Dividend Stocks vs Rental Properties

[jond]

I'm curious what everyone's opinion is on this.

Assuming your post retirement 401k savings is already good...
If you wanted to create passive income as your goal, which would you rather have, dividend stocks or a rental property or 'other'?

Assumptions:
Dividend stocks are purchased when P/E ratio is ~average and picks would be strong stocks like KO, JNJ, PG, etc.
Rental property would be in good middle-class area, in a good school district, trying to rent to young families. Probably using a property management company to handle day to day issues, finding new renters, etc. No loans.

From what I can see:
Dividend Pros:
- Very easy, No headaches
- Unspent dividends are reinvested automatically and grow

Dividend Cons:
- Seems easier to lose your money(GM stock for example)
- Less return

Rental Property Pros:
- Better return
- Seems safer owning something physical

Rental Property Cons:
- Headaches


Just playing with numbers:

I can get a $150,000 house near me that should rent for around $1,300/mo
I've read that in rentals, there's something called the 50% rule. This rule says that on average you can expect to keep 50% of your rent after insurance, repairs, vacancies etc.
So... $1,300/mo * 12 months * 50%Rule * 28%Taxes = $5,616/yr

That same $150,000 in Coke stock(as an example), would buy 3,750 shares.
Dividend yields are 2.78% on KO right now. Taxes on dividends is 15%
So, $150,000 * 2.78% * 15%Taxes = $3,544/yr


Any thoughts, experiences, advise?


.

 

[L_RAO]

I'm going to give you the short-version answer.

Rental properties, IMO, are better for when you are young and take/maximize the benefits of long-term appreciation, interest deductions, and depreciation. Plus the energy required to do it is there when you're young, not so much when you're older. If you turn it over to a property manager, they'll never operate them as if they owned them.

How about a real-estate related stock that has a great yield? I own "O" and I buy on dips. That is my only stock-related play.

 

[RPM217]

I'm going to give you the short-version answer.

Rental properties, IMO, are better for when you are young and take/maximize the benefits of long-term appreciation, interest deductions, and depreciation. Plus the energy required to do it is there when you're young, not so much when you're older. If you turn it over to a property manager, they'll never operate them as if they owned them.

How about a real-estate related stock that has a great yield? I own "O" and I buy on dips. That is my only stock-related play.

52 week return on "O" was -8.7% last year, dividend is 5.7%=total return was negative 3%, not great when the overall market was up over 30%. Your question is a valid one, both have risks as property values plummeted in 07-09 as well. The stock market has much better liquidity than Real Estate. A diversified portfolio is your best strategy, own as many asset classes as is appropriate for your risk appetite, and your portfolio size. Find a good financial advisor, and see what advice is offered. As someone who used to manage over 400 Financial Planners, the best advice I give is:
"Most people don't plan to fail, they fail to plan". Map out a plan, get guidance and execute the plan

 

[rmorrow]

I'm curious what everyone's opinion is on this.

Assuming your post retirement 401k savings is already good...
If you wanted to create passive income as your goal, which would you rather have, dividend stocks or a rental property or 'other'?

Assumptions:
Dividend stocks are purchased when P/E ratio is ~average and picks would be strong stocks like KO, JNJ, PG, etc.
Rental property would be in good middle-class area, in a good school district, trying to rent to young families. Probably using a property management company to handle day to day issues, finding new renters, etc. No loans.

From what I can see:
Dividend Pros:
- Very easy, No headaches
- Unspent dividends are reinvested automatically and grow

Dividend Cons:
- Seems easier to lose your money(GM stock for example)
- Less return

Rental Property Pros:
- Better return
- Seems safer owning something physical

Rental Property Cons:
- Headaches


Just playing with numbers:

I can get a $150,000 house near me that should rent for around $1,300/mo
I've read that in rentals, there's something called the 50% rule. This rule says that on average you can expect to keep 50% of your rent after insurance, repairs, vacancies etc.
So... $1,300/mo * 12 months * 50%Rule * 28%Taxes = $5,616/yr

That same $150,000 in Coke stock(as an example), would buy 3,750 shares.
Dividend yields are 2.78% on KO right now. Taxes on dividends is 15%
So, $150,000 * 2.78% * 15%Taxes = $3,544/yr


Any thoughts, experiences, advise?


.

If you have never owned a rental property I would suggest you split the $150,000... Put 30-40% down on a rental property, use the remaining cash to invest in dividend bearing stocks... If you find the property is easier than you thought you can cash out of the stock and purchase another or payoff your loan. With rates as low as they have been I would personally leverage that real estate investment. You should still cash flow well with a small loan. Just an idea

 

[myw]

+1 if you can, do both, with half the investment in both.... this way you're more diversified and the risk is more spread out.

OT - 150 grand home bringing in 1300$ a month? that sounds amazing to me... in the big citiies a 300k property would bring in 1300 monthly.

If you have never owned a rental property I would suggest you split the $150,000... Put 30-40% down on a rental property, use the remaining cash to invest in dividend bearing stocks... If you find the property is easier than you thought you can cash out of the stock and purchase another or payoff your loan. With rates as low as they have been I would personally leverage that real estate investment. You should still cash flow well with a small loan. Just an idea

 

[docjohn]

be careful..the 50% rule may have some local variability.....esp property taxes.

 

[L_RAO]

50% rule is one "quick and dirty" metric to go by. Another is the "2%" rule. That is, your monthly rent (gross) should be 2% of your purchase price.

Of course, there is also cap rate as well as gross rent multiplier.

 

[Yinzer]

Been a landlord for almost 8 years. 3-unit building since 2006 and just acquired a 5-unit last year. I love the idea of other people's money paying off my rental properties. However, 3 bits of advice I could give is:

1. go the landlord route *if* and only if you really enjoy real estate and houses...some hands-on maintenance, creating a nice space to attract higher rent and good tenants, marketing and advertising, meeting & dealing with people.... If you're thinking of a financial return only, I don't recommend it at all. (Same for stocks - suggest going that route only if you enjoy equities. Always agreed with Jim Cramer's suggestion that you need to spend 1 hour minimum per week per stock to keep on top of things).

2. if you're younger and if your mate would support it - strongly recommend starting out with a duplex or triplex so you live in one unit. Owner occupied's get better mortgage rates and lower insurance premiums, and it's amazing how nice things can be if you get to live for "free" for a few years while getting your feet wet.

3. screen tenants hard and thorough and don't accept just anybody you can get quick. Use a screening agency who charges $15-$30 to qualify applicants (the applicants pay for that) then when you have to turn someone down who screens poorly, you say your agency makes the decision, not you.


myw - things may be a little different in your area but at least in Pittsburgh, the 1% rule is very achievable. Actually 1% minimum is my first quick & dirty "sniff test" metric.

L_RAO - .agree with you right on about the age thing...more energy, more free time (generally), but most importantly more time to benefit from other people's money paying off your house assuming you didn't buy it straight out....on the other hand for the 2% rule...that's very high for my area and would be a DREAM if I could find that. After keeping an eye on the local market for 8+ years, 1% rule is average here in Pittsburgh and the rental market is pretty strong here.

But if one thinks he can make the 2% rule and 50% rule, then that's pretty much an automatic 12% cap rate.
$100,000 house, $2000 monthly rent, $24000 annual gross income, and you keep half of that after insurance, taxes, utilities, & maintenance. $12k/$100k = 12% cap rate. Sign me up! 6-9% is typical here.

Like anything - picking a career, a certain job, a promotion to a new position, a first ex-wife - suggest making sure you really truly like what's behind it all and don't think mostly about the $$$$. Good luck!!!

