Why are you NOT buying rental properties?

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willthrill81
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Re: Why are you NOT buying rental properties?

Post by willthrill81 » Thu Jun 13, 2019 10:04 am

Rental properties are a part-time job that could become a full-time job. No thanks.
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22twain
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Re: Why are you NOT buying rental properties?

Post by 22twain » Thu Jun 13, 2019 10:30 am

When I was growing up in a small industrial city in the Midwest, nobody in my family (as far as I know) invested in rental properties, so it's not "in my blood."

During our 30+ year college-teaching careers, DW and I made enough money to support our lifestyle and save a decent amount for retirement, and we were busy enough with that. So we never had the urge to develop what people now call a "side hustle", whether in real estate or something else.

Now that we're retired, we have enough assets that we don't feel any financial need to go out and earn some more. DW still teaches part-time, but not for financial reasons; the money involved is peanuts.
My investing princiPLEs do not include absolutely preserving princiPAL.

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Re: Why are you NOT buying rental properties?

Post by Sandtrap » Thu Jun 13, 2019 11:29 am

Specifically regarding apartment buildings 12 units or larger.
Now is not a good time:
Why?
1
Grossly overvalued multi unit housing.
2012 was the last of the "low hanging fruit" for investors.
Of course there are always bargains, relatively speaking, to be had, but not like 2010-12, etc.
Patience.
Wait for the R/E cycle to come around.
2
Landlord tenant codes, Fed ADA codes have changed, Fed ADA codes on "service animals" have changed, "Bed bug" liabilities have changed, Tenants are more litigious than in the past.
3
In the previous decades it was a bit easier to maintain a high CAP rate. Now, because of the above, not always so.

Till then.
Bogle Onward.
j
Last edited by Sandtrap on Thu Jun 13, 2019 3:32 pm, edited 1 time in total.

Lextalionis
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Re: Why are you NOT buying rental properties?

Post by Lextalionis » Thu Jun 13, 2019 2:03 pm

Kuna_Papa_Wengi wrote:
Thu Jun 13, 2019 9:41 am
I'm currently in a similar situation in regards to us renting out our old home. My tenants are decent, but I'm not really making much money on it. It is a great learning experience. I'd like to buy another rental. I think if I plan things out better and get it for a better price, it can be profitable.

As a percentage of the rent, what are your expenses running? I try to be conservative, and estimate between 40% and 50% not counting debt service. With a $1200 rent, that only leaves me with about $200/month cash flow.
Because of the type of house we buy and the potential for initial vacancies this can complicated, but to our advantage, we will only buy houses $15-20k under current market. All of the math is complicated with equity, repairs, vacancies, etc, but generally $300-350 per month per property. As the equity grows and the renter buys the property for you, the property moves away from speculation, increases in liability and increases in income because you are on a path to owning it. Most of these posts are based on appreciation which is speculation - not a solid business plan. We cover repairs and up front costs not on appreciation, but offer on lowest price to current market value. This is the main difference between this and our primary house we rented.

At $350 per month, (this is where the primary residence is different because you control the initial purpose of the house) it works out to 15-20% percent return on down payment. $110k house valued at $125k and a $350 net positive = ($350X12)/$22,400 = 18.75% return (in reality it is closer to 12%)

Basically, if you run $200 a month cashflow, to get into a viable return you would need to put less than $25k down for the house which puts it in the $100-$125k range. This nets you 9.6% not counting equity and/or appreciation or depreciation. If you can get a traditional mortgage at 3%/30 of course you can add to your income by lowering your payment and increasing your duration. If you can reduce expenses and get to $300-350 per month it still doesn't sound like much, but it is a much higher return on your initial outlay. There are a ton of specialty lenders out there with hybrid ARMs and other specific loans for RE investors and flippers, https://limaone.com/ comes to mind.

Because our houses are in llc's we had to do business loans at 20 years. Our houses are 2 per llc and we plan to pay one off in each llc and keep about 70% leverage in the other to reduce liability. Our goal is income and paid off assets, which many RE investors disagree with. 10 houses paid off make $120k per year on $1M in assets (purchased by your renters) while it takes 29 houses to make the the same amount with leverage and although the exponential is much higher with leverage there are more headaches and points of failure.

A pie-in-the-sky return for us is in year 21 per house we have made $100k+ in rent (assumes a refi or payoff somewhere in the timeline), own a $125k asset mostly paid for by someone else that is now worth $175k that pays you $1200 a month or $14400 per year on a $22k investment. This is all a hypothetical and counts equity and not expenses, but that is $13,750 per year over 20 years on $22k down payment. None of the above counts in any current business decisions and is not linear to current cash flow, but can give you a sense of why RE is lucrative.

Hope this helps.

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Re: Why are you NOT buying rental properties?

Post by abuss368 » Thu Jun 13, 2019 8:12 pm

Have considered this for many years. Reading Taylor's excellent advice and experience made me realize it is more of a job and running a business and should not be compared to passive investing. Taylor has said he "may" have made a little more return but if he had to do it all over again he would simply owned the Three Fund Portfolio.
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Re: Why are you NOT buying rental properties?

Post by abuss368 » Thu Jun 13, 2019 8:14 pm

Real estate is a difficult investment with no perfect or ideal strategy for investing purposes. Ralph Block of "Investing in REITs" devote a chapter regarding this and states there are three ways to invest in real estate:

* REITs
* Private placement
* Directly

He provides the advantages and disadvantages to all strategies. It is clear there is no preferred or best way.

As such, we have invested in Vanguard U.S. REIT and Vanguard International REIT for many years and plan to stay the course.
John C. Bogle: "You simply do not need to put your money into 8 different mutual funds!" | | Disclosure: Three Fund Portfolio + U.S. & International REITs

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Re: Why are you NOT buying rental properties?

Post by LadyGeek » Thu Jun 13, 2019 8:18 pm

This thread is now in the Personal Finance (Not Investing) forum (rental properties).
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Re: Why are you NOT buying rental properties?

Post by abuss368 » Thu Jun 13, 2019 8:29 pm

tomtoms wrote:
Wed Jan 16, 2019 2:28 pm

Yes, you can buy RE ETF but that is like buying S&P 500. There is no leverage. Leverage is what makes RE investing special but of course leverage is great on the way up but painful on the way down so you have to know what you are doing.
This is not correct. The REITs have plenty of debt and leverage.
John C. Bogle: "You simply do not need to put your money into 8 different mutual funds!" | | Disclosure: Three Fund Portfolio + U.S. & International REITs

kilkoyne
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Re: Why are you NOT buying rental properties?

