Owning rental property

[zk]

I’m seriously considering buying some rental property. I hear a lot of this:

[quote=svelte][quote=as]
Buying a property is not a simple thing. It involves a lot of emotional ups and downs.
I was thinking to get an investment house awhile ago and started searching, but now I am backing off. I realized that it is not easy to be a landlord. Life is too short to deal with the crap. Even if you make tons of money, so what? Is it worth going through all the stress and hassles? Eventually everbody will go to the same destination without taking anything with you. Take it easy and enjoy life as much as you can now.[/quote]

Absolutely. My wife and I helped manage rentals for my dad way back when, and one thing we walked away with: we never want to own a rental.

There are easier ways to make money, and we value our free time too much to be tied to emergency rental phone calls, flakey dishonest people, and flagrant abuse of property.

We take better care of stuff we borrow than most people do of the stuff they own. We’d go crazy seeing what someone did to our rental. Better to avoid the headache.[/quote]

But then I talk to some people who say that, with a management company taking care of a lot of the hassles, it’s not so bad.

I like ocrenter’s advice. I don’t want my free time taken up with that stuff. On the other hand, I think it would really be a great investment.

So I’d really appreciate any opinions on the matter. Does a management company make that big of a difference? I’m more than willing to pay them the 10% if it’s going to save me time and hassle.

I’d like to invest in San Diego, Riverside, or San Bernardino counties. SFR, condos, x-plexes, whatever is a good cash flowing investment, with potential for appreciation a secondary concern. Not sure how much I’m going to invest at this point. Somewhere between 200k and 600k. Any ideas on what type/location/etc. of property would be a good investment would also be appreciated.

[paramount]

See my thread: FIRING Property Management Companies.

Believe me, property management companies are no silver bullet, at least not in my experience.

Overall I 110% agree with whoever said: Life is too short to deal with rental properties.

A lot of ‘homeowners’ are becoming reluctant landlords because they are underwater and life circumstances change.

I’d say buy a REIT, skip the landlord crap.

[paramount]

Or if your interested in the ‘thrill’ of real estate investing, open up a property management company.

They’re the ones making a killing!

[as]

ZK,

It all depends on…. If you are that kind of person who does not mind the crap and headache, can handle stress well, likes to deal with different kinds of people,…. You probably can do it.

I also heard that PM can hire a handman who charges you more, then split the commission between each other.

Paramount,
Thanks for sharing your own experience. Your story makes me think more. people usually just share the good part of their life, but keep quiet about the bad things. We need to know both to keep our life balanced.

[paramount]

[quote=as]

I also heard that PM can hire a handman who charges you more, then split the commission between each other.

[/quote]

If you look at the thread I started: FIRING Your PM, one of the points I listed is don’t hire a PM that has in-house maintenance for exactly the reason you listed.

PM companies aren’t just interested in the management fee, your property will be seen as an opportunity for additional revenue.

That’s also another source of stress.

[exsdgal]

zk,

Rental properties may not be for everyone. However if you love numbers and can slice your mortgage details confidently then tiptoeing to buy investment property can be a good (even fun!) experience…

Buying a rental is no different from buying a primary house to live in. The same numbers/metrics apply. i.e. your monthly costs are below the rental rates, the cost basis is positive/near positive today w/o accounting for appreciation etc.

This forum has more experienced folks who deal with investment properties. Here are few suggestions that has worked in the past – 1) research the prospective rental area thoroughly 2) don’t skip on repairs/ high value low cost upgrades before renting the place 3) set the rental rate slightly below market 4) don’t compromise on the tenant selection process 5) clearly state the terms and expectations

As a caveat the tenants don’t move out unless absolutely necessary, and this gives only brief opportunities to re-synch the rental rates to market.

Recently I watched the movie ‘One Week’ and a conversation about ‘true love’ resonates with buying rental properties. If one has to ask whether owning a rental is good then the individual is not ready to deal with the commitment of managing property. This does not necessarily mean owning rental is bad for the individual, just that it is back to the drawing board for reassessment.

Cheers and Good luck with your research.

[Jazzman]

If you are going to use a property manager, then why limit your search to local where homes are generally more expensive in relation to rents. I currently have six rentals scattered thousands of miles apart, and have been a landlord for 25 years. It’s all about the numbers, and rule number one is never believe them at first glance. Second, finding a reputable property manager is key, so you might want to start there. There’s a few operations out there that sell turn key, fully managed, already rented former REOs, with acceptable returns. If you manage the property yourself be comfortable with the demographic, even if it means a smaller return, and keep your property close to where you live.

[zk]

Thanks for the input, Jazzman. I really appreciate it.

[quote=Jazzman]If you are going to use a property manager, then why limit your search to local where homes are generally more expensive in relation to rents. I currently have six rentals scattered thousands of miles apart,[/quote]

I’ve heard Las Vegas and Phoenix are good markets to buy and hold right now. I guess there’s no reason I couldn’t do that. Are those markets that much better than San Bernardino/Riverside counties? I don’t know. Is finding and buying them harder from a long distance (Phoenix) than from a medium distance (San Bernardino)? I guess you’d have to have an agent you really trusted to do that. Right? Or is there another way?