 

[myw]

great advice yinzer, thank you for that sir.

while i do pay attention to real estate here for fun, slightly under 600k i think is the avg home cost in the city (toronto canada). having seen my parents gone through the process of renting out a few homes growing up i can see that today, a home considered 'average' (24-2500 sq ft, good overall area in avg price range) here, pan pull 3500 monthly providing the house is done like a duplex so that the home can be rented out to 2 separate families.

i also have a few friends in the real estate industry that build a home (1800 sq ft downtown area, so 600k-700k) into a triplex and should be getting 4500-5000 grand a month renting to 3 tenants.

if renting out to a single family, the only case i have seen in recent years are some of my neighbors rent (or rent out their homes) for anywhere between 3500-4000$/month (single family, normally with teenagers living in 3500-4000 sq ft home). on those houses that are rented i cant help but always notice the multiple newer audi's, masteratis, cayennes, lexus on the driveway etc.. so i have always wondered what those home renters do for a living.

however in all cases (that i have personally seen) 1% is very difficult to achieve. over here, i think realistically the return is about 1/3% and 2/3% on the higher end. if the house was purchased 15-20 years ago i think 1% would be possible. i dont think it would too dissimilar to a situation nyc, new jersey, san fran. one place that shocked me re real estate is singapore. govt subsidized flats (which is what hte majority of middle class population lives in) costs about 1/2 a million.

yinzer, when its my turn to try out the rental home game i will definitely be dropping you a line.

k, back to the original topic

Been a landlord for almost 8 years. 3-unit building since 2006 and just acquired a 5-unit last year. I love the idea of other people's money paying off my rental properties. However, 3 bits of advice I could give is:

1. go the landlord route *if* and only if you really enjoy real estate and houses...some hands-on maintenance, creating a nice space to attract higher rent and good tenants, marketing and advertising, meeting & dealing with people.... If you're thinking of a financial return only, I don't recommend it at all. (Same for stocks - suggest going that route only if you enjoy equities. Always agreed with Jim Cramer's suggestion that you need to spend 1 hour minimum per week per stock to keep on top of things).

2. if you're younger and if your mate would support it - strongly recommend starting out with a duplex or triplex so you live in one unit. Owner occupied's get better mortgage rates and lower insurance premiums, and it's amazing how nice things can be if you get to live for "free" for a few years while getting your feet wet.

3. screen tenants hard and thorough and don't accept just anybody you can get quick. Use a screening agency who charges $15-$30 to qualify applicants (the applicants pay for that) then when you have to turn someone down who screens poorly, you say your agency makes the decision, not you.


myw - things may be a little different in your area but at least in Pittsburgh, the 1% rule is very achievable. Actually 1% minimum is my first quick & dirty "sniff test" metric.

L_RAO - .agree with you right on about the age thing...more energy, more free time (generally), but most importantly more time to benefit from other people's money paying off your house assuming you didn't buy it straight out....on the other hand for the 2% rule...that's very high for my area and would be a DREAM if I could find that. After keeping an eye on the local market for 8+ years, 1% rule is average here in Pittsburgh and the rental market is pretty strong here.

But if one thinks he can make the 2% rule and 50% rule, then that's pretty much an automatic 12% cap rate.
$100,000 house, $2000 monthly rent, $24000 annual gross income, and you keep half of that after insurance, taxes, utilities, & maintenance. $12k/$100k = 12% cap rate. Sign me up! 6-9% is typical here.

Like anything - picking a career, a certain job, a promotion to a new position, a first ex-wife - suggest making sure you really truly like what's behind it all and don't think mostly about the $$$$. Good luck!!!

 

[Vanishing Point]

Just one idea if you decide to go high dividend stocks. This one has an annualized return of over 14%.

http://www.2topdividendpayingstocks.com/philip-morris-dividend-analysis.html

 

[PghMiller]

Obviously every location is different. I live in Pittsburgh along with Yinzer, and I agree 100% with all of his remarks above. I too have multi-unit properties and I have concluded the same data as he explains above.
For example, a 2-unit brings in $14,000/yr gross rent.... after mortgage/taxes/insurance/water/sewer I'm down to $8400... and for the past several years I haven't had any additional expenses, so that $8400 was my final net profit. (and my tax preparer usually gets my recorded rental income down to/close to $0 so I don't owe income tax on the money)

And even when someone moves out, you don't always experience a vacant month... I require my tenants to provide 60 days notice, so I spend that 60 days advertising and taking calls and running credit reports, and schedule someone to move in as soon as the previous tenant moves out. In the past years I have only had 1 vacant month total.. it doesn't even phase you really.

But you DO have to have a genuine interest in the real estate field, and the energy, like Yinzer says. I started young at 23 and now at 31 I still have decades left of "managing" this stuff... but at some point I will turn things over to a property management company. So if you don't have the love of real estate, don't do it. Unless you can accept letting a management company handle everything and eat into your profit. (and they don't always do a good job)

 

[steveny]

I do all things you mention, I own (hold) and trade stocks, I have dividend paying stocks, I own quite a bit of real estate, I also manage property for other owners but I'm getting out of it and I'll explain why. I started typing this when you first put up your post, have been going back and reading replies and just haven't had the time to finish it. There may be redundant information here and I'm sorry for that.

1. you can't buy stocks with 10% down that's for sure. It sounds from your post that you're approaching this from a different direction than I would choose, or many professional landlords would choose for that matter. That same 150,000 could be spread out and purchase several rentals instead of just paying cash for one. If you use the the same math you used in your example you could then increase your gross to 13,000 per month using the money you have for down payments and borrowing the rest from the bank. If your expenses with mortgage's on the properties would surpass your gross then stop right here and buy stocks or some other form of passive income. Sure you could margin stocks but with real estate you won't get a margin call and have to add to your investment in order to hang on to it in a falling market. Don't forget there are also many tax advantages associated with having mortgages. I can't think of many other investments where the bank will loan you 90% of what you need to get them going.

2. Unless you couple options with your stocks the returns are not what RE returns are. I see a lot of people here are talking about the one percent rule. This is a good standard to go by in most areas. Here I enjoy properties with much higher returns, some come with more headaches as well. Last year I purchased a house for 18k that rents for 900 a month. This is a tad bit higher than the one percent rule. Most of my properties would be a minimum of five percent using the one percent rule. But that just this area. RE is cheap here and most people are in no position to purchase. I recently bought ten houses on the same street for 275k as part of a package and they rent for 1000-1250 a month each. These are very nice homes with a couple of dentists and other professionals living in them. This is my lowest performing property on a percentage basis using the one percent rule.... but the seller only wanted 10k down payment and I made that back in the first couple of months. It was a no brainer.

3. Correctly trading stocks is not hassle free, in fact not even close to hassle free. You will need to spend at least an hour or two per holding per week keeping up with the news about the position you are holding. If your looking for maximum returns you'll need to spend even more time looking for new places to move your money around to.

4. When you make a good trade there nothing close to how awesome it feels. Bad trades give you a little education but it can be costly. I lost a substantial amount of money when the market crashed in 08, real money not paper money. RE really didn't get hit here hard where I live. Even though paper money was lost I still owned something I could touch when the dust settled. There is something to be said about tangible investments. They can't just evaporate and if they do they are usually insured, not the case with raw stocks, and this is why you need to understand options before trading stocks, options work like a form of insurance and income for stocks. You can recover from a bad trade with options or make even more money on a good trade. Sometimes easily.... sometimes not, but the ability to do so is there for you when you need it. With this said if I could do 08-2.0 I would buy property and not stocks, even though both were inflated. This only holds true for the area where I live. In other parts of the country RE was just decimated and buying either was a bad decision for most everyone.

5. Any dividend stock you buy today IMO is expensive. This was not the case in 08-09 and that was the time to buy great companies on the cheap. You are figuring in the dividends only and not the fluctuation of the stock price which could wipe away any perceived gains from the dividends and then some. If you need this 150k at any point in the near future and need to liquidate when the stock is down from your purchase price you will have a loss on the stock but it will also be compounded by the taxes you've paid on the gains of the dividends throughout the time you've held the stock, thus further expanding your losses overall on the investment as a whole.

6. Stocks are liquid and easy to buy and sell without a lot of transaction fees, unlike real-estate which comes with a lot of transaction fees. As well real-estate can take a long time to liquidate even when there is a cash buyer on hand and ready to go.

7. The returns on rental property can be substantial if run properly, and the key word is ...properly. You have to make it your priority. Empty units cost money. You need to stay on top of any move outs. You must make it your only priority to ready the apartment and refill it hopefully before the current tenant even moves out. The second they are out you are at the door with a paint brush in one hand and a toilet brush in the other hand, hopefully standing next to your significant other who's carrying the paint and toilet cleaner in their hands. This means baseball games, school functions, family gatherings take a back seat to empty apartments. Unless your dying in bed you have to get those apartments ready... period! In your example you say the house will rent for 1300 a month. This equates to 43 dollars a day in rent. If you screw around and let the vacancy stand for two weeks you'll lose ~300 bucks for that seven days its empty. If you have a few of these apartments sitting empty it starts to add up pretty rapidly. As well this loss needs to be subtracted from what you perceive to be your overall gains on this property. I can't even count the amount of planned and unplanned events I've not made it to because I was getting ready apartments. Many people believe landlords don't have to do much and they are partly correct in their thinking concerning the amount of hours they put in, however those hours are sporadic and happen almost perfectly to not allow the planning of just about anything especially vacations. You have to get out in front of problems because they compound VERY quickly. A simple clogged toilet can easily turn into a visit and fine from the health department if you have a tenant who's demanding and wants their issue fixed immediately. This is where a property manager, if they are any good, will save you money. However this is where you can also save yourself a lot of money as well by simply just being available.

