How I Bought an 8-Unit Apartment Building with No Money Down and Walked Away with $1000 Cash at Closing
Published on - January 19th, 2010 (by Adam Baker) This article is by staff writer Adam Baker. Baker recently outlined his ambitious 2010 goals for his blogging, business, and life.
When I was 23, I bought an eight-unit apartment building with no money down. And I walked away with $1,000 cash at closing! Sounds pretty fancy, right? Wrong.
It was one of the dumbest (and riskiest) moves I’ve made in my young life.
I escaped without a scratch, but it was due to an over-sized dose of sweat, tears, and luck. None of it was due to savvy investing skills.
The sound and the fury
I was 23 years old and had just earned my real-estate license the previous year. My first couple of months were spent buying and selling a few upper-end units for individual homeowners. The commissions were decent, but as a new Realtor my split with my company was high. To complicate the problem, I had financed my association, training, and union fees to get started. (This was before I had decided to cancel my credit cards.)
After several months, I began to work more in the booming foreclosure and short-sale markets that were plaguing central Indiana. Out-of-state lawyers, doctors, and other high-income earners (mostly from the West Coast) were swarming our local market.
They were buying up $30,000, $40,000, and $50,000 houses like they were toys — albeit over-priced, over-financed, and only half-functioning toys at best. With rents ranging from $400-$1000, they simply couldn’t resist what their spreadsheets were telling them the return would be. They bought many of the homes site unseen and used the first real-estate company that would sell to them.
We represented a lot of the banks that had no idea about the local market prices, nor the current condition of their properties (even after we told them several times). Well over half the deals fell through. Either the banks were too unrealistic to negotiate, or a closing would be interrupted by the discovery of a mystery lien, a second mortgage no one knew about, or some other problem with the title that we didn’t even know was possible!
It was harder work for lower commission, but there were hundreds upon hundreds of properties, which helped even out the paychecks from month to month.
Property management comes calling
After most of the out-of-town investors closed on their new rentals, they began searching for a company to manage/rent them. After several dozen requests for an affordable and trustworthy property management company (and no clear-cut option), we decided to start offering the service ourselves.
I joined forces with a broker who spent his time focusing on acquiring more leads for buying/selling. I set about figuring out how to actively manage and rent the vacant units (which almost always needed repairs first).
Since many of our clients were repeat customers already, they were ecstatic to have the option of having their properties managed by us in-house. Within just six months or so we had over 125 units under management.
I was working countless hours and answering the most bizarre phone calls you can imagine at all hours of the night. Overall, though, we were turning a profit and looking for ways to scale our system over the next couple of quarters.
A perfect storm
As part of our networking and lead-generation work, we regularly attended private meetings where local brokers would pitch each other their current clients wants and needs. In one particular meeting, another broker was pitching one of his own properties for sale. It was two side-by-side four-plexes (eight units total) with each unit being one bedroom. It was in a low-income part of town, but he was only asking $125,000 for both properties.
“$125,000 for eight units?”, I thought. “There has to be a catch.”
There was. Seven of the eight units had tenants, but only three had any history of paying on time. Even after kicking out any non-paying tenants, each unit would need a couple thousand dollars of work to get anything decent in rent. In addition, there were four furnaces in total all of which were probably made in the 40s or 50s.
In other words, it was a project by anyone’s terms. It would require some up-front repairs, several months of eviction filings, court visiting, and re-showing the units, but… “$125,000 for eight units!”
If only someone would loan me the money…
I dug deeper and deeper into the numbers. I was already managing property, coordinating repairs, negotiating prices on materials, and renting units for dozens of other clients. It made sense that if I could get a loan, I could plug a property right into this current system I was running.
That was a big glaring issue, though. Neither my partner nor I was credit-worthy in any sense of the word. The chance of me getting approved for a mortgage was zilch (let alone a non-owner occupied, low-income commercial loan). With regret, I pushed the property to the back of my mind and continued about the process of building the management business.