[quote=Jazzman]
and have been a landlord for 25 years. It’s all about the numbers, and rule number one is never believe them at first glance.
[/quote]

What are some of the common surprises that you encounter?

[quote=Jazzman]
Second, finding a reputable property manager is key, so you might want to start there.
[/quote]

Do you (or does anybody here) know a good one in SB or Riverside counties, Phoenix or Vegas?

[quote=Jazzman]
There’s a few operations out there that sell turn key, fully managed, already rented former REOs, with acceptable returns.
[/quote]

I image you’d pay a premium for that. But it might be worth checking out. Do you know where I could find such operations?

[zk]

[quote=paramount][quote=as]

I also heard that PM can hire a handman who charges you more, then split the commission between each other.

[/quote]

If you look at the thread I started: FIRING Your PM, one of the points I listed is don’t hire a PM that has in-house maintenance for exactly the reason you listed.

PM companies aren’t just interested in the management fee, your property will be seen as an opportunity for additional revenue.

That’s also another source of stress.[/quote]

Thanks for all the input, paramount. I really appreciate hearing about all aspects of the operation.

And thanks exsdgal and as.

[briansd1]

My experience it that the most important part of rental is the quality of the tenant.

I’ve gotten good at screening tenants.

You want tenants who will pay on time without being asked. And you want tenants who are well-educated, refined (vs. gross). Those tenants are likely to keep your place clean and tidy. They won’t bang up everything in the house and cause repairs.

Let me give you one simple example: I had one slob of a tenant who did not know how to properly use the front load washer. You have the clean hair and lint off of the glass door so that the rubber seals properly against the glass. Otherwise you have small leaks.

Some people can live 15 years in a house without it ever needing a repaint. Other people are so dirty that the house has to be repainted after 2 years.

I have a zero tolerance policy. No eviction record, no bad-credit, no pets, no smoking, etc…

[Coronita]

[quote=briansd1]My experience it that the most important part of rental is the quality of the tenant.

I’ve gotten good at screening tenants.

You want tenants who will pay on time without being asked. And you want tenants who are well-educated, refined (vs. gross). Those tenants are likely to keep your place clean and tidy. They won’t bang up everything in the house and cause repairs.

Let me give you one simple example: I had one slob of a tenant who did not know how to properly use the front load washer. You have the clean hair and lint off of the glass door so that the rubber seals properly against the glass. Otherwise you have small leaks.

Some people can live 15 years in a house without it ever needing a repaint. Other people are so dirty that the house has to be repainted after 2 years.

I have a zero tolerance policy. No eviction record, no bad-credit, no pets, no smoking, etc…[/quote]

But briansd1, I think a lot of this will then depend on where your property is though, right?

I mean, let’s say we have a property that is in for argument sake “slum area 1” (without using any real world examples, because I don’t want to get into arguments with folks on what a “slum area”) is… Is it possible to find a stellar candidate per what you describe in these areas??

I’m being serious here…It’s a serious question….I don’t have as much experience dealing with different tenants versus probably others on this board… So I’m curious if one has a house in a not-so-professional area, what constitutes your criteria for a “good tenant” without taking your criteria too extreme that it no longer fits the tenant pool in your area?

[Coronita]

[quote=zk]Thanks for the input, Jazzman. I really appreciate it.

[quote=Jazzman]If you are going to use a property manager, then why limit your search to local where homes are generally more expensive in relation to rents. I currently have six rentals scattered thousands of miles apart,[/quote]

I’ve heard Las Vegas and Phoenix are good markets to buy and hold right now. I guess there’s no reason I couldn’t do that. Are those markets that much better than San Bernardino/Riverside counties? I don’t know. Is finding and buying them harder from a long distance (Phoenix) than from a medium distance (San Bernardino)? I guess you’d have to have an agent you really trusted to do that. Right? Or is there another way?

[quote=Jazzman]
and have been a landlord for 25 years. It’s all about the numbers, and rule number one is never believe them at first glance.
[/quote]

What are some of the common surprises that you encounter?

[quote=Jazzman]
Second, finding a reputable property manager is key, so you might want to start there.
[/quote]

Do you (or does anybody here) know a good one in SB or Riverside counties, Phoenix or Vegas?

[quote=Jazzman]
There’s a few operations out there that sell turn key, fully managed, already rented former REOs, with acceptable returns.
[/quote]

I image you’d pay a premium for that. But it might be worth checking out. Do you know where I could find such operations?[/quote]

Question: for someone starting out renting property, is it advisable to do an out-of-area rental, even if you have a property manager? Serious question….I mean a lot of this is about experience, right? Is it feasible to learn when something is in another state managed by another person?

