Reader Story: Rental Properties for the Average Joe
Published on - January 24th, 2010 (by J.D. Roth) This guest post from Barry is part of a new feature here at Get Rich Slowly. Every Sunday will include a reader story (in the new “reader stories” category). Some will be general “how I did X” stories, and others will be examples of how a GRS reader achieved financial success. Barry’s post is also part of an accidental “real estate week” kicked off by Baker’s story.
For years I’d heard the rental horror stories, about tenants who refused to pay and landlords who couldn’t get rid of them, or tenants who trash their units so badly that the landlord gives up on renting altogether.
I’m sure these things can and do happen. But are they the norm? My wife and I had always wanted to own rental property, but stories like these made us nervous. Maybe rentals weren’t really meant for average folks like us.
Plus, there was the question of cost. My wife and I only make $60,000 between the two of us. Could we really afford to own a rental property? We’d always thought of rental properties as something for the rich. But maybe we had it backwards: Maybe the rich were the only ones smart enough to know that rental properties were good investments. Maybe we need to think like the rich do.
Doing our homework
With our limited income, we felt like we didn’t have the money to put in stocks. Plus, we thought that maybe the income from a rental unit would help us build a nest egg that wasn’t subject to the whims of the stock market. And we really liked the idea of having somebody else (the renters) setting aside money for us every month.
First, we did some homework. While the bank pre-approved us for a loan, we talked with our insurance company, local real-estate agents, and local landlords. This research gave us enough knowledge to go out and look.
We found several houses we liked, but most of them were too expensive. We couldn’t rent them out for enough to cover expenses. It seemed the local investors (rich people) were working closely with the real-estate agents. Agents get thousands of dollars in commissions through the investors, so my one purchase wasn’t anything that interested them. The investors are their bread and butter, so they got first crack at the good deals. I got the overpriced leftovers. My wife and I almost gave up. We couldn’t get a real-estate agent to work with us; we just couldn’t compete with the investors.
Evening the score
Then one day, there was an auction in our area. I went to see how much the house would go for. It went cheap! I’d been looking for long enough to know that if the house had been listed with an agent, it would have sold for a lot more. I wondered if this were a way to even the score.
We asked around and discovered the local investors get so many houses through the real-estate agents that they don’t bother going to auctions. They consider it a waste of their time.
Auctions are scary places to buy houses. There are no contingencies, no home inspections, and everything is final when the auction is done. You have to be sure of yourself when you place that bid. These things alone make it hard for the normal person to buy a home at auction.
The next few months we went to every auction around. We learned how to bid at an auction, and how much houses were going for. We knew we needed $5,000 for a down payment on the day of the purchase, and financing for the rest within 30 days. Because the houses at auction were selling for about 10% less than on the open market, this was our chance to get a good deal.
After waiting for a while, we found a house we liked that was going to be sold at auction. It was in a nice neighborhood. It needed some work, but we knew we could do most of that ourselves. We ran the numbers through our bank and found out interest rates had dropped to record lows because of the mortgage crisis. There seemed to be a perfect storm of low interest rates and people losing faith in real-estate. We felt that this was our chance.
Taking a chance
When we got to the auction, we were scared to death. We’d been to other auctions before, but this one was different. We knew this was the house for us. We wanted it more than any other house we’d looked at.
We arrived well armed. We’d done our math. We knew just how much comparable houses were getting for rent, what the taxes were, how much insurance would cost, and how much we could bid and still come out ahead.
As you can probably guess, in the end we were the winning bidders. We’d bought our first rental property. Now the real work began. We spent two solid weeks doing nothing but working on the house. When we were done, it looked great. We found a renter through word of mouth, signed a one-year lease, and now welcome the challenge of being landlords.
The property has been rented out for about six months now, and we’re very glad we bought the house. Our tenants have been early with the rent every month, and so far things are going smoothly. We did have some furnace problems and a problem with one of the doors, but those were minor. We knew there’d be problems, and we’ve dealt with them as we would have with our own house. It’s nothing the average person couldn’t handle.