At our next networking meeting, though, we caught wind of some additional news on the properties. The broker who owned them was in serious trouble on about a dozen different pieces of real estate. He owed $76,000 on both the buildings, which were financed through a popular investor/hard-money lender.
The private lender was getting scared that the investor would soon default (giving the lender a property he wanted nothing to do with) and the owner was only looking to get out of the property, so he could focus his energy on his salvaging his other properties.
Without much thinking, we pulled the trigger.
A bold offer
We called up the private lender (an individual) who was currently financing the properties and pitched him the idea of us taking over the loan and purchasing the property from the current desperate owner. We offered to both sign onto the loan, giving the investor two names opposed to the one he currently had and showed how we would remedy the situation, evict all the tenants, and plug it into our management system.
Neither of us had a penny to our names, so we even had the guts to require that the private lender actually invest more money into the property. In order for us to take it over he’d have to loan us an additional $15,000 to replace the furnaces and repair two of the units after evictions.
It was a bold offer. We’d give nothing but a management plan and our signatures on a $91,000 private mortgage (at 12%) for eight units and a $16,000 cash loan. The lender must have known even more about the current owner’s dire circumstances then we did, because he took our offer. The current owner was happy to get out for what was owed, and within the week we sat down to close.
After the paperwork was signed on my first-ever real estate purchase I was handed a $1000 check (for prorated rents/deposits for the month). I gave nothing tangible, just my worthless signature, and walked to the bank to deposit the money.
“So this is how real estate works”, I gloated. “I could get used to this.”
I had no idea what was in store…
To be continued…
J.D.’s note: This is a glimpse into a world I’ve always wondered about. Though Kris keeps trying to dissuade me, I have a fascination with rental properties. I look forward to reading part two of this story. And although GRS is not about to be come a real-estate blog, this Sunday’s reader story is actually about how one of you folks decided to take the plunge by buying a rental property, so we’re going to have a mini-theme here for a week or so…
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ow no, I hate a “To be continued…” just when things are getting interesting. Can’t wait to see how this continues…
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Wow! That is crazy, Baker! It’s a life experience, though.
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Talk about a cliffhanger…when is part two going up?
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Its nice to have rental properties as a source of passive income. ^_^
Very risky though if you have to borrow money. As much as possible I try to avoid debt.
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Kris is right! But it is also a really important topic. I almost took a real estate class once in college (but dropped it), and one of the students was actually an artist — he said he was in the class because a lot of his artist friends make their regular income from real estate. It’s a fair game. But Kris is right, it’s really bad news a lot of the time!
I had landlords (a husband and wife) last renting round who owned about 4 units around town; they were teachers who counted on it for a more steady income. But, they also apparently didn’t have much business skill. They made a verbal contract (email, actually) that I would be paid to move out early, then reneged the day before my moving company was to move me out (so costs were very much sunk — moving co., new apt half-month fees, etc.). I was out a lot of money if they got away with it. So I sued in small claims court, and won. At the hearing, it became clear that they had no idea that a verbal contract was just as much of a contract as a written one! I don’t expect all landlords to be big business people, but they need to have at least some sense of the fact that it is a business arrangement, and all that that entails.
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Sitting at the edge of my seat. DH and I have 2 rental properties right now that have gone pretty well so far. We’re not profitable, but we’re not bleeding or dealing with deadbeats, either. DH is a member of the local landlord association, which provides some very interesting information, so we’re overcautious, if anything.
I can see a few clues of where Baker’s experiment is going to go off the rails, but I wait for the next installment.
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I really enjoyed this guest post! Can’t wait for the next installment.
My boyfriend’s family thinks rental properties are THE way to make money on the side. I’m not convinced, so it’s good to read about others’ experiences.
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I’m looking forward to the next post as this is an area I’m interested in. Not so much the landlord part, but perhaps buying condos during the building phase and selling once they’re built.
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Real estate has always intrigued me, as well. I am looking forward to the next installment!
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I expect that the comments will soon be filled with anecdotal stories about ‘Good Tenants vs. Bad Landlords’ with the occasional ‘Bad Tenants vs. Good Landlords’ thrown in from the other side. This is what people like to talk about when the subject of Rental Property comes up.
