Few questions about rentals

General Landlording & Rental Properties

Few questions about rentals

Real Estate Investor · Millsboro, DE · Member since 2008 · 120 posts · 7 votes

How profitable is the rental business? I've been looking over some threads here and see that percents are used a lot when dealing with duplex's/ plan on renting out a building. I'm not too certain on the percents and to be honest am a bit confused on how to tell if the property will be profitable. Like how much do you guys know to charge monthly? How come you just say take 10% for this this and this. Why don't you just add everything up , figure out the percentage that is of the monthly cost and then add a percent or 2... What is it like 50% of monthly charge? My problem is that I'm just starting out and have no clue what is involved/ what bills need to be paid by the landlord and what by the tenant. I'm very willing to learn, most of the threads I read it seems that the thread starter already has something going. Not me, but someday I hope to have many/ a nice size complex. How reliable are rentals? I'm going to keep clicking on post and reading. Im 19 and want to see how much i can accomplish by the age 30. I have a long ways to go, I've been talking to business men lately, and it helps.. but one told me he has been there before with rentals and it didnt work out for him.. But my vision is that i see a lot of successful people on here with rentals so whats the problem? Everyone needs a home right? I mentioned a lot in my post, if someone can touch on atleast 1 thing for me it would be greatly appreciated.

Ps how much cash flow is attainable with a rental? I guess it help once it is paid off huh? please help, thanks guys

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Michael Rossi
Real Estate Investor · OH · Member since 2008 · 4k+ posts · 1k+ votes
18y
How profitable is the rental business? Well, most people don't take their time to learn the business; pay too much for their first rental; and then lose their butt in a short period of time. For them, it is not profitable at all. If you do everything right, you might be able to earn $100 per unit per month. So, if you only have one unit, you would have about $100 in profit. To make a lot of money in the rental property business, you need a lot of units. If you had 50 units and did all the management and maintenance yourself, you might have $10,000 in spendable cash each month.

If you want to be in the rental property business, you first need to study the business. Then, you need to develop a business plan that will allow you to get from where you are now to where you want to be.

Good Luck,

Mike
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Sean Gallagher
OP
Real Estate Investor · Millsboro, DE · Member since 2008 · 120 posts · 7 votes
18y
Ok, so the smart thing here would be to do a lot of reading, start out small and see how I do, and if everything works out gradually work myself up to multiple units.
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Donny Random
Asheville, NC · Member since 2008 · 107 posts · 10 votes
18y
I recommend the book "Rental Houses for the Successful Small Investor", good book for the beginner getting into single family rentals. Also I suggest that you live in your first rental. Easier to finance and you can repair/improve the property while you live there. And just keep repeating the process until you have all the units you want. Since you are young and probably with no family that might be a good option.
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Sean Gallagher
OP
Real Estate Investor · Millsboro, DE · Member since 2008 · 120 posts · 7 votes
18y
ok so like a Duplex? live in one side rent the other out?

What I really wanted to get from this post was the fundamentals of renting. Most of the properties in my area are 1 acre, and go for 150k not including the home. Is that too high for a rental single family? Im gunna go ahead and get that book and start reading. If I go outside my area, say 30-45 min the property values drop, simply because im close to the beach. I read about people on here buying property/a home and renting them out.. but their purchase price is like 40k???? I doubt i could find that with an owned lot.
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Tom C
Real Estate Investor · OH · Member since 2008 · 1k+ posts · 86 votes
18y
Crazy,

You really need to spend a few weeks on this site, then come back with specific questions. You certainly have not done any research in the rental business or you wouldn't be asking such questions. Everything that you are asking here has been address on this site at least 20 times. If you are not willing to first look for your answers to the questions, then you are not ready for the commitment that becoming a landlord takes. Remember, when you are providing a home for someone else to live in, it takes a great deal of responsiblity to ensure that they have a safe, secure and warm place to live 24/7.
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Donny Random
Asheville, NC · Member since 2008 · 107 posts · 10 votes
18y
Just to add to what TC said, I studied and researched for 2 years before I made my first purchase. I know that you have a million questions now and are excited about the prospect of investing in real estate, but you need to channel that excitement into reading educational books and researching whether it is possible to invest in your area.
To answer your first question, duplex would be a great 1st investment. Or a single family would work too.
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Sean Gallagher
OP
Real Estate Investor · Millsboro, DE · Member since 2008 · 120 posts · 7 votes
18y
alright, so after reading for awhile this past week on the site and other suggested sites, I've gained enough knowledge to understand the concept of "will this property cash flow" and how to figure that out. For instance what price I would offer on the house figuring what I would charge for rent/ what the mortgage payment would be at around 6-7%.. also putting down 10% and so on.

