Question for landlords

[Courtesy Flush]

I've been an accidental landlord for several years. Our house came with two garage apartments. Now I'm thinking about investing in four-plexes. My wife can only see the negatives, so I thought I'd get opinions from people who have been there.

Here are her objections. She pointed out that, depite the fact that I'm pretty handy around the house, many of the repairs that our apartments have needed have been out of my skill level. This is true. There have been plumbing jobs that I either couldn't handle, or didn't have the time for. Some of them were within my skill level, but had to be done quickly, because the apartments were occupied, so we spent the money on a plumber. Also, air conditioning systems are beyond my abilities, so those repairs have been farmed out. Despite this, the apartments have been moderately profitable. The expensive repairs are infrequent.

My arguments: First, our apartments are fifty years old. We'd be buying more up-to-date properties if we got four-plexes, so repairs would not be as much of a problem. Also, as I already said, we still came out ahead on our existing high-maintenance property, so it's not like repairs will break the bank. I've known elderly ladies who owned rental properties, and obviously had to farm out repairs. It's not like landlording is only for do-it-yourselfers. But I am a do-it-yourselfer, so at least I can cut costs some of the time.

We've been responsible landlords, and have kept the place nice, and have not discriminated. Despite this (pay attention, Rush), all has gone well. I am thinking that we could open up our new apartments to the section 8 program, and offer nice accommodations, while building a better future for ourselves.

Enough about me. Tell me what your experiences have been, and whether I'd be making a mistake.

[Worst Username Ever]

1. There is no better investment that real estate.

The down side right now that I see is that we are at the top of the market, you will be buying high. Also, the rental market is currently very soft, because anyone who can afford to make a house-payment sized rent payment can just buy a house instead.

My single family rental is difficult because it is either fully occupied or it is not. I want duplexes because even if someone moved out, at least half of the expenses are still being covered.

I have a property manager that does everything and takes it directly out of the rent check. I literally don't do anything for the property, I don't even have to look for tenants. The management company does it all, and it is relatively affordable (and a deductible business expense). I literally just get a check mailed to me each month.

As the old adage goes, buy land, they are not making any more of it. Demand for properties will only go up in the future, as will our population. Add in depreciation and other write offs and your yield increases substantially.

[Courtesy Flush]

3. What does the management co. do?

and what do they charge?

[Worst Username Ever]

5. You need to take a look at the entire yield of the property before you do

this, but it has worked out well for me.

Basically, it works out to be 8% of the monthly rent. After the tax deduction, you can figure it actually costs about 6% or the monthly rent. Any major refurbishing you will want to do yourself, but as far as day-to-day repairs, like things breaking down or a broken window or anything else, they charge parts plus 10%. Which sounds steep, except when they call for a broken window during -5 degree weather, and the window costs 100 bucks to replace, I will gladly pay the $110 total to have the job done. And again, that extra 10% is tax deductible. As is the window, come to think of it.

The take out all the newspaper ads and pass along the expense to me, they have a website www.rpmgmt.com that has lists of the properties. They quite literally will do anything you want them to. If you are super lazy, they will even write out the checks for the taxes, insurance, house pmt, etc for you.

The problem I have now is that with the rental market as it is in Minnesota, I am not making any cash at all from month-to-month. In fact, after they take out their 100 dollar fee, I actually take in NEGATIVE cash each month... I have to fork over an additional 150 dollars a month to cover the house payment. BUT.. the appreciation has been in the tens of thousands, and I have also added equity through regular monthly loan payments. over the past couple years, and the added deduction have brought me to the point where I think I only paid like 1500 bucks in fed taxes last year. Not that I have a problem paying taxes, but it has been nice. Taken together, appreciation, tax savings, loan payments, and everything else, the return on the property has been substantial, even though I actually have to pay some of the house payment myself. Over time, as the market increases again, monthly rent will be positive again.

Just figure out if the expense is worth the convenience. For me, it is.

ON EDIT: They also do full criminal and credit checks on the potential tennants, and let you decide if they are a risk worth taking.

[medeak]

2. It won't be a mistake

have 40 tenants. Farm all repairs out. Real Estate appreciates and is a great tax write off.

Beats any other investment I know.

[Courtesy Flush]

6. Do you use a management company too?

Seems especially prudent for 40 units.

[medeak]

7. nope

it's not that difficult with quick books and all. Most of tenants are terrific.

[ayeshahaqqiqa]

4. A good idea if you stay involved

I've never been a landlord, but my boss decided renting houses would be easy money. He didn't pay much attention to the tenants and didn't check on things. One tenant nearly burned one house down. The repairs (some of which I think weren't necessary) on the houses cost an arm and a leg. My boss even paid premium for lawn mowing, which his kid could have done. He finally unloaded one house, and the other rental property is losing money.

If you do repairs yourself and make regular inspections and pay attention to who rents, it ought to be fine.

[Ima]

8. I'd want

to know the vacancy rates in your city. Where I live they are very low. But some places have a glut of rentals. I'd also recommend getting 'higher end' rentals.


Your rental income ,as opposed to your loan payments, could be a deciding factor.