I would like to suggest that although people like to relate the ‘horror stories’ first (because they make more interesting stories) – real estate can be a very good way to ‘get rich slowly’ – despite the recent volatile market, the fundamentals still hold.
1) It is a business. Don’t get involved unless you are willing to learn a lot about it, and treat it like a business. Learn the law, tenant’s rights, landlord rights etc.
2) Study the numbers. Make sure you are comfortable with your rate of return from Day One. Don’t let anyone sell you on the idea of ‘this neighborhood is going to be great in 10 years’. While this does happen, and will add to your wealth over time, don’t count on it.
3) Assess and quantify your risk. Have a plan, but know what to do if things don’t go exactly according to plan. If you are not able to rent that unit for $500/mo. you have to know how you are going to pay the mortgage if you can only get $400/mo.
4) Have an emergency fund. Just like personal finance, you have to have a cushion in case your unit(s) go empty for a month or two, or in case something unexpected breaks and needs to be fixed.
5) Talk to a professional. Ideally, you want to talk to someone who has done this before and can give you unbiased advice. If you do it right, it can be a great income stream. Find someone who is ‘doing it right’ and ask them lots of questions. Take them out to lunch.
6) Doing it right means that you are enjoying a positive monthly cashflow, tax benefits (like depreciation), debt paydown (by paying your mortgage each month), and hopefully capital gains via long term appreciation in value. If this does not apply to the deal you are considering, think about it long and hard before you proceed.
I’ve been in the business for 14 years and have trained lots of new investors. It is not for everyone, but if you have the right head for it, and are willing to dedicate some time, attention and money, it can be a great business.
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I like this, since so many tout the virtues of property ownership and the ease that the money will roll in. It takes hard work to learn the ropes, and get to the point where it becomes second nature. Yes, years later, after much blood, sweat, and tears, it can pay off, but I don’t have the patience or discipline to wait that long.
That and making my taxes much more complicated.
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I love the rental game. I learned by watching my parents that there is no short cuts though. You have to put at least 10% down, screen potential tenants hard and be consistent with everyone. If you give to one the others will find out. You also need to keep the maintenance current on it. Go to a lawyer or friend in the business for a contract its a must have item.
Over all though it’s a wealth building machine if done right.
I would never buy into the low income areas though because people just are not dependable with rent and destroy to much.
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i can’t beleive you that! i can’t wait for part two! my parents were landlords….not fun!
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“To be continued…”
I can’t wait!
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To be continued…
Boo-urns…!
This post was more exciting than an episode of “24″.
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Great story – I can’t wait to hear more.
My husband and I have been in the real estate game for about 7 years now. We have had some properties make us a lot of money, and had one that lost us money (though not a lot, thankfully). It takes a lot of time and effort, and we ended up selling most of them because of changes in our job and life situation that required more time at home. We are still the owners of two tenanted homes, including our own (we have a basement renter).
It’s really the tenants who can make or break the situation, so my advice to anyone renting would be to do your due diligence up front. Screen your tenants, get references and call them, do a credit check, etc. The unhappy part of this is that even good screening does not always catch the “tenant from hell”.
We have an incredible tenant in our three-unit building who has taken over many of the management jobs in return for slightly discounted rent and use of the backyard garden and storage space. We have provided him with a list of our approved workers (plumbers, HVAC, etc), and if issues come up, he deals with them after a quick call to us for an update and go-ahead. I would highly recommend this to anyone who felt they had a tenant responsible and willing to do this for you.
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Can’t wait to hear the rest. At first read, it sounds like a good investment. But, based on your tone, I’m guessing that it doesn’t end good.
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Looking forward to part two. After hearing how easy it is on commercials, I enjoy hearing the more realistic side of the story.
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Looking forward to the next installment.
I agree with JKC — you need to know your stuff. This is a business just like any other. My older brother owns 3 rental properties, and he makes just enough from them to pay his mortgages and put a little away for emergencies. He’s still glad he bought them, tho, as they’ll make profit eventually for him and don’t cost him anything (he has a management company, although he did manage them when he lived in the local area).
