Rental Property...Tips/Learning for Newbie

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
Post Reply
crazylightgirl
Posts: 34
Joined: Wed Aug 10, 2016 3:30 pm

Rental Property...Tips/Learning for Newbie

Post by crazylightgirl » Tue Apr 10, 2018 12:14 pm

Hi all,

I'm at the point now where I'm very interested in rental property. I'm close to paying off my mortgage and already maxing out 401k and roth IRA. I'm also putting some money towards a taxable account in a 3-fund portfolio....but now I'm interested in diversifying.

What books/online courses/seminars, etc would you recommend for someone wanting to own rental property. My interest is in single family or multifamily homes or duplexes. I know for sure I'm not interested in being a landlord (at least not now), so I'm ok with having assistance from a property management co.

Also, what are the best sites to look for rental property?

User avatar
Pajamas
Posts: 6015
Joined: Sun Jun 03, 2012 6:32 pm

Re: Rental Property...Tips/Learning for Newbie

Post by Pajamas » Tue Apr 10, 2018 12:18 pm

Seems like you want diversification and have already decided that rental property is the way to go. I would recommend that you back up and learn about diversification and other investing theory first.

PFInterest
Posts: 2261
Joined: Sun Jan 08, 2017 12:25 pm

Re: Rental Property...Tips/Learning for Newbie

Post by PFInterest » Tue Apr 10, 2018 12:28 pm

have you heard of biggerpockets?

crazylightgirl
Posts: 34
Joined: Wed Aug 10, 2016 3:30 pm

Re: Rental Property...Tips/Learning for Newbie

Post by crazylightgirl » Tue Apr 10, 2018 12:32 pm

Pajamas wrote:
Tue Apr 10, 2018 12:18 pm
Seems like you want diversification and have already decided that rental property is the way to go. I would recommend that you back up and learn about diversification and other investing theory first.
:? I've read lots of books on investing theory and follow countless number of forums.

Do you have any specific recommendations for readings on diversification or rental property?

User avatar
Pajamas
Posts: 6015
Joined: Sun Jun 03, 2012 6:32 pm

Re: Rental Property...Tips/Learning for Newbie

Post by Pajamas » Tue Apr 10, 2018 12:46 pm

crazylightgirl wrote:
Tue Apr 10, 2018 12:32 pm
Pajamas wrote:
Tue Apr 10, 2018 12:18 pm
Seems like you want diversification and have already decided that rental property is the way to go. I would recommend that you back up and learn about diversification and other investing theory first.
:? I've read lots of books on investing theory and follow countless number of forums.

Do you have any specific recommendations for readings on diversification or rental property?
Yes, I think the Boglehead suggested reading selections are good in general:

https://www.bogleheads.org/RecommendedReading.php

The "All About Asset Allocation" book would probably be especially interesting to you.

User avatar
Smorgasbord
Posts: 357
Joined: Fri Jun 10, 2016 8:12 pm

Re: Rental Property...Tips/Learning for Newbie

Post by Smorgasbord » Tue Apr 10, 2018 12:53 pm

Books and seminars are nice, but to really learn about the rental business try renting out a room or the basement of your house.

LarryAllen
Posts: 1095
Joined: Fri Apr 22, 2016 9:41 am
Location: State of Confusion

Re: Rental Property...Tips/Learning for Newbie

Post by LarryAllen » Tue Apr 10, 2018 12:57 pm

PFInterest wrote:
Tue Apr 10, 2018 12:28 pm
have you heard of biggerpockets?
+1. BP is really an incredible place to learn about real estate investment. Tons of great info in the forums, podcasts, blogs, and the community of people. Of course a lot of people are selling whatever they sell so go in with eyes open!