Buyer beware?
Owning investment property isn’t for everyone. As with other investments, there are risks involved. But we felt that rental property would give us another form of income to help us on our financial journey. We know it’s not going to give us a quick payback like picking the right stock might. But we’re not looking to get rich quickly. We’re looking to build a nice solid nest egg, and rental property is just a part of that.
Is rental property for the average joe? We think so. What do you think? Do you own rentals? What advice do you have for others who might want to try this to make a little extra money?
Reminder: This is a story from one of your fellow readers. Please be nice. After nearly a decade of blogging, I have a thick skin, but it can be scary to put your story out in public for the first time. Remember that this guest author isn’t a professional writer, and is just learning about money like you are.
GRS is committed to helping our readers save and achieve your financial goals.Savings interest rates may be low, but that’s all the more reason to shop for the best rate.Find the highest savings interest rate from Ally Bank, Capital One 360, Everbank, and more.
This article is about Entrepreneurship, House and Home, Reader Stories
Disclaimer: This content is not provided or commissioned by American Express. Opinions expressed here are author's alone, not those of American Express, and have not been reviewed, approved or otherwise endorsed by American Express. This site may be compensated through American Express Affiliate Program.
Discover is a paid advertiser of this site. Reasonable efforts are made to maintain accurate information. See the Discover online credit card application for full terms and conditions on offers and rewards.
SEARCH FOR RECENT ARTICLES
if only it was truly that “easy” but its not. it’s awesome that thus far your journey has been fairly smooth, but be careful good luck!
i do believe renting is for the average joe, they need to have a handy man that can be counted on. one day i would love to own rentals, my grandmother used to own property. make sure you have money set aside for problems like a leak in the roof, plumbing. do yearly pest control.
loading....
Great guest post Barry! I bought my first rental property when I was 20 and my second when I was 22. There have been moments when I regretted it (having to evict someone) but overall they have been great investments that are building wealth for the future.
To people looking to buy their first rental property, I would advise that you have a $3-5,000 emergency fund for the property. No matter how well you plan and how much you check things over it always seems like there is several thousand dollar expense that comes up every year or two. For example, in my state they changed the regulations on smoke detectors and I have to hire a electrician to come in and rewire and reinstall all of the smoke detectors which cost over $700.
Now that I have been doing this for five years, I can say it seems like problems with your property come in waves. You will have six months with hardly anything going wrong and then two tenants give you notice and you are scrambling to show the apartments and fill the vacancy.
Overall rental property can be a great deal if you pay the right price initially and you treat it as a business.
loading....
We were forced into being landlords. That is, our home was on the market for 9 months and wouldn’t sell and we refused to let it go into foreclosure, but also couldn’t afford the monthly payments on two places (we were relocating across the country due to a job). We have a renter in the home, but she never pays on time. We’re stuck with her though because the market still isn’t good enough to sell for what we need it to sell for. Being a landlord is not fun and we wouldn’t do it again.
loading....
I too, am an unwitting landlord for a rental property I cannot sell currently. I have rented it for approximately 6 years and have had both good and bad experiences.
Most renters have been positive experiences however, I am careful to screen them thoroughly before I even consider giving them a lease. No pets, no smokers, no tenants <25 years old. Call me whatever ugly name you like, but my condo remains in great condition and I’ve never had any problem with collecting rent.
loading....
I’m interested in buying a rental property, but don’t think the renter market is good enough where I live; I’d rather look in a city or college town. Does anyone know of reliable property management companies? Or, does anyone use one? I’d really appreciate some advice on this.
loading....
To each his own I say. I have a friend who owns a small rental property and he was telling me a little bit about all of the hard work and the minimal return he was making. He was happy with the return and I was glad I didn’t have to tell him how much more I make from the comfort of my own desk and internet connection. But he can fix plumbing and I can’t and I can build websites and he can’t, so we all need to do what works.
loading....