On the other hand, my parents delved into renting their house with no prior experience with renting — the last time they had rented was 30 years ago! They didn’t even bother to call my brother or me (an experienced renter) to ask for advice. They ended up charging way too little on security deposits ($500 on a house that rented for $2,500 a month), didn’t check their tenants thoroughly, and really got screwed in the end. The renters ended up leaving bedbugs and a very dirty house behind, and they never paid for the cost of treatment. My parents just barely broke even because they had charged a lot more for rent than their mortgage.
Know what you’re getting into. You could be lucky and have things just work out . . . or you could get screwed. Just like any business venture, I suppose. Best to be prepared.
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If you just take the highlights of this it is a great lesson.
Business + Inexperience + Debt = Problem
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I am with JKC, commenter #10.
And I am willing to bet that this story comes out ahead – the price is good, and the author, though cash poor, has the knack for it.
Rental property is the ultimate in get rich slowly techniques. I was surprised when I first found this blog that rental property wasn’t what it was about – the saying in real estate (apart from “location, location, location”) is “Don’t wait to buy real estate, buy real estate and wait”.
And everything takes work. How much effort does it take for a person to get up and go to work every morning? Do you think that it takes more or less effort to own four or five rental homes? (Answer, significantly less!).
I too am excited to hear the end of this story, but I bet it ends well – and I bet the property is cash flow positive. (just as mine are).
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I lived this same nightmare myself for three years: an apartment building in a low income neighborhood. The worst mistake one can make in real estate is to become emotionally vested with the people you think you are going to ‘help’. Let me tell you that there is a large swath of the low income community who does not want to be ‘helped’ and instead will continue their pattern of destroying anything good that may come their way. I already know where your story is going and how it ends. All I can say is that it will take you some time to recover from that experience, not just financially but EMOTIONALLY too. Reading your story today has dredged up the emotions I usually keep buried regarding my own apartment building debacle, especially the simmering anger that remains at my own ridiculous foolishness. There will definitely not be a ‘next time’ for me when it comes to low income rentals.
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One fallacy about owning a rental unit is that it is a great “passive” investment. Unless you are going to immediately turn it over to a property manager it is a business, not an investment. You don’t buy a house like a stock and just wait for the dividends/rent to roll in. And if you ARE working with a management company there are ongoing costs and other pitfalls you have to be aware of or you could wind up in a deep hole.
People who try to pitch the idea of being a landlord often tout the fact of leverage: you CAN purchase a $100k+ house with very little down. But the flip side of that is that, no matter what happens, you are on the hook for that money! If you buy a stock and the company goes belly up you lost the money you used to buy the stock. If you buy a house and a renter completely destroys it in a way that your insurance won’t cover, you have to cover it or deal with the bank that wants their money. I have known a number of landlords who declared bankruptcy because they didn’t have sufficient capital to cover the damage caused by renters or the expense of an extended vacancy.
You also need to keep in mind that you are turning over that $100k+ asset to someone you don’t really know, or worse someone you DO know. And once they have a contract in most states they have more claim to the property than you do. Unless there is a situation that poses an immediate threat to the state of the property (fire, flood, etc) you can’t enter without permission. It doesn’t matter if they haven’t paid rent in months, and yes, they can get away with months. I learned that the hard way working through my own eviction. The horror stories don’t always happen, but you NEED TO BE PREPARED FOR THEM. When all was said and done last year I collected $2000 in rent (in the whole YEAR) on a $1250/month mortgage. The rest had to come out of my pocket. That doesn’t include repairs or fees paid to the management company I hired over the summer.
Finally you have to have the personality for it. Even if you hire a manager you have to be able to go in with an attitude of “This is MY property, you work for me.” Not, “You’re the expert here, so whatever you say is how it must be.” And if you manage it yourself you have to be willing to be mean. You have to be willing to kick people out who will look at you with tears in their eyes saying, “But where will I GO?!” You have to be ready for the sob stories that are all true and say, “I feel for you and wish you luck. But you have until the 5th to pay your rent or you will be evicted.”