8. You are not always going to get a tenant who rents the same place for years strung together. It gives me a warm and fuzzy feeling just thinking about it but when reality sets in that feeling is quickly snatched away and replaced with the cold reality of a twelve month or less tenant that losses their job, doesn't pay for three months while you're evicting them and also does 5k in damage during the last three months of their free residency. Be sure to subtract this 3900 in lost rent from what you think you'll make in rent. Also don't forget to subtract utility costs you'll pay while the apartment is being repaired and while it sits empty waiting for a new tenant. Be sure to add in that pesky water bill the tenant sticks you with because in most states the municipalities will not put those bills in the tenants name, so your stuck with paying them, maybe even more than the last quarters water bill because the water department won't give you notice of unpaid water bills until they tack it on to your yearly tax bill, of course with late charges added. But don't forget ultimately this is your fault for not staying on top of things. You need to trust but confirm. When the tenant tells you they paid the water bill the next thing you should be doing is calling the water department to confirm its been paid. After all people do lie. In my experience tenants tend to lie a lot!

9. Don't hire a management company, you won't make anywhere near what your real potential return is. Personally... I make no less than 30% returns on any of my properties and some are way north of 100% YEARLY. You will not have any of the hassles but if you don't hire competent management you will still deal with the headaches on some level, if its just the frustration of paying for your managers mistakes. I make mistakes we all do, however my mistakes are few and because of it I'm not cheap. That also reduces the profit for the owner of the property. The biggest mistake I think I've made doing management is failing to figure out just how expensive it is to do management. When I have to make repairs on my own property I don't have to pay myself for repairs. There is no cost to me when I rent my own units. I can, although I don't, mow my own lawns, shovel snow, plow driveways, paint, etc. However when I keep track of expenses for other owners the costs add up very quickly. This is why you need to manage your own property and become familiar with how to make repairs. Also you need to be proficient with a paint brush. Before you buy a property meet there with a painter and see what it would cost to have the interior of the house painted, I think you'll be surprised at the expense.

10. Most of the bad stuff won't happen with just one rental property but the most important thing that also won't happen is profits. You need a few, five is the sweet spot where expenses and surprises are spread out enough that the profits start to roll in. Of course once you increase the amount of properties, your also increasing your chances of bad experiences, like say a tenant flushing concrete down the toilet. Think about just normal wear and tear on your own house. Most people replace things like, stove, fridge, furnace etc every ten or so years. And remember that's people who actually own these items, who are being careful with them because they actually have to pay for them when they no longer work. So simple math says if you have ten rentals you'll be replacing something of major expense every year. Stocks don't have as many moving parts as RE does. The roof isn't going to leak on your AT&T stock.


11. You have more control with RE and much less control with stocks, especially raw stock. I suppose all your neighbors could put their houses on the market at the same time and suppress prices but it's highly unlikely. It also highly unlikely for this to happen with good companies but the really good ones, for me anyways, are boring. The returns are also ho-hum.

12. Maybe you should think about spreading that 150k out over stocks and real estate. That's what I'd do with it. Or just invest a small portion of it and see what you like better before jumping in with both feet.

13. Tenants rent for a reason, either bad credit, no discipline to save a down payment or they are transient constantly changing jobs or being promoted within the same company. Regardless this leaves you the landlord with constant rotation and the expense of that rotation. The best case senerio you can have is a tenant who's saving up to buy a house. At least this person is good at saving, has discipline, doesn't want to ruin their credit etc. if you really want to maximize your potential you'll see this and also get into holding paper for these people to purchase a house from you. Your returns won't be as great as renting but they will be more consistent.


I might add more later...

 

[docjohn]

If you can look into your local rental space market know your comps....what will make your apts more atractive to renters? Also are there micro environments in your area that favor landlords..like a medical school/university...parents are usualy pretty good at paying rent for thier kids.

 

[steveny]

If you can look into your local rental space market know your comps....what will make your apts more atractive to renters? Also are there micro environments in your area that favor landlords..like a medical school/university...parents are usualy pretty good at paying rent for thier kids.

Good advice. If they have enough kids the government is even better at paying their rent. I rent to everyone from the dean of an Ivy League school to a single mom with seven kids. The most important thing is their ability to pay on time with the least amount of hassle. People who give a damn, and have children are usually the best on time payers.

- - - Updated - - -

For the OP.
Most importantly... Get a po box and do not give your home address to your tenants. DO NOT BECOME FRIENDS WITH YOUR TENANTS OR RENT TO FRIENDS AND FAMILY. Buy an old junker truck to visit your properties with. Do not drive you NSX to your properties.

 

[sahtt]

I do all things you mention, I own (hold) and trade stocks, I have dividend paying stocks, I own quite a bit of real estate, I also manage property for other owners but I'm getting out of it and I'll explain why. I started typing this when you first put up your post, have been going back and reading replies and just haven't had the time to finish it. There may be redundant information here and I'm sorry for that.

1. you can't buy stocks with 10% down that's for sure. It sounds from your post that you're approaching this from a different direction than I would choose, or many professional landlords would choose for that matter. That same 150,000 could be spread out and purchase several rentals instead of just paying cash for one. If you use the the same math you used in your example you could then increase your gross to 13,000 per month using the money you have for down payments and borrowing the rest from the bank. If your expenses with mortgage's on the properties would surpass your gross then stop right here and buy stocks or some other form of passive income. Sure you could margin stocks but with real estate you won't get a margin call and have to add to your investment in order to hang on to it in a falling market. Don't forget there are also many tax advantages associated with having mortgages. I can't think of many other investments where the bank will loan you 90% of what you need to get them going.

2. Unless you couple options with your stocks the returns are not what RE returns are. I see a lot of people here are talking about the one percent rule. This is a good standard to go by in most areas. Here I enjoy properties with much higher returns, some come with more headaches as well. Last year I purchased a house for 18k that rents for 900 a month. This is a tad bit higher than the one percent rule. Most of my properties would be a minimum of five percent using the one percent rule. But that just this area. RE is cheap here and most people are in no position to purchase. I recently bought ten houses on the same street for 275k as part of a package and they rent for 1000-1250 a month each. These are very nice homes with a couple of dentists and other professionals living in them. This is my lowest performing property on a percentage basis using the one percent rule.... but the seller only wanted 10k down payment and I made that back in the first couple of months. It was a no brainer.

3. Correctly trading stocks is not hassle free, in fact not even close to hassle free. You will need to spend at least an hour or two per holding per week keeping up with the news about the position you are holding. If your looking for maximum returns you'll need to spend even more time looking for new places to move your money around to.

4. When you make a good trade there nothing close to how awesome it feels. Bad trades give you a little education but it can be costly. I lost a substantial amount of money when the market crashed in 08, real money not paper money. RE really didn't get hit here hard where I live. Even though paper money was lost I still owned something I could touch when the dust settled. There is something to be said about tangible investments. They can't just evaporate and if they do they are usually insured, not the case with raw stocks, and this is why you need to understand options before trading stocks, options work like a form of insurance and income for stocks. You can recover from a bad trade with options or make even more money on a good trade. Sometimes easily.... sometimes not, but the ability to do so is there for you when you need it. With this said if I could do 08-2.0 I would buy property and not stocks, even though both were inflated. This only holds true for the area where I live. In other parts of the country RE was just decimated and buying either was a bad decision for most everyone.

5. Any dividend stock you buy today IMO is expensive. This was not the case in 08-09 and that was the time to buy great companies on the cheap. You are figuring in the dividends only and not the fluctuation of the stock price which could wipe away any perceived gains from the dividends and then some. If you need this 150k at any point in the near future and need to liquidate when the stock is down from your purchase price you will have a loss on the stock but it will also be compounded by the taxes you've paid on the gains of the dividends throughout the time you've held the stock, thus further expanding your losses overall on the investment as a whole.

