Bizweek: Now buy an investment property.

[34f3f3f]

I looked into ‘buy to rent’ in California, North Carolina and Texas. As a cash buyer my focus was on net returns, but as the original post suggests, finding a rental management company makes sense, particularly if you have no interest in day-to-day dealings with tenants. I found one such company in Orange County who were obviously doing so well they couldn’t be bothered to return my emails. In North Carolina and Texas I found two companies that are selling tenanted income properties, both with reasonable returns, and offering full management services. The idea seems very attractive, but obviously, to get a proper feel for these companies you would need to visit their offices and view their properties. However, there remained a couple of nagging doubts. Why would a company able to find cheap properties, and achieve high rental returns, want to sell them on? Are these companies just trying to find ways to keep afloat in a depressed market, and will drop the management service once the market returns to normalcy?

That aside, for me the most sensible form of income property is the apartment, because they are low maintenance, and are found in the more traditional rental markets where populations are concentrated and transient. California is the antithesis of this, and I have struggled for some time to come to grips with it. While there are apartment style properties in downtown areas of LA, Pasadena and San Diego many are either way over-priced, have high HOA fees, or don’t encourage rentals. In Pasadena, there are a few very nice apartment blocks but they are nearly all owned by the developer and therefore are not for sale. This strikes me as bizarre, and I have pretty much conceded that investing in California Real Estate is just for the pro’s. There are simply too many people pursuing the same goals, and unless you are prepared to do a lot of leg work, the competition is too great for the casual investor, and focuses too much on leverage and appreciation potential, not cash flows.

[Doofrat]

I love how the rent “should” cover the costs. What a great investment!
Dump a bunch of money and lock yourself into a mortgage, high condo fees/taxes, take on a management headache. Then if the college students that are renting this place actually pay their rent and/or don’t move out, you’ll break even! Oh, and every purchase comes with a free loaf of delicious rosemary olive oil bread.

[Doofrat]

I love how the rent “should” cover the costs. What a great investment!
Dump a bunch of money and lock yourself into a mortgage, high condo fees/taxes, take on a management headache. Then if the college students that are renting this place actually pay their rent and/or don’t move out, you’ll break even! Oh, and every purchase comes with a free loaf of delicious rosemary olive oil bread.

[Doofrat]

I love how the rent “should” cover the costs. What a great investment!
Dump a bunch of money and lock yourself into a mortgage, high condo fees/taxes, take on a management headache. Then if the college students that are renting this place actually pay their rent and/or don’t move out, you’ll break even! Oh, and every purchase comes with a free loaf of delicious rosemary olive oil bread.

[Doofrat]

I love how the rent “should” cover the costs. What a great investment!
Dump a bunch of money and lock yourself into a mortgage, high condo fees/taxes, take on a management headache. Then if the college students that are renting this place actually pay their rent and/or don’t move out, you’ll break even! Oh, and every purchase comes with a free loaf of delicious rosemary olive oil bread.

[Doofrat]

I love how the rent “should” cover the costs. What a great investment!
Dump a bunch of money and lock yourself into a mortgage, high condo fees/taxes, take on a management headache. Then if the college students that are renting this place actually pay their rent and/or don’t move out, you’ll break even! Oh, and every purchase comes with a free loaf of delicious rosemary olive oil bread.

[patb]

[quote=scott-at-alumni]I suspect you are being a bit pessimistic about all the costs. Big city mgmt fees, at least in the SFBay area, often run around 7-8%, so that’s $112, not $160. Advertising via craigslist is more than sufficient. Maintenance number seems high – I’ve got 3 older (pre-1980) SFHs rented and I haven’t had major problems yet, except for 1 furnace replacement, in 10 years of renting them out. And how did the 1% for maintenance become $200/month? I must have missed something. 1% would be less than $200/year.

[/quote]

I usually figure Proeprty/casualty and Liability as running the same as
local taxes, if it’s a bit lower, cool, as for 1% of the maintenance, what i was
thinking was 1% of the property value, per year. college kids are
rough on a project, so, it’s a good number there.

i just don’t like the idea of running a rental anywhere you can’t
get to in 25 minutes.