Post by kilkoyne » Thu Jun 13, 2019 8:35 pm

I'm tired of the responsibility that comes with rental units. I've already told my current tenants (great tenants BTW) this is the last year. Next year it's going up for sale. I believe I will experience the feeling of freedom when that is gone.

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Re: Why are you NOT buying rental properties?

Post by renue74 » Thu Jun 13, 2019 8:44 pm

kilkoyne wrote:
Thu Jun 13, 2019 8:35 pm
I'm tired of the responsibility that comes with rental units. I've already told my current tenants (great tenants BTW) this is the last year. Next year it's going up for sale. I believe I will experience the feeling of freedom when that is gone.
This is true. It always is. Every REI has to have an exit plan. I know landlords that have lasted about 20 years. Then one year, they decide to sell their property portfolio. While others will die with rental property and their heirs will have the step up basis on their properties.

It's not for everybody. I talk to at least 1 or 2 people per week who "want" to be landlords, but never pull the trigger.

My suggestion these days....acquire mom & pop mini storage units near growing areas. :moneybag

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Re: Why are your NOT buying rental properties?

Post by JGoneRiding » Fri Jun 14, 2019 1:19 pm

RickBoglehead wrote:
Wed Jan 16, 2019 2:54 pm
I want nothing to do with rental properties. In fact, we currently own 2 homes (1 inherited), and will dispose of that within 2 years at most.

Being a landlord is not a fun task. If you had owned these properties in the housing crash, you'd be singing a different toon.

I don't own REITs either. Nor do I view myself as a "hustler".
So I did own one of my rental properties during the crash (I bought in Feb 2008) and it has still done very well while it had several years I couldn't sell it for close to what I bought. But for me at least a lot comes with being able to do some work yourselves. The roi in rentals had been good. All 3 properties we don't hit the IRS rec 250 hours a year. But it is stressful in a way stocks are not as I work to get another renter in and the house turned again. Was hoping we would get multi years out of the last tenants but didn't

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Re: Why are you NOT buying rental properties?

Post by shell921 » Fri Jun 14, 2019 1:34 pm

Decades ago we had 2 condos and a house that we rented. We had more bad luck than good regarding tenants. None of them
took excellent care of the rentals. We got disgusted with having to make repairs and deal with clueless tenants.
:x

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Re: Why are your NOT buying rental properties?

Post by HomerJ » Fri Jun 14, 2019 2:11 pm

JGoneRiding wrote:
Fri Jun 14, 2019 1:19 pm
But for me at least a lot comes with being able to do some work yourselves. The roi in rentals had been good.
Technically, that's like saying the ROI in my normal job has been good.

I would not be interested in real estate if I had to do any of the work on the units myself to get a decent return.

I already have two homes I have to maintain for myself (three if you count when my daughter calls me to come over to help her clean out the gutters or chainsaw up some fallen limbs at HER house)
The J stands for Jay

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Re: Why are your NOT buying rental properties?

Post by stoptothink » Fri Jun 14, 2019 2:25 pm

GCD wrote:
Thu Jun 13, 2019 9:59 am
cherijoh wrote:
Thu Jun 13, 2019 9:14 am
tomtoms wrote:
Wed Jan 16, 2019 4:57 pm
Trashy tenants: Buy in a good neighborhood. Trashy people can’t afford to live in a good neighborhood. A good property manager should be able to screen them out (credit history, income verification, eviction history). Of course there is no guarantee but there are ways to reduce your risk.
Deadbeat does not necessarily equal "trashy". Apparently well-off individuals can also be living paycheck-to-paycheck and still have a good credit score and no prior evictions. All it takes is for the economy to head south and your tenant to lose his/her job. (Which I expect you haven't lived through yet as a landlord). The balance between tenant and landlord rights is highly dependent on local regulations. A non-paying tenant can tie you up for months, especially if you live somewhere where it is difficult to evict tenants.
Back during the housing crash I lived in the East Bay suburbs of San Francisco. It was a nice neighborhood of, at the time, $900K+ houses. My next door neighbor was a married couple with kids. Husband was an engineer and wife was a realtor. They drove a Mercedes and an Escalade. I don't know the details, but they got foreclosed on. When they moved out they destroyed the house. They ripped every appliance out and other things like chandeliers. They even had the gall to ask me if I wanted to buy any of the appliances!
My brother is an oil & gas contractor. For some unknown reason he bought a really high-end home in the Rock Springs, Wyoming area when he was there for 2yrs. I'm talking a ~$650k+, 5,000+ sq. ft on an acre, mcmansion...in Wyoming. They lived in it for less than a year before he got moved onto the next contract in Colorado. They've been renting it for the last 4yrs. The renters have all been $200k+/yr HHI people, and he has either had to evict or sue for back rent or stealing/destroying of property every single one of them. It's been a total nightmare for him and the home is worth less today then when he bought it.

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Re: Why are you NOT buying rental properties?

Post by Rus In Urbe » Fri Jun 14, 2019 2:54 pm

What a weird question.

I'm not buying rental properties because I prefer to let my little dollars be out there cloning themselves, 24/7 for 365-6, while I relax.

Real estate. Ugh. Not for me.
I'd like to live as a poor man with lots of money. ~Pablo Picasso

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Re: Why are you NOT buying rental properties?

Post by Meaty » Fri Jun 14, 2019 4:01 pm

I’ve looked at it several times but I can never make the numbers work. Additionally, I realize it’s a business and the fact that I have zero experience doing it. Generally it’s not a good idea to start a business you know nothing about
"Discipline equals Freedom" - Jocko Willink

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Re: Why are your NOT buying rental properties?

Post by LadyIJ » Fri Jun 14, 2019 4:41 pm

munemaker wrote:
Wed Jan 16, 2019 2:56 pm
I don't want to do any work or deal with people.

I prefer passive income from investments where I don't have to do anything.
Second that - don't want to deal with people - we had rentals that went very well for a number of years, but then we ran into some bad tenants - tenants have more rights than the owners when trying to get rid of a bad tenant. Then, IF, you want to get out, and not buy another property (or "like kind" property) there are the tax considerations as well. I would much rather invest in the market (but that's just me).

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Re: Why are you NOT buying rental properties?

Post by playtothebeat » Fri Jun 14, 2019 5:24 pm

This is no different of a question than someone asking "Why aren't you selling things on ebay?" or "why don't you own a Subway franchise?". Some people will swear by their approach. Others prefer to just stick to the market and keep things simple. Neither is correct, but works for those individual people.

I work in commercial real estate lending and can write a novel about why or why not one should invest in real estate (at least commercial, including apartments)

quantAndHold
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Re: Why are you NOT buying rental properties?