6. Stocks are liquid and easy to buy and sell without a lot of transaction fees, unlike real-estate which comes with a lot of transaction fees. As well real-estate can take a long time to liquidate even when there is a cash buyer on hand and ready to go.

7. The returns on rental property can be substantial if run properly, and the key word is ...properly. You have to make it your priority. Empty units cost money. You need to stay on top of any move outs. You must make it your only priority to ready the apartment and refill it hopefully before the current tenant even moves out. The second they are out you are at the door with a paint brush in one hand and a toilet brush in the other hand, hopefully standing next to your significant other who's carrying the paint and toilet cleaner in their hands. This means baseball games, school functions, family gatherings take a back seat to empty apartments. Unless your dying in bed you have to get those apartments ready... period! In your example you say the house will rent for 1300 a month. This equates to 43 dollars a day in rent. If you screw around and let the vacancy stand for two weeks you'll lose ~300 bucks for that seven days its empty. If you have a few of these apartments sitting empty it starts to add up pretty rapidly. As well this loss needs to be subtracted from what you perceive to be your overall gains on this property. I can't even count the amount of planned and unplanned events I've not made it to because I was getting ready apartments. Many people believe landlords don't have to do much and they are partly correct in their thinking concerning the amount of hours they put in, however those hours are sporadic and happen almost perfectly to not allow the planning of just about anything especially vacations. You have to get out in front of problems because they compound VERY quickly. A simple clogged toilet can easily turn into a visit and fine from the health department if you have a tenant who's demanding and wants their issue fixed immediately. This is where a property manager, if they are any good, will save you money. However this is where you can also save yourself a lot of money as well by simply just being available.

8. You are not always going to get a tenant who rents the same place for years strung together. It gives me a warm and fuzzy feeling just thinking about it but when reality sets in that feeling is quickly snatched away and replaced with the cold reality of a twelve month or less tenant that losses their job, doesn't pay for three months while you're evicting them and also does 5k in damage during the last three months of their free residency. Be sure to subtract this 3900 in lost rent from what you think you'll make in rent. Also don't forget to subtract utility costs you'll pay while the apartment is being repaired and while it sits empty waiting for a new tenant. Be sure to add in that pesky water bill the tenant sticks you with because in most states the municipalities will not put those bills in the tenants name, so your stuck with paying them, maybe even more than the last quarters water bill because the water department won't give you notice of unpaid water bills until they tack it on to your yearly tax bill, of course with late charges added. But don't forget ultimately this is your fault for not staying on top of things. You need to trust but confirm. When the tenant tells you they paid the water bill the next thing you should be doing is calling the water department to confirm its been paid. After all people do lie. In my experience tenants tend to lie a lot!

9. Don't hire a management company, you won't make anywhere near what your real potential return is. Personally... I make no less than 30% returns on any of my properties and some are way north of 100% YEARLY. You will not have any of the hassles but if you don't hire competent management you will still deal with the headaches on some level, if its just the frustration of paying for your managers mistakes. I make mistakes we all do, however my mistakes are few and because of it I'm not cheap. That also reduces the profit for the owner of the property. The biggest mistake I think I've made doing management is failing to figure out just how expensive it is to do management. When I have to make repairs on my own property I don't have to pay myself for repairs. There is no cost to me when I rent my own units. I can, although I don't, mow my own lawns, shovel snow, plow driveways, paint, etc. However when I keep track of expenses for other owners the costs add up very quickly. This is why you need to manage your own property and become familiar with how to make repairs. Also you need to be proficient with a paint brush. Before you buy a property meet there with a painter and see what it would cost to have the interior of the house painted, I think you'll be surprised at the expense.

10. Most of the bad stuff won't happen with just one rental property but the most important thing that also won't happen is profits. You need a few, five is the sweet spot where expenses and surprises are spread out enough that the profits start to roll in. Of course once you increase the amount of properties, your also increasing your chances of bad experiences, like say a tenant flushing concrete down the toilet. Think about just normal wear and tear on your own house. Most people replace things like, stove, fridge, furnace etc every ten or so years. And remember that's people who actually own these items, who are being careful with them because they actually have to pay for them when they no longer work. So simple math says if you have ten rentals you'll be replacing something of major expense every year. Stocks don't have as many moving parts as RE does. The roof isn't going to leak on your AT&T stock.


11. You have more control with RE and much less control with stocks, especially raw stock. I suppose all your neighbors could put their houses on the market at the same time and suppress prices but it's highly unlikely. It also highly unlikely for this to happen with good companies but the really good ones, for me anyways, are boring. The returns are also ho-hum.

12. Maybe you should think about spreading that 150k out over stocks and real estate. That's what I'd do with it. Or just invest a small portion of it and see what you like better before jumping in with both feet.

13. Tenants rent for a reason, either bad credit, no discipline to save a down payment or they are transient constantly changing jobs or being promoted within the same company. Regardless this leaves you the landlord with constant rotation and the expense of that rotation. The best case senerio you can have is a tenant who's saving up to buy a house. At least this person is good at saving, has discipline, doesn't want to ruin their credit etc. if you really want to maximize your potential you'll see this and also get into holding paper for these people to purchase a house from you. Your returns won't be as great as renting but they will be more consistent.


I might add more later...

A lot of wisdom here. I know less about the real estate side than Steve has forgotten but I know a little about stocks. It not only requires time - it requires expertise. It can take a long time and a lot of hard lessons learned before you get good at it and understand the risks you are taking. My portfolio yields about 6.5% and includes some MLP's paying out 9% and stocks like AAPL paying out much less. I spend about an hour a day keeping on top of my 15-20 holdings and the 50-100 bids I have out in the market at any time. In addition, I spend about 2-3 hours on Friday reviewing what happened on the week and adjusting all my bids/offers. I enjoy all of this so it is not 'work' to me. I also reinvest all my dividends into one position monthly per Scottrade's reinvestment option. Many, if not most of my positions pay monthly dividends. I end up with 30-60 extra shares of stock every year without paying a nickel for them or any transaction fees. Each share I buy contributes a few bucks toward the next month's payout. If a good stock goes down I reinvest into it until it recovers. I did this with KMI, for instance, recently.

I'm with Steve and say both is probably optimal provided* you are good at both or willing to pay the price to learn. I don't have enough time or capital for that matter to do real estate right now but hope to learn about it through practical experience sooner than later.

 

[myw]

amazing advice here.

I do all things you mention, I own (hold) and trade stocks, I have dividend paying stocks, I own quite a bit of real estate, I also manage property for other owners but I'm getting out of it and I'll explain why. I started typing this when you first put up your post, have been going back and reading replies and just haven't had the time to finish it. There may be redundant information here and I'm sorry for that.

1. you can't buy stocks with 10% down that's for sure. It sounds from your post that you're approaching this from a different direction than I would choose, or many professional landlords would choose for that matter. That same 150,000 could be spread out and purchase several rentals instead of just paying cash for one. If you use the the same math you used in your example you could then increase your gross to 13,000 per month using the money you have for down payments and borrowing the rest from the bank. If your expenses with mortgage's on the properties would surpass your gross then stop right here and buy stocks or some other form of passive income. Sure you could margin stocks but with real estate you won't get a margin call and have to add to your investment in order to hang on to it in a falling market. Don't forget there are also many tax advantages associated with having mortgages. I can't think of many other investments where the bank will loan you 90% of what you need to get them going.

2. Unless you couple options with your stocks the returns are not what RE returns are. I see a lot of people here are talking about the one percent rule. This is a good standard to go by in most areas. Here I enjoy properties with much higher returns, some come with more headaches as well. Last year I purchased a house for 18k that rents for 900 a month. This is a tad bit higher than the one percent rule. Most of my properties would be a minimum of five percent using the one percent rule. But that just this area. RE is cheap here and most people are in no position to purchase. I recently bought ten houses on the same street for 275k as part of a package and they rent for 1000-1250 a month each. These are very nice homes with a couple of dentists and other professionals living in them. This is my lowest performing property on a percentage basis using the one percent rule.... but the seller only wanted 10k down payment and I made that back in the first couple of months. It was a no brainer.

3. Correctly trading stocks is not hassle free, in fact not even close to hassle free. You will need to spend at least an hour or two per holding per week keeping up with the news about the position you are holding. If your looking for maximum returns you'll need to spend even more time looking for new places to move your money around to.

