All Forum Posts by: Mike McKinzie

How many properties can a person manage? Back in 1982, I managed 100 SFR units in Orange County, California. I had no computer, no fax machine, no cell phone, my car had an eight track player in it. :roll: I had a handyman for repairs I couldn't do, but I did rent collection, evictions, lock outs, all the bookkeeping, etc....

But I also had a 2 year old drown in the pool of a rental I was managing. I had to let the DEA in to do business on another rental. I found marijuana in the backyard of another rental. I got physically threatened when I asked for $10 for a credit check. So when it came down to getting a C&C license or hiring out the management, I chose the later. Some people actually enjoy the owner/tenant interpersonal relationship. Others, like me, treat the investment like stock, we don't visit the factory or office of the company we own stock in, we just look at the financials. Both of them work just fine! Let me repeat, there is more than one way to skin a cat! At the end of the day, if you make enough money to enjoy life, then you are successful.

I do currently manage 3 of my units, so I keep my hand involved in it. But they are my highest rental amount rentals, one duplex is on a golf course, the other is the proverbial "Seville on the Hill" rental.

MikeOH
You are correct when I look at the year 2008. Gross rents were $229,006 and total expenses were $111,939. But (isn't there always a but, lol?), my commercial property, which was vacated in July 2007 was vacant and had much the same expenses (taxes, licenses, insurance, elevator inspection, HVAC inspection, etc....) When it was vacated, my gross rents were $7,500 a month or $90,000 a year. If that were rented, my gross rents would have been $319,006, and maybe a little more in expenses on the commercial property, but not $45,000 worth.

So if you are saying that the 50% rule is a maximum, I would tend to agree. But I think 35% to 40% is attainable. My 10 year average on 20+ properties in four states is in the 35-38% range. It also ranges from small units (400 square feet) to commercial property.

I also think if you are one of the "2%ers", then 50% is absolutely correct. But if you are one of the "1%ers", 35-40% is obtainable. A water heater is a water heater, cost me $750.00 last year on a house that I get $2,095 a month rent. If I had to install it in a house I got $700 a month for, the percentages change dramatically. Just an FYI, I paid $180,000 for the house I get $2,095 a month for, AND, I have a 4 7/8% FIXED RATE loan on it.

So I like the 1%, 2%, 50% rules that everyone uses when evaluating a potential investment. Cap Rates of 7% and up also give me the flag to take a second look. I hope for 10% Cap Rates though.

This is a GREAT thread!

Yes Rich, I am still in Colorado. I live in a small town called Bayfield, just east of Durango. I live at 7,100 feet elevation. It looks like I may be heading back to CA next year due to my parents poor health. I don't want to, but being in the so called "sandwich" generation, I may have to. My wife was born and raised in Seal Beach, CA and she would love to live there again. Hard part is, Seal Beach is usually in all the Top Ten most expensive housing lists, with the average house going for over $700,000.00. I have property in Santa Ana, Garden Grove and West Covina, but my wife just loves the ocean. Talk about a bad investment, spend $700,000 and rent it for $2,500 to $3,000 a month. I would be better off spending the $700,000 on seven rentals, get 7k to 10k a month in rents, and just rent in Seal Beach.

Thank you for the offers. I purchased a house in Arlington, Texas.

I have seen other investors post that they have bought $12,000 houses that they rent for $600 a month. This sounds too good to be true. Where are houses like this? How much rehab work is needed? The rent completely pays for the house in 20 months?! The areas I invest in, you couldn't get a 60X100 lot for $12,000. The rental houses I own, I couldn't install a wooden deck for that price. A completely stripped out, 1200 square foot house that is 50 years old would still sell for 50K to 100K in So Cal.

So is there a niche out there that I am unaware of?

Boy rich, do I REMEMBER those days. 18% First Trust Deed Money, 12% starting rate on Adjustable Rate Loans. Talk about creative financing, WOW! AITD's, Seller Carry, 6 co borrowers, etc.... I remember, back in 1982, when first trust deed money dropped to 12%, it was like a run on bank to buy property. What memories!!

This is an exact question I had. I sold and named three properties to purchase. I just closed on one but the other two are no longer for sale. So am I stuck on paying Capital Gains on the remaining "boot?" Or since the other two properties are not for sale, can I name two more?

Eddie and Joey
Thank you for posting what I was going to post. Being a Real Estate Investor does NOT mean you have to be a Landlord. I understand MikeOH stated being an absentee owner is a way to fail as a real estate investor.