Post by quantAndHold » Fri Jun 14, 2019 7:55 pm

I’m looking in the 4-8 unit space, and I have not bought anything because every time I’ve looked for a place, #1 is exactly what I found. I continue to look, but I’m not going to buy a bad investment.
Sandtrap wrote:
Thu Jun 13, 2019 11:29 am
Specifically regarding apartment buildings 12 units or larger.
Now is not a good time:
Why?
1
Grossly overvalued multi unit housing.
2012 was the last of the "low hanging fruit" for investors.
Of course there are always bargains, relatively speaking, to be had, but not like 2010-12, etc.
Patience.
Wait for the R/E cycle to come around.
2
Landlord tenant codes, Fed ADA codes have changed, Fed ADA codes on "service animals" have changed, "Bed bug" liabilities have changed, Tenants are more litigious than in the past.
3
In the previous decades it was a bit easier to maintain a high CAP rate. Now, because of the above, not always so.

Till then.
Bogle Onward.
j

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Re: Why are your NOT buying rental properties?

Post by AKsuited » Sat Jun 15, 2019 12:08 am

LadyIJ wrote:
Fri Jun 14, 2019 4:41 pm
munemaker wrote:
Wed Jan 16, 2019 2:56 pm
I don't want to do any work or deal with people.

I prefer passive income from investments where I don't have to do anything.
Second that - don't want to deal with people - we had rentals that went very well for a number of years, but then we ran into some bad tenants - tenants have more rights than the owners when trying to get rid of a bad tenant. Then, IF, you want to get out, and not buy another property (or "like kind" property) there are the tax considerations as well. I would much rather invest in the market (but that's just me).
Third this - I have two rentals that I currently own. Both are cash flow positive and both have good tenants but there are risks involve and some delay maintenance that needs to be done. One of my homes needs a new fence which is costing ~$700; equal to about 3 months of cash flow. Another will require ~ 5-10K plastering work for the pool. The low hanging fruit gains have already been made; I don't see real estate gaining 100% as it did from 2011- now.

The market is volatile but overall it is much easier and less headaches than owning real estate. We are looking at selling one of them, older one with the pool and just stick it into equities/CDs.

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Re: Why are you NOT buying rental properties?

Post by CurlyDave » Sat Jun 15, 2019 1:01 am

willthrill81 wrote:
Thu Jun 13, 2019 10:04 am
Rental properties are a part-time job that could become a full-time job. No thanks.
As a retired old geezer, this is what I love about rentals.

And, as I got older, I loved it while I was still working.

One of the pieces of advice I consistently read is that a very good way to stretch your retirement dollars is to get a part time job. Well, this is also a great way to stretch your EF while working.

Yup, done right rentals are a part time job. BUT, they are a part time job where I am the boss, where I can't be fired, and where I have a lot of leeway to set my own hours. And, the hourly pay beats the stuffing out of most of the part time jobs available to retired people.

I have a retired acquaintance who just took a part-time job at Home Depot. He works ~20 hours a week and grosses less than $300. Plus he is on his feet for most of those 20 hours on a hard concrete floor. Me, I work fewer hours, make more money, and have a lot less stress. And, 98% of the people I meet call me "sir". Tenants, suppliers, tradesmen -- they all want to stay on my good side.

While I was working, having a few rentals meant that I was pretty close to layoff proof. Which made my day job a lot more fun. I could respectfully decline bad assignments, I could state my opinions without fear, and I could insist on ethical standards in everything I did. This made me more valuable to the company. I got raises and higher pay, plus better working conditions.

* * * * * * * * * * * * * * * *

We all accept the value of diversification in our financial capital, but when it comes to our human capital too many of us reject diversification out of hand. I welcomed the fact that I had two very different jobs, one in my spare time and a regular one.

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Re: Why are you NOT buying rental properties?

Post by CurlyDave » Sat Jun 15, 2019 1:03 am

CurlyDave wrote:
Sat Jun 15, 2019 1:01 am
willthrill81 wrote:
Thu Jun 13, 2019 10:04 am
Rental properties are a part-time job that could become a full-time job. No thanks.
As a retired old geezer, this is what I love about rentals.

And, as I got older, I loved it while I was still working.

One of the pieces of advice I consistently read is that a very good way to stretch your retirement dollars is to get a part time job. Well, this is also a great way to stretch your EF while working. And yet we criticize rentals for being a part time job.

Yup, done right rentals are a part time job. BUT, they are a part time job where I am the boss, where I can't be fired, and where I have a lot of leeway to set my own hours. And, the hourly pay beats the stuffing out of most of the part time jobs available to retired people.

I have a retired acquaintance who just took a part-time job at Home Depot. He works ~20 hours a week and grosses less than $300. Plus he is on his feet for most of those 20 hours on a hard concrete floor. Me, I work fewer hours, make more money, and have a lot less stress. And, 98% of the people I meet call me "sir". Tenants, suppliers, tradesmen -- they all want to stay on my good side.

While I was working, having a few rentals meant that I was pretty close to layoff proof. Which made my day job a lot more fun. I could respectfully decline bad assignments, I could state my opinions without fear, and I could insist on ethical standards in everything I did. This made me more valuable to the company. I got raises and higher pay, plus better working conditions.

* * * * * * * * * * * * * * * *

We all accept the value of diversification in our financial capital, but when it comes to our human capital too many of us reject diversification out of hand. I welcomed the fact that I had two very different jobs, one in my spare time and a regular one.

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Re: Why are you NOT buying rental properties?

Post by HomerJ » Sat Jun 15, 2019 1:29 am

CurlyDave wrote:
Sat Jun 15, 2019 1:01 am
willthrill81 wrote:
Thu Jun 13, 2019 10:04 am
Rental properties are a part-time job that could become a full-time job. No thanks.
As a retired old geezer, this is what I love about rentals.

And, as I got older, I loved it while I was still working.

One of the pieces of advice I consistently read is that a very good way to stretch your retirement dollars is to get a part time job. Well, this is also a great way to stretch your EF while working.

Yup, done right rentals are a part time job. BUT, they are a part time job where I am the boss, where I can't be fired, and where I have a lot of leeway to set my own hours. And, the hourly pay beats the stuffing out of most of the part time jobs available to retired people.

I have a retired acquaintance who just took a part-time job at Home Depot. He works ~20 hours a week and grosses less than $300. Plus he is on his feet for most of those 20 hours on a hard concrete floor. Me, I work fewer hours, make more money, and have a lot less stress. And, 98% of the people I meet call me "sir". Tenants, suppliers, tradesmen -- they all want to stay on my good side.