4. When you make a good trade there nothing close to how awesome it feels. Bad trades give you a little education but it can be costly. I lost a substantial amount of money when the market crashed in 08, real money not paper money. RE really didn't get hit here hard where I live. Even though paper money was lost I still owned something I could touch when the dust settled. There is something to be said about tangible investments. They can't just evaporate and if they do they are usually insured, not the case with raw stocks, and this is why you need to understand options before trading stocks, options work like a form of insurance and income for stocks. You can recover from a bad trade with options or make even more money on a good trade. Sometimes easily.... sometimes not, but the ability to do so is there for you when you need it. With this said if I could do 08-2.0 I would buy property and not stocks, even though both were inflated. This only holds true for the area where I live. In other parts of the country RE was just decimated and buying either was a bad decision for most everyone.

5. Any dividend stock you buy today IMO is expensive. This was not the case in 08-09 and that was the time to buy great companies on the cheap. You are figuring in the dividends only and not the fluctuation of the stock price which could wipe away any perceived gains from the dividends and then some. If you need this 150k at any point in the near future and need to liquidate when the stock is down from your purchase price you will have a loss on the stock but it will also be compounded by the taxes you've paid on the gains of the dividends throughout the time you've held the stock, thus further expanding your losses overall on the investment as a whole.

6. Stocks are liquid and easy to buy and sell without a lot of transaction fees, unlike real-estate which comes with a lot of transaction fees. As well real-estate can take a long time to liquidate even when there is a cash buyer on hand and ready to go.

7. The returns on rental property can be substantial if run properly, and the key word is ...properly. You have to make it your priority. Empty units cost money. You need to stay on top of any move outs. You must make it your only priority to ready the apartment and refill it hopefully before the current tenant even moves out. The second they are out you are at the door with a paint brush in one hand and a toilet brush in the other hand, hopefully standing next to your significant other who's carrying the paint and toilet cleaner in their hands. This means baseball games, school functions, family gatherings take a back seat to empty apartments. Unless your dying in bed you have to get those apartments ready... period! In your example you say the house will rent for 1300 a month. This equates to 43 dollars a day in rent. If you screw around and let the vacancy stand for two weeks you'll lose ~300 bucks for that seven days its empty. If you have a few of these apartments sitting empty it starts to add up pretty rapidly. As well this loss needs to be subtracted from what you perceive to be your overall gains on this property. I can't even count the amount of planned and unplanned events I've not made it to because I was getting ready apartments. Many people believe landlords don't have to do much and they are partly correct in their thinking concerning the amount of hours they put in, however those hours are sporadic and happen almost perfectly to not allow the planning of just about anything especially vacations. You have to get out in front of problems because they compound VERY quickly. A simple clogged toilet can easily turn into a visit and fine from the health department if you have a tenant who's demanding and wants their issue fixed immediately. This is where a property manager, if they are any good, will save you money. However this is where you can also save yourself a lot of money as well by simply just being available.

8. You are not always going to get a tenant who rents the same place for years strung together. It gives me a warm and fuzzy feeling just thinking about it but when reality sets in that feeling is quickly snatched away and replaced with the cold reality of a twelve month or less tenant that losses their job, doesn't pay for three months while you're evicting them and also does 5k in damage during the last three months of their free residency. Be sure to subtract this 3900 in lost rent from what you think you'll make in rent. Also don't forget to subtract utility costs you'll pay while the apartment is being repaired and while it sits empty waiting for a new tenant. Be sure to add in that pesky water bill the tenant sticks you with because in most states the municipalities will not put those bills in the tenants name, so your stuck with paying them, maybe even more than the last quarters water bill because the water department won't give you notice of unpaid water bills until they tack it on to your yearly tax bill, of course with late charges added. But don't forget ultimately this is your fault for not staying on top of things. You need to trust but confirm. When the tenant tells you they paid the water bill the next thing you should be doing is calling the water department to confirm its been paid. After all people do lie. In my experience tenants tend to lie a lot!

9. Don't hire a management company, you won't make anywhere near what your real potential return is. Personally... I make no less than 30% returns on any of my properties and some are way north of 100% YEARLY. You will not have any of the hassles but if you don't hire competent management you will still deal with the headaches on some level, if its just the frustration of paying for your managers mistakes. I make mistakes we all do, however my mistakes are few and because of it I'm not cheap. That also reduces the profit for the owner of the property. The biggest mistake I think I've made doing management is failing to figure out just how expensive it is to do management. When I have to make repairs on my own property I don't have to pay myself for repairs. There is no cost to me when I rent my own units. I can, although I don't, mow my own lawns, shovel snow, plow driveways, paint, etc. However when I keep track of expenses for other owners the costs add up very quickly. This is why you need to manage your own property and become familiar with how to make repairs. Also you need to be proficient with a paint brush. Before you buy a property meet there with a painter and see what it would cost to have the interior of the house painted, I think you'll be surprised at the expense.

10. Most of the bad stuff won't happen with just one rental property but the most important thing that also won't happen is profits. You need a few, five is the sweet spot where expenses and surprises are spread out enough that the profits start to roll in. Of course once you increase the amount of properties, your also increasing your chances of bad experiences, like say a tenant flushing concrete down the toilet. Think about just normal wear and tear on your own house. Most people replace things like, stove, fridge, furnace etc every ten or so years. And remember that's people who actually own these items, who are being careful with them because they actually have to pay for them when they no longer work. So simple math says if you have ten rentals you'll be replacing something of major expense every year. Stocks don't have as many moving parts as RE does. The roof isn't going to leak on your AT&T stock.


11. You have more control with RE and much less control with stocks, especially raw stock. I suppose all your neighbors could put their houses on the market at the same time and suppress prices but it's highly unlikely. It also highly unlikely for this to happen with good companies but the really good ones, for me anyways, are boring. The returns are also ho-hum.

12. Maybe you should think about spreading that 150k out over stocks and real estate. That's what I'd do with it. Or just invest a small portion of it and see what you like better before jumping in with both feet.

13. Tenants rent for a reason, either bad credit, no discipline to save a down payment or they are transient constantly changing jobs or being promoted within the same company. Regardless this leaves you the landlord with constant rotation and the expense of that rotation. The best case senerio you can have is a tenant who's saving up to buy a house. At least this person is good at saving, has discipline, doesn't want to ruin their credit etc. if you really want to maximize your potential you'll see this and also get into holding paper for these people to purchase a house from you. Your returns won't be as great as renting but they will be more consistent.


I might add more later...

Good advice. If they have enough kids the government is even better at paying their rent. I rent to everyone from the dean of an Ivy League school to a single mom with seven kids. The most important thing is their ability to pay on time with the least amount of hassle. People who give a damn, and have children are usually the best on time payers.

- - - Updated - - -

For the OP.
Most importantly... Get a po box and do not give your home address to your tenants. DO NOT BECOME FRIENDS WITH YOUR TENANTS OR RENT TO FRIENDS AND FAMILY. Buy an old junker truck to visit your properties with. Do not drive you NSX to your properties.

 

[jond]

I love youguys. I can't imagine anywhere else that I could get this much wisdom from people who walk the walk.
I'm soaking it in, if anyone has more thoughts, please keep it coming!


Thanks
Jon

.

 

[jaybird]

This thread is just another example why NSX PRIME is such a great site - not your normal auto enthusiast site - lots of nice, smart folks willing to share their wisdom and experiences to help others.

Lots of very sound advice already mentioned, from people that clearly know what they are talking about. I'll be brief; mostly have been involved with stocks (and love dividend paying equities), but have "dabbled" in some real estate. Had a rental townhouse that worked pretty well - until it didn't . . . one bad tenant left us (my partner, who was a real estate agent) holding a bad check, and thoroughly wrecked the place before we discovered they skipped town. Cost us about 6 months worth of rent to repair. Then the real estate downturn hit, and we held the property for another 8 years or so until we could finally sell it. Not a good experience. Having said that, I know lots of folks that made their fortune by buying real estate in the Virginia Beach area long ago and finally sold at nice profits. So I know that lots of folks do well with rental real estate.

However, in my many years of doing things and investing, I have come to the conclusion that nothing beats liquidity. I love knowing I can turn my "stuff" into cash instantly (at some market price). So, there are lots of good, quality dividend paying stocks in many areas that pay nice dividends (and more importantly, have a record of raising dividends) - these include the ole standbys like Coke, McDonalds, J&J, but also MLP's, REITS, and BDC's (Business Development Companies). A good diversified portfolio of these can generate 5% to 7%, and hopefully some growth of cash flow and capital down the road. AND LIQUIDITY. Yes, they dropped in value in 08, but the vast majority continued to pay the same dividends, and ultimately rebounded in value. There are some risk management techniques to provide some protection on those (or all) securities in case of another bad downturn - including "Stop Loss" orders that sell if the price gets to a predetermined downside level.