Problem here is... where the property is cheap say 70k, the house is so damn cheap looking and un-appealing aswell. Rents closer to the beach are probably seasonal, I guess I have a lot of searching to do. I found 3 homes ( online of course ) that are 70k but really crappy ( like falling apart trailer homes) even if i put 5-10k into them they would still be in a gross looking area. So hmm, maybe an add in the paper showing my interest for anyone that may be close to pre-forclosure? Or figure out how much i would pay for the property even if its a low ball and keep sending offers out? I still have to get some books read before I jump into anything i know that for sure.. i just want to see a rental start up from nothing so badly.
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Lynn Z
Member since 2008 · 689 posts · 23 votes
18y
My family has a full time business with real estate from the 70's and they buy, rent and flip houses in additon to their core rental business just to pay the increased property taxes and insurance. The husband is a builder that spends every day on maintenance etc.He comes from a family with brothers and cousins who have been roofers, plumbers, carpenters, their entire lives and are available when he really needs them. I can assure you they do not net $10,000 a month and have to scramble for every dollar every month. It gets harder for them as they are now in their 60's.
Tenants are harder and harder to come by because we live in a university area where thousands of apartments are being thrown up every year. They even bus 'em in to school now.

Buy brick instead of frame; always put at least 20% down when you buy; FSBO everything you buy and sell; get a GREAT real estate attorney and have established commercial banking relationships; try to take 15 yr. financing so it will pay down the mortgage fast and never, ever refi money out of your properties and start your mortgages over after you've held them a long time. Buy where there is rental demand and know what the rent is where you're buying. Don't go by rents charged by large property managers--they benefit by keeping rents depressed because then they do get the pick of the tenants that come through their doors. Check out the individually owned houses/apartments on Craigslist and other ad outlets. Buy near universities and colleges. Parents always have money for housing. After awhile, you too will have truisms like these to share with us.
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Christian Morency
Real Estate Investor · Millbrook, AL · Member since 2008 · 68 posts · 34 votes
18y
and never, ever refi money out of your properties and start your mortgages over after you've held them a long time.

Why exclude refi's? I have made 50% of my income on refi's for the past 10 years at least. And it's all tax free. The tenants pay it off and I do it again. As long as there is a profit at the end of the month, I'm happy.
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Lynn Z
Member since 2008 · 689 posts · 23 votes
18y
Alot of homeowners in the US pulled equity out of their homes and would you say they're better off? They can't get a renter to cover the two payments and that can happen to anyone.

Refis are expensive. on a $200,000 home those closing costs cost you at 3%
$6,000. That's lost equity.

There is one school of investor thought that feels the goal should be to lower the ltv with investment property not increase it. Like reinvesting dividends instead of spending it on stocks. Some people think alot of leverage is a good thing. Others don't. I know 30 year investors who pulled out money to fix up properties and live off of the proceeds. Years later, they regret it because those properties would have been paid off 5 years ago. You tend to keep going that to the same trough over and over.
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Christian Morency
Real Estate Investor · Millbrook, AL · Member since 2008 · 68 posts · 34 votes
18y
My #1 rule is to never get into any investment that would not be covered if you had to rent it out.

That applies to my own house.

If all those homeowners would see their houses the way we look at rentals, they would be better off. As it is, their stupidity,greed, short sightedness, lack of education, or whatever caused them to get in over their head, will create great bargains for investors.

