Few questions about rentals

General Landlording & Rental Properties
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Few questions about rentals

Sean Gallagher
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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  • Sean Gallagher
    OP
    Real Estate Investor · Millsboro, DE · Member since 2008 · 120 posts · 7 votes
    18y

    hey guys I'm back, really appreciate all of the responses even though I havent written back in between post often. I'm really liking the Duplex idea. Something I didnt understand while reading in on the first page, about refinancing after i guess a few years... how does that get you money? Say you have a 60k mortgage, after a few years 40k is left you refi for 60 again??? I dont think i understand this? Isnt that pro-longing the amount of time it will take before that bad boy gets paid off and cash flow starts to really come in. I understand using the money elsewhere.. it just confuses me. I found a duplex months ago :cry: still gaining the knowledge.. and when i feel confident to leap then i shall leap. I have that book coming by the way, it should be here next week , thanks for suggesting it to me.

    I also like the idea of living in your rental and fixing it up and then moving on to the next ( if they really popped up that quickly ) but hell.. living in that sucker would call for some quick progress!! cant wait to read up on this book. This weekend I may start to drive around and see what i can find ( watch me find something perfect that will work out well and feel the need to say no because of my lack of knowledge ) I have the will, so there is a way. Wish me luck. keep the replies coming.. Im gaining a good bit here thanks guys.

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  • Donny Random
    Asheville, NC · Member since 2008 · 107 posts · 10 votes
    18y

    I guess you could refi a place if you live in an area that has good appreciation. My area does not, so I would not be doing that. Plus, my plan is to pay down my mortgages asap and have free and clear properties. Pay off the first one and put the profits (from the paid off property) into paying down the next and continue the process until they are all paid off. A refi would put me further away from my goal. My plan is to have fewer units that are paid off then having to manage dozens of units.
    If you are planning on reading the book I suggested ('Rental Houses for the Successful Small Investor') it mostly focuses on single family houses. But most of the info can be applied to duplexes. I would not get an ARM loan that she suggest in the book as things have changed since she wrote the book.

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  • Donny Random
    Asheville, NC · Member since 2008 · 107 posts · 10 votes
    18y

    Another book suggestion: "What Every Real Estate Investor needs to know about Cash Flow". After you read that book and (if) you know the area you want to buy in you should have a good knowledge as to what to buy.

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  • Michael Rossi
    Real Estate Investor · OH · Member since 2008 · 4k+ posts · 1k+ votes
    18y

    There isn't enough money on this planet to get me to live next to my tenants! If you're going to be an investor, then be an investor. Live in a nice house and own separate rentals. Keep your home and your business separate. NEVER let tenants know where you live. Have an unlisted home phone number. Many tenants lead lives that are full of drama. The very last thing that I want is to live in that environment!!!

    Furthermore, Wheatie is exactly right. The vast majority of newbies fail in the rental business. Are you going to sell your personal residence if you realize rentals aren't for you?

    Cash flow is the lifeblood of any business. If you don't have cashflow, you are going out of business, not retiring! Every single one of my rentals cash flow from day one, otherwise I certainly would NOT buy them.

    Don't fall for the guru nonsense. Sometimes rents increase. Sometimes rents decrease. Sometimes rents stay the same. Expenses go up and inflation means that rents MUST increase just to stay even. The mortgage payment will stay the same only if you have a fixed interest rate and you never refinance.

    That sounds nice, but there are two problems with this strategy. First, where are you getting the money to pay off the property? If you're paying it out of your pocket, you must consider the return on your investment and the opportunity cost of that money. Secondly, what "profits" from the paid off property are you talking about? If you mean the cash flow from ONE rental property, that is still going to take a LONG, LONG time to pay off most mortgages. This is a very slow way to build wealth and cash flow in the rental business.

    Good Luck,

    Mike

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  • Lynn Z
    Member since 2008 · 689 posts · 23 votes
    18y

    I'll second that. I live in a 3000 sq. ft. duplex in an idyllic area and had to post a late rent notice on the two tenants above me. It was nasty. It will be even worse if eviction had to take place. I know one very successful property manager/owner that never introduced himself to his tenants as anyone other than the property manager. Even when he sold me one of his buildings they had no idea he was the owner.

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  • Donny Random
    Asheville, NC · Member since 2008 · 107 posts · 10 votes
    18y

    Exactly, I am on a long term plan. You can either go the long route with a few houses and pay the mortgages down or go the faster route and get dozens of units and live off the cashflow. I don't want the stress of managing dozens of tenants.

    Originally posted by "MikeOH":

    That sounds nice, but there are two problems with this strategy. First, where are you getting the money to pay off the property? If you're paying it out of your pocket, you must consider the return on your investment and the opportunity cost of that money. Secondly, what "profits" from the paid off property are you talking about? If you mean the cash flow from ONE rental property, that is still going to take a LONG, LONG time to pay off most mortgages. This is a very slow way to build wealth and cash flow in the rental business.

    Good Luck,

    Mike

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