Casual “Investors” becoming Landlords

[bearishgurl]

[quote=Essbee][quote=bearishgurl]
Ren, I don’t really care about any Piggs’ finances here. It’s not only me, but that old, crotchety Suze Orman would actually advise you not to pass go or collect $200 if you were carrying vehicle loan(s).[/quote]

0.9% financing was too good to ignore…[/quote]

This is all the more reason why one should pay them off first before making more volatile investments such as distant rental properties. Those 0.9% interest deals are no picnic for the long haul because they usually MUST be paid off in 24 months or all the “deferred interest” of a 36, 48 or 60 month loan gets tacked on and the loan recast (if the borrower is not too far behind in payments).

In other words, if a new vehicle buyer with an over 720 FICO score borrows $30K at 0.9% interest at 24 months, the monthly payments would be a hefty $1251 mo.

For 36 months at 3.4%, they are $878

For 48 months at 3.4%, they are $670

For 60 months at 3.4%, they are $545

http://www.myfico.com/HelpCenter/Autos/Purchasing_New_Car.aspx

$1251 on just ONE vehicle is a BIG extra payment every month, even for households with annual incomes over $150K. It’s enough to put a dent in the ability to service debt on and unforeseen repairs for or damage to out-of-state rentals, IMO.

The borrowed amount of $30K is for discussion purposes only and I’m not sure if a 3.4% auto loan can be taken out everywhere for those varying lengths of loans on new vehicles.

[zk]

[quote=Ren]

[quote=bearishgurl]

[blah blah blah blah]

[/quote]

I don’t like to use this term much, but… LOL. You have a bad habit of describing in excruciating detail (including weirdly exact ranges) what you think happens to people, then applying them to an entire county and generation, as if everyone went through the same scenario. I live over here in Real Life, where every situation is unique.[/quote]

Ren, I saw a fairly evenly mixed reaction to your discussion with BG, and want to assure you that a lot of posters and lurkers are silently rolling their eyes at BG’s arrogance, ignorance, and presumptuousness. If the majority that wants to post on this thread seem to not be bothered by her, it may be because a lot of us gave up paying too much attention to her rants long ago and therefore aren’t posting about them. My suggestion is to try the same.

Sure, there’s an occasional nugget there. She’s obviously intelligent and knowledgeable (in some areas). But you have to wade through several tons of manure to find each nugget and most people don’t find it worth it.

[SK in CV]

[quote=bearishgurl]Besides, she’s slightly older and therefore slightly more “crotchety” than I am :=][/quote]

I’m glad you said that. I was only thinking it 🙂

[bearishgurl]

[quote=Ren][quote=bearishgurl]I’m ingoring no one, Ren. In CA, those `successful LL’s in a variety of markets over the past 40 years’ you speak of here bought their (SFR) rental properties for $20K to $90K and are currently paying $300 to $750 annual property taxes on them. Some inherited their rental properties, complete with low property taxes appurtenant thereto. They bought properties within 25 miles of their residence or the residence or business of a relative or longtime biz partner who is managing some or all of them…[/quote]I don’t like to use this term much, but… LOL. You have a bad habit of describing in excruciating detail (including weirdly exact ranges) what you think happens to people, then applying them to an entire county and generation, as if everyone went through the same scenario. I live over here in Real Life, where every situation is unique.[/quote]

Sorry, I just noticed I made a typo on the post above that Ren replied to. “$20K to $90K” is an error. It should read “$20K to $40K.” I apologize for any confusion this may have caused.

There were a LOT of properties ALL OVER SD County in this price range at that time. These were the typical starter homes and rental investments of the era.

There is nothing “weirdly exact” about the range of property taxes I was posting, Ren. It is what it is. Obviously, you and I live in different worlds. I live in a world where MANY owners, whether in residence … or not, have taxes in those ranges … on some blocks, more than half the owners do. IOW, you live in an “encumbered world” and I live in a mostly “unencumbered world.” With the rampant urban sprawl of CA in the last ~20 years, this is an apt description of the two worlds of CA.

Nothing wrong with either choice. Different strokes for different folks.

I often see and talk to these senior LL’s when they are working on their investment properties. One is taking care of their aunt’s rental house because she is now too old to work on it. They’re digging french drains and concreting over for flood control for the driveway, garage and foundation, replacing windows, building fences and patching the roof, etc, sometimes with the help of an adult child or other relative. And they actually just live two blocks or <1 mile away! Yes, at the age of 60-75, that's real life for them!