My parents had rental property and had to evict a tenant (in a nice neighborhood). On their way out, the tenants left the gas burners in the house on full blast. Thank goodness when my mom and sister went to check on the house days later no one was hurt. That scared me enough from ever entertaining the idea of rental propety!
loading....
Here in the Boston area, multi-unit housing is very common. These look like regular detached houses but either each floor is a separate unit, or two floors are one unit and the other floor is a smaller unit. When I was looking to buy I specifically wanted a multi-unit house, because that was the only way I could afford to own anywhere near the city.
So far it’s worked out really well. I don’t use an agent to find tenants (Craigslist is cheaper for them and for me) but I do use a credit check agency to make sure they’re financially stable. The tenants give permission for this on their application.
The one-bedroom unit on the third floor is rented out by a tenant who’s on her third year here now; the second floor tenant is on his second year. I’m on the first floor and take care of the landscaping and so on myself, and I try to be very responsive if (when!) it’s time to call the plumber / electrician / whoever. I want my tenants to take care of my property; trying to save money by not fixing things isn’t savings if your good tenants leave.
There were existing tenants in the house when I bought it, and one of them “forgot” to pay the rent about half the time. So yeah, choosing the right tenants is everything. At least here in Massachusetts, rental laws strongly favor the tenants, so with bad or destructive tenants, you could be really stuck.
loading....
I think this is a great story. You did you research on prices. You figured out financing ahead of time. You researched how auctions work. And it seems like you are renting in the same town you live in. And you know how to do minor repairs on the house.
Congrats on the due diligence you put into buying a rental. It paid off.
loading....
My parents have been landlords for many years. They bought in area’s that they were familiar with and did most of the work themselves. Now that they are aging, they are selling the properties because the upkeep between tenants (repainting, recarpeting, drywall work, possible rent court etc) is too demanding and too expensive to hire out.
DH and I would love to buy a rental but we want it close to home and homes are still overpriced in the area. We keep an eye on the auctions and foreclosures but out of town banks who own the properties seem willing to keep a property on the market for 1 year+ rather than drop the price.
loading....
I don’t understand the comment: “With our limited income, we felt like we didn’t have the money to put in stocks.” You didn’t feel like you could afford to contribute to an index fund, but you had no qualms putting much of your personal portfolio into an illiquid, highly volatile, high maintenance investment like rental property? Seems like this is only something you would think about doing AFTER you’ve maxed out your options in areas like stocks, bonds, etc., and even then I might consider investing in REITs other than rental property. See this post for more details on this strategy:
http://badmoneyadvice.com/2009/07/owning-rental-property-or-owning-reits.html
loading....
My wife and I have also considered owning rental property, it really sounds like you did your research to make sure you made a good investment. My BIL rented out his house for two years when he was in grad school and never had a pro lem. He used a property management company though since he was out of state. I am
curious if you use a lawyer to do your leases
or how that whole process even works.
loading....
Wait… did I miss the second part of Baker’s story?
loading....
I agree with Kevin 100%. What happens if you’re renters give you trouble? What happens if they move out and you can’t find a new tenant right away? Can you afford 2 houses by yourself? You’ve probably thought of all these things, and that’s fine if it works for you. I wouldn’t want to deal with it myself. But I’d like to offer an alternative view of rental properties – not from the tenants point of view, but from the non-renting neighbors. I’m tired of “averages Joes” getting into rental properties. Actually I’m tired of rental properties period. I actually own my home and it gets really frustrating to see other houses in my neighborhood put up for rent. The turnover in these rental properties is high and the tenants have no vested interest in keeping up the quality of the neighborhood. Sure the property owners are still responsible for following the covenants, but getting them to comply is a hassle and they are never going to put more than a bare minimum of effort into a property that’s not their primary residence.
loading....
I’ve been toying with the idea of rental properties for a while. As a recent college grad with tons of school loan debt (>100,000), buying a duplex and living in one half seemed like the easiest way to minimize my monthly required spending, while also building my net worth at the same time.
It’s reassuring to hear success stories from regular people. I hope everything keeps going well from you, and would definitely look forward to any follow-ups on your story!
loading....
