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I manage a couple of buildings in Los Angeles, one triplex which is my own, and two eight-unit buildings which I bought with family members, but I solely manage and they just get a check (or not, depending on the quarter!). I wanted to be a landlord ever since i took an accounting class in college where the professor spent about 50% of the class discussing the amazing tax benefits of owning rental property. It works out pretty well, although not as well as it used to (before Reagan overhauled the tax codes). I spent a lot of time researching the market and reading about investing and being a landlord. Most books out there are crap, but there are a few that are are useful. The crap ones either offer overly optimistic encouragement without any practical details, or worse, exist to establish the author as a guru. I see that the OP mentions bigger pockets a few times. I have spent some time on there and while they have good information and helpful people, there is also a lot of noise and people just trying to promote themselves. Many BP members are investing in depressed areas in Middle America, where you can buy a 3BR house for $75,000 and rent it out for $900 per month. That is completely foreign to me. I saw a mention of the 50% rule. There is a lot of talk on that forum about the 50% and 2% rules. The 50% rule is that you should analyze properties you are considering buying with the assumption that your expenses will be = to %50 of your gross income. Now, in any given year your expenses will be lower, but this assumption includes capital expenses, such as a new roof which may only happen once every 10 years, so it purports to take into account an average expense ratio over a long term. This rule does not take your loan into account - that would be an additional expense if you financed your purchase. I think the 50% rule is a pretty good, if conservative, estimate. I have found my own expenses to be between 40-45%, including some big fixes of the previous owner's deferred maintenance. The 2% rule is a rule of thumb saying that if the monthly gross rent is = 2% of the purchase, price, its probably a good deal. That means that for the $75,000 house above, getting $900 a month rent would not be an acceptable deal - the 2% rule says it is a good deal if you can rent it for $1500 per month. The 2% rule only works in certain areas - for example, it is hard to find something in LA where the rent is = 1% of the purchase price ($750 in the house example) and 2% would have to be in a very bad area with some special circumstances causing a discounted price. I am happy to answer any questions about my experience in general, or about being a landlord in Los Angeles (which has a lot of special rules, such as rent control, that can make it challenging to be a landlord). EDIT: I see Blackjack2000, above, actually has property with an even higher cash flow than the 2% rule... that's great - what part of the country are you in? Four Finger Wu fucked around with this message at 16:36 on Jun 9, 2013 |
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Jun 9, 2013 16:34
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TouchyMcFeely posted:Four Finger Wu (or anybody else), do you have any specific recommendations on literature to read? As you pointed out the amount of noise in this industry is appalling and trying to sift through it to find actual information is brutal. William Nickerson is dated, but a good general strategy - he focuses on buying properties, fixing them up, and then trading them for bigger properties also in need of fixing. His first book is How I Turned $1,000 into Million in Real Estate in My Spare Time (http://www.amazon.com/Turned-into-Million-Estate-Spare/dp/1607964244/)... followed by updated versions Three Million (http://www.amazon.com/Turned-Three-Million-Estate-Spare/dp/0671201255/) and Five Million (http://www.amazon.com/Turned-into-Million-Estate-Spare/dp/0671253689). It looks like One Million has been reprinted but Three and Five are still old editions. The books are very old so they are a bit folksy and recommend discriminatory practices that are illegal in the US these days, but it is entertaining and his general philosophy is sound. You can decide if you want to shell out for his books, but John T. Reed has some good conservative free information about investing, and some pretty haterish (but generally well-deserved) comments about other gurus. He recommends Nickerson. http://www.johntreed.com/realestate.html
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Jun 10, 2013 22:46
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Just wanted to follow up and say that I have signed up with timp's company for tenant screening and it really is easy to use and produces clear reports. I was previously using a broker to run credit checks but this is much better. The reports are run immediately after I input the information and I have access to all the reports online so I can print them anywhere. I think it is a great service and I am happy to talk with anyone in more detail about my experience.
