Real Estate Question

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Swampy
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Real Estate Question

Post by Swampy »

My tenant of several years called and gave notice that he is leaving at the end of his lease by the end of the year. This was a good tenant, unlike some real nightmares in the past.

I rent for below market rates and have had better success obtaining better quality tenants than trying to push for market rate and get bad tenants. It has produced a minimum positive cash flow, about 3-4% of actual condo value after expenses. Monthly HOA dues, real estate tax assessments and insurance have been rising and squeezing the margin. A few times I was hit with special assessments which put me in the red some years.

It is in a 55+ community. Unfortunately, it is still worth 30% less than at the peak of the market, but I'd still be able to sell with a small profit and other tax write offs. Because it is in a 55+ complex, I do not believe that local condo values in the area will rise more than 2-3%/yr for the foreseeable future.

I'm debating re-renting it or just listing it and getting out once and for all. I would consolidate the proceeds with my overall index portfolio allocation. I have no desire 'holding paper' for a buyer.

My wife and I have been entertaining the idea of traveling more and even trying living overseas for short periods. Dealing with our home and a rental property has always held us back.

Maybe this is a clarion call to action.

In all honesty, if the tenant had wanted, we would have been happy keeping him as long as he wanted to stay.

Another option would be to sell our home and move into the condo (which my wife has said "No" to in the past and even today). Positives to downsizing to the condo include saving money and we could just lock the door and be gone for months as opposed to our home which needs the lawn mowed, pool treated, etc. Unfortunately, we'd be moving to a place 1/3 the size of our current home. We like our space. We also have accumulated a lot of 'stuff' over the years.

What do you think the reasonable options are and what would you recommend? Maybe there's another option I haven't thought of?
No, I can't use it as a short term vacation rental even though it's near the beach. It's in the condo rules.
If I have seen further, it was by standing on the shoulders of giants.
harrychan
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Re: Real Estate Question

Post by harrychan »

Sounds like a no brainer to me - sell. Move on and get on with what you really want to do!
This is not legal or certified financial advice but you know that already.
dolphinsaremammals
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Re: Real Estate Question

Post by dolphinsaremammals »

harrychan wrote:Sounds like a no brainer to me - sell. Move on and get on with what you really want to do!
+1 I would also start going through your stuff and getting rid of some of it. I suspect a lot of it is expendable. Make your life simpler and save your heirs the work of doing that.
Valuethinker
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Re: Real Estate Question

Post by Valuethinker »

Sell and simplify.

It's also a call to arms about getting rid of 'stuff'. My parents resisted doing this and my Mum is now in her 80s sitting in a house full of 'stuff' with neither the energy nor inclination to get rid of it. When she does have to move it's going to be very painful to her when we have professional house clearers just empty the place. We have warned her of this many times but that Depression era generation can never throw anything out (especially not a book, even one they have not read in 50 years or bought but may never read). I have the pack rat mentality but at least I have this clear warning.

Remember with investments it is opportunity cost. It's not what you lost on it, it's what you can do with the capital it frees up.

Say you paid 100k and it's now worth 75k (net of all mortgage). Then the cost of the place is the return (including the psychic returns of travel) that you could earn on the 75k.
epitomist
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Re: Real Estate Question

Post by epitomist »

For all of my rental properties I used a property management company. They generally charged 75% of the first month's rent to find a qualified renter and then 6% of the monthly rent after that. My tenant's generally did not even know who I was which made things far simpler. The biggest way it was simpler is it removes the personal variable out of any negotiations. That is, it is not "me, the person" raising your rent, it is the property management company that automatically raises the rent 3%-4% every year. I found that in contrast to friends and family who did not use property management companies that I made out far better financially than they did and did almost no work whereas they did all the work.

They take all the calls with any problems and line up vendors to take care of issues. You can tell them that they have the ability to approve repairs over $x but need verbal approval over $y. Barring a nightmare tenant, it does become hassle-free renting for a landlord.

Just giving an alternative to your rental property holding you back.
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Swampy
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Re: Real Estate Question

Post by Swampy »

I had the exact opposite experience with property management people.

I found them to be utterly useless and they skimmed the cream off of the top.
It's no different than paying a money manager 1-1.5% for assets under management.

The absolutely worst tenant I ever had was from one such 'professional.'

Anything that needed repairing went to their select 'clique' of repair people who, I suspect, ended up giving the property manager a kick back.

I'll pass.
If I have seen further, it was by standing on the shoulders of giants.
david99
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Re: Real Estate Question

Post by david99 »

I would sell the property and travel. Also, as Valuethinker said, you can invest the money and get a better return.
I would not give the property to a management company. My experience with a property management company is that they get any tenant that they can get their hands on as long as they get their commission. It's not their property so they don't care.
epitomist
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Re: Real Estate Question

Post by epitomist »

Swampy wrote:I had the exact opposite experience with property management people.

