You paid 76000 for the 8 unit building and they were renting for around 450 each including bills. If your monthly revenue is approx 3600, the gross yield is only a measly 4.7%. Im not sure what the terms of your loan were but im guessing it was abit harsh. Firstly the gross yield is terrible for a lowcost property, secondly how could you have made 2-4k cashflow given your private loan and all the additional repair costs. The article, although its a nice read falls abit short when you start analysing the numbers.

“Crunching the numbers is essential, but you’ve got to take the steps to ensure it fits into your portfolio and life plans. Finally, keeping your emotions out of the process is going to be harder than you think”

I’d love to read some tax stuff from landlords if possible. I find accountants have a tough time doing our taxes (our first year they only put half the loss on DH’s taxes and none on mine). I almost wish I could get audited and just have them deal with everything LOL I’m fairly sure it would be in our favour. But with accountants screwing everything up and me not knowing about taxes it’s the toughest part of being a landlord.

Also, just FYI for everyone, that $10,000 he made is taxable for Adam. Maybe he had enough loss from the tenants not paying but I wouldn’t bet on it. And I don’t suggest buggering with the numbers. You never want them to look too closely whereas I’ve done everything legally and would welcome an audit. Look, now I’ll get one

Relatively high unemployment worldwide means landlords will not be raising rents anytime soon.

Even in the commercial market tenants are demanding rent reductions.

How’s that cash-flow projection look when rental income drops 20%?

Leverage cuts both ways.

For anyone who thinks real estate is risky. It’s only risky when you try to do short term flip. Then, yes, I agree it’s very risky and certainly won’t work too well in today’s market…

Amber is the part of real estate that you never can model in your spreadsheet. There is no discount factor for what someone like her can do to you as you think about how the heck you are going to get rid of her or what she is going to do next every night before you go to sleep.

Great series and J.D. this is the kind of stuff that teaches people more about real estate than any lecture!

She didn’t even have a cat!!!

“Timing appears to be an indispensable and essential element of any investment strategy, with real estate or equities.”

Huh?!? I didn’t get that from Adam’s story at all. And I certainly don’t agree with it. Trying to time the market is sheer gambling, and the odds are against you. I’m firmly against trying to time the equities markets, and I think the majority of educated and experienced investors here at GRS would agree.

JD, I loved this series, and I’d love to hear more “war stories” from people who’ve walked the talk. Though I agree with Taz that I found myself getting a little impatient for each successive chapter. Maybe spacing them a little closer together would be a bit more satisfying?

Great series, thanks JD and Adam!

Yet the few people I personally know who have made money in real estate, from good to wealthy, all put in plenty of effort in picking properties, picking tenants, managing the properties, and treating it like a business which needs to be grown for the long haul. So like any business you’re going to start or do on the side, you’ve got to put your time into it to get your value out of it.

Most of what I’m seeing in this story and the comments seems to reflect that. Sometimes dabblers get lucky, most times they don’t, those that work it like a business typically make something of value out of it.

I am not so convinced.

Stories like Adam’s and the comments above make it clear that there is nothing “passive” about being a landlord. No lounging in the hammock while the checks come flying in.

Also the economics are not all that great and highly speculative. I was recently offered a rental duplex. On the face – after mortgage, taxes, insurance etc. the property is cash flow positive but not greatly so. In the area I live, housing prices are still quite high, so something cash flow positive is very rare. But the IRR of the investment sucks. First off, the IRR declines, the longer you hold the property. I.e. holding it for 5 years is more lucrative than holding it for 30 years. Secondly, the IRR is HIGHLY dependent on rent inflation and property value appreciation. If the market stays flat for the next 5 years and I sell then, I make a piddly 1% a year. If the market grows 5% per year, I do slightly better than what I would hope to make in the stock market. Anywhere up from 5% growth gets exciting. But given all that is happening and continues to happen, do you believe in 5% real estate value growth? I sure don’t (not unless we get some real serious inflation). Thirdly, your IRR goes to hell in a hand-basket if you have any major expense in the 1st few years (new roof, furnace, etc?).

So in all, I am not convinced that real estate is such a great opportunity. It may or may not do as well as the stock market, and is a real pain to manage. If the couple who held on to the properties for 50 yrs in Poster 31′s story had invested in the stock market instead of real estate they would be living the high life just as well.

For me, real estate is time-consuming inflation hedge.

“The units rented for an average of $450/month, which included all utilities.” The fact that ALL utilities are included in the rent is actually a very big deal which can be easy to overlook. Heat and electricity bills for 8 homes can add up to a LOT. Yet its easy to just get too focused on rent vs purchase price and overlook the impact of such expenses.

By the time the 2nd part of it was posted, I almost felt resentful – coming to this site to see a continuation every day and not finding it. As the result, not only did my excitement about this story diminish – I also did not care for some of the other contributors in between.

I know it is silly to feel this way about something useful, but I have just discovered that I was not alone.

My father-in-law purchased, renovated, and ‘flipped’ houses for a living long before it was recently popular. He bought a small house with enough room on it to build a duplex on the same lot, and now has three income-generating rentals that will provide for him into retirement. But he has the skills to do most all the repairs needed.

My cousin and her husband, however, decided that rentals would be a good idea. They bought three duplexes: one in an okay part of town, the other two in a low income area. Their income on these is negative (they thought it was worth it to build equity). The husband spends all his spare time doing repairs on the not-so-great properties, and they seem to be perpetually chasing tenants who don’t pay. It’s emotionally very difficult because they realize they are trying to run a business, but it’s hard to evict people; they always have a convincing sob story. They recently put the properties up for sale with an asking price for more than $50K less than the purchase price (not to mention repairs, time and effort) and still can’t sell them.

I’d like to write a counter-point story, or have somebody provide a counter-point story but it’s an awful lot to include in the comments here. I’d hate to think that your wife, JD, will shut the door on the idea of real estate investment based on the admitted mistakes that Baker made.

The only real scary part is the crazy tenant. You can’t control that off the bat until the tenant starts to show a pattern of “craziness.”

Looks like Kittyboarder had some real good experiences too.

Alexandra has had some mixed experiences. It really is situational and dependent on multiple variables.

Thanks for sharing, Baker. Good stuff.

- Charley

When I finished this story, JDs note at the end really scared me. The idea isn’t to say how awful real estate is or scare people off, but to point out real world issues that CAN happen if you aren’t careful. My husband and I are on the path to investing in real estate, but we see it as a Get Rich Slowly plan. We are both working in jobs that will teach us how to manage properties and investments(I’m accounting, he’s storage management), as well as taking classes at the local college (intro to real estate law, basic building maintenance, some intro contracting classes) so we will be able to know enough to hire the right people to help us later.

We know real estate is not a simple investment, but a career choice (even if its only a side career), so we’re hopeful that in 5-10 years, our time/money investments will pay off.