crazylightgirl
Posts: 34
Joined: Wed Aug 10, 2016 3:30 pm

Re: Rental Property...Tips/Learning for Newbie

Post by crazylightgirl » Tue Apr 10, 2018 1:23 pm

Smorgasbord wrote:
Tue Apr 10, 2018 12:53 pm
Books and seminars are nice, but to really learn about the rental business try renting out a room or the basement of your house.
haha good one

crazylightgirl
Posts: 34
Joined: Wed Aug 10, 2016 3:30 pm

Re: Rental Property...Tips/Learning for Newbie

Post by crazylightgirl » Tue Apr 10, 2018 1:24 pm

Thanks guys,

I'll look into bigger pockets

Tal-
Posts: 348
Joined: Fri Apr 22, 2016 10:41 pm

Re: Rental Property...Tips/Learning for Newbie

Post by Tal- » Tue Apr 10, 2018 1:36 pm

A few tips:

1: Start small. Typically a SFR, though I'm open to a plex if you'll live in part of it. Assuming you're on track to exceed your goals, I would go as high as 10% of your net worth into the property.
2: Never be cash poor; always keep a huge cash buffer (10K+)
3: Understand that real estate is a long-term game. Buying and selling are expensive.
4: Look at, and do a pro forma on literally 100+ properties before you pull the trigger on your first.
5: Use a good property manager, but be sure to manage your manager.
6: Base your buy/don't buy decision almost exclusively on how it will cashflow over the next 10 years. Avoid relying on appreciation (beyond inflation) in all instances.
7: Understand that even a good real estate deal is vastly more risky than a traditional stock/bond portfolio. And, the returns are far more volatile.
8: Don't let it give you gray hair. One of the hardest things to do in real estate is to stomach a 10K bill or crappy tenant, and then be able to sleep well that night. Not everyone can do it. If you would let these things impact your normal life, real estate is not for you.
9: There are far more expenses than you expect. But, still, find a conservative pro forma sheet and go from there.
10: Manage your relationships, and treat people with respect (tenants, vendors, pm, etc.)

Just my 10 cents.
Debt is to personal finance as a knife is to cooking.

wolf359
Posts: 1390
Joined: Sun Mar 15, 2015 8:47 am

Re: Rental Property...Tips/Learning for Newbie

Post by wolf359 » Tue Apr 10, 2018 2:21 pm

Good advice above. Some additional advice and sources:

Sources:
Building Wealth One House at a Time by John Schaub - Focuses on single family homes
http://www.biggerpockets.com Especially check out their discussions on house hacking

Advice:
- It doesn't matter whether you plan to be a landlord or not. Even if you do it yourself, include property management in your budget. Your time is not free. This allows you to engage property management in the future, if your situation changes.

- Consider REITS as a hands-off exposure to real estate. Caution -- AVOID non-traded or private REITS. These are illiquid, and very hard to get out of. Some financial advisors will sell them to you. They get hefty commissions for doing so. You get screwed. Some of the peer-to-peer Real Estate offers are private REITs. I would be very cautious with them, or avoid them outright.

- If you live in a HCOL area, you may want to buy real estate in a LCOL area in another state. This works, but is more hassle. Also, you have to file taxes in most states where you own property. (Some states don't have income tax -- laws vary, and you must be cognizant of the laws.)

- Stay away from gurus and seminars. There are a lot of scams out there.

denovo
Posts: 4363
Joined: Sun Oct 13, 2013 1:04 pm

Re: Rental Property...Tips/Learning for Newbie

Post by denovo » Tue Apr 10, 2018 3:12 pm

If you need a prop mgr, you shouldn't become a landlord.
"Don't trust everything you read on the Internet"- Abraham Lincoln

renue74
Posts: 1169
Joined: Tue Apr 07, 2015 7:24 pm

Re: Rental Property...Tips/Learning for Newbie

Post by renue74 » Tue Apr 10, 2018 3:29 pm

Watch out for biggerpockets. Some of the folks on that forum are into alternative financing that could be pretty risky.

I bought rental properties about 4 years ago and have made decent money from them. I recently sold 3 of them because the market is so hot.

I used a testing worksheet that makes my buying decision pretty easy.

Worksheet: https://docs.google.com/spreadsheets/d/ ... sp=sharing

(I'm not going to give edit access to this test sheet. I've done it a couple times on Boglheads and it seems somebody always screws it up. Come on people, learn how to use spreadsheets.)

