All Forum Posts by: Doug Garrison

I can imagine that it is quite a bit of work to manage. A lot of this would come down to your long term goals. I was self employed my entire working life and always looked at my rentals as a long term retirement solution that would leverage my skills in remodeling with my financial background. Short term cash flow is great but as you have found it comes at a cost. All of our properties are either single family or small multi (duplexes up to quads). The time managing the properties would be much less with these type properties. The biggest problem would be finding a property in Raleigh that would cash flow positive that isn't in a crappy neighborhood. I'm always looking but haven't found anything recently that fits. Of course, I don't really look outside five points....

I've been called an idiot on this forum before for admitting that I hardly ever raised the rent on my reliable long term tenants. But I'm in it for the long haul. Real estate is never a passive endeavor but you can make it more so than what you have now for sure.  Time is on your side. I started at about 29 years old and it took me years to build up a decent rental income. 

Dan,

Thanks for starting this discussion. I'm struggling with the same decision process.

I'm one of those guys who never raised anyone's rent. I've got tenants who have rented from me for years paying rents from 8 to 10 years ago. Maybe longer. We purchased our properties over the last 30 years and always saw this as retirement savings. We fell in to feeling if the mortgages were being paid off and we had some positive cash flow things were fine. I basically used all the cash flow to pay off the mortgages by the time I reached 65. I retired from my "day job" about a year and a half ago and I'm starting to see the error of my ways. We have plenty to live on from the rentals but there could be quite a bit more. 

I go from feeling great about what we've built to feeling like a sucker for renting some of the apartments far below market value. This thread has hopefully helped me to try and separate my personal feelings from the business I am in.

Thanks,

Doug

Greg,

That's great. I've noticed the same thing with procrastinators. One of my Red Flags is someone who needs to move in 2 days. 

All of my leases become month to month after the first year. I've found that for the most part most of my turnover still happens in the spring and summer. However, I don't think this is the norm. I imagine most people want the predictability of renewing a lease annually so I think the 18 month lease was a good idea. 

I also think that Zillow etc. makes it way too easy for renters to just click a button that says they are interested in a property. I've gotten to where I rarely respond unless they at least take the time to type a few words describing themselves. 

Good luck on finding your next property. I think it's the hardest part of this business. My wife and I started almost exactly 30 years ago and have averaged one property every year and a half or so, most we've kept but we flipped about 5. Greensboro has been a good market for us. Most of our properties are small multi-family (duplexes and quads). It's hard not to get excited and go look at some of the multi family properties that just came on the market. I knew the owner and know how much work they need.

Chris,

We are very happy with this decision. 

My goal when we started years ago was to do real estate as a retirement plan. I worked in construction and never had any other retirement options. I never paid any attention 'cash on cash' 'ROI' or any of these things. I looked for a property that would break even, or at least come close with a 15 year mortgage. I wish I could find the old post but I basically got called an idiot because I argued that one of my houses that cash flowed a negative 700 to $1,000 per year was still a good investment. Whatever, I don't post here much anymore.

It's hard at times not to get excited about buying more properties. The fun part for me is to buy run down properties, put in a bunch of my own labor and bump up the rents.  The last 2 properties we bought were for cash since we had the cash flow from the properties in savings. 

The decision was fairly easy since the math worked. Also, since I've managed all my properties myself I like being in control. Rather than pay a management company 10% I'd rather just let my tenants pay 10% less than market and stay for years......

Hey Chris,

I did number one. 

10 years ago I started to see retirement looming. At that point in time I had about 10 mortgages on 12 properties. Most were 4.5 to 5.5 percent interest so the math was a little easier. We put in a little extra cash from outside but for the most part I just made sure that I didn't draw anything out of the rental business and used all the cash flow to pay down mortgages. Even as rates fell I resisted the urge to refinance anything and stayed with the plan. We also had a chance to buy a 12 unit package of duplexes but I resisted taking on extra debt even though the numbers worked.

Now we have 14 properties and one remaining mortgage of about 1800 per month. Nothing crazy long distance either, all are within 20  minutes of my house in my hometown.

It's not 40K per month but it's more than enough for us to live on.

I’m sure you have already made a decision but I just wanted to add my thoughts. I used to be adamant about no dogs but have completely turned around on this issue. I feel like a good solid tenant with a dog is probably more settled and more likely to stay for a very long time. Turnover is costly. 
I’ve been in the Greensboro rental market for years. My wife and I bought our first rental years ago (a fourplex) and spent months renovating one of the apartments.  We advertised it and for about a week or so got no response. We were so stressed out. Thoughts of “What the hell have we done!” filled all our conversations. 
Personally I feel like November and December are the hardest months to find new tenants. Also, it’s really hard to know what is a solid market rent right now with the crazy pricing the last 2 years. 

I just give them my personal cellphone number. They can either text or call. Most text which is better for both of us. I don't really care when they call or text since I rarely answer my phone anymore anyway because of all the Real Estate Wholesalers spamming me constantly.

I also have a google voice number which I use when I advertise a property. I like to include it in my listing so that some of the interested parties will try a little harder to contact me directly. Too many people seem to just click on the standard Zillow button that sends me an email saying something like "I really like your property, when can I come see it." I rarely respond unless they take the time to include a personal message. 

When they sign the lease I give them my actual cell number.

I would just use spreadsheets for now for your accounting. With any luck at all, you shouldn't have but just a few transactions per month.  I used quickbooks for years for my rentals but it's not ideal. I mostly used it because I was already familiar with it from my construction business. I recently (2 years or so) switched over to RentecDirect which is better but would be overkill for one unit. Rentec offers ACH payments, a nice tenant portal and good expense tracking. Their reporting is a little weak, so I still export my P&L in to Excel and clean it up before I submit it to my CPA.

I do let my tenants pay with Venmo, Zelle, and Google pay. I like Zelle the best since the payments show up directly, and instantly, in my bank account flagged with their name in the list of transactions. 

No. Even if you structured this to be able to deduct your time as an expense to the rental property, maybe forming a separate contracting company, you would then be converting passive income to regular income. Regular income is subject to the 15% self employment tax whereas rental income is not. 

However, it's worth tracking your time to get an idea of what jobs might be worth hiring out versus doing yourself.

Actually, the 1031 exchange wouldn't be completely tax free. The purchased property must be worth more than the property you are selling. I have only done one exchange in my 30 years as an investor and that was when a tenant made me an offer I couldn't refuse! Also the next door neighbor had figured out that my property wasn't really zoned to be a duplex, even though it was used that way when I bought it, and was threatening to get the city involved. We ended up buying 2 single family houses with the proceeds from the sale.

It looks like your properties have a pretty strong cash flow. I have always been a mostly buy and hold investor. We have only sold one rental property, which was the one I mentioned above. I would probably try to justify the outright purchase of the additional property. We have always been very methodical about our purchases and used conventional financing. But we were fairly aggressive as far as using borrowed money. At one point we had 10 regular mortgages. We currently only have 2 mortgages so it's worked out. 

If the additional property can make a positive cash flow, no matter how small, then it's probably a good investment long term.

I agree about swapping a proven long term rental for a STR. I think this would be too risky for my taste.

 The lot-line adjustment is an interesting concept. I live on 40 acres in the country which is actually 3 separate parcels. It would be nice if it was all one parcel.