General Real estate advice forum

[Miner]

I think Steve made a great point about the business, some people can do it and some are best suited for other things. My wife can work as hard as the next guy but takes the landlord business too personally. I am probably too nice to be a landlord, but somehow I've managed to maintain 3 rental properties for about 8 years now. That is about our max and it doesn't provide much income, but the mortgages are being paid and we are building equity.
My regular day job is civil service so the investment in rental property, more accurately owned property as my life has changed, is for the long haul. At least until my wife says to sell her house (anytime the toilet clogs up), or I retire in 15 years.
Miner

 

[Yinzer]

That's the part I don't understand....how do you "bust your ass" if you have a regular job and can only afford one additional house per year? Due diligence? Rehab work? Managing multiple flips? It doesn't seem like that much work if you can buy right and rent out high enough for a management company to collect the checks for you.

I thought this was a "slow and steady wins the race" game?

Hey Jake!

If you don't own a house yet or are looking for a new place to own, just find a duplex or triplex in a clean part of town that you might enjoy living in, and jump in and give it a try for 5 years. Maintaining a reasonable sized triplex is really no harder than maintaining a 2500 sq ft house with 3 bathrooms while working a 40-50 hour/week job, and if you shopped right, the tenants are paying you to live for free if not earn a couple hundred$ a month. In five years of living for free and "saving" what you'd be paying on rent/mortgage/taxes/insurance, you'd be surprised what $ amasses for the next move up. One example of slow and steady and small enough for you to bust ass and fix 80% of things that go wrong and then call 1 of the 2 or 3 handymen whose #'s you've gathered thru referrals for the 20% of things you don't have time to get to or just don't want to do.

 

[jcbadcura]

Thanks Andy, that's a great suggestion. I know a couple people that have gone that route, in fact my ex-wife and I used to own a duplex that we both lived in for a short while and then rented out. I'm sure most of us, if we're at the point that we own an NSX either have or know people into real estate. I do own my house where I live and I've flipped two houses now but I'm at the point that I'd like to buy and hold, much like Patricio's original post.

I've studied real estate locally and read many books on the topic, and while my job allows for a good amount of flexibility and mobility, I still only own one house! Time to do something about that.

My new approach is somewhat in line with Patricio's which is buying in middle class areas however, I'm not so sure the duplex route is the way to go for me. Single family homes with reasonable but slightly higher monthly rent will (hopefully) weed out some of the bad tenants and if you're in the position to choose wisely, you can get the same person paying your mortgage for 15 years!

Anyway we'll see how that pans out in the future but this thread is motivation to get started.

So here's my advice to future/fellow real estate investors:

1.) Don't get married

2.) Be up front about your investing goals with your lender. If you pick a good lender, he/she should be a true consultant. Ask lots of questions. There are ways to process the loan on your investment properties so that they do not affect your ability to get a mortgage for a primary residence. You probably shouldn't be trying to get a primary residence that's not an investment unless you are trying to get married but the point is that you should make sure you keep your mortgage options open because Fannie/Freddy doesn't like when you start playing the investor game unless you have 20% to put down for every property once you have a primary mortgage recorded in their system.

Any lender on board that would like to clarify and chime in is more than welcome, hopefully that makes sense to others.

 

[Patricio]

answers below....

Let's face the reality:

1. I have just glanced, but have not carefully read, at your stragedy that you posted. I have owed properties and so as Steveny. Let's face the reality......I know for sure that I have to deal with tenants, maintain the properties, evictions, getting sued by tenants and ect... I am pretty sure Steveny knows that too. Not everyone can be a landlord unless one can deal with those issues and headaches that I listed above.



2. Which banks will loan the monies when one has no collaterals? Even if he has a engineer degree , BS degree, or doctoral degree, but no monies in the bank. No banks will lend him the monies. So the ones has no college degrees or no jobs, forget it. It will not happen, unless one can borrow the monies from the parents, like Donald Trump who borrowed $1 million from his father in the 60's and started to his empire, but he also went to college and got a degree.



3. Remember 2008 housing collapse? People tried to buy and flipped.. there were a lot of people became rich by doing that and there also were a lot of people became poor and also lost their homes. If ones were lucky and got out before it was collapsed were the ones who got rich. It is all about timing like buying and selling stocks. As far as housing price will go up like pre-2008, I would have to say " it won't happen again". But I would predict that it would only go up as inflation rate or little bit more, but definitively will not like pre-2008.