The vast majority of the IE’s parcels within 20 miles of the SD County line (where you live) are less than 20 years old and this region went through a deep depression a few years back. Thus, the homeowners who bought there between 2000 and 2006 became deeply underwater … many more than 50%. ALL of their taxes were high until they were likely reduced wholesale by the RIV County assessor pursuant to Prop 8. Excepting for a few scattered disabled veterans, there are no owners within subdivisions in your area with property taxes of less than $750 per yr on improved property, unless they purchased a small cheap condo in distress within the last ~2 years.

If you think I’m pulling these numbers out of my ass, why don’t you start plugging in APN numbers off parcel maps which were platted (and built) more than 35 years ago and sold for no more than $20-$40K in 1978 and prior and have not sold since.

Here, I’ll help you get started with a link:

https://www.sdctreastax.com/ebpp3/(5mbsnv551yqju2i24yc5qmrv)/Start.aspx

Why don’t you start your “number plugging” here with (pulls random numbers out of ass) SD County Parcel Map Nos. 471 and 542. Use 8 digits for a SFR (not 10 for a condo) and … have fun!

Let me know when you’re done and then you can move on over to LG for “further study” ;-]

[CA renter]

[quote=carlsbadworker][quote=sdduuuude][quote=EconProf]BearishGirl: Please reread and take to heart Ren’s comments about your posts. Your responses showed it had no impact on you. But it was constructive criticism and probably represents the feelings of many Piggs.
Anyone else agree?[/quote]

+1[/quote]

-1.

Although often time I don’t agree with BG’s view, I think she offers a good and distinctive perspective. This board would otherwise have too uniform views. And I really appreciate this kind of diversity especially less and less old-timers are here now.

Let BG be BG with her unique post style.[/quote]

Totally agree with this and with ER’s posts.

I think people get upset by BG’s posts because she tends to make them too personal. That just seems to be her style; but if you ignore the bits that come across as personal attacks, she adds a lot to this site, IMHO. She knows a lot about subjects that many of us don’t know much about.

[Ren]

[quote=bearishgurl]
Ren, I don’t really care about any Piggs’ finances here. It’s not only me, but that old, crotchety Suze Orman would actually advise you not to pass go or collect $200 if you were carrying vehicle loan(s).[/quote]

You’re doing that selective comprehension thing again. We don’t currently have car payments, but may very well finance the kids’ cars when it comes time for that. Suze Orman, as annoying as she is, has made a great living being a “financial advisor for dummies,” although she obviously can’t say that part out loud. Those of us who are smarter than her demographic target (which is to say, at least half the country) know to compare rates of investment return with the cost of debt.

[quote]
I often see and talk to these senior LL’s when they are working on their investment properties. One is taking care of their aunt’s rental house because she is now too old to work on it. They’re digging french drains and concreting over for flood control for the driveway, garage and foundation, replacing windows, building fences and patching the roof, etc, sometimes with the help of an adult child or other relative. And they actually just live two blocks or <1 mile away! Yes, at the age of 60-75, that's real life for them!

The vast majority of the IE’s parcels within 20 miles of the SD County line (where you live) are less than 20 years old and this region went through a deep depression a few years back. Thus, the homeowners who bought there between 2000 and 2006 became deeply underwater … many more than 50%. ALL of their taxes were high until they were likely reduced wholesale by the RIV County assessor pursuant to Prop 8. Excepting for a few scattered disabled veterans, there are no owners within subdivisions in your area with property taxes of less than $750 per yr on improved property, unless they purchased a small cheap condo in distress within the last ~2 years.
[/quote]

You’re using irrelevant statistics to categorize people into two distinct groups – those who invested a long time ago, and those who invested recently, the latter all being in danger of imminent financial ruin in your mind, and with no crossover between the two. You can’t assume that the experiences of the people you know match the experiences of the people I know or the millions of people you don’t know – many of whom have been buying property on and off for decades and are still buying them. You also can’t assume (although of course you do) that every one of those recent purchasers was too ignorant to buy at a decent price, and/or bought with none of their own money.