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Oct 16, 2013 23:09
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Los Angeles has a comprehensive inspection program for rent-controlled property called the Systematic Code Enforcement Program - or SCEP. They inspect every three years or so for violations of the housing code, which includes building code issues as well as health and safety and civil rights/tenants rights issues. I think it is very important to show up for the inspection to answer any questions for the inspector as well as do your best to guide the inspector around any problem areas. Also, the inspectors are not all terrible people and they may appreciate having a host. Usually situation that you could put your foot in your mouth over will be just as bad if there is no one around to explain it, and the inspector draws his or her own conclusion. I once had a situation where a tenant misunderstood and thought the inspector was a repairman (tenant was not a native English speaker) and he proceeded to guide him around the unit showing him all the areas to be repaired... "oh the rug here is torn, and this window doesn't close.. this faucet leaks." Thankfully they were mostly minor issues and most of them weren't written up. TraderStav posted:I just got a letter from the city my rental is in that they are now (assuming just starting the program) inspecting the exterior of all non-homesteaded homes because of the recent glut of them from the collapse. They said they will be charging me $125 for the first inspection and $56 for subsequent (every two years) inspections with good sized fines for violations (obvious blight stuff I don't have to worry about) and permit issues. I'm a bit nervous as I had a small deck and fence connecting my deck to the garage (non-perimeter if it matters) put in before it moved out without a permit.
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Oct 30, 2013 00:52
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I live in California and here, every deed to a trust is to "[person name] as trustee of [trust name]." So, if you are planning to put a house in a privacy trust, you will need to find a third party willing to serve as trustee - because coming up with a fancy anonymous trust name is less effective if you are on title as the trustee. The trust itself can be drafted in a manner to give the trustee minimal liability, but it can still be a small hassle to have someone else getting your property tax bills and etc. It is courteous to explain to the trustee at the onset that this is part of an asset protection or anonymity strategy, because if there is a lawsuit, the trustee will most likely be named. I usually only see celebrities or otherwise well-known people doing this, and they often times name the business manager as trustee. As for using an LLC for asset protection, for the most part if you keep the accounts segregated and don't use the LLC as your pocketbook, it can provide an effective defense. However, as many other posters have mentioned, asset protection strategies are more of a discouragement or a hassle to a creditor, rather than ironclad protection. And, if the lawsuit is for something you did personally as the manager of the LLC - like discriminate against a protected class of potential renter, you will be named in the lawsuit as an individual. And, if you or the trustee, or the LLC gets sued, you still have to defend the lawsuit regardless. Personally, I own three properties in LLCs and one outright. I have large umbrella policies, and the only reason the three properties are in LLCs is because there are multiple owners and it made it easier to work out the terms of the co-ownership agreement and for me to manage the properties - not for asset protection. Also, as for privacy, even though I am not the registered agent, somehow my name is associated with the LLCs on a google search. I'm not sure how, but it was disappointing to find that out. What I can also say is that owning properties in an LLC is a big hassle when it comes to getting loans. If you are planning to buy and hold all cash, then this does not apply, but in my opinion one of the major assets of investing in real estate is the ability to leverage it with financing. So, my experience with financing is that #1 I was not able to get a conventional agency (Fannie/Freddie) loan on a residential property if it was held in an LLC, and #2 for commercial properties, if the LLC is obtaining the loan, then the principal owners have to guarantee the loan. Even for "non-recourse" loans, I have always been asked to personally sign "bad boy" or carveout guarantees. tl;dr: unless you want to make sure your name is not associated with that particular property for personal reasons, I think it's much easier to just buy it in your own name and pay a few hundred dollars a year for a huge umbrella policy.
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Feb 9, 2014 04:12
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Mercury Ballistic posted:I decided to open an umbrella policy as I have been a landlord for a few months now. I want to make sure I have adequate but not excessive coverage. I opened a 1 mil policy to get started and can adjust from there but I was curious if others could comment on their thought process. I did the same thing. I ended up dropping my primary liability coverage to the minimum allowable and upped the umbrella to $5m which more than covered the primary reduction. It reduced my insurance bill by about $2800. I may have been (or may still be) over insured.
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Feb 9, 2015 06:07
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