Anyways, rentals are so hyper local. In my town, I can buy houses for $40K to $100K that are good rentals and there are mainly 4 or 5 areas that have rental homes. Your area will be different.

Real estate agents hate working with new landlords, because they typically fail to pull the trigger on a buy. So, you'll need to find someone who will be a good agent for you.

I often get tips or leads from friends, vendors (electrician, plumber, hvac guys), and other landlords who want to sell their portfolio.

You should be able to look at a home in 30 seconds...use a testing worksheet to verify it fit's your requirements for cash flow and look at the hood. If it's good, then go and actually look at the property. Look for deferred maintenance issues. There are always issues. Landlords don't do maintenance like owner occupants. Mainly because they are squeezing the cash out, but also because it's tough to do maintenance when you have tenants in the property.

You should have a good cash reserve beyond downpayment $. What happens if you have to pay for a $6000 HVAC system? How you gonna do that?

You should gather a team of vendors...reliable vendors. (Plumber, HVAC, Electrician, general handyman...if you're not handy.)

In this day and age, you should be prepared to see multiple offers on rental homes. I see it a lot and often walk away from them. The market where I am is frothy.

My target is to get 12% cash on cash annually. Rental property in my town doesn't appreciate like other areas of the USA. It has in the last 4 years...but it will average back down eventually. You can buy a $40k or $50K duplex here just like you could 20 years ago.

bloom2708
Posts: 4803
Joined: Wed Apr 02, 2014 2:08 pm
Location: Fargo, ND

Re: Rental Property...Tips/Learning for Newbie

Post by bloom2708 » Tue Apr 10, 2018 3:43 pm

Add 5% REIT to your portfolio. Done.

You own your home with a small mortgage. Adding more real estate isn't diversifying. You already have a chunk of your net worth in your home. A similar example is you own the Total US Stock market. You decide to add the S&P 500 to "diversify". You just bought more of something you already own.

Rental real estate is a second job and you need to make a "deal" to come out in good shape. The problem is there are people (lots) looking for that same deal who are bigger and faster. The other way is to buy a dump and put in sweat equity fixing it up. Not easy stuff when you are already working full time.
Where to spend your time: | 1. You completely control <--spend your time here! | 2. You partially control <--spend your time here! | 3. You have no control <--spend no time here!

Nate79
Posts: 3503
Joined: Thu Aug 11, 2016 6:24 pm
Location: Portland, OR

Re: Rental Property...Tips/Learning for Newbie

Post by Nate79 » Tue Apr 10, 2018 4:15 pm

I do not think BH is a good site for rental advice. People are way too negative against rental properties. On the other hand the other issue I see on rental sites like biggerpockets is a skew towards maximizing rewards by using leverage. If I were to go into rental properties I would try to put as much money down as possible, even all cash purchase. Leverage = risk

You could consider one of the websites into crowd funding rental properties such as Fundrise and their eREIT products (other sites like Realty Mogul, etc). These look intriguing more than a traditional REIT index like Vanguard but I would do a lot of research before jumping into these products.

CurlyDave
Posts: 707
Joined: Thu Jul 28, 2016 11:37 am

Re: Rental Property...Tips/Learning for Newbie

Post by CurlyDave » Wed Apr 11, 2018 1:35 am

denovo wrote:
Tue Apr 10, 2018 3:12 pm
If you need a prop mgr, you shouldn't become a landlord.
+1

A property manager will eat your lunch for you and then ask for money for desert. Especially when you are just starting. Wait until you have enough rentals that you can no longer manage them yourself in your spare time. And at that point ask the hard question: "Am I better off hiring a property management company or quitting my day job and managing everything myself?"

Real estate is not for everyone, but if you can handle it, it is a very good way to provide for your future.

boglerdude
Posts: 630
Joined: Fri Jul 10, 2015 1:28 am
Contact:

Re: Rental Property...Tips/Learning for Newbie

Post by boglerdude » Wed Apr 11, 2018 2:22 am

The previous 1st time landlord thread
viewtopic.php?f=2&t=246279

Post Reply