There are lots of resources for landlords, and as a landlord I use all of them. One example is a website called mrlandlord.com. They have a section where you can post your question or problem for free and other landlords will offer suggestions on how to handle.
Being a landlord is not for everyone. There are problems. But one thing that most – in fact just about everyone – fails to consider is this: How much time and effort does it take for a person to get up, get ready, and go to work every morning? Do you believe that amount of effort is more or less than the amount of effort it takes to manage rental properties?
I work all day and have four rentals on the side. And the problems do come in waves and tenants don’t pay and etc etc etc – but if you treat your rentals like a business and screen your tenants (don’t rent to scum!) and put the fear of God in them when they sign your landlord-friendly lease, your tenants will treat you right.
But if you are afraid, no worries! More rentals for me.
Barry – are you ready to buy another if the right one comes along?
loading....
I’ve always wanted to invest in real estate – so far it’s just been my own – this is a great story!
I had a colleague who bought her first home – cash, then continued to live like a college student and saved her money to buy her second home – cash. She rented it, and used the money to buy her next home. She has ~10 now… took her about 25 years. She just sent her first child to the college of her choice – she told me that – if she needed it – she could just sell one of her properties to pay for it. I was envious. (She still eats PB&J everyday… knows where every penny goes – a good GRS story)
In retrospect, I wish I would’ve approached my parents to help me buy a place when I went to grad school… That would’ve been 6 years of paying myself (my family) instead of renting… I’m hoping to be able to do this when/if my kids decide to live in a college town.
loading....
Hey Barry, thanks for your post. I own a couple rentals, one which I manage, another which the resort managers. It’s not a walk in the park I agree, and there’s an added layer of tax understanding to it.
However, after the first year or two, it really goes on autopilot, and you can start seeing the benefits owning rentals have to your retirement portfolio by year 3 at the latest. Value of the property is nice, but the real value is in the CASH FLOW.
Economy sucks, people rent and rent holds steady or even goes up sometimes. Economy is good, people buy, and rent goes up because people can’t buy due to outrageous prices.
Sam
loading....
Oh JD – your comment was unnecessary because this post was extremely well written.
I read this with a lot of interest. My hubby and I bought our first home-got a great deal, but live in a middle-lower income neighborhood. We have horror stories from the rental property next door (drugs, handguns, fistfights, etc.). That house was recently foreclosed upon and is now going for $99,000 on the real estate market. If my husband and I were in the financial condition to do so, I almost want to buy it so we can have control over who our next neighbors are going to be (or else bulldoze the house and have a super big lot.) It’s just nice to know that some rental properties have a “happily ever after.” 
Thanks for sharing Barry!
loading....
@Kevin
I don’t think he wrote this post to ask for advice on how he should invest his discretionary income, he wrote it to tell how he used his. The point of when and how you should invest is specific for each person to decide for themselves.
I do agree if you plan to be a landlord you should have some handyman skills (and I don’t mean changing light bulbs) and a savings fund large enough to deal with repairs. We’ve been considering purchasing a rental as well, but just haven’t found the right property yet.
Regarding property managers: I wouldn’t purchase a property, rent it, then rely on property managers to oversee the property for you. It goes back to the basic rules of personal finance, nobody cares as much about your money as you do.
loading....
Here in the UK property according to my valuations is very over priced. I’m therefore on the other side to that of Barry. I’m a renter.
Now I’m looking to save as much of my gross earnings as I physically can as part of my retirement investing strategy and so I am looking for every way to reduce my monthly outgoings.
So when my rental agreement came up for renewal I took advantage of what Barry mentions in his first paragraph. The fact that I pay on time and don’t trash the building. I was therefore able to negotiate a nice rental reduction freeing yet more money for my retirement.
loading....
Thanks for the interesting post. I’ve been thinking about rental properties, but Central New Jersey is just really expensive to buy in. In order to make some money (or break even), I would have to buy a duplex or a triplex. A handyman special goes for between $250-300k.
loading....