While I was working, having a few rentals meant that I was pretty close to layoff proof. Which made my day job a lot more fun. I could respectfully decline bad assignments, I could state my opinions without fear, and I could insist on ethical standards in everything I did. This made me more valuable to the company. I got raises and higher pay, plus better working conditions.

* * * * * * * * * * * * * * * *

We all accept the value of diversification in our financial capital, but when it comes to our human capital too many of us reject diversification out of hand. I welcomed the fact that I had two very different jobs, one in my spare time and a regular one.
Yep, this indeed might be a decent part-time job in retirement.

While I'm already working a full-time job however, no thanks to a second part-time job.
The J stands for Jay

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Re: Why are you NOT buying rental properties?

Post by FIREchief » Sat Jun 15, 2019 3:21 pm

HomerJ wrote:
Sat Jun 15, 2019 1:29 am
CurlyDave wrote:
Sat Jun 15, 2019 1:01 am
As a retired old geezer, this is what I love about rentals.

And, as I got older, I loved it while I was still working.

One of the pieces of advice I consistently read is that a very good way to stretch your retirement dollars is to get a part time job. Well, this is also a great way to stretch your EF while working.
Yep, this indeed might be a decent part-time job in retirement.

While I'm already working a full-time job however, no thanks to a second part-time job.
If retirement requires a part-time job, I would question if "retirement" is the correct word. I certainly agree with HomerJ about not having a part-time job while already working a full-time job. If it came down to quit full time job but manage rentals vs. keep working full-time job, I would take the later.
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

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Re: Why are you NOT buying rental properties?

Post by tadamsmar » Sat Jun 15, 2019 3:43 pm

I was a landlord.

There were lots of repairs and renovations. Your OP was nowhere near a proper accounting of the return and risks of being a landlord.

There is exposure to liability and negligence claims. I have never met a landlord who consistently followed building codes and other regulations and obtained all the required building permits when doing repairs and renovations. Are you sure that you are doing all that? (In stock ownership, your losses are limited to what you paid for the stock.)

It's harder to hold on to the property to give your heirs a stepped-up basis. You typically need a younger family member to take over the business in your final years. Easier to hold onto a taxable account.

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tomtoms
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Re: Why are you NOT buying rental properties?

Post by tomtoms » Sat Jun 15, 2019 6:25 pm

Wiggums wrote:
Wed Jun 12, 2019 7:53 pm
I like passive investing and spending time with the family much more.
If you like to spend time with the family then you should own rental properties. Several of my relatives are working just 3 or 4 days a week. They have enough money to take it easy.

Look, I am not saying everyone should own rental properties. I am also not saying every neighborhood is a good rental market. You have to do your homework. Is it hard? Not really but then I come from a family with a strong business background. I own a business and more importantly, I am motivated and I enjoy learning new things. That is probably why I am a good fit for real estate.

I started this thread because so many people on this forum do not have personal experience with rental properties. I am not talking about buying a primary residence or a vacation house and then later renting it out. I am talking about buying a property solely for the purpose of renting it out and making money. Big difference.

This is my back of the napkin approach. Feel free to provide feedbacks/questions:

(1) Find an up and coming neighborhood.
(2) Look at 100 houses before buying. I like going to open house so I can talk to the listing agent and get the latest information.
(3) Crunch the numbers and make sure they make sense. Remember, you are buying a rental property for the average Joe.
(4) Form a team: a reliable and honest property manager (+ handyman), mortgage guy, home inspector.
(5) Buy below market value.
(6) Play the long game (10+ years)

If you want to take a shortcut, then find a good mentor. Learn from him/her and use his team. Does it take time? Sure but so is working at your 9-5 job. If you think going to an open house is "hard work" then real estate investing is not for you (and there is nothing wrong with that).

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Re: Why are you NOT buying rental properties?

Post by willthrill81 » Sat Jun 15, 2019 6:39 pm

tomtoms wrote:
Sat Jun 15, 2019 6:25 pm
(5) Buy below market value.
I don't think that's been possible for at least a couple of years in our area. Houses are on the market for days, sometimes hours, and are regularly bought with cash and no contingencies, not even an inspection. Rents are increasing but certainly not at the same pace as property appreciation; most single-family homes are renting monthly for about .6% of their value.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: Why are you NOT buying rental properties?

Post by quantAndHold » Sat Jun 15, 2019 6:46 pm

willthrill81 wrote:
Sat Jun 15, 2019 6:39 pm
tomtoms wrote:
Sat Jun 15, 2019 6:25 pm
(5) Buy below market value.
I don't think that's been possible for at least a couple of years in our area. Houses are on the market for days, sometimes hours, and are regularly bought with cash and no contingencies, not even an inspection. Rents are increasing but certainly not at the same pace as property appreciation; most single-family homes are renting monthly for about .6% of their value.
At this point I would feel lucky to find anyplace with a 1% cap rate. No thanks. I don’t need to pay for a job.

smitcat
Posts: 3451
Joined: Mon Nov 07, 2016 10:51 am

Re: Why are you NOT buying rental properties?

Post by smitcat » Sat Jun 15, 2019 6:47 pm

willthrill81 wrote:
Sat Jun 15, 2019 6:39 pm
tomtoms wrote:
Sat Jun 15, 2019 6:25 pm
(5) Buy below market value.
I don't think that's been possible for at least a couple of years in our area. Houses are on the market for days, sometimes hours, and are regularly bought with cash and no contingencies, not even an inspection. Rents are increasing but certainly not at the same pace as property appreciation; most single-family homes are renting monthly for about .6% of their value.
In general all you need to do is wait - the cycle always repeats itself.

Topic Author
tomtoms
Posts: 141
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Re: Why are you NOT buying rental properties?

Post by tomtoms » Sat Jun 15, 2019 6:48 pm

willthrill81 wrote:
Sat Jun 15, 2019 6:39 pm
tomtoms wrote:
Sat Jun 15, 2019 6:25 pm
(5) Buy below market value.
I don't think that's been possible for at least a couple of years in our area. Houses are on the market for days, sometimes hours, and are regularly bought with cash and no contingencies, not even an inspection. Rents are increasing but certainly not at the same pace as property appreciation; most single-family homes are renting monthly for about .6% of their value.
Buying at below market is important because if it dropped 10%, then you are still good. Of course, I am not predicting 10% drop but this would cover your risk. People are buying with all cash = less risk for depreciation + more stable market if there is a downturn + rent is going up.

Starfish
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Re: Why are you NOT buying rental properties?

