Investment Rental Property

[wdnole]

Thinking about buying a home for investment/rental. Seems like a good time, not as good as a few years ago but there are still advantages.

Home prices have rebounded, this is a good/bad thing.... good because there are fewer prospective buyers that can afford a home, bad because of possible market price decline in coming years.

But since interest rates are still incredibly low, it seems pretty easy to get a decent profit after the purchase on a $1200 - 1400 per month rental, as long as you can do 20% down on the house.

I already have one rental property thats been working out ok for me (different situation though, was a defacto investment property).

Thoughts?

 

[Hayduke GW]

the wife and i own a rental property, but only because we bought it and then moved for my job a year and a half later.

it's great having someone else pay my mortgage along with an extra $400 a month. not looking forward to major repairs in the future (should be at least ten years) but planning on unloading it before then.

 

[runkpanole]

I hated being a landlord with an absolute passion.

 

[sloth43]

I hated being a landlord with an absolute passion.

Property Management company FTW

 

[runkpanole]

Property Management company FTW

Well, I was losing about $500 a month, so property management wasn't really an option. That being said, that would be the way I would go if I was not losing my shirt on the deal.

 

[OrlandNole]

Property Management company FTW

We went through a property management company when we rented our FL home after moving to TN.

They charged us $500 up front and 10% a month to basically collect the rent. They didn't "manage" anything. To wit: under their watch, the tenant smoked in the house ($2,000 to repaint) and hacked the spinkler system, killing the lawn ($1,000 to re-sod). Never again.

 

[Lemon Thrower]

as a rule of thumb, it makes sense if your monthly rent you can get is at least 1% of the purchase price.

so if you pay $200K for the property but only getting $1400/mo rent, that's not good, but if you pay $120K and get $1200 a month its a good deal, especially if you think the property or the rents will appreciate.

 

[seminoleed]

Own 6, all bought at forceclosures. Banks and mortgage companies were always willing to swing a deal to get their REO's off the books.
Only had 3 bad experiences in 30+ years of owning them; all but 1 are now paid off, and the retirement nest is looking better every month.

 

[wdnole]

Own 6, all bought at forceclosures. Banks and mortgage companies were always willing to swing a deal to get their REO's off the books.
Only had 3 bad experiences in 30+ years of owning them; all but 1 are now paid off, and the retirement nest is looking better every month.

So in your opinion, is now a good, bad or average time to buy as an investment?

 

[NoleandDawg]

I bought 6 when the market tanked 5 or six years ago. They can be a PITA but we make money on them and conservatively we have probably over half a million in equity in them. They also give us a tremendous tax write off.

 

[seminoleed]

So in your opinion, is now a good, bad or average time to buy as an investment?

For the tax advantage of writing off the depreciation every year, it's never a bad time to buy. As long as you're in it for the long term and not looking to make a quick buck, now is as good a time as any.

 

[Wendy79]

Make sure you have enough in savings to cover repairs, replacing carpet/whatever else renters destroy, months with no renters, etc. Are you handy? If so, are you willing to go to the rental at 2am to deal with a burst pipe? If not, you'll want extra money set aside for emergency repairs too (this can eat into your profits pretty quickly). Make sure you have a very detailed lease for renters, outlining who's responsible for what/when, what to do if something bad happens (call you first? call the plumber first? when the pipe bursts at 2am). And collect first month's rent, last month's rent, and deposit (explicitly state in the lease what you are collecting, how much, and what it's for).

It'd also be a good idea to have separate checking/savings accounts for the rental(s) to make tax time easier on you.

Oh, and conduct it like a business. It takes a cold heart sometimes. If they don't pay by the 1st of the month, be willing to start the eviction process (and accept a late payment with, say, a certain %age penalty...again, stated in the lease).

 

[surfnole]

I bought a few when the market tanked too. In hindsight I wish I would have bought 20 or 30. They can be a PITA sometimes, but I farm out all the work to handymen at $20/hour or independent AC/plumber/electrician when needed. However there is no other investment today where you can even approach the yield on a rental property given the right purchase price. It's also a very simple business unlike the stock market.

Assume 150K house with 20% down or 30K.

1500 / rent.
taxes 150.
Mortgage $575 at 4%.
Insurance 100.
Repairs 200/month (budget for new roof / new AC)
Vacancy 125 (assumes one month vacant/year)

Cost/month = 1250. Profit per month = 250 or 3000 / year. That is a 10% yield on your 30K investment. Also budget in 2-3% price appreciation makes (3K-4.5K/year) gives it a 20%+ annual return. Add in depreciation and get 2-3% but that gets recaptured on sale. You also build equity which could be added into the overall return. Eventually own free and clear and have a retirement income.

mrlandlord.com and Florida landlord network are good resources.

Condisder an LLC or an umbrella/commercial liability policy.

 

[seminoleed]

Make sure you have enough in savings to cover repairs, replacing carpet/whatever else renters destroy, months with no renters, etc. Are you handy? If so, are you willing to go to the rental at 2am to deal with a burst pipe? If not, you'll want extra money set aside for emergency repairs too (this can eat into your profits pretty quickly). Make sure you have a very detailed lease for renters, outlining who's responsible for what/when, what to do if something bad happens (call you first? call the plumber first? when the pipe bursts at 2am). And collect first month's rent, last month's rent, and deposit (explicitly state in the lease what you are collecting, how much, and what it's for).

It'd also be a good idea to have separate checking/savings accounts for the rental(s) to make tax time easier on you.

Oh, and conduct it like a business. It takes a cold heart sometimes. If they don't pay by the 1st of the month, be willing to start the eviction process (and accept a late payment with, say, a certain %age penalty...again, stated in the lease).

I could not have said it better. Wendy gets it.