[patb]

[quote=scott-at-alumni]I suspect you are being a bit pessimistic about all the costs. Big city mgmt fees, at least in the SFBay area, often run around 7-8%, so that’s $112, not $160. Advertising via craigslist is more than sufficient. Maintenance number seems high – I’ve got 3 older (pre-1980) SFHs rented and I haven’t had major problems yet, except for 1 furnace replacement, in 10 years of renting them out. And how did the 1% for maintenance become $200/month? I must have missed something. 1% would be less than $200/year.

[/quote]

I usually figure Proeprty/casualty and Liability as running the same as
local taxes, if it’s a bit lower, cool, as for 1% of the maintenance, what i was
thinking was 1% of the property value, per year. college kids are
rough on a project, so, it’s a good number there.

i just don’t like the idea of running a rental anywhere you can’t
get to in 25 minutes.

[patb]

[quote=scott-at-alumni]I suspect you are being a bit pessimistic about all the costs. Big city mgmt fees, at least in the SFBay area, often run around 7-8%, so that’s $112, not $160. Advertising via craigslist is more than sufficient. Maintenance number seems high – I’ve got 3 older (pre-1980) SFHs rented and I haven’t had major problems yet, except for 1 furnace replacement, in 10 years of renting them out. And how did the 1% for maintenance become $200/month? I must have missed something. 1% would be less than $200/year.

[/quote]

I usually figure Proeprty/casualty and Liability as running the same as
local taxes, if it’s a bit lower, cool, as for 1% of the maintenance, what i was
thinking was 1% of the property value, per year. college kids are
rough on a project, so, it’s a good number there.

i just don’t like the idea of running a rental anywhere you can’t
get to in 25 minutes.

[patb]

[quote=scott-at-alumni]I suspect you are being a bit pessimistic about all the costs. Big city mgmt fees, at least in the SFBay area, often run around 7-8%, so that’s $112, not $160. Advertising via craigslist is more than sufficient. Maintenance number seems high – I’ve got 3 older (pre-1980) SFHs rented and I haven’t had major problems yet, except for 1 furnace replacement, in 10 years of renting them out. And how did the 1% for maintenance become $200/month? I must have missed something. 1% would be less than $200/year.

[/quote]

I usually figure Proeprty/casualty and Liability as running the same as
local taxes, if it’s a bit lower, cool, as for 1% of the maintenance, what i was
thinking was 1% of the property value, per year. college kids are
rough on a project, so, it’s a good number there.

i just don’t like the idea of running a rental anywhere you can’t
get to in 25 minutes.

[patb]

[quote=scott-at-alumni]I suspect you are being a bit pessimistic about all the costs. Big city mgmt fees, at least in the SFBay area, often run around 7-8%, so that’s $112, not $160. Advertising via craigslist is more than sufficient. Maintenance number seems high – I’ve got 3 older (pre-1980) SFHs rented and I haven’t had major problems yet, except for 1 furnace replacement, in 10 years of renting them out. And how did the 1% for maintenance become $200/month? I must have missed something. 1% would be less than $200/year.

[/quote]

I usually figure Proeprty/casualty and Liability as running the same as
local taxes, if it’s a bit lower, cool, as for 1% of the maintenance, what i was
thinking was 1% of the property value, per year. college kids are
rough on a project, so, it’s a good number there.

i just don’t like the idea of running a rental anywhere you can’t
get to in 25 minutes.

[Fearful]

[quote=patb][quote=scott-at-alumni]Maintenance number seems high – I’ve got 3 older (pre-1980) SFHs rented and I haven’t had major problems yet, except for 1 furnace replacement, in 10 years of renting them out. And how did the 1% for maintenance become $200/month? I must have missed something. 1% would be less than $200/year.

[/quote]

I usually figure Proeprty/casualty and Liability as running the same as
local taxes, if it’s a bit lower, cool, as for 1% of the maintenance, what i was
thinking was 1% of the property value, per year. college kids are
rough on a project, so, it’s a good number there.

i just don’t like the idea of running a rental anywhere you can’t
get to in 25 minutes.