If you want to be the landlord/property manager, then you are geographically limited. But let me add this. Back in the 1980's, I managed 100 separate rentals as a Property Manager, so I do know what it takes. Also, a bad property manager can be worse than no property manage. But a good property manager is worth his/her weight in gold. I have both bought and sold through a property manager of mine, both ways were a win-win for everyone.

As for the Top 5 LANDLORD Mistakes, I will just re-iterate:
1. Being too lenient on tenants (a myriad of issues here)
2. Putting off needed repairs.
3. Doing or having done, shoddy repairs.
4. Not addressing legitimate tenant concerns.
5. Not doing due diligence when buying, establishing rent amount, raising rent and screening tenants.

MikeOH,

Just like you said I can't count a house that I have owned for 2 years, you can't count my current 'vacancy rate'. One year ago, I was 100 percent rented except the commercial property. Two years ago I was 100 percent rented including the commercial property. Three years ago I was 100 percent rented including the commercial property. Four years ago I was 100 percent rented including the commercial property. So just going back 3 years, your 33% drops to 11% and 4 years drops to 8%.

Remember, I have owned rental property since 1979.

It is just like my house in Orange County, CA. I just spent around $8,000 on repairs after a very sloppy tenant vacated. A person sees that and says, "Rental Property is a bad investment." It rents for $2,000 a month. Therefore, my repairs alone are 33% of my gross income, except that it was vacant for 3 months this year. This makes my repairs 44% of the gross income this year. But here is the "flip side". The sloppy tenants moved in, in 2002. Over seven years of $2,000 a month with minimal repairs. As an investor, do I look at the $8,000 spent this year, and look at my 33% vacancy factor this year? Or do I spread it over 10 years to get an average?

But here is an important lesson for EVERYONE. I own 10 houses in the Fresno/Visalia area of California. Bought all of them in the 1980s, all of them in the 50K to 70K range and they rented in the 700 to 800 range. Things were going well UNTIL the Property Management Company was sold to a new buyer, about 3 years ago. Monthly statements started arriving later and later. Section 8 rents were not being sent in a timely manner. Then last year I gave them ultimatum to clean up there act or I would fire them. It got worse so I fired them in January of this year. And of course, the new company I hired was just as bad, so I had to fire them last month. Of the ten properties, five were vacant, 3 from last year. I hired a new management company and they had 2 of the vacancies rented in two weeks. Plus, they only charge $50 a month no matter how much rent is collected and they don't charge extra for having to rent, just the costs of advertising. The moral of the story: Your management company is the most important issue when it comes to investment real estate. They can make or break an investment.

There is no doubt that the last 18 months have been rough. Bad economy, bad management and a little bad luck. But it is my belief that now is a great time to start picking up some really good bargains. More due diligence is required, and if you can find a "2%er" that you don't need to use a gun to collect rent, it demands some serious consideration. If you can find a "1%er" that is in prime condition, has a tenant already in place and offers the opportunity for better than average appreciation, it too demands serious consideration.

It is similar to the "Stock Market" game. How many of us wish we had bought Wells Fargo earlier this year for 7-8 bucks? It closed yesterday above 24. Or even GE when it was 6 bucks, today it is over 12. Fifty cents on the dollar for a good home that needs moderate repair. Eighty cents on the dollar for a prime house with good potential for appreciation. Twenty five cents on the dollar for, well, you know.

I want to thank Eddie, MikeOH and the other posters, I am learning so much from you guys. And I still have a lot more to learn.

Ziv, sorry if I wasn't clear. Divorce caused me to sell the two properties at a loss. Can you think of any WORSE of a business partner than an ex-spouse?

As for the Texas property, it is a DR Horton home. It was the last house in the tract, and DR wanted to unload it. Other, similar houses, sold for $129,000 and up. My thoughts are that buying a BRAND NEW house for eighty cents on the dollar was not a bad deal. It provides both equity and income. Let's say I sell it in 10 years for only $153,000. Let's say I make $1,000 a year for those ten years. I turn $20,000 into $60,000 in ten years, a annual return of 9.2%. The annual depreciation will more than offset the cost of the sale. I do a 1031 and pay no capital gains tax. I am hoping it is worth quite a bit more than $153,000 in ten years, but even if it isn't, it hasn't cost me anything. This purchase is a good example of combining both Cash Flow and Appreciation.