Why? Pre-2008, banks could lend the monies to any one that he/she could show his/her income without verifying the true incomes, even a guy worked as a dishwasher could buy a house. This chaos caused demands are more than supplies ( Economic 101), price went up. Now banks are stricter now than before.



4. As Steveny stated compound interests, costs of maintenance and other costs, this would add up and you would only end up working for the banks to pay interest, not for yourself. Other questions, how much is your down payment 10%, 20% vs. 30% make a lot of difference in the returns? Are you a handyman and can you fix anything? Or will you have to hire a handyman to fix the problems?


I would rather take that $200K to go to Yale, Standford, Harvard or any Ivy Leagues to get my education and get out with a good job and start to build up from there. The worse situation, I still got the good job as a back up. No one will take my knowdledge away from me. One could lose all $200K ( it is like gambling) and without any education/degrees as a back up.




That is my 1 cent.

1- I stopped managing my properties long ago, and never been sued by tenants not once, in over 100 units. I also went over to avoid the type of properties that give people head aches in detail. the problems usually happen when buying 10cap rentals and looking for that max rental return many people recommend (except me) 1000 rent per 100,000 invested... problems are guaranteed and unavoidable.

2- Real estate is the collateral, you do not need any degree or job to buy rental properties. the property itself is the payee and must cover the debt ratio by 1.2 or better. I have loans that are non-recourse they do not even care about me (as long as i do not have bad credit) they do care that I prove I have experience through my tax returns but my income or ability to pay personally (I am not the payee) is irrelevant (as long i am not upside down on my personal affairs)

3- I went thought this in some of my ramblings.... the only people that lost money in collapse are people that sold, I had properties that went down in value by hundreds of thousands which did not phase me since I had no reason to sell, I gave tenants a break on the rents and broke even on the buildings for a few years and eventually the values are all back up above what they were worth before. Same thing with cars they went down and back up that's the way economies work. home owners lost their homes either because they lost their jobs or because they panicd and could not live with the tough of owing more than its worth, both of which caused an epedimc, blame people for stretching themselves out irresponsibility not the real estate itself.


3.5- I got loans after 2008 many loans, all real estate based for properties that pay for them-self.... but yes personal residences got tougher.

4- I do not personally do any of the work, and you severely misunderstood seveny's comment about compound interest. He was talking about the property value compounding with inflation and appreciation. and the bank note stays the same as that amount becomes worth less due to inflation. how much your tenants pay for you in interest is irrelevant as long your principle is being knocked down and your property is appreciating and inflating.

Please don't take offense to any of my comments, Please read my posts as they are informative and very advanced compared to most people that just own a few rental properties. Your particular education is irrelevant to real estate investing

 

[steveny]

Don't marry the wrong person I think would be better advice. My wife has expanded our business a hundred fold. I know the business would have NEVER become as large as it is without her. She is very good at the people end of it and I am not... Not even a little bit. I have no patience when it comes to stupidity.

Number two on your list is dead on excellent advice. Always be organized and present professionalism. That'll get you a long way. Also do the same with as many realtors as possible. Be on their call list when properties hit their desk. After you get large enough and have money on hand do so the same with banks for REO properties.

Add to that, hang around with smarter and/or more successful people and just listen.

This was meant for two posts above

- - - Updated - - -

Please don't take offense to any of my comments, Please read my posts as their very informative and very advanced compared to most people that just own a few rental properties.

Yes your advice is all accurate and well presented.

 

[Patricio]

Please share your thoughts on the following:

- property management (costs, tenant care)
- maintenance costs
- tenant acquisition, retention, and turnover strategies
- evictions (can take years)
- average vacancy you're experiencing
- property taxes
- types of lease agreements
- renovations and improvements
- construction costs

on a more macro note... What are your thoughts on the increasing asset bubble in the economy.

- property management (costs, tenant care)
My property management companies charge me around 3-5% because they are low hassle ( I do not do cheap properties like section 8 which is 10% ie.: more hassle)

- maintenance costs
maintenance costs are low, I built most of my buildings from scratch or buy concrete buildings and again I do not deal with lower income that tend to cause more damage, I do not install carpet since I use tile, no Formica since use cheap granite.