I'm from the school of keeping everything fully mortgaged. It lowers your risk of getting sued. Attorneys only chase deep pockets. I don't own anything, the bank does. I only control it to the best of my ability.

So far, so good.
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Lynn Z
Member since 2008 · 689 posts · 23 votes
18y
Unless you're paying cash or have a commercial lender who isn't bound by limitations you can't have over 10 mortgages you know. So the average Joe has to figure out how to acquire over 10 properties without incurring more than 10 mortgages (residence excepted of course). All the bankers I apply to follow those limitations unless daddy is one one mortgage, uncle joe on another, etc. etc.

Just wondering.
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Allen B.
Commercial Real Estate Broker · Memphis, TN · Member since 2008 · 71 posts · 11 votes
18y
Originally posted by "dal1":
Unless you're paying cash or have a commercial lender who isn't bound by limitations you can't have over 10 mortgages you know. So the average Joe has to figure out how to acquire over 10 properties without incurring more than 10 mortgages (residence excepted of course). All the bankers I apply to follow those limitations unless daddy is one one mortgage, uncle joe on another, etc. etc.
Just wondering.

There is a lender that is a sponsor of some of the REIA clubs that can do 40 mortgages.

You can also use private money to fund your mortgages as well as they will not show up on a bureau and can be preferabel anyway.

For some investors the 10 mortgage line is a barrier they never cross
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Nick Albin
Member since 2008 · 117 posts · 3 votes
18y
To the poster. Man just take your time and learn everything you can and buy right. It sucks to wait but it pays off in the end.

As far as refinancing. People get bitten by refinancing cause they are dumb with the money. The refinance and go on a vacation or buy a car or some other piece of useless junk.

An investor could use the refinance money to pay off a small existing mortgage on a rental to make it free and clear, or use it to invest in a property that would give them cash flow.

I agree with buying universities but at the same time in that sentence you said universities attracting more apartments were a reason for added stress and problems.
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Kimberly Anway-Morency
Real Estate Investor · Millbrook, AL · Member since 2008 · 55 posts · 0 votes
18y
Yes Dahl,
Christian has used mostly private lenders. People he has worked with, who know his trustworthyness. He has developed strong working (networking) relationships with in our Ca investment community over 20yrs.
It's a little different now that we moved to Alabama. Starting over in a new area definatly makes resources a little thinner. Here we have had to use some conventional financing. One thread I read here was talking about bundling loans. I would be interested in finding out more about that.

Thanks, Christians Wife.
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Kimberly Anway-Morency
Real Estate Investor · Millbrook, AL · Member since 2008 · 55 posts · 0 votes
18y
Hi Reiguy,
Your post came in while I was responding to Dahl. You are right we use refi money for the purposes you listed and try to stay away from liability debt.
Christian has not had a car payment since 1971! Thats how old his current ride is. I hope everyone here had a wonderfull Thanksgiving. :mrgreen:
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Nick Albin
Member since 2008 · 117 posts · 3 votes
18y
yeah thats the way to be. Car payments are the absolute WORST!
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Alex Anderson
Real Estate Agent · Minneapolis, MN · Member since 2008 · 10 posts · 0 votes
18y
I will often recommend that my clients (first time home buyers) start off with a duplex if they are planing on buying more Minnesota investment properties one day.

This is because I think it's a great way to get into a first time home and have your renters pay for half (or more) of the mortgage!

The income from the rental unit will also count towards the financing - giving the buyers a distinct advantage for their first purchase.

If I were going to buy my first home again - this is what I would do! 8)
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Michael Rossi
Real Estate Investor · OH · Member since 2008 · 4k+ posts · 1k+ votes
18y
The very last thing I want to do is live next door to my tenants. YUK!

Mike
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Lynn Z
Member since 2008 · 689 posts · 23 votes
18y
Remember your lender won't count but 25% of rental income period. Also, you must have a lease and it must be for a year - not six or nine months. If the duplex has tenants we're bound by the lease term in my state. If not, I find it very hard to go up on the rents immediately. Most people I've sold to wind up thinking the same thing. Too hard to find good tenants these days.
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Jon Holdman
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
18y
Or limit my choice of houses to duplexes. Or have to sell my primary residence if I decided landlording wasn't for me. I'm sorry, but I think that's bad advice. Most first time home buyers don't realize the other expenses associated with owning a house. As we can tell from the discussion here, most first time landlords don't realize the expenses associated with having rentals, end up buying rentals that rent for barely more than the PITI payment, and end up losing money. In the red on your primary residence when you find out how much it really costs to have a house, and in the red on the rental side, too.

