is to get enough properties where it becomes economical to hire someone else to deal with the day to day BS. Owning one or two might be a headache, but owning 20 becomes much easier, or so I'm told. Like Green Furniture said, most of them just collect a check every month. Most of these people work in the real estate field so it's easier for them to find the good deals on the houses than most. So a bunch of them get snapped up before they actually hit the market.
Link Posted: 1/16/2002 8:58:28 AM EDT
I don't know about where you live, but in California there are property management companies that do all the work for a small fee. I own two houses in northern California and my property management company takes care of everything. I put the cost of the company into the rent of the houses. If there is a problem, the company will contact whoever, i.e. plumber, contractor, etc... and they contract a good rate and call me before any work is started. Just a thought.
Link Posted: 1/16/2002 9:02:53 AM EDT
I don't think they have any rental management around here. How much do you have to pay them? Mabye I could start one of those. This town has about 16,000 people and rent is unreal. Everything is so inflated, and there is a college in this town.
Link Posted: 1/16/2002 9:25:37 AM EDT
As has already been stated, if it was that easy, everyone would be doing it. I rented houses in the past, but there are a lot of hassles. I don't rent houses any more, but I have clients who do. First, about charging $150 per month more than you pay on the mortgage: Why do you think a tenant would pay that, instead of buying the house themselves? Either they are a deadbeat, or they don't have a large enough down payment to get the monthly payment down that low. Do you? You can't use strong-arm tactics to collect the rent. That is criminal conduct, and can land you in jail. You must be willing to look into the laws of your jurisdiction, and follow them carefully. If you aren't willing to do that, just forget about the rental property and go directly into the mugger business. Everyone I know who is successful in the rental business is a handyman at heart. They do most of the small repairs required. If you aren't handy, and don't have a partner who is handy, I suggest that you look for a different business. Tenant selection is the MOST IMPORTANT FUNCTION of a landlord. You should ask for AND CHECK references. Don't rent to anyone other than a person or family appropriate to your property. For example, if you have a three-bedroom house, don't rent that to anyone other than a conventional family. No groups of three men, no groups of two divorced women with kids who are "just trying to get back on our feet." If you have a single-bedroom apartment, rent it only to a single person or a married couple. You get the picture. Anything else is sure to cause trouble. If you aren't good judge of character, you should select a different business. You should have your standard lease written by an experienced real estate lawyer in your area. Don't just buy one from the stationery store. SWIRE has a good suggestion: Your lease should provide that the tenant is responsible for upkeep of the property, and for the first $50 of each major repair. Don't put in a provision about the rent being 15 days late. State the date on which the rent is due, and after a grace period (to cover delays in mail, etc.), a late fee. The lease must state that the late fee is to cover your additional costs of collecting, and is not penalty. (Penalties may not be enforceable.) Evictions for non-payment of rent should occur in no more than 1% of your rentals per month. If you are experiencing more than that, you are making mistakes in tenant selection. Evictions are usually very strictly defined in state law, and you must follow the law exactly. You should certainly get an attorney to handle those. Again, they won't happen very often. If they do, you are making mistakes in tenant selection. Evictions for "other than non-paymnt of rent," for example, trashing the place or dealing drugs out of your unit, should be even more rare than evictions for non-payment. You certainly need anattorney for those. These evictions are also a sign of mistakes in tenant selection. Residential rentals are a good and honorable business for those with the time and talent (and money) to go into it. Good luck.
Link Posted: 1/16/2002 9:51:41 AM EDT
Im purchasing a home right now (NEW) and it is 20k below market plus 6k in closing paid by seller plus 6 months worth of payments paid by seller at close of escrow...gives me 6 months to rent it out before im upside down. good deal 3/2 with 1897 sqft market about 305k , contract price 282k.
Link Posted: 1/16/2002 10:55:57 AM EDT
Flapjack - go for it. Get some books on the subject first. Make sure you get the place for a good deal, and find out how much you can rent it out for beforehand (rough estimate). Remember you will be able to raise rent regularly. Buy as many places as you can afford. When you have enough equity sell and roll the money into a duplex or 4-plex because you get better margins. Hire an agency to handle property management. So they take a cut - that gives you more of your most precious asset - TIME - so you can scout out more deals and buy more places. I just barely was getting into rentals but for now I'm focusing on my hosting business. In the mean time I'm renting to some ppl I know who have renewed their lease for 3 years so far, and don't complain about anything so it's worked out pretty good. I've heard some horror stories but hey, oh well.