With all of that being said I am glad I tried being a landlord for two reasons, one is that like many of you I had the bug and I was going to try it sooner or later and it’s best to start [relatively] small. I can’t imagine starting with 8 units like Baker (though he already had some management experience). The second is that I have learned so much, both about running a business and about myself.
Finally I would say that if you ARE seriously thinking about getting into the market, contrary to popular opinion now is a GREAT time to get into the market because so many people are panicking and selling low. You don’t want to get into the game when everyone else is. The rental market is soft in most places, but it will get better as the job market improves because fewer people are going to be able to buy a house than could 5-10 years ago. They have to live somewhere. Right now they are bunking with parents and such because many don’t have jobs, but that will turn around.
Like I said, it’s an entrepreneurial move. And I have met many people who find a great renter who pays on time and stays for years. As long as you keep in mind the relationship between risk and return you may do very well.
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so he just kicked out poor residents who were already having a hard time making rent payments??
sounds kind of mean… Just my $.02
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Can’t wait to read part two! This has sooo lifted my spirits!
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Great story Baker! I can’t wait to read the second part.
These kinds of real estate deals seem to be a US only phenomenon. It is much harder to assume mortgages in the rest of the world.
I am always amazed at what a free-for-all the American economy is. I guess that is why Silicon Valley is so successful. It is probably also why Wall Street is such a mess.
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Ugh… we just rented our house for a year while we’re away and it was a nightmare, even though so far our tenants (who are paying less than our mortgage) and management company have been fine so far. We avoided a lot of nightmarish people along the way and I understand why we, as good tenants, were able to get a good deal on the place we’re currently renting. I would not want to deal with this hassle on any sort of long term basis. Not my favorite way to make “passive” income. I know someone has to do it, but I’d rather not have that someone be me.
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@Dave
I had to sound cruel and heartless, but it sounds like he was trying to start a business and not a charity. Should he have kept tenants who were having a hard time making payments that would help cover his loan and maintenance costs and help him make some money? Should low income renting be a non-profit?
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Can’t wait for Part II.
However, I sense impending doom.
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Great Post! I’ve just recently become aware of the investment potential of rental property, as well as the tax benefits if you take the time and effort to set-up a proper business. Please keep more posts like this coming and let’s all continue to explore the vast investment potential rental properties offer! Thanks!
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Nice writing style. Can’t wait for the rest.
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Hey dave, can I borrow some money? I won’t pay it back because things are really tight, but it would be mean for you to ask for it back when I’m so hard up. I mean I’m going to be evicted if you don’t give me money, so if I wind up on the street it’s all your fault for not paying my bills.
That is the same logic as saying someone shouldn’t be evicted. They/you are insisting that the landlord pay their housing costs. It’s no different from asking anyone else to pay for their housing. If you want to be charitable go ahead, but implying someone else should unwillingly bear costs is stupid.
Of course that assumes you were serious in the first place, which I seriously hope you weren’t.
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I bought my first house @ 22. I had 2 roommates who paid the mortgage, utilities and a monthly house cleaning service (literally – they wrote the checks every month in exchange for a small discount on the rent). I would say it was one of the best financial decisions I have ever made. I did NOT know the roommates before living together — but I screened 5 different potential roommates before finding the right pair. Oddly enough (I don’t know why), many of my friends made fun of me for this move (don’t know why).
I am now married (24) and the roommates are gone (I tried to convince my wife to live like that for another 2 years to pay the house off – but she wouldn’t go for it…). This was a wonderful experience. This is a great way to enjoy extra income while you are young (or old) – you own the house – you live in the house – and you have roommates who pay for the house. Awesome!
I guess I would plan on owning rental property in the future – but with the knowledge that you make your money on the purchase price (don’t assume unlimited appreciation). Great article btw (love how it is written)!!!
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Real-Estate investing using leverage (borrowed money) is insanity. It would be like maxing out all your credit cards to buy shares of only one stock.