[/quote]
Absolutely those maintenance and overhead costs could be overstated. However, the original post article seems to miss the point, often repeated in these forums and among savvier investors, that real estate had better do a lot more than just cover the costs to offset the risk that a bad tenant gets in there and that the value of the property goes down. The real estate boom years mentality, which will take a long time to unwind, is that you can tolerate even negative cash flow because the value of the property goes up. Realistic is something more like that you demand 10-20% better than cash outflow to compensate for the risk.

What else do you expect from Business Week, let alone its Lifestyle section.

[Fearful]

[quote=patb][quote=scott-at-alumni]Maintenance number seems high – I’ve got 3 older (pre-1980) SFHs rented and I haven’t had major problems yet, except for 1 furnace replacement, in 10 years of renting them out. And how did the 1% for maintenance become $200/month? I must have missed something. 1% would be less than $200/year.

[/quote]

I usually figure Proeprty/casualty and Liability as running the same as
local taxes, if it’s a bit lower, cool, as for 1% of the maintenance, what i was
thinking was 1% of the property value, per year. college kids are
rough on a project, so, it’s a good number there.

i just don’t like the idea of running a rental anywhere you can’t
get to in 25 minutes.

[/quote]
Absolutely those maintenance and overhead costs could be overstated. However, the original post article seems to miss the point, often repeated in these forums and among savvier investors, that real estate had better do a lot more than just cover the costs to offset the risk that a bad tenant gets in there and that the value of the property goes down. The real estate boom years mentality, which will take a long time to unwind, is that you can tolerate even negative cash flow because the value of the property goes up. Realistic is something more like that you demand 10-20% better than cash outflow to compensate for the risk.

What else do you expect from Business Week, let alone its Lifestyle section.

[Fearful]

[quote=patb][quote=scott-at-alumni]Maintenance number seems high – I’ve got 3 older (pre-1980) SFHs rented and I haven’t had major problems yet, except for 1 furnace replacement, in 10 years of renting them out. And how did the 1% for maintenance become $200/month? I must have missed something. 1% would be less than $200/year.

[/quote]

I usually figure Proeprty/casualty and Liability as running the same as
local taxes, if it’s a bit lower, cool, as for 1% of the maintenance, what i was
thinking was 1% of the property value, per year. college kids are
rough on a project, so, it’s a good number there.

i just don’t like the idea of running a rental anywhere you can’t
get to in 25 minutes.

[/quote]
Absolutely those maintenance and overhead costs could be overstated. However, the original post article seems to miss the point, often repeated in these forums and among savvier investors, that real estate had better do a lot more than just cover the costs to offset the risk that a bad tenant gets in there and that the value of the property goes down. The real estate boom years mentality, which will take a long time to unwind, is that you can tolerate even negative cash flow because the value of the property goes up. Realistic is something more like that you demand 10-20% better than cash outflow to compensate for the risk.

What else do you expect from Business Week, let alone its Lifestyle section.

[Fearful]

[quote=patb][quote=scott-at-alumni]Maintenance number seems high – I’ve got 3 older (pre-1980) SFHs rented and I haven’t had major problems yet, except for 1 furnace replacement, in 10 years of renting them out. And how did the 1% for maintenance become $200/month? I must have missed something. 1% would be less than $200/year.

[/quote]

I usually figure Proeprty/casualty and Liability as running the same as
local taxes, if it’s a bit lower, cool, as for 1% of the maintenance, what i was
thinking was 1% of the property value, per year. college kids are
rough on a project, so, it’s a good number there.

i just don’t like the idea of running a rental anywhere you can’t
get to in 25 minutes.

[/quote]
Absolutely those maintenance and overhead costs could be overstated. However, the original post article seems to miss the point, often repeated in these forums and among savvier investors, that real estate had better do a lot more than just cover the costs to offset the risk that a bad tenant gets in there and that the value of the property goes down. The real estate boom years mentality, which will take a long time to unwind, is that you can tolerate even negative cash flow because the value of the property goes up. Realistic is something more like that you demand 10-20% better than cash outflow to compensate for the risk.

What else do you expect from Business Week, let alone its Lifestyle section.

[Author]

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