Link Posted: 1/16/2002 10:56:35 AM EDT
Duplex or single-family houses converted into duplex have a better chance of breaking even. If you intend to charge $150 more than the mortgage, only low-lifes who can't get a mortgage are going to move in. They will be late or never pay their rent, will probably leave before the lease is up, and will cause damage. I don't rent, but my aunt and my brother-in-law both do.
Link Posted: 1/16/2002 11:49:57 AM EDT
I have to say that I am a little offended by some of the posts on this thread... My wife and I rent our house. We have for the last 4 years, we pay a very high rent for a nice house in a nice neighborhood and have never once given our landlord one bit of trouble. In fact, he is going to be quite upset to lose us as tennants. The fact of the matter is that we just haven't been "ready" to buy a house yet. This is for a lot of reasons and not one of them is financial. As for the "low life" and "deadbeat" comments, let me say this: Our income is well into six figures and the 31% tax bracket. Since we now have a child, we recently went to a bank to get "preapproved" for a mortgage so we could shop around and buy as soon as we found something. We now have a mortgage commitment letter for 3/4 of a million dollars. Deadbeat? There are just as many piece of shit landlords out there as there are section 8/HUD case crackhead tennants. My point here is that there are good people and bad people. Being a landlord can be the worst nightmare you've ever experienced and it can also be the best arrangement you could have hoped for. If you want to do it, be very selective of who you rent to and don't be afraid to let the house sit empty for a couple of months while you wait for a good tennant.
Link Posted: 1/16/2002 2:10:58 PM EDT
Originally Posted By FMJunkie: I have to say that I am a little offended by some of the posts on this thread... My wife and I rent our house. We have for the last 4 years, we pay a very high rent for a nice house in a nice neighborhood and have never once given our landlord one bit of trouble. In fact, he is going to be quite upset to lose us as tennants. ......
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Hey I don't think anybody was saying ALL tenants are bad... it's just that if you are a landlord, especially with a lot of properties and/or units, eventually you will run into the deadbeats. There is no getting around it. Personally, my tenants are great, I get the check every month and no complaints.
Link Posted: 1/16/2002 2:52:54 PM EDT
Link Posted: 1/16/2002 4:05:11 PM EDT
I rent out a house that is on the same street as I live, and just a few houses down. I can keep an eye on it. I picked out a renter who has never given us any trouble, the rent is always on time. The rent nicely balances the mortgage + taxes. In future years, the rent will increase, but the mortgage payments will remain the same. We are planning on owning and renting this for at least 20 years. IMHO, if you pick your tenants very carefully, you will be able to minimize your trouble.
Link Posted: 1/16/2002 4:43:45 PM EDT
Be able to "read" people, because you could really get some losers. FMJunkie has it right, most are great people. When my parents rented out their first house they were lucky. They found good tenants and since they already had the mortgage paid off it worked out ok. Talk to local real estate people you may know about what you should charge. But...get ready to hear some complaining on the tenants part, and at weird hours. "The faucet leaks, the toilet doesn't work, I fried the electical wires, etc....If you're handy and live nearby, it works out ok. Drive by often to see how the outside is kept up. Just rememeber, some renters won't care about your property like you do because after all THEY DON'T OWN IT. People who own their own property have a vested interest in keeping it up. BTW, I think they have prewritten renter's agreements at places like Office Depot, but you may want to make your own with a lawyer.
Link Posted: 1/16/2002 4:47:03 PM EDT
My wife and I have one rental house, I have only been doing this for one year but here is my experience. Use a property management company and screen them, drive by some of their properties and see if they are dives if there is a significant number of dives avoid them and choose another. Our manager screens very heavily and they have a good track record. I hire out repairs because I live 2 and a half hours away. Don't go into this unless you have extra disposable income. Also our goal is not income now we actually feed our propery $100 per month. Our house happens to be in an area we project prices to skyrocket in due to rerouting of the main hiway in town. In the last year we have had no horror stories and the tenants actually have improved the yard. I would not do this for current income only for investment. unless you are planning on buying a lot of propery. Hope this helps your decision.
Link Posted: 1/16/2002 8:03:12 PM EDT
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