- tenant acquisition, retention, and turnover strategies
This is a big thing for me, I do everything possible to reduce turnover.
NO student housing which has high returns but high turn over and more maintenance
look for tenants with long residency history over better proof of income (waiters waitresses bartenders ect lots of cash earners out there)
turnovers are especially more important when property managers charge commission
my average is about 1.8 years per door which is very high, 2 out of 3 tenants stay 2-3 years or more.
having a professional property management company increases tenant retention, things get taken car of promptly and somone picks up the phone, tenants like that
Very important Last but not least: best part about management companies. tenants do not know who i am, this avoids a personal relationship where tenants take offense to denied requests for things like early cancellation or not following rules... its much easier when an employee just say "hey I'm sorry i just work for the company and i dont make the rules please dont give a hard time since im just doing my job" this saves allot of situations. that can get persoanl and ugly.

- evictions (can take years)
No problem here, In places where i invest and with the correct leases it take 30-60 days... Do not invest in city or municipalities that make eviction difficult.

- average vacancy you're experiencing
Me 3-5%, one of main requirments is desirable ares with low vancancy, near transportation, walkable communities ect. walk score of 60 or better. no crappy ugly dangerous areas.

- property taxes
Find the lowest you can, or in commercial triple net leases the tennants pay the property taxes,

- types of lease agreements
Very important use standard realestate commission standard forms for residential plus an addendum for some extra stregnth
anything else stronger and written in the owners favor can (and does) get ripped apart in court and be considered unfair

- renovations and improvements
fix it the best you can and right the first time and keep it nice, upset tenants will cost more than renovations, don't leave any place in any condition you would not want your family to live in.

- construction costs
Varies drastically, I've built multi unit building for about $125-$150 a foot. but i was a builder, cost will vary.

 

[joboy77]

This is a great topic and thanks for all the great advice. I've been thinking of getting into investment properties as income after retirement or even a way to early retirement. I've never owned a rental so would like to start with a small property, probably a smaller low cost home or condo (40-60k). One question I have is financing. Would you recomend getting a conventional loan and having a mortgage or I could get a loan from my 401k and pay it off, then pay myself back? Maybe another way? I have a mortgage on my home now and have enough equity to get a loan that way as well. Any advice? Thanks.

 

[Yinzer]

Jake, that's great, I didn't know you had been into things before, ha ha you may be a bigger player than me which is not hard, and I don't admit to being a player in any way.

My approach to rent to those who usually stay ~2 years on average has worked for me so far mostly because I'm in an area that has pretty good demand from 20-40 something professionals who want nice places with parking spots within the city where demand is slowly growing or at least holding steady (Pittsburgh hasn't seen housing bubbles thank goodness). So I've been able to raise rents steadily annually since 2006 less than I think I could with long term tenants and at rates that are less than the bigger developments nearby with tanning bed & workout room amenities that few use, so I can afford to be semi-choosy and screen & pick what I think will be solid tenants & neighbors. But developers are expected to create 2000-3000 more apartments within the city within the next 5 years which is kind of frightening so we'll see. But it's interesting to hear all the different approaches and how different things work for different people in different areas. And I learn a ton here from people like Steveny (who gave me the best advice for painting that I ever got...buy one or two of those 20" high folding platforms that are about 1 yard wide...stop using a small ladder....).

2.) Be up front about your investing goals with your lender. If you pick a good lender, he/she should be a true consultant. Ask lots of questions. There are ways to process the loan on your investment properties so that they do not affect your ability to get a mortgage for a primary residence. You probably shouldn't be trying to get a primary residence that's not an investment unless you are trying to get married but the point is that you should make sure you keep your mortgage options open because Fannie/Freddy doesn't like when you start playing the investor game unless you have 20% to put down for every property once you have a primary mortgage recorded in their system.

Any lender on board that would like to clarify and chime in is more than welcome, hopefully that makes sense to others.

I bought my first place in 2006 and second one in 2013. One before the RE crash and one after. I went with the same local bank for both even though I shopped around both times. They knew me and my record, their package on the 2nd property beat all others, the hassle factor was nill and their willingness to offer a few courtesies was helpful, so I agree, it was great to have that relationship rather than shop around just to save 1/8 percent. The differences from 2006 to 2013 in obtaining a loans was amazingly different between the two. At least for my situation and my bank: they cap how much they'd lend to one person. Around $700k. And in 2013 they req'd 30% down instead of just 20% back in 2006, even though the 2nd one like the 1st was owner occupied. Things were not nearly as stringent before 2008, including appraisals which seemed to be very cautiously under-estimating value for the few years after 2008. Maybe that varies between banks and between your relationship with them and size of your portfolio.