[quote]
If you think I’m pulling these numbers out of my ass, why don’t you start plugging in APN numbers off parcel maps which were platted (and built) more than 35 years ago and sold for no more than $20-$40K in 1978 and prior and have not sold since.
[/quote]

I never said you’re pulling numbers out of your ass – but again, the numbers you are providing are irrelevant. So people who bought back then and held onto the properties are mostly unencumbered – I should hope so. Many of them have also bought recently and are profiting from it, even carrying mortgages. The most financially secure retired people I know have never sold a property, and are still buying, whether that’s every 2 years, 5, or 10. Of course they’re making more money off the first properties. The point is that tenants helped them then and are helping now.

[quote]
Here, I’ll help you get started with a link:

[/quote]

Why would I do that when it has nothing to do with my own situation? I would, however, suggest you pay a visit to http://www.biggerpockets.com/forums/52-rental-property-questions-landlording-issues, though, where people who LL for a living tend to hang out. Tell them it can’t be done.

[Ren]

Others who agree – thanks for the support (public and PMs)!

[all]

[quote=Ren]Others who agree – thanks for the support (public and PMs)![/quote]

If yours is last in a discussion with BG we will send you a trophy.

[livinincali]

Some of the recent landlords will succeed others will fail. I figure that with hot money chasing single family property as investments there will be some negative consequences but it’s unsure what they are going to be.

I figure that at least one or 2 investments groups will get over levered betting on appreciation and fail. I figure some investment group will securitize their rental portfolio and sell it off to some pension fund. Some investment group will be massive slumlords looking to squeeze every penny which will get the states to move in and establish even more friendly tenant laws. Stuff like increasing property taxes on rental properties, tenant bill of rights, etc.

There will still be some profit in owning and renting real estate, but I think there will be a period of adjustment and difficulty that will take some wherewithal to hold through.

[bearishgurl]

[quote=flyer]As someone who has owned investment properties in San Diego and elsewhere for many years, and done very well–mostly because the timing was right–I don’t really think anyone jumping into the market now can predict with complete certainty what their real estate or other investments will yield in 10, 20 or 30 years–I know we never thought we could.

My feeling is–if you are truly in a positive financial position, and want to get into the game at this point in our economic history–do so–but also keep a few “Mil” around for retirement–just in case “life happens.”

In the meantime, my philosophy has always been to live the life you want to live now–today–if at all possible–because you never really know what the future may bring.[/quote]

flyer, if I am understanding your post correctly, I would have to agree with it wholeheartedly. As I stated earlier in this thread, I don’t believe the same success can be had today with becoming a small-scale landlord in CA that one could have had buying investment RE in decades past. This is mostly due to much higher purchase prices today and therefore much higher taxes and carrying costs. Your “cautionary advice” about leaving a few Mil around for retirement (or at least 1 mil, if one is considering trying their hand at landlording) is solid.

I don’t think the financial success of 30+ year LL’s (to the degree they were successful given their actual financial investment) can be repeated today by ~new LL’s … anywhere in CA. They hung in for the long haul, through thick and thin, no matter what happened in their lives. Most of them managed their own rental properties and that is to be commended in my book.

Today’s new LL’s are untested for the long haul …. and frequently have 10x the carrying costs of pre-Prop 13 LL’s. In addition, those “old school” LL’s did most of all of the labor on their rental properties, thus saving themselves many thousands over the years and most of today’s LL’s likely do not.

For these reasons, a rental property in CA would have to be purchased today for a price far under its recent sold comps (likely for all cash) and possibly fixed up by the buyer/prospective LL (mostly DIY) in order to make the investment pan out financially in the long haul. This is due to inevitable unexpected vacancies.

There are a couple of things a new LL can’t predict. Those are future vacancy rates and ongoing desirability of their rental properties to future tenants. These are especially important considerations if they are expecting to buy them with mortgages.

As an aside, I’ve gotten many articles in e-mail over the past couple of years on the subject of distant suburbs and exurbs “dying” or “expected to die” all over the US. I’m not seeing that here but the time may very well come when workers in SD County no longer can or want to commute more than 1/2 hour one way to/from work every day.

Therefore, the best rental properties to buy today may very well be within just a few miles of job centers and on or within 2 blocks of public transportation. These areas may not have the “look or feel” that prospective LL’s who have always lived in *newer* subdivisions are used to but they very possibly might turn out to be the best rental investments.

These are same areas that 65+ yo Joe6p LL has owned rental properties in and consistently rented them out for the past 30+ yrs.