Post by Starfish » Sat Jun 15, 2019 7:21 pm

smitcat wrote:
Sat Jun 15, 2019 6:47 pm
willthrill81 wrote:
Sat Jun 15, 2019 6:39 pm
tomtoms wrote:
Sat Jun 15, 2019 6:25 pm
(5) Buy below market value.
I don't think that's been possible for at least a couple of years in our area. Houses are on the market for days, sometimes hours, and are regularly bought with cash and no contingencies, not even an inspection. Rents are increasing but certainly not at the same pace as property appreciation; most single-family homes are renting monthly for about .6% of their value.
In general all you need to do is wait - the cycle always repeats itself.
What cycle?
My area is exactly as Wilthrill81 describes and there no cycle ever. There were some very short small blips, at most.

Topic Author
tomtoms
Posts: 141
Joined: Wed Mar 06, 2013 11:56 pm

Re: Why are you NOT buying rental properties?

Post by tomtoms » Sat Jun 15, 2019 7:26 pm

Starfish wrote:
Sat Jun 15, 2019 7:21 pm
smitcat wrote:
Sat Jun 15, 2019 6:47 pm
willthrill81 wrote:
Sat Jun 15, 2019 6:39 pm
tomtoms wrote:
Sat Jun 15, 2019 6:25 pm
(5) Buy below market value.
I don't think that's been possible for at least a couple of years in our area. Houses are on the market for days, sometimes hours, and are regularly bought with cash and no contingencies, not even an inspection. Rents are increasing but certainly not at the same pace as property appreciation; most single-family homes are renting monthly for about .6% of their value.
In general all you need to do is wait - the cycle always repeats itself.
What cycle?
My area is exactly as Wilthrill81 describes and there no cycle ever. There were some very short small blips, at most.
Most people can’t predict the stock market cycle. It is even harder to predict the real estate cycle.

I don’t try to predict any cycle. I buy and hold for 20+ years. A blip here and there is not going to make a big difference in the long run. I make just sure to reserve > 20-25% of rent money for maintenance cost and vacancy. If it does not give me this kind of cash flow, then I am not buying.

samstar
Posts: 34
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Re: Why are you NOT buying rental properties?

Post by samstar » Sat Jun 15, 2019 10:55 pm

Rentals really only work if you have a lot of cheap leverage and get price appreciation.
I’ve put it in a spreadsheet many times and it’s very hard to get the math to work out where rentals are more favorable than REITs.

AerialWombat
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Re: Why are you NOT buying rental properties?

Post by AerialWombat » Sat Jun 15, 2019 11:28 pm

samstar wrote:
Sat Jun 15, 2019 10:55 pm
Rentals really only work if you have a lot of cheap leverage and get price appreciation.
Appreciation most certainly is not necessary. The internal rate of return (IRR) from debt paydown alone (paid by tenants) is roughly 10% per year when you buy with 5% down on a 30 year loan. That’s even ignoring appreciation, tax benefit, and cash flow.
“Life doesn’t come with a warranty.” -Michael LeBoeuf

smitcat
Posts: 3451
Joined: Mon Nov 07, 2016 10:51 am

Re: Why are you NOT buying rental properties?

Post by smitcat » Sun Jun 16, 2019 6:27 am

Starfish wrote:
Sat Jun 15, 2019 7:21 pm
smitcat wrote:
Sat Jun 15, 2019 6:47 pm
willthrill81 wrote:
Sat Jun 15, 2019 6:39 pm
tomtoms wrote:
Sat Jun 15, 2019 6:25 pm
(5) Buy below market value.
I don't think that's been possible for at least a couple of years in our area. Houses are on the market for days, sometimes hours, and are regularly bought with cash and no contingencies, not even an inspection. Rents are increasing but certainly not at the same pace as property appreciation; most single-family homes are renting monthly for about .6% of their value.
In general all you need to do is wait - the cycle always repeats itself.
What cycle?
My area is exactly as Wilthrill81 describes and there no cycle ever. There were some very short small blips, at most.
Every area I have seen has a cycle ….

jb1
Posts: 275
Joined: Sun Nov 27, 2016 8:33 am
Location: NC

Re: Why are you NOT buying rental properties?

Post by jb1 » Sun Jun 16, 2019 7:52 am

I bought a 3 bed 2 bath home last year for 190k. I am unsure of the current value now, but I am in a coastal NC city with a college 5 miles away.

I live in one room and rent out the other 2 to my friends. They both pay enough to cover the PITI of 1200 per month, so essentially minus utilities I am living for free.

Fingers crossed so far as nothing has gone wrong yet. I will admit I wanted to be a RE mogul, buying multiple properties, but damn there really are a lot of dumb people out there.

I don’t know how long I plan to live here, but I’d like to purchase another place soon, rent the current one out, rinse and repeat.

I’m also 28, single, so would be different if I was married loving with roommates.

BV3273
Posts: 260
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Re: Why are you NOT buying rental properties?

Post by BV3273 » Sun Jun 16, 2019 8:01 am

A. I can’t afford to
B. I have no interest in being a landlord

I feel kind of stupid saying I would not want to own a rental property if and when I have means to. There seems to be many people who love doing it and love the rewards that come with it. Financial Samurai, Rich Dad Poor Dad, etc...The truth of it is that I don’t know enough about the process of finding/keeping tenants and the horror stories seem to be endless. I don’t want to own an investment that I’m not 110% educated on. I’d rather just own a REIT.

The only way I’d own a rental property would be if it was down the shore somewhere where I could rent it shorty term and use it myself.

DrivingFun
Posts: 245
Joined: Wed Sep 19, 2007 6:12 pm

Re: Why are you NOT buying rental properties?

Post by DrivingFun » Sun Jun 16, 2019 8:09 am

It's such a polarizing topic, with so many different experiences. It seems to me that there isn't a singular "rentals". In other words there are so many variables, that it's a completely different game for most players and cannot be compared one to another. Two of my best friends own rentals here in Maryland. Neither is making a lot of money. Both own condos, one in a slightly more upscale area, one in a more depressed area. Accounting for the upkeep cost, management company, there isn't that much profit there. One of them just went through months of no payment and court battles. He's out about 4 months worth of rent because the tenant wouldn't pay.

To some it's a golden goose, if you still feel that it is after a decade, after surviving a recession or two, a housing market crash, etc. Then congrats, you won the game and you're likely the smartest (or luckiest) man in the room.

randomguy
Posts: 7686
Joined: Wed Sep 17, 2014 9:00 am

Re: Why are you NOT buying rental properties?