So, my bias is stocks - just have had a better experience in this area than I've had with real estate. And, I used to hate getting that call from the tenant in the middle of the night saying their heat had broken !!!! Best of luck with your decision!

 

[Miner]

I have 2 houses that I rent, one is on it's 3rd tenant in 3 years and the other 1 tenant in 5+ years. Both are the result of moving, so I put down 20%, made payments the started renting. On one I net $500 a month, the other I break even. There is a bit of effort involved and not enough profit to make it my full time job like Steveny. As he said maybe 5 total is the max properties.
I'd like to sell both in the next 10 years and use the equity to pay off my current house, as I'll be getting closer to an early retirement age. I don't get into stocks other than my 401, don't have the patience or desire to invest that way but I can paint, drill, plumb, dig and hammer so owning rentals is right up my alley. Maybe flipping houses will be my retirement job.

 

[steveny]

I used to hate getting that call from the tenant in the middle of the night saying their heat had broken !!!!

Just returned home from that very thing. Its brutal cold here, in the negatives! This also brings to mind another point, keep your properties close to home but in the next "city" away from you. This will keep your leisure time and work separate. Although I'm not speaking from experience here, IMO I'd never live in or on the same property I'm renting out. I'm sure there are worse things that can happen but I sure wouldn't want my neighbor to be someone I'm arguing with, taking to court, placing a judgement on, etc. I know a lot of people say its great to live in one side of a duplex while the person on the other side pays the mortgage but I don't see this as a good plan.

I use to own a lot of property in the southern tier. Once I felt RE values there were topping out I started buying in the northern tier where values were still depressed. After I felt I was saturated in the northern tier I started selling everything in the southern tier. Once the sales were complete I moved north. After moving, a non working furnace trip was shaved from a two hour turnaround drive to a twenty minute turnaround. So this is my second time around with a new batch of property. I never went without having property and there was a time when it felt like I was driving all the time having properties in both areas. It got old really quick and the transition between the two areas thankfully only lasted a couple of years. But man did I rack up the miles. Did close to 100k miles in one year. Expenses were up as well. It was in some cases cheaper to just call a furnace company to light a pilot then it was to gear up and go myself, especially if I was already deeply involved in something at the other end of my area. Painful to pay someone 200 bucks to click a Bic but also added many useable hours to my day.

- - - Updated - - -

I have 2 houses that I rent, one is on it's 3rd tenant in 3 years and the other 1 tenant in 5+ years. Both are the result of moving, so I put down 20%, made payments the started renting. On one I net $500 a month, the other I break even. There is a bit of effort involved and not enough profit to make it my full time job like Steveny. As he said maybe 5 total is the max properties.
I'd like to sell both in the next 10 years and use the equity to pay off my current house, as I'll be getting closer to an early retirement age. I don't get into stocks other than my 401, don't have the patience or desire to invest that way but I can paint, drill, plumb, dig and hammer so owning rentals is right up my alley. Maybe flipping houses will be my retirement job.

Not sure if you given it any thought but if your good at making those types of repairs why not buy fixer uppers and rehab them into rental condition then take them back to the bank to get that sweat equity out. You can easily increase your money in a short period of time. Only borrow out enough to avoid PMI and use the equity you get out to pay off your primary. Continue to rent the fixed up house out, if its break even it's still a win as you will no longer have a mortgage payment on your primary and you'll have the tax breaks from the rentals. Its a win win.

Flipping works too. There certainly is a great opportunity to arbitrage this area of the RE market if you are liquid enough to purchase homes that others do not have the liquidity to purchase but they do have the 10% down the bank requires to purchase a property in livable condition from you after the repairs are made.

 

[buckeyensx]

The education on Prime is incredible! What a great group of guys taking their time to help others. I thought I just purchased a car. Thanks<object type="cosymantecnisbfw" cotype="cs" id="SILOBFWOBJECTID" style="width: 0px; height: 0px; display: block;"></object>

 

[Yinzer]

I'm learning tons on this thread. I have experience in my level of RE residential rentals but I'm no expert so I suck this kind of info-share up like a sponge. Goldmine of advice here, so appreciated & so helpful. Steveny I need to make it to an NSXPO and buy you some drinks. Myw, thanks for small pat on the back there but we're both in school here, lol.

One reminder/lightbulb that went off while reading today's posts was realizing that there are so many caveats and different situations across people's experiences...a reminder that nobody should ever over-simplify or trick themselves into thinking they can make ABC returns doing XYZ type of investing based off what they heard about someone else's investments...you only hear part of the story and don't know all the tradeoffs it takes to get to be able to say those statements like Steveny described so well. So nobody take my particular words earlier too directly. I can't get above the 1% rule in Pittsburgh for the type of rentals I pursue but after reading Steveny's post I realized that I have friends in Pittsburgh who far surpass the 1% rule like him. So I don't want to give the impression above that the 1%, 2%, etc rule is completely region-specific... My friends tend to buy fixer-uppers and put a lot of sweat equity into theirs and they earn (& deserve) higher returns. I buy finished and just maintain, as I have no desire to do major renovations (stick to what you know and ideally what you like). But I do most of the maintenance & turnovers which I like and am good at... I wouldn't call my friends' rentals shabby by any stretch but they're "basic," not often not in a trendy/"alive" area, and not posh/chic, often renting in the $700-900 range per unit. Mine get 2 to 3x what he gets per month and are slightly more on the chic side but not too much (it's amazing how chic something can look and feel with just high ceilings, open spaces, light/neutral colors throughout, fresh/clean carpet, some hardwood or engineered wood flooring, good lighting, non-drafty windows, a little exposed brick if you're lucky, full bathroom sinks and no pedestal dinky tiny sinks, and all black appliances) and in a hot area near 4 major universities.

W/o trying to oversimplify, my friends have to run around to 3 different units in different nearby cities to bring in the same gross rent as I do as 1 unit in my bldg of 3 apts. They keep more after expenses than me but work harder and earn/deserve it I'll say it once again. I hope to make some of that up at resale whenever (never?) since I decided long ago to stick in the more hot area and cater to nearby recent graduates (I live near 3-4 major universities) where there is typically a little more appreciation than on the outskirts. My personal niche is to target recent graduates who want to live a little after 4-6 years of hard studying and who will more on rent than I'd ever have wanted to spend...long ago a realtor told me that his personal niche to rentals was to market to people who will pay more in rent for a nicer place in a good location thinking they'll then get to sleep with better looking people. I used the word "chic" above on purpose because that seems to work well with advertising and attracting those types of good people. Plus if they're just out of school I get their parents to co-sign, another security measure. Typically I also shoot for graduate students and drive home the point early that this isn't toga/kegger party central. For that reason in this particular case I don't mind living near them. But I can completely see situations where I'd not want to live near some renters. Again, so many cases are different.

Please I am NOT bragging. I am not making a killing getting rich quick and this is not my full time job but is a paying hobby. I do hope to "keep ensuring a relatively comfortable lifestyle now and down the line" by being a nice adder to my 401k, IRAs, and an actual pension that's still in effect. And if I'm ever unemployed like I was 12 years ago when a start-up of 32 ppl went belly up, then this "living for free" should help me tread water w/o too much stress and pain. Oh and the cashflow pays for my NSX....