Barry, thanks for sharing your story. I also hope to have a rental property someday (more along the duplex-that-you-live-in-too lines).
DP, my initial reaction is that you’re discriminating on the basis of age. Now I know that as a landlord you can discriminate against smokers and pets, but I’m not sure your age requirement is legal (I guess it depends on your state – anyone know more?).
I guess since I’m 23 I’ve trashed every place I ever lived and never paid rent.
loading....
Really nice article Barry! I hope you have a great side business for years to come.
i am with @21. I plan on renting after we are done with the mid section of our retirement. We have always been great tenants- paying before time, fixing small things ourselves.
We built a house three years before my husband’s military retirement and rented it out. Our property manager knew it was nice- so advertised by word of mouth. In Arizona it is difficult to legally “cut people out”. In fact @24- you cannot discriminate because of age (I think that is a federal law). He only told people he knew would take care of it.They all rented and then bought a house from him:>) Sweet deal for all.
We have toyed with purchasing a house that our daughter’s family could live in. They cannot get into the market. Later, when they have the money- they could buy it from us. Not sure it is going to happen. We will see after the payments they are making for money they borrowed works out….track record- even in families:>)
loading....
We’re renting our house for the year… it was kind of a nightmare. We learned that background checks on tenants are very important… people who offered us the full rent had no means of support, smoked, had arrest records for non-payment, etc. (Some prospective tenants just evaporated upon hearing the words “background check.”) If we weren’t locked into a home owners association it would have been much easier because we could have rented to 3 unrelated medical students or 4 unrelated PhD students.
It would also have been easier if we didn’t own such a nice house– there seems to be a maximum rent that a working class or graduate student couple can pay and our mortgage is well over that. In the end we’re getting less than our mortgage amount, but it is better than nothing. And it would have been easier if we were renting out long-term rather than for a limited amount of time (apparently there are a lot of 2 year contracts for professional people, especially in construction).
Our case is different because we intend to move back to our house in a year. We mostly learned what not to do if renting out a place. I really hope that our house is in reasonably good shape once we return and we’ve allotted some emergency funding for fixing things if necessary should they need it.
I’m not sure how legal this is, but one of my colleagues recommended advertising in churches of the LDS– he had had good success with Mormon tenants in the past. (You’re not allowed to make decisions on who to rent to based on religion, but you might be allowed to advertise that way. We never got around to posting a flier there.)
loading....
A friend of mine was left a small house by her grandmother. It was converted into a duplex and she lives in one unit and rents out the other.
We live in a college town and she gets a lot of college students as tenants. However, she has had some of the worst tenants – ones who pay late, ones who trash the place, ones who are loud, etc, and, the worst, ones who move out after two months providing only two weeks notice. It tends to have a vacant room a lot. I’ve been trying to convince her to institute an annual lease instead of letting tenants rent month-to-month, and up the notification time to at least a month.
She’s actually being sued right now over a deposit she didn’t refund because of the state the tenant left the place in. Unfortunately, she didn’t make any documentation – just cleaned it to get it ready to rent again, so she’s trying to round up witnesses who will testify to the state it was in when the tenant left.
My wife and I have toyed with the idea of renting a larger apartment next year and sub-letting a room. Based on rents in the area it’s a financially good idea. However, based on the problems our friend is having with tenants, we are rather skittish.
loading....
My grandmother came to this country from Spain before the Depression, unable to speak English, not educated.
After she married (on the boat coming over!) the first thing she did was take my grandfather’s meager pay, save it and buy up (very) small houses in the neighborhood. And they had 8 kids!
When she died at 92 she left 12 houses in her estate.
She used to say to me as a little kid, “buy land, they don’t make it anymore”
loading....
Great post! I am a Realtor (have been for 22 years) and I just wanted to say that not every Realtor makes a killing off of investors… Many of my clients over the years have purchased one income property from me, and I appreciated their sale each time, and treated each one as an important transaction, no matter what the price of the property ended up being.