I found them to be utterly useless and they skimmed the cream off of the top.
It's no different than paying a money manager 1-1.5% for assets under management.
The two things are completely different and it is silly to even suggest otherwise.

a. Paying a money manager 1-1.5% for assets under management allows you to do very little work managing your portfolio.
b. Managing your funds yourself the boglehead way allows you to do very little work managing your portfolio

vs

a. Paying a property management company hires you someone who is an expert at property management to do almost all the work for you. In addition, they turn rent increases into non-negotiable impersonal transactions that generally occur smoothly, often more than compensating over the years for their management fees.
b. Managing your house yourself means you do all the work. Finding the tenant, screening the tenant, taking calls at 3 am, finding people to repair the house, collecting rent, negotiating rent increases, etc, etc.

As you said yourself, your ability to take vacations is curbed by your being a landlord. This would not remotely be the case if you hired a property management company. In comparison, hiring a money manager has no discernible benefit.
Swampy wrote:The absolutely worst tenant I ever had was from one such 'professional.'
Anyone can pick a bad tenant. Bad tenants are often good at pretending to be good tenants.
Swampy wrote:Anything that needed repairing went to their select 'clique' of repair people who, I suspect, ended up giving the property manager a kick back.
For each of my rental properties I had a home warranty. Most repairs consisted of the property management company calling the home warranty company who then selected the vendor. My total cost was a $50 deductible per repair and the vendor selection was out of their hands. For things that weren't covered, I allowed them to select the vendor and honestly the pricing I got was so ridiculously in my favor I never had a cause to suspect there was a kickback issue.

Sounds to me like you found a crooked property management company and then just gave up. Did you try talking to other landlords to find an honest property management company in your area?
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abuss368
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Re: Real Estate Question

Post by abuss368 »

dolphinsaremammals wrote:
harrychan wrote:Sounds like a no brainer to me - sell. Move on and get on with what you really want to do!
+1 I would also start going through your stuff and getting rid of some of it. I suspect a lot of it is expendable. Make your life simpler and save your heirs the work of doing that.
Hi swampy,

To me this is an excellent place to start. We presently have our home on the market. We found that cleaning out everything and donating to charity was a multi year process. Every time we thought we were "done", we found more items that we had no use for. We have also tried to avoid unnecessary purchases which just add to clutter.

Best.
John C. Bogle: “Simplicity is the master key to financial success."
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abuss368
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Re: Real Estate Question

Post by abuss368 »

Have you considered a different Property Manager?
John C. Bogle: “Simplicity is the master key to financial success."
Topic Author
Swampy
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Re: Real Estate Question

Post by Swampy »

Over the years, I've used several 'property managers' and, to say the least, I'm less than impressed.

To say they were anything above mediocre would be a lie. The only one worth anything found the tenants and took her cut, then I managed it.

I know more about property management than many of these so-called experts. All they were good for was skimming the profits, taking their cut and not caring one whit about the owner.

On another note -

All that 'stuff' by the way is in my current home. Yes, it will be a multi-year process to get rid of it.
We're already doing it slowly and sometimes encounter very strong emotions in the process.

But, of course, everything has some sentimental attachment.

Case in point: My wife telling me we can't get rid of some downright ugly 'stuff' - because it was made by her great grandmother a hundred years ago and is 'priceless.'

Nonetheless, I have found 'treasures' unexpectedly in boxes in our garage like a first person handwritten note from a deceased relative which detailed being trapped on the battle front as a civilian in WWII between two opposing armies. I suspect the note was written under extreme duress and fear of imminent death as something that could be hopefully given to surviving family if the worst happened.

'Stuff' like that really belongs in a museum.

But fully 99+% just needs to be gotten rid of.
If I have seen further, it was by standing on the shoulders of giants.
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Meg77
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Re: Real Estate Question

Post by Meg77 »

This seems like more of a psychological decision than a financial one. If you're ready to be free of the hassles of hard assets and want to sell your properties and dump the proceeds in an index fund so you can travel, then that sounds like a good plan. If you want to raise rents a bit and re-lease the condo that sounds like a good plan too. Neither is easy and both are justifiable. If you aren't ready to totally sell everything and travel I'd just release it. Or you can list it as "for sale or lease" with an agent and see what offers you get both ways.
"An investment in knowledge pays the best interest." - Benjamin Franklin
investor1
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Re: Real Estate Question

Post by investor1 »

Seeing that you are only getting 3-4%, I think your money is better off invested elsewhere. Your wife doesn't want to downgrade, so I'd forget about that and just sell the rental property. No more rental property to manage or property managers to deal with. There is your simplicity. List it, sell it. One and done.