[bearishgurl]

[quote=CA renter] . . . I think people get upset by BG’s posts because she tends to make them too personal. That just seems to be her style; but if you ignore the bits that come across as personal attacks, she adds a lot to this site, IMHO. She knows a lot about subjects that many of us don’t know much about.[/quote]

It’s not only MY style, CAR. As you may be aware, I’ve been ripped a new a$$hole by Piggs in a few occasions over the years. Case in point:

http://piggington.com/people_who_can039t_afford_their_house_but_get_to_keep_it#comment-198772

http://piggington.com/people_who_can039t_afford_their_house_but_get_to_keep_it?page=4

I was “lamenting” in Nov/Dec ’11 that sold prices of SFRs had drastically fallen in my area in recent months and I feared I would never be able to recover my large downpayment upon sale, which I had made nearly 11 years prior. I felt the home values in my area over-corrected in the form of lower and lower asking and sales prices, mainly due to dozens of low, low-priced closings of REO’s and SS’s and tons of recently-built existing “shadow inventory” (mostly in adjacent zip codes of the same city as mine). I felt I didn’t deserve this because I had never removed any equity from my property and kept my mtg payments current throughout the years.

This is what I was (essentially) told by Piggs:

You bought in the “wrong area.” Get over it.

You’re not entitled to “make a profit.” (Assuming recovering my downpayment and little to nothing for the improvements I made would be “a profit” to me.)

RE is not guaranteed to go up.

RE sometimes goes down.

Ad nauseum.

It was a GREAT thread, btw. It had lots of “case scenarios” to discuss, including my own.

A few of those same Piggs are now lamenting that RE prices are going up and they shouldn’t be because homes are becoming too expensive (even though we are experiencing the lowest fixed mtg rates in history and the vast majority of SD Co markets are currently only equal to 2003 values).

Why did the Piggs read me the riot act? Because I put it OUT THERE as a topic of discussion.

Duh …

This is the internet, folks. If a Pigg puts it out there (and Ren DID) that he has house and car payments and minor children, lives in RIV Co (but wishes to move back to SD Co someday), works in SD Co, and is thinking of buying rental property in FL or maybe AZ, that’s all OUT THERE. It’s now fodder for a topic of discussion.

It’s the same as if a celebrity’s bikini top comes loose while walking on the beach at Malibu and her half-nude photo shows up on the internet. She put it out there (however inadvertently), all the while knowing telephoto lenses follow her everywhere.

By posting your personal info and/or possibly asking for advice, you put your “case scenario” out there for discussion.

And that’s okay. We don’t know who you are and don’t care. I joined here to discuss mainly local RE issues. But how can we discuss specific RE issues on here if we don’t have some “case scenarios” to discuss? I don’t care what a Pigg’s screen name is or even if they’re lying while stating their issues. They “put out” their info which can be used in the thread’s discussion

Another unnamed Pigg who knows who he is recently stated on here that he diligently looked `up and down the (CA) coast’ for a retirement home in the past year-plus which cost $1M or less and essentially couldn’t find anything that didn’t need a lot of work so ended up retiring elsewhere. That’s a GREAT topic of discussion so I asked him:

Was he from SD and if so, had they thought of retiring here?

Where did he look “up and down the coast” and did he make any offers on property while on the trips?

He then posted that he and his spouse very much wanted to “retire” in SD County to be near relatives but could not find a “suitable” property here for $1M or less. (That’s another “topic of discussion.”) He further listed five or six areas where he was house-shopping along the coast which were among the most exclusive and sought-after enclaves in the state! So I asked him what he expected to pay for these properties.

In the end, he admitted that they talked themselves out of retiring in CA and weren’t really committed to doing what it takes to secure a retirement home in CA.

I found the whole thread interesting as well as instructive. It showed the value differences of different people and that sometimes people have to go thru a LOT of stuff in order to make a big life decision while others know exactly what they want and also know that what they want is entirely within their means.

It was nothing personal then and it’s not personal now. It’s trying to discuss something within the context of the thread that another poster put out there.

Ren seems to be taking it personally by his name-calling and taking words out of my mouth that were never there. But that’s okay. I never stated Ren was “stupid.” Essentially, I stated that I thought out-of-state rentals were too risky of an investment for people in Ren’s “station in life.” There is nothing wrong with Ren’s current station in life. I was there and so was almost everyone else who is in my “station in life.” I even still have a HS kid at home! However, at the time my kids were small, I never considered buying any properties more than 15 minutes away from where I was currently living. But that is just me. And I don’t regret that decision today.