Jon
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Lynn Z
Member since 2008 · 689 posts · 23 votes
18y
If I were starting out I'd just buy a residence I could afford and in two years (while the laws still permit) just fix it up slowily and sell for tax free gain. If you love it that much, rent it out and by then they'll know what the expenses run. You can still sell it up the line because you've got the residency requirement met. Duplexes have two of everything. Two kitchens, two bathrooms, etc. to fix.

Newbies need to look at a rent roll once in awhile and see what a landlord's expenses really run like you say. Just had a 2 year roof produce two small leak stains in the ceiling below. Can't call that roofer because he's out of business and wouldn't call him because he didn't flash the chimney's correctly in the first place.

Also, have a new hot water heater that the P&T valve kept leaking on. Spent at least a week talking to plumbers etc. Turns out the water coming into the house is at 95psi and it's supposed to be 60psi. No one ever worried about too much water pressure. Our neighborhoods suffer from lack of water pressure. One plumbers estimate is $150; another $250.
Water has to be off for 2 hours for the glue to dry properly and no one definitively knows where the best place is to put the PRV in line. First impression was at or near the meter. We feel the best place is inside the basement as it comes into the house.

I bring this up because even with the best minds and experience you must take opinions and run with the best judgment. There's never one answer to any problem.
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Alex Anderson
Real Estate Agent · Minneapolis, MN · Member since 2008 · 10 posts · 0 votes
18y
I guess it depends who your tenants are (an how well you screened them) - but for a young investor - it's a potentially ideal opportunity to learn how to manage a property that's easy to keep track of and maintain.

I currently own and manage a property that's way on the other side of town, and managing something like this would be much more stressful for someone who's trying to learn the ropes - than it is for an experienced landlord.

Living next to your tenants can (an is) less stressful than driving a long ways to your property - o - and there's the financial benefit of having tenants to pay your mortgage for you.

It's the way to go IMHO. :groovy:
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Eric Wang
Real Estate Investor · San Jose, CA · Member since 2008 · 228 posts · 13 votes
18y
Cashflow usually come in later years after you retire, when house is paid off. Being a landlord, it's has to be something you want to do. It's a lot of work. If you don't mind getting your hands dirty and doing a lot of the work yourself, you will save a lot of money. Key of being successful is being a good landlord, finding good tenents, make sure if something is broken, you fix it right away before it gets worse. Start off with a duplex, live in one and rent one. You will learn a lot as you go. Network with other property managers in your local area. I live in one of my rental, which I fix up a long the way. After couple of years, I will move out and move on to my next rental. If you kept up with rental rates, your morgtage will pay for itself. Rents increase, not your morgtage.
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Donny Random
Asheville, NC · Member since 2008 · 107 posts · 10 votes
18y
That is exactly what I did first time out, bought a duplex, lived in one side rented the other. Live there a year and repeat the process till you have all the rentals you need. I fixed up the place while I lived there. Also, if you live in the duplex you can get owner occupied financing that is about 2 points lower than non-owner occupied loans. And it is easier to qualify for owner occupied financing. It's really the way to go if it's an option for your situation.

Originally posted by "mninvestmentproperty":
I guess it depends who your tenants are (an how well you screened them) - but for a young investor - it's a potentially ideal opportunity to learn how to manage a property that's easy to keep track of and maintain.
I currently own and manage a property that's way on the other side of town, and managing something like this would be much more stressful for someone who's trying to learn the ropes - than it is for an experienced landlord.

Living next to your tenants can (an is) less stressful than driving a long ways to your property - o - and there's the financial benefit of having tenants to pay your mortgage for you.

It's the way to go IMHO. :groovy:
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