....which made days like today tolerable. Here were today's events, swear to God 100% accurate. Got a call at noon from a tenant, no heat. Same guy who went away for 2 weeks over Christmas and accidentally turned off his thermostat so he returned to a 30 degree apartment, but I digress. I lucked out in that I just got out of an important meeting and was free for the afternoon. I knew someone was bound to call today at -8 degrees....left work and took 1/2 day vacation. Dialed 2 of my HVAC guys on speed dial on the way, all of whom were super busy today as expected with burst pipes & dead furnaces all over. Drove home 10 blocks from tenant and brought him one of my spare space heaters to get by. Once arrived he says there's no cold water flowing from kitchen. Dialed 2 plumbers on speed dial, got one answering service and one "sorry am swamped but you're in the queue I'll do my best." Called in my nuclear option - I'm friends with a big-time local commercial RE landlord and asked him for add'l names of an HVAC and plumber...called each, dropped the name of my friend (mentor) and both said they'd come by within an hour. Huge sigh of relief. Checked out neighboring apartment and see frozen pipes there too. Plumbers arrive, my first time meeting them. Called off the other 2 who were too busy to mind one bit. Plumbers unfroze the two pipes in about 20 minutes with the Hot Shot. Then HVAC guys arrive. I call off the other 2 HVAC. Plumbers bill $225 cash or check for 45 minutes of work (completely worth it) but I wasn't prepped for a cash-spendy day so we make plans to meet later in day. Give them $20 tip for nearby Starbucks to get me by for now and as big thanks for the quick show-up plus a bag of chocolate covered pretzels that were in my car from Christmas, hoping to start off a new relationship good (johnny-on-the spot fixit guys who show up quickly are worth gold). HVAC guys $95 for 25 mins work (totally worth it) and that drains my wallet after another $20 tip again to two new contacts...hoping that was enough but I was now out of cash. Run to cash machine en route to chasing down a propane heater to heat up the unrehabbed space where the pipes froze...found the very last available one in the city at a Home Depot and hightailed back and started heating up the 2000 sq ft space at -8 degrees to try to get near 25 or so for the night....30 mins later the pex piping thawed out and I met with tenants to ensure all their faucets/baths were dripping water throughout the night. Realized I needed to get cat food over lunch, was running dangerously low at home. Ran to nearby supermarket, get some cans of cat food, get some fried chicken drumsticks and iced tea, eat in car, drive home to give cat insulin shot since you have to take care of "family" amongst all work/rental craziness...make sure my pipes were ok. Turn on the water dripping...go back to the 3rd apartment on the premises where the other frozen pipes were. No way the pipes here could be frozen since all was just 100% rehabbed (I'll be moving into this one, with a garage for my NSX) only to find frozen pipes there too due to a 2" penetration from outside directly near the water service inlet. Ran home got a hair dryer, the froze portion broke free after 15 seconds of heat, maybe 20. Drove 10 blocks away home & back and got another space heater to keep by the water inlet overnight Found some spare insulation to cap the 2" hole and pad around it. Met up around 7:30pm with one of the plumbers from earlier and gave them the $225. Turned off propane heater for the night in the other building, stopped by friend's whose wife picked up the last electric plumber's tape in the Home Depots since it's near her work. Ate bowl of chili at 9pm at their place standing up, drove home. Likely now will work from home 1/2 or all of tomorrow if not take 1/2 day vaca to followup on frozen pipe issue just to play it safe, and feel thankful that I have a job that affords me some flexibility. But I work hard and earn that flexibility.

Anyone still want to do rentals? Honestly this craziness rarely happens and like the baby that poops or pees all over you, it's OK because it's yours. And a lot of it is shame on me - with only 4 current rental apts I should stay on top of their longer vacations and visit their apartments every few days during extreme temps like this. And I should have made them all drip their faucets until we got above 32 degrees. So all of this I'll apply next time to hopefully avoid these later. The last time I had to "drop the world" like this was 6 months ago. As I get more units, the chances increase. I do have 2 handymen with access to master keys but today was kind of extreme and both handymen were too tied up with frozen pipes to get started until I arrived so I had to take care of it all. It's not the first time I had to take a vaca day or run from a nephew's baseball game or from a fun night out but it's been a while too. All fine and totally worth it.

Sorry for all the typing. I'm half awake and may be mumbling now. But I needed some come-down from the day and distraction before bed... Next time I look at my NSX in the garage this weekend it's going to feel even more earned and fulfilling.

 

[Vega$ NSX]

Step 1. Listen to Steveny
Step 2. Go back to step 1 dummy!

:smile:

 

[Yinzer]

Oh and one of the handymen I called...I hadn't used him in over a year as nothing major has happened in the last 12 months that I couldn't do myself. But he's saved my butt often. We caught up a little on the phone later in the day and he said he had just gotten re-married. He's a huge Corona beer fan. Somewhere after the cat's insulin shot and heading back to the property I picked up a case of beer as a jokey but sincere wedding gift since I hadn't seen him in a while usually got him a case for Christmas back when I was learning and called him more often...always want to show appreciation to guys who hopefully keep me as one they won't just let go to voice mail especially on days like today. He was chasing down frozen pipes at various rentals too all day and we were going to meet after his last one until his wife called in her own nuclear option due to frozen pipes at home. Had to lug a heavy case 1 block home on top of all else so it wouldn't freeze in the car. All the spending on repairs & tips to new guys today to take care of those in your fix-it network reminded me of how I waited 8 years since 2006 until I got that 2nd rental property before allowing the NSX. Miraculously the timing worked out last year between the two. But it underscores I guess some of the deferred gratification with RE and the need to make sacrifices to ensure cashflow while keeping a liquid buffer and never go too thin...unlike stocks you need to have cashflow to pay the mortgage and build a buffer against inevitable broken things...all touched upon already above so I'll stop and go to bed...no frozen pipes no frozen pipes, and dreams of dancing VTEC dreams of VTEC.....

 

[steveny]

Sounds like a fun day. My wife and I spent the day filling two 30yd roll offs with stuff left behind from a tenant who rented from me for about ten years now and lived in the building ten years before it transferred to me. Needless to say there is a ton of crap there and a lot more to throw out probably two more dumpsters at least. Its cold as hell here too. So far we have only removed everything from the attic and still have the apartment and basement to clean out. Should be ready by the end of the day tomorrow, then we can paint the place and put new floors in. Even though this guy was there for 20 years and paid mostly on time we still had to evict him. So goes my motto, eventually everyone flakes. It's just the way it is. Got stiffed for two months of rent while I was getting him out, plus attorney fees. Gonna be probably a couple grand in dump fees getting rid of all the trash, and another 4-5k to rehab the unit as everything is twenty years old. New floors, paint, repairs etc. so its a ten thousand turn around but he paid near a hundred grand in rent over the time he rented from me and the house has four other apartments in it paying the same, I paid 60k for for the place about ten years ago.

I've been dealing with frozen pipes here too. I keep heaters, heat guns, blow dryers, and a welder for buildings without pex in the truck once winter starts.

Most of what I buy is usually ready to go. That single family I bought for 18k with rent of 900 already had a tenant in it and she's still there. I've been there a couple of times for a few small repairs and that's about it. Was there for frozen pipes Sunday night. Did a property clean up when I first bought it, always do. Go through and throw everything out that's been laying around for sometimes decades. This ensures when the tenant moves out they can say, "oh the last person left that stuff here" to which I can reply... "No they didn't so if you want your security deposit back take your trash with you." The bank got so screwed on that deal IMO. The last owner, the guy I bought it from, put on new siding, windows and roof, replaced the plumbing supply and drain, new breaker box, furnace, etc... did it up pretty nice. Then he went to the bank and refinanced it for 98,000 dollars and didn't make one payment not even the taxes for three years but all the while collecting the 900 a month rent. The bank paid the taxes and insurance about 10k over those three years. Then they also gave him a 10k sellers concession but they only got the 18k I gave them for the house. So the bank lost the 10k in expenses, the 10k concession, AND the 98k they loaned out. Oh and they paid the back water bills too... about 2k. IMO the last owner should go to jail for bank robbery.

When I do buy properties that need work they almost always already have a tenant in them so the work is minimal. I can do most anything myself so if I buy something that needs a lot of work it adds value to the property but hardly ever increases the rent. My wife is a huge help and I would not be able to do this on this scale without her. She takes care of all the selling, buying, leasing, rent collecting... basically everything that I really dislike doing. She is who has really expanded this beyond what I would have done by myself. All the stuff she does I would not be able to do along with everything else I also need to do, and she's really good at it too! I'm really not a people person when it comes to work. In fact not friendly at all just all business. I'm too busy to chat about the weather or your aunt that's in the hospital or whatever. My wife is good at listening to that shit. Me I just walk away while the person is still talking cause I've got things to do. If I stopped to talk with every person I meet during the day for five minutes it'd add hours to the end of the day. It's something I should work on but probably won't. I like to conserve my time for things I like to do when I'm not doing the things that need to get done.