Post by randomguy » Sun Jun 16, 2019 8:18 am

smitcat wrote:
Sun Jun 16, 2019 6:27 am
Starfish wrote:
Sat Jun 15, 2019 7:21 pm
smitcat wrote:
Sat Jun 15, 2019 6:47 pm
willthrill81 wrote:
Sat Jun 15, 2019 6:39 pm
tomtoms wrote:
Sat Jun 15, 2019 6:25 pm
(5) Buy below market value.
I don't think that's been possible for at least a couple of years in our area. Houses are on the market for days, sometimes hours, and are regularly bought with cash and no contingencies, not even an inspection. Rents are increasing but certainly not at the same pace as property appreciation; most single-family homes are renting monthly for about .6% of their value.
In general all you need to do is wait - the cycle always repeats itself.
What cycle?
My area is exactly as Wilthrill81 describes and there no cycle ever. There were some very short small blips, at most.
Every area I have seen has a cycle ….
Yes but the cycle could be like 20+ years. I am sure NYC will hit a down patch like the 70s eventually.

Rental markets are really local. Live in NYC/SFO, you need a crapload of money(say 150k+) to buy anything with in an hour of your house AND they probably aren't cash flow positive on day 1. Live in some Midwestern city and you can start with 20k. Much different. You also have to think about your time and flexibility. Taking a new job 1000 miles from your rentals is suboptimal. You can work around just about any issue but it can be a pain.

It is really hard to know how good most people do with rentals. Selling the landlord dream seems to be much more profitable than actually doing it.😁 I know people who both have done really well AND quit the game cause they weren't making enough money for the work they were doing.

pepperz
Posts: 306
Joined: Sun Jan 24, 2016 7:13 pm

Re: Why are you NOT buying rental properties?

Post by pepperz » Sun Jun 16, 2019 8:28 am

@Sandtrap- I know you have experience in both Bogleheads portfolios *and* RE investing and would love your opinion on this... if I as a Boglehead was interested in getting into multi family investing (apartment buildings) and following your “patience” advice below, would you recommend I save my future investment capital in cash or investing it in the market for now and selling whenever it’s “time” to make a move?

I’m sure a case could be made for both but I’d like to hear what you personally practice around this.


Sandtrap wrote:
Thu Jun 13, 2019 11:29 am
Specifically regarding apartment buildings 12 units or larger.
Now is not a good time:
Why?
1
Grossly overvalued multi unit housing.
2012 was the last of the "low hanging fruit" for investors.
Of course there are always bargains, relatively speaking, to be had, but not like 2010-12, etc.
Patience.
Wait for the R/E cycle to come around.

uberdoc
Posts: 111
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Re: Why are you NOT buying rental properties?

Post by uberdoc » Sun Jun 16, 2019 8:33 am

Can’t say about others but as a physician I have no interest in doing business with live humans again. I already have enough headaches.

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Re: Why are you NOT buying rental properties?

Post by abuss368 » Sun Jun 16, 2019 8:35 am

samstar wrote:
Sat Jun 15, 2019 10:55 pm
Rentals really only work if you have a lot of cheap leverage and get price appreciation.
I’ve put it in a spreadsheet many times and it’s very hard to get the math to work out where rentals are more favorable than REITs.
:sharebeer
John C. Bogle: "You simply do not need to put your money into 8 different mutual funds!" | | Disclosure: Three Fund Portfolio + U.S. & International REITs

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Sandtrap
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Location: Hawaii😀 Northern AZ.😳 Retired.

Re: Why are you NOT buying rental properties?

Post by Sandtrap » Sun Jun 16, 2019 8:42 am

pepperz wrote:
Sun Jun 16, 2019 8:28 am
@Sandtrap- I know you have experience in both Bogleheads portfolios *and* RE investing and would love your opinion on this... if I as a Boglehead was interested in getting into multi family investing (apartment buildings) and following your “patience” advice below, would you recommend I save my future investment capital in cash or investing it in the market for now and selling whenever it’s “time” to make a move?

I’m sure a case could be made for both but I’d like to hear what you personally practice around this.


Sandtrap wrote:
Thu Jun 13, 2019 11:29 am
Specifically regarding apartment buildings 12 units or larger.
Now is not a good time:
Why?
1
Grossly overvalued multi unit housing.
2012 was the last of the "low hanging fruit" for investors.
Of course there are always bargains, relatively speaking, to be had, but not like 2010-12, etc.
Patience.
Wait for the R/E cycle to come around.
Thanks for the compliment.
I'm not sure of your financial situation, but, there are things that I've done no matter the R/E market condition.
1.
Always have accessible working capital. Even if the R/E market is grossly overvalued as it is now, there's always low hanging fruit to be pounced on. A bank auction, foreclosure, deal that fell out of escrow, etc. And, these deals have to be pounced on in the lst 24 hours , or first hour of the listing coming out. So credit and downpayment or such has to be "immediately available".

2.
You really have to know your niche market and the areas. I'm on zillow and other sites constantly and know what's for sale, what's new, and what's selling, and why, and. . . what not to buy. In this, over time, you'll get a sense of the area trend. What rents are doing, and so forth. New apartments being built. Where. For example: I bought a townhouse on a foreclosure 8 years ago. Great view. End of the development, Privacy, end unit, high on a hill. How was I to know that 8 years later a monster senior care facility was going to be built in front of it. Drat! Fortunately it is worth double now and rents are still great.

3
The R/E market continues to rise in the hot areas. And, likely for good reason, growing local economy, demand for more housing, etc. So, whether to buy in now or not, is a tough one. It's no different than the market in that way. But, again, a great deal is a great deal if you can find it.

4
There has to be a "deep pocket" thing. My mom used to call it "staying power". You have to have the ability and great desire to do what it takes to hang on to something thru ups and downs knowing that if you bought wisely that property appreciation values will catch up.

5
And you have to be flexible. Lower rents and lower tenant expectations when the market demands it to keep your unit at 100% occupancy. And, then raise accordingly. Rent at 80-90% less than curb because then tenants have incentive to stay forever and then there are lower reno costs between tenants and also repairs which seem to happen with turnover. Imagine nickel and diming to optimize rent for an extra 50 dollars whereas 2 months vacant might be 2k lost. That's dime focus and dollar foolish.

Regional and local R/E valuations are so touchy and quirky now that I can't answer your question because it depends where. In a hot area like some up areas in HCOL or UHCOL areas, then it might be great, down the block from that, maybe not so. You have to really really know your areas and streets and what is what. Like a farmer really knows his fruit and orchard.

Good luck.
j

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willthrill81
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Location: USA

Re: Why are you NOT buying rental properties?