In a nutshell, don’t post something on here if you don’t want it commented on. That’s what we do here. And if you don’t want to be “misunderstood,” you will need to clarify yourself as this is not telephone or video. Your words can only be construed literally.

[(former)FormerSanDiegan]

[quote=bearishgurl]

… I don’t believe the same success can be had today with becoming a small-scale landlord in CA that one could have had buying investment RE in decades past. This is mostly due to much higher purchase prices today and therefore much higher taxes and carrying costs. Your “cautionary advice” about leaving a few Mil around for retirement (or at least 1 mil, if one is considering trying their hand at landlording) is solid.

I don’t think the financial success of 30+ year LL’s (to the degree they were successful given their actual financial investment) can be repeated today by ~new LL’s … anywhere in CA. They hung in for the long haul, through thick and thin, no matter what happened in their lives. Most of them managed their own rental properties and that is to be commended in my book.

Today’s new LL’s are untested for the long haul …. and frequently have 10x the carrying costs of pre-Prop 13 LL’s. In addition, those “old school” LL’s did most of all of the labor on their rental properties, thus saving themselves many thousands over the years and most of today’s LL’s likely do not.
[/quote]

I think that anyone who locked in a mortgage payment on rental property at market value (e.g. did not grossly overpay) in the last year or so will do quite well.

They locked in at a low price in the real estate cycle at rates that likely translate into positive cash flow on day 1. There have been few times in the last 40 years in San Diego when one could have pulled this off. And no period as favorable as the last year or so.

Just look at Rich’s house payment to rent ratios. Which he says he will update soon.

[bearishgurl]

[quote=FormerSanDiegan]I think that anyone who locked in a mortgage payment on rental property at market value (e.g. did not grossly overpay) in the last year or so will do quite well.

They locked in at a low price in the real estate cycle at rates that likely translate into positive cash flow on day 1. There have been few times in the last 40 years in San Diego when one could have pulled this off. And no period as favorable as the last year or so.

Just look at Rich’s house payment to rent ratios. Which he says he will update soon.[/quote]

I agree with all of this. The summer of 2010 (after the tax credits expired) until the spring of 2012 (and maybe later, if using all cash) was a great time to buy both investment RE and a residence in SD County.

I’m looking forward to Rich’s upcoming graphs, as well.

[flyer]

BG, your analysis of my general comment was fairly accurate, however, I have purposely stayed out of getting into specifics about our investment properties on this or any other thread, mostly because I feel people are going to do what they want to do regardless of what anyone else says, and because I don’t want to waste my time getting into a “war of words” with anyone.

I have some very strong opinions, based upon facts and experience, concerning why someone should or should not invest in certain geographic locations, but I’m not about to mention those thoughts in this environment.

We’re now in our 50’s, and started buying investment properties in our 30’s in a very different economic environment, with lots of cash reserves, and it worked out very well.

I just feel that people getting into the rental game today should proceed with caution, and have deep pockets–and that was my main point.

Hopefully, everything will work out as well for them as it has worked out for us. Perhaps only time will tell.

(and, BTW, I do enjoy your posts, BG.)

[CA renter]

BG,

I think the responses to your posts on the thread you linked were pretty tame and not very personal (save for sdr, but he seems to enjoy trying to rile people up). Most people were just stating facts; they weren’t digging into your particular info and weren’t making assumptions about your income, financial position, family life, etc. I really enjoy your more general posts, but sometimes cringe when you try to paint a complete picture of someone with only one or two data points. Then, you tend to insist that the picture you’ve painted is the true picture of their lives. IMHO, that’s what annoys people.

Just because people put (some) information about their situations on the internet doesn’t mean they want to be stalked.

For example, that “other poster” your referring to is probably pretty successful and can easily afford to live in those high-end areas, but he/she didn’t want to overspend on a house. There’s nothing wrong with that. It sounds like they did pretty well for themselves by finding something they didn’t think was as overvalued as many of the properties they were looking at in California.

Please don’t take this as an insult, because it’s absolutely not meant that way. You’re intelligent, opinionated, and direct…at that’s all good. It just might help to get your point across better if you stop assuming so much about other people’s situations, and try instead to put out more general opinions about how people might handle various situations without trying to get too personal.

[Author]

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