I've rented from private home owners for seven years and did not realize properties that have property managers try to increase the rent regularly. One of the things I like most about private rentals is not having to put up with that stuff. I'm glad I know now so I don't waste time talking to those people the next time I'm looking to move.
epitomist
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Re: Real Estate Question

Post by epitomist »

Swampy wrote:I know more about property management than many of these so-called experts.
Based on a 30 second perusal of your posting history, with things like this http://www.bogleheads.org/forum/viewtopic.php?t=115333 I'm not sure if you should present yourself as a property management guru. :D
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Swampy
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Re: Real Estate Question

Post by Swampy »

Septic systems, not so much. :P

Happily, the septic system and field are fine. Especially since two went away to college.
If I have seen further, it was by standing on the shoulders of giants.
denovo
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Re: Real Estate Question

Post by denovo »

Dump it.
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lululu
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Re: Real Estate Question

Post by lululu »

abuss368 wrote:
dolphinsaremammals wrote:
harrychan wrote:Sounds like a no brainer to me - sell. Move on and get on with what you really want to do!
+1 I would also start going through your stuff and getting rid of some of it. I suspect a lot of it is expendable. Make your life simpler and save your heirs the work of doing that.
Hi swampy,

To me this is an excellent place to start. We presently have our home on the market. We found that cleaning out everything and donating to charity was a multi year process.
"Multi year" makes me feel a little better about how I've done this. When I sold my first house (decades of occupancy), it took me six months before that to get rid of half my stuff, which I thought was an embarrassing length of time. Then in my new house I made another pass through and got rid of 50% of the remainder.

I'm on the 3rd or 4th pass now, this time I realized most of my books are expendable. Why do I need hundreds of physical books, many yellowing paperbacks with print too small for me to now read comfortably, when I have 600 or more books on my Nook. Can you imagine how much space 600 physical books would take up.

Then I figure 1 or 2 more passes and I'm at the level of stuff I should have. I'm also organizing like heck as I do this. A place for everything and everything in its place.
German Expat
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Re: Real Estate Question

Post by German Expat »

Interesting comments about getting rid of things. We just moved to a smaller place and are still unpacking and getting settled in. We moved way too much stuff after already doing some limited things before we moved. Sometimes hard to get rid of things and I will also have to do another round on the books. Recently I did not read a single physical book (kindle only).

We did move from a house to an apartment (to Switzerland for a couple of years) and I like it that we can now just lock the door and leave the place. No yard to worry about and no house maintenance.

Next move I might just ask whomever moves us then to give us the money and we donate everything and start fresh :-).
Jack FFR1846
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Re: Real Estate Question

Post by Jack FFR1846 »

Property managers....rolleyes

Mine started by telling prospective tennants that the lawn mower owned by the tenants who were leaving was owned by the home owner. When they moved in and found otherwise, they deducted the lawn company's charge from the rent. When these people eventually left, they left the oil tank empty saying that the previous tenants gave it to them. Great. I paid for the oil to begin with. Hey, what could 275 gallons cost anyways?

As for hoarding, remember that your heirs will likely not know the value. When my grandmother passed, I was given the task of cleaning out the house. I held a yard sale as the cleaning progressed. We put stuff in either a dumpster or in boxes (think beer or wine case size) and sold any box for $5 in the morning and $1 in the afternoon. Anything left over went into the dumpster. Assune that this will happen with your treasures when you're gone
Bogle: Smart Beta is stupid
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abuss368
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Re: Real Estate Question

Post by abuss368 »

lululu wrote:
abuss368 wrote:
dolphinsaremammals wrote:
harrychan wrote:Sounds like a no brainer to me - sell. Move on and get on with what you really want to do!
+1 I would also start going through your stuff and getting rid of some of it. I suspect a lot of it is expendable. Make your life simpler and save your heirs the work of doing that.
Hi swampy,

To me this is an excellent place to start. We presently have our home on the market. We found that cleaning out everything and donating to charity was a multi year process.
"Multi year" makes me feel a little better about how I've done this. When I sold my first house (decades of occupancy), it took me six months before that to get rid of half my stuff, which I thought was an embarrassing length of time. Then in my new house I made another pass through and got rid of 50% of the remainder.

I'm on the 3rd or 4th pass now, this time I realized most of my books are expendable. Why do I need hundreds of physical books, many yellowing paperbacks with print too small for me to now read comfortably, when I have 600 or more books on my Nook. Can you imagine how much space 600 physical books would take up.

Then I figure 1 or 2 more passes and I'm at the level of stuff I should have. I'm also organizing like heck as I do this. A place for everything and everything in its place.
This sounds familiar. I recently scanned in Adobe old investment articles, etc. The book shelf is now showing space.
John C. Bogle: “Simplicity is the master key to financial success."
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abuss368
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Re: Real Estate Question

Post by abuss368 »

You could always sell your property and invest in both US and International REITs. This is a low cost and very diversified way to invest in real estate.
John C. Bogle: “Simplicity is the master key to financial success."
dolphinsaremammals
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Re: Real Estate Question

Post by dolphinsaremammals »

One thing I regret getting rid of when I moved across country is some small appliances. I figured it would be easier to just buy them at the new house. But the older ones were much better made. My old Mighty Mite vacuum cleaner had metal parts that are now made of plastic and fall apart easily, for example.
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