The only case where it makes sense is if the investment is a small part of your portfolio.
Buying a house as opposed to renting is different, since in that case, the move is to reduce the cost of having to live somewhere, i.e. with a small chance of turning the cost stream into a mediocre return.
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Good story. I’m looking forward to the conclusion.
Seems like they took on way too much risk.
Rentals can be a good investment. But you don’t want to bite off more than you can chew and its risky. You really have to be aware that its more of a part time business than an investment.
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I think the best advice for potential landlords is to really crunch the numbers and make sure you end up with positive monthly cash flow. Sure, you MIGHT profit handsomely upon sale because the rental property appreciated in value over time, but you might not. I say that as someone who owns rental property purchased pre-housing crash that is worth dramatically less than it was at the time of purchase.
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JKC comment #10 makes very good points.
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Shara (#23) wrote, “One fallacy about owning a rental unit is that it is a great ‘passive’ investment. Unless you are going to immediately turn it over to a property manager it is a business, not an investment.”
AMEN!
My husband owns a three-unit rental in a university town, and we do our own property management. Yes, it is a business and it is work — much less work than a 40-hour-a-week salaried job, but work nonetheless.
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@dave, I don’t know details about evictions and what not, but it seems that they could be kicked out but then reapply imediately. yes you have to scrounge for a temporary place to live but they have to do that anyway. Sometimes it’s best to start with a clean slate.
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@ Nate, my uncle did exactly that. He had 2 roommates for a while, then 1, then he got married, and eventually the 1 roommate moved out and he lived there with just his wife for a while. (they’ve since sold it and bought one they could raise kids in.) It seemed like a brilliant idea to me; cut the costs of home ownership without giving up any of the benefits. At least one of the roommates was previously and is still a good friend.
My neighbor tried it, but she must have personality problems as she has gone through more roommates than anyone I’ve known since college.
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@ Jenzer
We decided to turn our rental over to a manager in large part because of the hours involved even more than the headache or even the work. There are many things that can only be taken care of during business hours. After taking a lot of vacation in order to show up in court repeatedly for a difficult eviction we decided it was worth a cut to allow us to concentrate on our primary jobs.
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I believe that ANYONE pining to get into the real-estate business, or to simply enter the business world in general for that matter should read COMMENTARY #10.
It was excellently deailed and accurate, a very effective template to be utilized to gauge your risk, guide your desires and future endeavours.
Looking forward to part 2 Adam.
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We want part 2!
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My wife and I did our homework but we failed to adequately assess our emotional tolerance for being landlords. We bought a 4-plex in SE Portland 5 years ago and it was the worst experience of our lives. Luckily we got out in 2006 before the crash.
You better have an extremely strong stomach to be a landlord. Hiring a good property manager was a life-saver.
If you’re interested in getting into this I suggest you go down to the local courthouse and sit in on a morning of landlord/tenant trials. As I remember, they have a separate room for these disputes b/c there are so many of them. Look at all the landlords faces. If you are comfortable with your face looking like this, then proceed to commentary #10.
The best thing about this experience was that it made us really appreciate the life we already have.
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Adam, can’t wait for part 2. Real estate rentals are definitely not passive. The closest thing to passive is when you have a management firm handle things for you. We do this with a short term beach rental and its as easy as talking to the manager about once a year. Good cash flow but they take 30% off the top, but we would never be able to fill it at the rate that they do and it’s worth not having to deal with out of state people issues.
We just did a Stocks vs. Real Estate on LiveCheap and went through a lot of the concentration, tenant, leverage, etc. issues. The thing that is always true is that you can make an absolute killing on a concentrated position: whether it be a privately held company, rental properties, or having 100% of your portfolio in Apple. You can also get killed. The difference in rental properties is every time something goes wrong, you can muster your personal efforts to make things right again. It is that personal effort that is a zero recorded cost that gives you much of your return. In some ways, its like getting a part time second job and your salary ultimately gets paid in rental income and appreciation.