[Coronita]

[quote=paramount][quote=as]

I also heard that PM can hire a handman who charges you more, then split the commission between each other.

[/quote]

If you look at the thread I started: FIRING Your PM, one of the points I listed is don’t hire a PM that has in-house maintenance for exactly the reason you listed.

PM companies aren’t just interested in the management fee, your property will be seen as an opportunity for additional revenue.

That’s also another source of stress.[/quote]

Paramount. I have a question for you… Do you still live around where your rental property is? If so, what is the reason that you are getting a PM to do this and for example not yourself? I mean, my relatives use an agent to help them find a prospective tenant, and pay them a flat fee for the leads if they sign up…But for all other repairs stuff, they ended up getting their own handyman/etc…

Have you tried renting out your place yourself versus using a PM? For folks that have 6,8,10+ properties, I can see were PM is helping one free up time, but if you have 1 or 2, what prompted you to use a PM?

[Coronita]

[quote=briansd1]My experience it that the most important part of rental is the quality of the tenant.

I’ve gotten good at screening tenants.

You want tenants who will pay on time without being asked. And you want tenants who are well-educated, refined (vs. gross). Those tenants are likely to keep your place clean and tidy. They won’t bang up everything in the house and cause repairs.

Let me give you one simple example: I had one slob of a tenant who did not know how to properly use the front load washer. You have the clean hair and lint off of the glass door so that the rubber seals properly against the glass. Otherwise you have small leaks.

Some people can live 15 years in a house without it ever needing a repaint. Other people are so dirty that the house has to be repainted after 2 years.

I have a zero tolerance policy. No eviction record, no bad-credit, no pets, no smoking, etc…[/quote]

Brian also serious question….

Can you give me examples of how you ask your prospective tenants about some sensitive topics?

I mean, it’s not exactly you can say, “I don’t want to rent to you because you’re a slob….” So what exactly do you do?

I’ve tried to employ a different technique myself, which I found sometimes works sometimes doesn’t. As part of a tenant agreement, I try to include in a clause that says “tenant pays first $70-85(depending on market area) for each service repair call and tenant pays for all block drain service calls” and lower the rent slightly versus market rate…

In the past (in bay area), I explain to the tenant the reason for this is as follows. I don’t want to be bothered with small things, and I want you to take good are of things that are new or completely working before I turned them over to you. That way, I hope to not be pestered with small items like the smoke detector is beeping because it needs a new battery, or a light bulb blew out, or a towel rack fell off… Or you would think twice about pouring sand down a garbage disposal…

For things like dishwasher,dryer,garbage disposal broke, I would either pick up the tab completely out of goodwill if i felt it really was a mechanical failure out of the tenant’s control…OR if the tenant really did abuse the hell out of the appliance, I’d politely tell him the reason why your garbage disposal broke is because you threw a spoon down there…Then I pointed him to the rental agreement about the 70-$80 deductible, which hopefully was enough financial pain for him such that it would discourage careless and abusive behavior… Not sure if this worked all the time or not…

My other question is back to your example of the washer leaking….What motivated you to gvie the person a more complicated front/loading appliance that requires more TLC than a basic appliance in the first place? That is, if I was going to rent out a car to people who I can assume wouldn’t be taking care of things in their best interest, it would be a no frills econ car, not a BMW that requires TLC…So….
In this situation, wouldn’t you just avoid the issue completely, but just furnishing a low end, 3 cycle, top loading washer without absolutely no electronics…You know something that was the bare minimum that was really hard to fvck up, even if the person was a complete moron????

I mean, I guess I’m being a little paranoid here. But I have two ceiling fans in two rooms…I recently removed them, because I couldn’t get replacement remotes. I contemplated replacing them with more ceiling fans…But opted out for two reasons.

1) If they break, I’m on the hook for fixing them. Plus, what if for some reason they get injured on them (god knows how).

2) They aren’t going to miss them, and they can bring in floor lamps themselves…

I’m not trying to judge here. Just trying to learn what would folks do in situation X, and what might be an alternative less PITA way of dealing with stuff….for my own benefit of course.

[briansd1]

[quote=flu]So I’m curious if one has a house in a not-so-professional area, what constitutes your criteria for a “good tenant” without taking your criteria too extreme that it no longer fits the tenant pool in your area?[/quote]

That’s a very interesting question.

Some detectives or psychologists will tell you that it only takes them 10 minutes of conversation to determine the character of a person.

It’s kinda like that for me. I think when you meet the person you know who you’re dealing with. I like to take my tenant applicants to lunch for small talk.

Most important, trust but verify. Check employment, credit and references.

I would avoid the worst areas or price it into the purchase price.

BTW on the ad I come straight out and say it. “No slobs or dirty people should apply. I don’t accept excuses for late rent, but, in return, I offer a nice place to live.” It’s a little harsh but people recognize themselves.

Another thing is that I don’t like kids because they destroy things. But I don’t think that you can discriminate against families.

[Author]

Posts