Post by willthrill81 » Sun Jun 16, 2019 8:59 am

quantAndHold wrote:
Sat Jun 15, 2019 6:46 pm
willthrill81 wrote:
Sat Jun 15, 2019 6:39 pm
tomtoms wrote:
Sat Jun 15, 2019 6:25 pm
(5) Buy below market value.
I don't think that's been possible for at least a couple of years in our area. Houses are on the market for days, sometimes hours, and are regularly bought with cash and no contingencies, not even an inspection. Rents are increasing but certainly not at the same pace as property appreciation; most single-family homes are renting monthly for about .6% of their value.
At this point I would feel lucky to find anyplace with a 1% cap rate. No thanks. I don’t need to pay for a job.
You can nearly always buy a property and make it cash flow if your down payment is large enough. But to do that in our area, you'd need at least 40% down, and which would work out to at least $100k for a property that I would be alright being a landlord for. That's a lot of cash, especially for just one property, and it's hard for me to justify that when we can already achieve a 50% savings rate and put literally all of it in tax-advantaged accounts.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

pepperz
Posts: 306
Joined: Sun Jan 24, 2016 7:13 pm

Re: Why are you NOT buying rental properties?

Post by pepperz » Sun Jun 16, 2019 9:02 am

Thank you for those best practices. They are very much appreciated!

I know I want to get into commercial multi family (not residential) and am totally fine waiting patiently for interest rates to rise, cap rates to go up (which makes it favorable for current owners whose loan is about to mature to sell), etc.

I just hate the idea of sitting on cash for 5-7 years knowing it could take that long for things to be favorable. I’d rather just invest in the market and sell when the time is right in order to invest in RE... but of course the RE and Stock markets might be correlated and go down together.

Sandtrap wrote:
Sun Jun 16, 2019 8:42 am
pepperz wrote:
Sun Jun 16, 2019 8:28 am
@Sandtrap- I know you have experience in both Bogleheads portfolios *and* RE investing and would love your opinion on this... if I as a Boglehead was interested in getting into multi family investing (apartment buildings) and following your “patience” advice below, would you recommend I save my future investment capital in cash or investing it in the market for now and selling whenever it’s “time” to make a move?

I’m sure a case could be made for both but I’d like to hear what you personally practice around this.


Sandtrap wrote:
Thu Jun 13, 2019 11:29 am
Specifically regarding apartment buildings 12 units or larger.
Now is not a good time:
Why?
1
Grossly overvalued multi unit housing.
2012 was the last of the "low hanging fruit" for investors.
Of course there are always bargains, relatively speaking, to be had, but not like 2010-12, etc.
Patience.
Wait for the R/E cycle to come around.
Thanks for the compliment.
I'm not sure of your financial situation, but, there are things that I've done no matter the R/E market condition.
1.
Always have accessible working capital. Even if the R/E market is grossly overvalued as it is now, there's always low hanging fruit to be pounced on. A bank auction, foreclosure, deal that fell out of escrow, etc. And, these deals have to be pounced on in the lst 24 hours , or first hour of the listing coming out. So credit and downpayment or such has to be "immediately available".

2.
You really have to know your niche market and the areas. I'm on zillow and other sites constantly and know what's for sale, what's new, and what's selling, and why, and. . . what not to buy. In this, over time, you'll get a sense of the area trend. What rents are doing, and so forth. New apartments being built. Where. For example: I bought a townhouse on a foreclosure 8 years ago. Great view. End of the development, Privacy, end unit, high on a hill. How was I to know that 8 years later a monster senior care facility was going to be built in front of it. Drat! Fortunately it is worth double now and rents are still great.

3
The R/E market continues to rise in the hot areas. And, likely for good reason, growing local economy, demand for more housing, etc. So, whether to buy in now or not, is a tough one. It's no different than the market in that way. But, again, a great deal is a great deal if you can find it.

4
There has to be a "deep pocket" thing. My mom used to call it "staying power". You have to have the ability and great desire to do what it takes to hang on to something thru ups and downs knowing that if you bought wisely that property appreciation values will catch up.

5
And you have to be flexible. Lower rents and lower tenant expectations when the market demands it to keep your unit at 100% occupancy. And, then raise accordingly. Rent at 80-90% less than curb because then tenants have incentive to stay forever and then there are lower reno costs between tenants and also repairs which seem to happen with turnover. Imagine nickel and diming to optimize rent for an extra 50 dollars whereas 2 months vacant might be 2k lost. That's dime focus and dollar foolish.

Regional and local R/E valuations are so touchy and quirky now that I can't answer your question because it depends where. In a hot area like some up areas in HCOL or UHCOL areas, then it might be great, down the block from that, maybe not so. You have to really really know your areas and streets and what is what. Like a farmer really knows his fruit and orchard.

Good luck.
j

FI4LIFE
Posts: 68
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Re: Why are you NOT buying rental properties?

Post by FI4LIFE » Sun Jun 16, 2019 9:08 am

I read about real estate investing for fun but every time I evaluate a property, the numbers don't work out vs. index investing where I can just sit at a computer for two minutes and push a button. I am not in a good rental market. Properties that meet the 1% rule are in "war zones" with an impoverished tenant pool that I would not want to deal with.

Some friends have bought rental properties and say that landlording is relatively easy. I think a lot of the horror stories you hear are from people who do not properly screen tenants or who do not keep their properties up enough to attract quality tenants.

User avatar
Sandtrap
Posts: 6810
Joined: Sat Nov 26, 2016 6:32 pm
Location: Hawaii😀 Northern AZ.😳 Retired.

Re: Why are you NOT buying rental properties?

Post by Sandtrap » Sun Jun 16, 2019 9:51 am

IMHO commercial multi family, apartments, optimize everything that can be good about the business.

You simply can't predict 5-7 years or such. There might be an estate sale where an owner passed away and the beneficiaries want their money and don't care if it's a fire sale. They just want out.
Or, maybe a diamond in the rough and "normal" investors can't see the true value, and the owners are highly motivated and willing to sell, maybe "an agreement of sale" or what.

So, that's why the "Bogle" portfolio approach is the middle road. There's no comparison between the two. One simply wants to be in the R/E rental business and indeed it can be very very lucrative, but the again. . . it is a business.

j
pepperz wrote:
Sun Jun 16, 2019 9:02 am
Thank you for those best practices. They are very much appreciated!

I know I want to get into commercial multi family (not residential) and am totally fine waiting patiently for interest rates to rise, cap rates to go up (which makes it favorable for current owners whose loan is about to mature to sell), etc.