Congrats to you on taking the plunge and starting to build wealth for yourself…welcome to the club! If you are in the market for a nice 2-flat in Geneva, IL call me… I have 2 great ones!!
loading....
Owning a rental property can be a very good thing, but there are a lot of caveats and not something to be taken lightly. I had 2 rental properties, one of which was a duplex which I resided in. On site management was fairly easy since – not much more difficult than owning a single family. If you have a good tenants – it is almost too easy. Bad tenants can be a nightmare.
When you sell a rental property – Uncle Sam is your partner! You are taxed on the gain unlike a personal residence. The best option is to convert the property back to your personal residence for the requisite period of time and save on the taxes, if possible.
loading....
We, too, got caught on the front end of the bubble. My husband lost his job and had to take another in another state and our house was in the middle of a remodel. We couldn’t sell it without taking a huge hit, but couldn’t rent it for full fair market value because of its condition. We ended up renting it out for about half of the monthly mortgage, and the tenant was sort of OK. She was late twice, bounced the rent check twice, violated several terms of the lease, but at least we had someone IN the house (which was apparently REALLY important to our insurance company). We ran the numbers and she would never have been able to buy the house outright anyway, although she said multiple times that they might be interested in buying it. Long story short, it worked as a temporary thing, and when my husband ended up losing the new job and finding one here, we moved back in to our house. I would do it again, but am hoping that it will work out a little more in our favor financially in the future.
loading....
I’d been wanting to buy an apartment to rent it out (in France).
When I looked into them, they were way too expensive, and the bank wouldn’t give us a credit because the rent couldn’t count towards our available income, so they thought we “couldn’t afford it” (even though we could twice over, even before being paid rent).
That, and the average property took about 12 years to pay for itself (that is, we’d get our money back after 12 years of rent) which seemed too long to me.
And I guess I was right since we ended up moving to Canada, if we had sold the apartment we wouldn’t even have gotten all of our money back due to the interest rates.
loading....
Great story! I accidentally entered into being a landlord. My company transferred me one year after I had bought a house, so I decided to rent it rather than sell it. It has worked out well. I actually spent quite a bit of time finding someone to manage the property for me. That adds costs, but I was too far away to do it any other way.
I’ve since gone on to buy and rent another property as well. The thing I learned in all my rental experiences is that there are multiple reasons to buy a property and rent it. You can buy and rent a property for income, in which case like you did, you make sure what you can charge for rent is more than your costs. However, you can also buy a property for appreciation. My 2nd property I bought for growth potential in a foreign city I happen to know well which has great growth in the 8% per year range. Additionally, when the costs exceed what you take in, you have capital loss. For other investments, it is beneficial to have some capital loss to offset the capital gains.
loading....
While you may have had a good experience with auctions, that is not always the case – even with thorough due diligence. Some owners who know that their house is going to be put on the auction block will literally destroy their property, selling their appliances, ripping out the carpet and cabinets.
In California at least, would-be auction buyers are not allowed to inspect the property whatsoever. So what you see (from the outside) is what you get. There could be extensive damage on the interior of the house so it really is a gamble and while you can get a great deal there also is the chance that it may cost you more than you bargained for.
loading....
I am one of those “average joes” that owns a rental property. I have been a landlord for almost 4 years now and I have been very lucky my first time out. I have a great tenant that I’ve had since I first rented the property. She has only been late with the rent one time in the last 4 years and she doesn’t call me for minor repairs. In fact, she calls me so rarely, when she does call, I start to freak out a little because I know something big is wrong.
It can be a good experience or it can be a nightmare. Luckily, I haven’t had any nightmare tenants (yet).
I wrote a post about how I became a landlord. Hopefully, JD doesn’t mind me posting a link to it.
http://www.singleguymoney.com/2007/10/how-i-became-landlord.html
loading....
I think I’m with Kevin @11 on this. As someone who has owned both stocks/mutual funds and real estate, I think stocks are a bit easier to manage than real estate – and they are easier to get out of if things head south. That being said, I think real estate could be a good way to diversify your finances (once you’ve got the foundation of your financial life set up).