At one point back in the late nineties early two thousands I had, IMO, too many units. Just plowing snow was an all day ordeal. Mowing lawns would be an 18 hour day, and that was with a big ass mower too. Thank God some of them had no lawn and one property was 110 units on one plot. I should have held on to that one as it just traded hands again at four times what it sold for, damn. Anyways, That was just too many units and now I'm down into the hundreds. My days were much like the day you just had, every day, 24/7/365. My brother in law and myself once worked for 38 hours straight, the first 15 hours we didn't even stop to eat. Things are much calmer now and I'm not so hyped up when I get home. In fact over this Christmas I didn't leave my house for about two weeks in a row. The last several Christmas' I've actually been able to spend with my family because all the prior ones I was working. It was really nice for me to just hang out with my kids this Christmas. After having my two girls I really try and spend as much time with them as I can, they are a lot more fun than wrestling a water heater half full of sediment up out of a basement.


For the op,
Master key everything.

I'm learning tons on this thread. I have experience in my level of RE residential rentals but I'm no expert so I suck this kind of info-share up like a sponge. Goldmine of advice here, so appreciated & so helpful. Steveny I need to make it to an NSXPO and buy you some drinks. Myw, thanks for small pat on the back there but we're both in school here, lol.

One reminder/lightbulb that went off while reading today's posts was realizing that there are so many caveats and different situations across people's experiences...a reminder that nobody should ever over-simplify or trick themselves into thinking they can make ABC returns doing XYZ type of investing based off what they heard about someone else's investments...you only hear part of the story and don't know all the tradeoffs it takes to get to be able to say those statements like Steveny described so well. So nobody take my particular words earlier too directly. I can't get above the 1% rule in Pittsburgh for the type of rentals I pursue but after reading Steveny's post I realized that I have friends in Pittsburgh who far surpass the 1% rule like him. So I don't want to give the impression above that the 1%, 2%, etc rule is completely region-specific... My friends tend to buy fixer-uppers and put a lot of sweat equity into theirs and they earn (& deserve) higher returns. I buy finished and just maintain, as I have no desire to do major renovations (stick to what you know and ideally what you like). But I do most of the maintenance & turnovers which I like and am good at... I wouldn't call my friends' rentals shabby by any stretch but they're "basic," not often not in a trendy/"alive" area, and not posh/chic, often renting in the $700-900 range per unit. Mine get 2 to 3x what he gets per month and are slightly more on the chic side but not too much (it's amazing how chic something can look and feel with just high ceilings, open spaces, light/neutral colors throughout, fresh/clean carpet, some hardwood or engineered wood flooring, good lighting, non-drafty windows, a little exposed brick if you're lucky, full bathroom sinks and no pedestal dinky tiny sinks, and all black appliances) and in a hot area near 4 major universities.

W/o trying to oversimplify, my friends have to run around to 3 different units in different nearby cities to bring in the same gross rent as I do as 1 unit in my bldg of 3 apts. They keep more after expenses than me but work harder and earn/deserve it I'll say it once again. I hope to make some of that up at resale whenever (never?) since I decided long ago to stick in the more hot area and cater to nearby recent graduates (I live near 3-4 major universities) where there is typically a little more appreciation than on the outskirts. My personal niche is to target recent graduates who want to live a little after 4-6 years of hard studying and who will more on rent than I'd ever have wanted to spend...long ago a realtor told me that his personal niche to rentals was to market to people who will pay more in rent for a nicer place in a good location thinking they'll then get to sleep with better looking people. I used the word "chic" above on purpose because that seems to work well with advertising and attracting those types of good people. Plus if they're just out of school I get their parents to co-sign, another security measure. Typically I also shoot for graduate students and drive home the point early that this isn't toga/kegger party central. For that reason in this particular case I don't mind living near them. But I can completely see situations where I'd not want to live near some renters. Again, so many cases are different.

Please I am NOT bragging. I am not making a killing getting rich quick and this is not my full time job but is a paying hobby. I do hope to "keep ensuring a relatively comfortable lifestyle now and down the line" by being a nice adder to my 401k, IRAs, and an actual pension that's still in effect. And if I'm ever unemployed like I was 12 years ago when a start-up of 32 ppl went belly up, then this "living for free" should help me tread water w/o too much stress and pain. Oh and the cashflow pays for my NSX....

....which made days like today tolerable. Here were today's events, swear to God 100% accurate. Got a call at noon from a tenant, no heat. Same guy who went away for 2 weeks over Christmas and accidentally turned off his thermostat so he returned to a 30 degree apartment, but I digress. I lucked out in that I just got out of an important meeting and was free for the afternoon. I knew someone was bound to call today at -8 degrees....left work and took 1/2 day vacation. Dialed 2 of my HVAC guys on speed dial on the way, all of whom were super busy today as expected with burst pipes & dead furnaces all over. Drove home 10 blocks from tenant and brought him one of my spare space heaters to get by. Once arrived he says there's no cold water flowing from kitchen. Dialed 2 plumbers on speed dial, got one answering service and one "sorry am swamped but you're in the queue I'll do my best." Called in my nuclear option - I'm friends with a big-time local commercial RE landlord and asked him for add'l names of an HVAC and plumber...called each, dropped the name of my friend (mentor) and both said they'd come by within an hour. Huge sigh of relief. Checked out neighboring apartment and see frozen pipes there too. Plumbers arrive, my first time meeting them. Called off the other 2 who were too busy to mind one bit. Plumbers unfroze the two pipes in about 20 minutes with the Hot Shot. Then HVAC guys arrive. I call off the other 2 HVAC. Plumbers bill $225 cash or check for 45 minutes of work (completely worth it) but I wasn't prepped for a cash-spendy day so we make plans to meet later in day. Give them $20 tip for nearby Starbucks to get me by for now and as big thanks for the quick show-up plus a bag of chocolate covered pretzels that were in my car from Christmas, hoping to start off a new relationship good (johnny-on-the spot fixit guys who show up quickly are worth gold). HVAC guys $95 for 25 mins work (totally worth it) and that drains my wallet after another $20 tip again to two new contacts...hoping that was enough but I was now out of cash. Run to cash machine en route to chasing down a propane heater to heat up the unrehabbed space where the pipes froze...found the very last available one in the city at a Home Depot and hightailed back and started heating up the 2000 sq ft space at -8 degrees to try to get near 25 or so for the night....30 mins later the pex piping thawed out and I met with tenants to ensure all their faucets/baths were dripping water throughout the night. Realized I needed to get cat food over lunch, was running dangerously low at home. Ran to nearby supermarket, get some cans of cat food, get some fried chicken drumsticks and iced tea, eat in car, drive home to give cat insulin shot since you have to take care of "family" amongst all work/rental craziness...make sure my pipes were ok. Turn on the water dripping...go back to the 3rd apartment on the premises where the other frozen pipes were. No way the pipes here could be frozen since all was just 100% rehabbed (I'll be moving into this one, with a garage for my NSX) only to find frozen pipes there too due to a 2" penetration from outside directly near the water service inlet. Ran home got a hair dryer, the froze portion broke free after 15 seconds of heat, maybe 20. Drove 10 blocks away home & back and got another space heater to keep by the water inlet overnight Found some spare insulation to cap the 2" hole and pad around it. Met up around 7:30pm with one of the plumbers from earlier and gave them the $225. Turned off propane heater for the night in the other building, stopped by friend's whose wife picked up the last electric plumber's tape in the Home Depots since it's near her work. Ate bowl of chili at 9pm at their place standing up, drove home. Likely now will work from home 1/2 or all of tomorrow if not take 1/2 day vaca to followup on frozen pipe issue just to play it safe, and feel thankful that I have a job that affords me some flexibility. But I work hard and earn that flexibility.

Anyone still want to do rentals? Honestly this craziness rarely happens and like the baby that poops or pees all over you, it's OK because it's yours. And a lot of it is shame on me - with only 4 current rental apts I should stay on top of their longer vacations and visit their apartments every few days during extreme temps like this. And I should have made them all drip their faucets until we got above 32 degrees. So all of this I'll apply next time to hopefully avoid these later. The last time I had to "drop the world" like this was 6 months ago. As I get more units, the chances increase. I do have 2 handymen with access to master keys but today was kind of extreme and both handymen were too tied up with frozen pipes to get started until I arrived so I had to take care of it all. It's not the first time I had to take a vaca day or run from a nephew's baseball game or from a fun night out but it's been a while too. All fine and totally worth it.

Sorry for all the typing. I'm half awake and may be mumbling now. But I needed some come-down from the day and distraction before bed... Next time I look at my NSX in the garage this weekend it's going to feel even more earned and fulfilling.