I just hate the idea of sitting on cash for 5-7 years knowing it could take that long for things to be favorable. I’d rather just invest in the market and sell when the time is right in order to invest in RE... but of course the RE and Stock markets might be correlated and go down together.

Sandtrap wrote:
Sun Jun 16, 2019 8:42 am
pepperz wrote:
Sun Jun 16, 2019 8:28 am
@Sandtrap- I know you have experience in both Bogleheads portfolios *and* RE investing and would love your opinion on this... if I as a Boglehead was interested in getting into multi family investing (apartment buildings) and following your “patience” advice below, would you recommend I save my future investment capital in cash or investing it in the market for now and selling whenever it’s “time” to make a move?

I’m sure a case could be made for both but I’d like to hear what you personally practice around this.


Sandtrap wrote:
Thu Jun 13, 2019 11:29 am
Specifically regarding apartment buildings 12 units or larger.
Now is not a good time:
Why?
1
Grossly overvalued multi unit housing.
2012 was the last of the "low hanging fruit" for investors.
Of course there are always bargains, relatively speaking, to be had, but not like 2010-12, etc.
Patience.
Wait for the R/E cycle to come around.
Thanks for the compliment.
I'm not sure of your financial situation, but, there are things that I've done no matter the R/E market condition.
1.
Always have accessible working capital. Even if the R/E market is grossly overvalued as it is now, there's always low hanging fruit to be pounced on. A bank auction, foreclosure, deal that fell out of escrow, etc. And, these deals have to be pounced on in the lst 24 hours , or first hour of the listing coming out. So credit and downpayment or such has to be "immediately available".

2.
You really have to know your niche market and the areas. I'm on zillow and other sites constantly and know what's for sale, what's new, and what's selling, and why, and. . . what not to buy. In this, over time, you'll get a sense of the area trend. What rents are doing, and so forth. New apartments being built. Where. For example: I bought a townhouse on a foreclosure 8 years ago. Great view. End of the development, Privacy, end unit, high on a hill. How was I to know that 8 years later a monster senior care facility was going to be built in front of it. Drat! Fortunately it is worth double now and rents are still great.

3
The R/E market continues to rise in the hot areas. And, likely for good reason, growing local economy, demand for more housing, etc. So, whether to buy in now or not, is a tough one. It's no different than the market in that way. But, again, a great deal is a great deal if you can find it.

4
There has to be a "deep pocket" thing. My mom used to call it "staying power". You have to have the ability and great desire to do what it takes to hang on to something thru ups and downs knowing that if you bought wisely that property appreciation values will catch up.

5
And you have to be flexible. Lower rents and lower tenant expectations when the market demands it to keep your unit at 100% occupancy. And, then raise accordingly. Rent at 80-90% less than curb because then tenants have incentive to stay forever and then there are lower reno costs between tenants and also repairs which seem to happen with turnover. Imagine nickel and diming to optimize rent for an extra 50 dollars whereas 2 months vacant might be 2k lost. That's dime focus and dollar foolish.

Regional and local R/E valuations are so touchy and quirky now that I can't answer your question because it depends where. In a hot area like some up areas in HCOL or UHCOL areas, then it might be great, down the block from that, maybe not so. You have to really really know your areas and streets and what is what. Like a farmer really knows his fruit and orchard.

Good luck.
j

samstar
Posts: 34
Joined: Wed Jul 25, 2018 12:34 am

Re: Why are you NOT buying rental properties?

Post by samstar » Sun Jun 16, 2019 10:36 am

Those with more experience, any thoughts on what you would do?
Condo in a HCOL with plenty of jobs nearby, near public transit, etc.
mkt value to annual gross rent is about 25x
Long term tenant (no hassles in many years) so rent is kept about 10% below market.
Ltv about 35% with a low 3% rate.
Cash flow plus debt pay down after all costs is somewhere around 2.5% of the equity value.
I suspect in hcol areas, this is what numbers would look like for a lot of people except for potentially having a higher ltv. I don’t really see how it works unless you assume reasonable appreciation.

mesaverde
Posts: 436
Joined: Wed May 02, 2007 4:14 pm

Re: Why are you NOT buying rental properties?

Post by mesaverde » Sun Jun 16, 2019 1:23 pm

samstar wrote:
Sun Jun 16, 2019 10:36 am
Those with more experience, any thoughts on what you would do?
Condo in a HCOL with plenty of jobs nearby, near public transit, etc.
mkt value to annual gross rent is about 25x
Long term tenant (no hassles in many years) so rent is kept about 10% below market.
Ltv about 35% with a low 3% rate.
Cash flow plus debt pay down after all costs is somewhere around 2.5% of the equity value.
I suspect in hcol areas, this is what numbers would look like for a lot of people except for potentially having a higher ltv. I don’t really see how it works unless you assume reasonable appreciation.
Are you sure the market value of the property is 25x annual gross rent? That does not seem right.
What you need to do is determine the CAP rate. It sounds like the Cap rate would be very low. Many won't bother with the hassle of a rental property if the cap rate is much below 10%. I recently sold a rental that had a cap rate of 5.5%... it was a former home & the numbers did not work for it to be a worthwhile rental.
"Learn from the past, live in the present, plan for the future"

samstar
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Re: Why are you NOT buying rental properties?

Post by samstar » Sun Jun 16, 2019 2:40 pm

mesaverde wrote:
Sun Jun 16, 2019 1:23 pm
samstar wrote:
Sun Jun 16, 2019 10:36 am
Those with more experience, any thoughts on what you would do?
Condo in a HCOL with plenty of jobs nearby, near public transit, etc.
mkt value to annual gross rent is about 25x
Long term tenant (no hassles in many years) so rent is kept about 10% below market.
Ltv about 35% with a low 3% rate.
Cash flow plus debt pay down after all costs is somewhere around 2.5% of the equity value.
I suspect in hcol areas, this is what numbers would look like for a lot of people except for potentially having a higher ltv. I don’t really see how it works unless you assume reasonable appreciation.
Are you sure the market value of the property is 25x annual gross rent? That does not seem right.
What you need to do is determine the CAP rate. It sounds like the Cap rate would be very low. Many won't bother with the hassle of a rental property if the cap rate is much below 10%. I recently sold a rental that had a cap rate of 5.5%... it was a former home & the numbers did not work for it to be a worthwhile rental.
Yeah, I’m fairly certain on the 25x. At full market rent, maybe it’s 22x. Condos in the area trade reasonably often without a lot of days on market, so it’s not too hard to know the market price. It’s also building in some conservatism from Zillow / Redfin prices for whatever those are worth. It’s vhcol area so that ratio is over 20x in most places.

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