I would hesitate to go back to renting for the reasons others have mentioned. But if we did, I’d definitely (1) do the due diligence that Barry did on the property, PLUS (2) the due diligence that others mentioned on the tenants AND (3) work with properties near where we live. Long distance landlording for the average Josephine can be painful.
loading....
We own multiple rental properties.
We keep to single family homes that are cheap enough that if empty we can cover the morgage.
Background checks are important. Mr. Sam does the vast majority of the work himself. It takes time and energy which means that some times weekends are just house projects.
The best part of real estate investments is that our tenants are building our equity for us.
We keep our properties well kept and most of the time our property is the nicest one on the block.
We learned real estate from my grandparents who at one point had 20 properties.
There is also a great tax benefit to real estate investments but we are being audited by the IRS so we’ll see how it turns out.
loading....
Interesting story – thanks for sharing.
I have to say that the idea of a couple who only make $60k wanting a rental property bought at auction is very risky.
King of like buying junior mining stocks. Nothing wrong with it, but it’s not a great strategy for the “average Joe”.
loading....
This is a really interesting post. As a renter I always find it kind of interesting to see the perspective of the landlord, especially people who just have one or two rental properties.
I had no idea people were so afraid of tenants! When I think of the ideal landlord/tenant relationship I always remember this great 4-plex I lived in in Oakland, CA. The landlord/owner lived in the unit next to us on the top floor, and the bottom two units were mature, long-term tenants. When we went to look at the apartment my roommate and I were really impressed with how clean and well kept the outside areas were. I know a lot of owners are afraid of renting to younger people, and it’s true that we tend to move around more often so we may leave after a year or two, but seeing how much respect the owner had for her building made us respect it too. She wasn’t so much interested in credit and background checks as she was in our references, and I think that deterred a lot of shadier characters from applying. I think a lot of renters are wary of “average joe” owners because they think they might be slum lords, so the amount of care you put into maintaining the property really matters when finding a responsible tenant.
loading....
For me, owning rental property is a good fit. I can fix anything, and I mean anything that goes wrong. And my wife is an attorney who can deal with the other end of the business.
Before I met my wife, I got very lucky in RE. I never made much of a yearly income, but with a few RE investments, I did quite well.
Living in SoCal properties though are still way too expensive. If they were to drop another 50%, I may start taking another look.
PS. A short comment to GRS. I really like that I can go back and get a chance to re-edit my comment. How do you do that?
And I thank you so much for your blog. I get tremendous value. I wish you success in your book also.
loading....
I rented our townhouse for 5 yrs. My advice is the following:
- no matter how nearby\handy you are, get a property manager. They become the required 3rd party to act according to the lease/law.
- be creative to keep good tenants. No matter how hard you try, you lose at least 1 months rent btw tenants. This is a fact. We offered a better price for a longer contract. In addition, we offered reduction for other items like carpet cleaning and such if they stayed on longer. It is always cheaper to keep a tenant.
- have your own handy man fix things.
- know where your house’s weaknesses are. I mean know what you may have to fix while renting and plan for those items.
- know your area and the avg rent, you have to change your price with the market.
- expect damage. However, write it into the lease that every 3-6 months a physical inspection is required! This only takes 30 mins to complete.
loading....
Would-be purchasers need to do their homework before buying at auction. My brother nearly bid on a condo with a lien on it that would have turned his investment into a real nightmare. He didn’t know about the lien beforehand, he claims that his “intuition” prevented him from making a bid on the condo on auction day.
But it’s good to know that, once someone has navigated the potential minefields, being a landlord can be a rewarding and profitable experience!
loading....
I’ve lived in places where housing is so affordable and stable, even during the past couple of years, that owning was the only way to go. I’ve also lived in places where the volatility and housing prices are so high, renting would be a great choice. There’s no blanket answer for everyone… but both are great options depending on one’s abilities, needs, situations, etc.
loading....
What happened to the second part of Baker’s story?
loading....