I'm in the middle of figuring out how to buckle down and pay off the first one sooner than later so I can start pocketing the mortgage...gonna still take some sacrifices (that 2nd NSX DD is going to have to wait).

Also FWIW since I always pickup good tips in discussions like these, here's something to maybe give back: one of the biggest tips I can try to give for residential LL's is to find a local screening agency that keeps up with local/state lease/landlord/tenant laws and provides up to date leases for purchase, and who gives rock solid screenings including criminal record & prior landlord/tenant issue screenings, providing a yes/no/conditional response for screening results. That way you can point to their screening results when you have to turn someone scary down and just shrug your shoulders because it wasn't your decision.

 

[drtruong]

answers below....




1- I stopped managing my properties long ago, and never been sued by tenants not once, in over 100 units. I also went over to avoid the type of properties that give people head aches in detail. the problems usually happen when buying 10cap rentals and looking for that max rental return many people recommend (except me) 1000 rent per 100,000 invested... problems are guaranteed and unavoidable.

2- Real estate is the collateral, you do not need any degree or job to buy rental properties. the property itself is the payee and must cover the debt ratio by 1.2 or better. I have loans that are non-recourse they do not even care about me (as long as i do not have bad credit) they do care that I prove I have experience through my tax returns but my income or ability to pay personally (I am not the payee) is irrelevant (as long i am not upside down on my personal affairs)

3- I went thought this in some of my ramblings.... the only people that lost money in collapse are people that sold, I had properties that went down in value by hundreds of thousands which did not phase me since I had no reason to sell, I gave tenants a break on the rents and broke even on the buildings for a few years and eventually the values are all back up above what they were worth before. Same thing with cars they went down and back up that's the way economies work. home owners lost their homes either because they lost their jobs or because they panicd and could not live with the tough of owing more than its worth, both of which caused an epedimc, blame people for stretching themselves out irresponsibility not the real estate itself.


3.5- I got loans after 2008 many loans, all real estate based for properties that pay for them-self.... but yes personal residences got tougher.

4- I do not personally do any of the work, and you severely misunderstood seveny's comment about compound interest. He was talking about the property value compounding with inflation and appreciation. and the bank note stays the same as that amount becomes worth less due to inflation. how much your tenants pay for you in interest is irrelevant as long your principle is being knocked down and your property is appreciating and inflating.

Please don't take offense to any of my comments, Please read my posts as they are informative and very advanced compared to most people that just own a few rental properties. Your particular education is irrelevant to real estate investing

Patricio,

No, I am not offended, but I just to want to express my experience of mine to other people that I had gone through as a young and PASSIVE investor. I was not actively involved in it and had others took care of them and did not make a lot of monies. Property investment is only my second (maybe) job and I am still not active. I am not a contractor or builder and there are a certain things that I can fix. Otherwise, I call a handyman and cost a lot of monies. Unlike you, you can do pretty much everything yourself. That can save a LOT, LOT of monies.

For those who wants to jump into property investment, and want to become successful, quit you day job (if you don't like your boss), fix everything by yourselves wihout calling handyman or contractor. It can be a physical and hard labor job. Until you make enough income, then you can have someone to do the jobs for you. You will be succesfully like Steveny and Patricio.

I still like my day job:smile:

 

[steveny]

- property management (costs, tenant care)
My property management companies charge me around 3-5% because they are low hassle ( I do not do cheap properties like section 8 which is 10% ie.: more hassle)

- maintenance costs
maintenance costs are low, I built most of my buildings from scratch or buy concrete buildings and again I do not deal with lower income that tend to cause more damage, I do not install carpet since I use tile, no Formica since use cheap granite.

