All Forum Posts by: Mel Park

Well your theory does have basis to it.  Your European example is real.  Also, it seems that regardless what happens, economic policy seems to favor consumption and spending and overextending - - while frugality and saving - is penalized via lower rates. 

@John Mocker

John was re-reading your very helpful post. Thus far I got a quote for $300,000 liability and I'm certainly going to request more. One question on liability - - if the house is in the name of my LLC.... and was paid for solely by the LLC - - isn't the point of that "Limited Liability Corporation" just that - if there was an incident - then ok, the tenant pursues it legally - and my insurance companies covers unto $300,000 of it. Beyond that - if it's an LLC then how can I be more liable?

@John Mocker

Thank you very much for all the detail and professional knowledge.

I"m assuming that a rental home insurance - costs a bit more than primary home insurance?   Also, if I start shopping insurance - -does it make any price difference if I go to the same agency for 2 homes versus 1 home? Thanks

The only (2) units I've owned thus far have mortgages on them, and therefore homeowner's insurance.

My next few purchases will be cash - - but I can't imagine not placing homeowner's insurance on that - am I right?

Is there insurance for rentals with no mortgage? Any guesses as to how much it is for 3bed/2bath SFH in Atlanta?

This is the 3rd time I tried entering stuff in on the Lemonade site and each time at the end there's a reason they don't insure something. This time it was "at this time we don't insure homes with no mortgage" - it's nice of them to tell you that *after* you've entered in every piece of information :)

@John Teachout Long story short -- I'm 46, retired (a bit earlier than I had planned on.. Had 20 years success in running my own mid-size businesses -- the last 2 years went bad - part my fault, part stuff out of my control - hence, I got out of the racket earlier than I thought I would) so based on retirement calculators, talks with advisors, and - knowing - that there's risks in life. - -- if I make a long term ROI on all my investments of 5% - I'm ok. Less than that means cutting expenses, more than that - gravy. My rental ROI, solely on rent and expenses I think is 3.75%. A 3% average appreciation....IF I hold units for 5 years (that's my shortest horizon, some I'd hold longer)....3% per year, times 5 years, minus a 5% transaction cost to sell..... equates to about 5% ROI. Is 3.75% on rent low? Yeah - - but line-by-line it's sort of coming out to that:

Purchase Price, 3bed/2bath Detached, Metro Area like - -  Kennesaw Atlanta

$270,000

Rent: $1800/mo12= $21,600  - PropManager 10% = $19,440 net-rent

- $2,300 property taxes

-$1,600 insurance

-$1,200 maintenance (calling a plumber, heating guy, etc) 

-$2,500 accrue for future maintenance (carpets, paints, appliances, and for a long term hold , roofing, driveway )

-$500.  admin (CPA costs spread out over multiple properties)

-$1,200 (vacancy, lose 1 month every 2 years plus marketing costs)

******************

=$9,300 net profit =. 3.45% ROI on RENT.

@3% yearly appreciation, minus transaction costs when selling...it comes out to 5% annual average ROI,

I know the rental ROI is low - but those are the numbers up there.

@Jonathan R McLaughlin I feel the same about Condo. On this forum and others, I've seen some experienced landlords really strongly prefer detached single family and they site no HOA dues and no HOA problems as reasons. The (2) units I've owned since 2012 are townhomes with an HOA and honestly - I've never had a problem, not once. Do HOA dues come out of my profit? Sure - - - BUT -- I don't have to accrue money for a new roof, or exterior painting, or lawn care. If I avoid condos/townhomes on my next 3-5 purchases, it would only be because people say that detached homes appreciate better than townhomes and condos - - but the HOA/Condo concept actually appeals to me vis a vis maintenance.

@Tracy Minick 

Hello Tracy, I fully hear what you and Brandon say about time. What is my time worth? Well, I'm not sure if it's worth that much in that I've owned decent sized businesses since I was 24 and monetized 2 companies. The 3rd one - well, I got out alive :). I'm 46 - - no college degree and have never had a 'job' other than my teenager jobs. As an adult - it was solely my companies with 40 full time employees. Point being, it's not like I'm qualified as an engineer or doctor or lawyer or indian chief. Basically, over the long term - -with stocks, bonds, and real estate if I can make an annualized average return of 5%-6% - I can live just fine. Right now .....with transaction costs, PM costs, and home prices the way they are - - I feel if I pay cash for houses, my yearly return on rents is 3.5%. Appreciation of 3% per year puts me anywhere from 3.8%-5% - the longer I hold the better. So if I'm sitting at home, watching CNBC and BeaverCleaver and going to lunch and spend time with kids 24/7 - I don't think my time is worth that much. I am in no way udnerestimating the skill it takes to manage (my current 2 units have PM) I just feel...if DIY means I net another $50k in 5 years, or $100k in 10 years -- to someone who retired early that is a meaningful amount hence I'm exploring it. My gut tells me I'll buy a few units out of state - and use PM for it. I may buy a unit locally - and that will be the *one* unit I try to PM myself as I'd rather learn and make mistakes on 1 unit, versus 5 or 6. I realize it could be a nightmare if I do a bad job. But if I do ok - -it's a nice enhancement to ROI.

@Curt Smith

Appreciate the points you made.   My reason for wanting to self manage is obvious - save the 10% times 4-5 homes.   Knowing myself-  I feel that with research, reading, meeting landlords, reading books - and yeah, making a mistake or two - I could be fine at online rent collections, screening tenants, enforcing lease provisions.   Doing repairs and remodels? No way. I'd have to have relationships with handymen.....but that being said, my current PM (who is great)....doesn't do repairs - he just calls one of his contractors.  So I'm wondering - - can I do that model.

Thank you all for the replies and thoughts and I see merit in all the comments.  I remember - I was a young guy starting in business in year 2000.  Around 2004 - I started to make considerable profit, and had money to invest in properties.  Back then - houses in my part of Northern Virginia - small ones - were around $150k.  They were  only 100k 5 years before so I figured I'd missed out- so I didn't do it.   THEN around 2015 - those $150k houses - were $250k -- yep, I missed it again so why buy?  NOW - the %250k houses are $325k.   

For my "plan" to work - I'd need by homes to appreciate an average of 3% per year. My shortest holding period would be 5 years....then some units upto 10 years. 

So now, I look at listings in Durham, or parts of ATL and I see how high they've gotten but I guesss, barring a crash - I can't say why they WOULDN'T appreciate an average of 3% per year.  People are still moving into these areas. All projections say more people on the way. Immigration is still robust. And - it seems to be the builders -are building pricier homes mores than $250k and under.....so between 1st generation immigrants, or even millennials who have some debt, I feel this price point will indeed have a demand - and therefore. 3% appreciation isn't a given - but it's not outlandish.  C'mon, anyone wanna be a sweetheart and tell me that sounds good?

Yes, nobody has a crystal ball I know.  However, I'd really like to add 3-5 rental homes to my portfolio.  Obviously things are very hot right now. Homes going for over asking, etc so I've refrained from buying anything.  But I'm wondering - if now is not the time - when is?  A crash like 2008 - I don't see in the cards in the near future.  Population in metro areas is growing, and is forecasted to keep growing.  I'm starting to think that I have to either  buy now, at high prices......... buy later - but at today's high prices plus some appreciation.....OR wait for that magic moment when things crash - - but God knows how long I'll be waiting because eventually, I'd like to start making some money.   Any thoughts?