The second part of Baker’s story hasn’t gone up yet. He hasn’t given it to me!
loading....
When we bought our house we were moving from a rented duplex. Our new house had an apartment in it, and our old neighbor offered to move with us — it was a great deal for both of us; he paid half of the mortgage which was below-average rent, and we got tax benefits and paid down our mortgage faster. When he left to move to another state, we had two different friends who moved in for short periods of time (a year or so each), and also paid a modest but beneficial rent. When they moved out, we converted the apartment into space for ourselves — turning the extra kitchen into a laundry room probably reduced the value of the house, but by that time we had almost paid off the mortgage so we didn’t care. I don’t think we’ll ever want to be “real” landlords, but our experience was really good for us.
loading....
My husband and I have three rental units. We always take dated photos of the empty clean unit when we do the walk-though with new tenants. We give them a copy of the photos. We also take dated photos of the unit at the final walk-through when someone moves out. This has kept disagreements about the condition to a minimum.
loading....
My husband and I bought a duplex in a college town and lived in one side for two years. It was a great deal for us. Our tenant’s rent paid 3/4 of our mortgage and the work was not much more than would be required for a single home. Four years ago we moved out and rented both sides. It’s certainly harder to keep up on things now. Over the past four years we’ve financially broken even on rent. With the lousy economy there have been no true capital gains (it’s worth a little more because we got a good purchase price and made some repairs). It would be difficult to sell right now, though. Some tenants have been better than others, but we have had no nightmare scenarios. This, I think, is partly luck and partly diligence. Assuming things go as planned, we should have the mortgage paid off in about three more years. At that point, it should turn into a cash cow.
I think the “average Joe” can make money at rentals, but it isn’t exactly “passive” income. It requires capital, work, knowledge and risk tolerance.
One piece of advice: follow the 1% rule of thumb. If you can’t get at least 1% of your purchase cost in rent every month it’s probably not a great deal.
loading....
I currently control 18 units and have owned as many as 21 units over the past 15 years. I have had tenants attempt to squat in one of my properties, I have had tenants trash a unit, someone drove a car into one of my buildings and did I mention, I have been sued? I don’t say any of these things to discourage anyone from going into real estate, I only mention these things to say that craziness can be a part of any business! The truth at least for me is that real estate is and should be part of a cashflow strategy for building income in retirement. The tax advantages simply cannot be beat! I would recommend to Barry that he place his property in an LLC and that he purchase a liability umbrella. This is a very inexpensive path to peace of mind for anyone wishing to own real estate.
loading....
I like what the writer had to say about his rental experience.
After the last few years in the stock market, who can argue that diversification is a smart move. There are a lot of advantages in rental property – the depreciation and other tax write offs are important up front. Plus, once it is paid off, who would not like a extra rent check to supplement things.
There are bad experiences, and of course the unwanted repairs – like the AC unit going out in July. You have to be willing to accept that, but otherwise there are definately a lot of advantages to having rental property.
loading....
Interesting that nobody challenged the statements “Auctions are scary places to buy houses. There are no contingencies, no home inspections, and everything is final when the auction is done.”
We bought the house we live in at auction through Tranzon, and we were allowed to do a home inspection post-sale, found the finished basement hadn’t been permitted through the county – and negotiated a $10,000 price reduction from what we had bid at auction (because this clearly was a defect not readily apparent to walk-through inspections by prospective buyers). So, buying at auction was fine for us (although we spent $27,000 improving the house in the next 3 years – mostly to undo the half-baked “handy”man work done by previous owners).
Regarding rental properties, I have two relatives who were burned by renters (one in the past that vows never to own a rental again, and another who currently has a tenant who has been more than 30 days late with the rent on two separate occasions, which results in eviction processing costs for the owner that cannot be recouped when the tenant suddenly pays past due rent and is allowed to stay in the rental). With rentals, it all comes down to how thoroughly you screen your tenants up front. And, how good your lawyers are when tenants turn bad.
Rent in haste, repent at leisure, to paraphrase an old saying.
loading....