- tenant acquisition, retention, and turnover strategies
This is a big thing for me, I do everything possible to reduce turnover.
NO student housing which has high returns but high turn over and more maintenance
look for tenants with long residency history over better proof of income (waiters waitresses bartenders ect lots of cash earners out there)
turnovers are especially more important when property managers charge commission
my average is about 1.8 years per door which is very high, 2 out of 3 tenants stay 2-3 years or more.
having a professional property management company increases tenant retention, things get taken car of promptly and somone picks up the phone, tenants like that
Very important Last but not least: best part about management companies. tenants do not know who i am, this avoids a personal relationship where tenants take offense to denied requests for things like early cancellation or not following rules... its much easier when an employee just say "hey I'm sorry i just work for the company and i dont make the rules please dont give a hard time since im just doing my job" this saves allot of situations. that can get persoanl and ugly.

- evictions (can take years)
No problem here, In places where i invest and with the correct leases it take 30-60 days... Do not invest in city or municipalities that make eviction difficult.

- average vacancy you're experiencing
Me 3-5%, one of main requirments is desirable ares with low vancancy, near transportation, walkable communities ect. walk score of 60 or better. no crappy ugly dangerous areas.

- property taxes
Find the lowest you can, or in commercial triple net leases the tennants pay the property taxes,

- types of lease agreements
Very important use standard realestate commission standard forms for residential plus an addendum for some extra stregnth
anything else stronger and written in the owners favor can (and does) get ripped apart in court and be considered unfair

- renovations and improvements
fix it the best you can and right the first time and keep it nice, upset tenants will cost more than renovations, don't leave any place in any condition you would not want your family to live in.

- construction costs
Varies drastically, I've built multi unit building for about $125-$150 a foot. but i was a builder, cost will vary.

Dead on accurate advice. Also be sure to have a po box (maybe even the next city over) and keep your street address confidential. You surely don't want any of your tenants knowing where you live.

 

[white98sh]

thank you for this post! as a new landlord I am just starting to get into the business and these tips are like free money hope I can learn to put them to use!

 

[Vega$ NSX]

success breeds exuberance.....failure breeds contempt....

apathy breeds.... meh, who cares.

 

[docjohn]

................drugs............overeating...........video games.............:tongue:

 

[jond]

Do you guys put your rentals inside of LLCs or do you just buy umbrella insurance and not worry about the LLC stuff?

If you put them in an LLC, do you think a single member LLC is safe?

 

[familyMAN]

Do you guys put your rentals inside of LLCs or do you just buy umbrella insurance and not worry about the LLC stuff?

If you put them in an LLC, do you think a single member LLC is safe?

Great question. Would love to know also.

 

[Vega$ NSX]

Do you guys put your rentals inside of LLCs or do you just buy umbrella insurance and not worry about the LLC stuff?

If you put them in an LLC, do you think a single member LLC is safe?

Everyone is going to have their own unique situations so you'll have to determine what is best for you. The functions of each (LLC and Umbrella) are different so it's not quite an apples to apples comparison. One is not interchangeable with the other so it's hard to say which is best for you depending on what you are trying to accomplish. One question you have to ask is how many properties in the LLC and is it worth it to bankrupt an LLC to avoid a lawsuit or judgment rather than just paying an insurance premium?

In my case I have all my properties in an LLC (as well as a $1M umbrella). The LLC is then inside an asset protection trust along with other personal assets so my LLC is protected from judgments against me by being in an asset protection trust. However, my assets are protected from any lawsuits from my properties within my LLC. So if a tenant sues the LLC, then both me and my personal assets are protected because they are outside of the LLC. Be careful because all properties linked within the LLC are vulnerable within the LLC so ideally you would put each property in a separate LLC, but there are costs associated with that that. By putting the LLC in an asset protection trust then if the tenant (or anybody for that matter) were to sue me personally, both the properties in my LLC and assets in my trust are protected from any judgments. It's an extremely powerful and protective configuration. The key is you need an asset protection trust where are you are both the trustee and beneficiary. In that way you still "own" the assets in the trust as well maintain control of them. There are only a few states that offer the trustee owned asset protection trust; Nevada is known to have one of the best asset protection trusts available but there are a few stipulations to deal with.

 

[drtruong]

LLC in CA has to pay $200 annually if the total gross income is less $300k ( guessing number) . And if your gross income is $300,001 you will have to pay $6000 CA annually. If you think your income is more than $300k, you might be better off to form Corp. Mine is Corp and umbrella insurance. There is a pros and cons. Others might be better off to have umbrella insurance. Best is to talk to your CPA.

Having LLC, you have to be very discipline about not to use the monies for your personal use. Otherwise, if you were sued they will still can get into your personal properties