@jd: I don’t agree that leveraging to buy real estate is insanity, it depends on your loan terms, skills, experience, and the cash flow of what you are buying. Some people are handy, deal well with people, and like being landlords.
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@ 26 – John,
Depends on what part of the world you are talking about … in the UK, this is wide-spread and it is regular for people to declare bankruptcy because they are unable to pay the mortgage using the rent.
Evidently, it was starting to happen across the Channel in mainland Europe. Plus, don’t forget that this is what happened in Dubai and much earlier (a decade ago) in parts of Asia.
Cheers!
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Thanks for all the props. I love your comments Kenny (#44) and I think LiveCheap (#45) is right on.
I like to think that most days I am smiling, but I agree that nobody looks good when they are in landlord/tenant court.
When you do have the opportunity to take a real estate investor out to lunch, ask a few things like: “What do you like best about the job, what do you like least, and what is your ‘typical day’ like?”
You will find that most people who have a small number of units spend very little time managing their property. The time spent is important, and cannot be ignored, but as several commenters have suggested – it is not a full time job. If you do it right, on most days nothing breaks. On most days, the rent is not late. On most days you don’t have to deal with evictions or cracked sewer pipes. BUT, there are some days you WILL have to deal with these things. They cannot be ignored, and nobody cares more about your investment properties than you do. I recommend you do your own management at first (seasonal rentals are an exception).
If you can’t stand the idea of evicting someone who is not paying the rent that you agreed upon in writing at the start of the lease, then don’t become a landlord. If you can’t stand being responsible for the roof over someone else’s head, then don’t become a landlord. Own up to the responsibility.
If you can be fair and firm and honest and dedicated to your business and have a little bit of time to spare and a little bit of money then you might be a good candidate to become a real estate investor. This is definitely a “third stage” occupation for those of you following this blog. It can also transition very nicely into “fourth stage” FI if you do it long enough. Imagine the day when your mortgages are paid off, and you have X number of units paying you market rent for houses or apartments that are well maintained and require relatively little of your time.
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This is great…thank you for posting. It isn’t just about real estate. This is a great post about the emotional thought process we go through when making big financial decisions.
I’m a a bit schizophrenic on this topic. I’m a real estate agent in California (and about to get my Oregon real estate license ahead of a move), yet I have no interest in home ownership myself. On the other hand, I’m very tempted to invest in rental income properties at some point.
I think a good way to enter this arena is to maybe buy a triplex or fourplex to live in while renting out the other units.
Great post!
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This is a timely post for us. We live in France. It took us 18 months to get an eviction order for a tenant who stopped paying rent. (Insurance covered the rent, thankfully). She left before she was evicted and SMASHED THE PLACE TO BITS. A 33K reno later, we are still waiting for our insurance settlement after which we should be about 12K out of pocket, just for the reno. We should get the money next week (fingers crossed).
It has been five months of stress and sleepless nights. But the apt has more than doubled in value since we bought it in 2004 so we are hanging on. It seems crazy to go through all that and then sell it. Happily I think these horror stories are a minority, and it seems that drugs were involved with this one. The tenant changed radically in the six years she was there. First two years she paid well, second two years she paid badly. We should have been more pro-active but we knew once we started eviction proceedings she would stop paying altogether, so we actually waited until we were in a better financial position (we did not know then that her rent would indeed be covered by insurance).
We did not trust ourselves to find a good renter when we purchased so we used the agency’s PM. Hah!
If things go badly, you need nerves of steel. We have two rentals, thankfully the other is problem-free.
Here you can get insurance for non-paying renters, since it can take 24 months to evict. Otherwise I don’t know how we would have managed.
If you do your homework it can be a good way to build wealth, but it’s rarely trouble-free. I consider it my “second job” (I have had to manage the PM for the past three-four years, and deal with the contractor and insurance company for the past five months).
The key is to “buy smart”. Happily we did. (“Rent smart”, obviously not so much.) Also, if you are handy and if you have the skills and time, you can save a lot of money on repairs and maintenance.
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JKC
I think your posts are spot-on!
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