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So I've begun to catch the landlord bug. I purchased my first home which had an attic apartment with a separate entrance a little over a year ago. I did a few short term leases to see if my wife and I were cool with someone living above us, sharing our driveway, etc. My wife does a lot of interviewing for her work and she has an amazing knack at picking people out. All the tenants have been perfect, and we've had 24-48 hour turn arounds from end of lease to the person signing the next one. We just had a longer term tenant sign up, as we're pretty sure we're fine with it until we need the extra space. As a percentage of the house value based on square footage, we're rocking 4% monthly rent. It's been all sunshine and loving rainbows so far. So we're looking to buy a single family home. Since we just bought our house and we've been putting all the rent money into restoring our house (cool old victorian) we don't have a ton of capital that's not earmarked for retirement or my stock portfolio. But I found a few homes that are nearby us and are in the Fannie Mae Homepath Renovation program. From what I gather, I'm looking at a 15% down payment as an investor (and you can get up to 35k to do some renos). Super long background story is irrelevant, but does anyone have any experience with getting a Fannie Mae Homepath loan/going through the process? E: Details: The property is listed for 42k, and I'd probably want to take 10k in addition to that to make it less slummy Bloody Queef fucked around with this message at 00:20 on Jan 2, 2014 |
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Jan 1, 2014 23:24
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Cranbe posted:[*]Would need to account for the taxes on the rent paid to me First the mortgage process: Your bank doesn't need to know that you plan on renting portions of your house out. Consult your RE attorney, but you're not going to commit mortgage fraud by not telling them of your plans. As long as you're occupying the house, they won't be able to call the loan. Second the Tax bit: This is the best part. Owner occupied income properties have enormous tax advantages, they're absolutely amazing here. For the personal part of your return, as I'm sure you're aware, you can deduct property/schools, mortgage interest, and certain acquisition costs. However, you don't want to deduct 100% of these costs on your Schedule A. You just want to deduct the prorated portion of your personal space. Let's use an example where you have a 2 bedroom house and you decide to rent one of the bedrooms out. To make things easy, all the bedrooms are 250 sq ft and your house is 2000 sq ft (500 sq ft of bedroom and 1500 sq ft of common areas, kitchen, family room, etc). Your personal portion of the house is the 250 sq ft of bedroom you occupy PLUS half of the common areas, so 50% overall of all those expenses would go on your Schedule A, and the other 50% would be deducted as a business. Now since 50% of your property is business property, you can deduct depreciation on that. Here is where the real magic that only owner occupied investors can really get. Let's say you decide you want a nice 60" TV and a big leather couch to put in your common area (not your bedroom) because you want to have a super bowl party. This is a personal use asset that you would buy even if you didn't have a tenant and you wouldn't be able to depreciate it, right? Incorrect. Since it's being placed in a location that the potential tenant could use, you can also depreciate the 50% that's business. Any capital additions or repairs done in the common spaces (which benefit you at least as much as your tenant) are going to be deductible at the percentage of your property that's business use. If you plan on making home improvements or furnishing your house, you should be able to generate a tax loss for at least the first few years. There will be some slightly more complex tax calculations if you decide you want to keep the rest of the house to yourself down the line (potential for Section 1250 Depreciation Recapture) but TVM make those all pretty moot. Speaking of enjoying the tax benefits on a rental property, has anyone done a cost segregation study on their rental properties? If you're not buying an apartment building it probably doesn't make sense to hire a CPA to do it for you, but if you can do it yourself you can accelerate a ton of the depreciation on your rental properties. I'm doing one right now for mine, and while I've done a few at work for clients, I think it's fairly simple to do. And since it's only a timing difference, it's fairly low on the IRS audit tier.
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Jan 6, 2014 13:02
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So I looked at some properties today and I'm in a weird spot. The home values are 35k, I need about 7k worth of materials and hiring a plumber to run laundry hookups. The area is weird. It's a bit slummy, but not too bad. There are so many foreclosures that the prices are absurdly low. And a decently renovated place rents for $1k a month. So here's my weird position. I need 42k in cash to buy the house and renovate. I can get a home equity loan for about 35 and pay out of pocket for the rest. It's a Fannie Mae homepath, however, and they'll give you a loan for a reno plus the house for 15% or so down. But, no bank will issue Homepath reno loans for sub 50k, at least that I've found. So anyone know of a solution besides suck it up and do the HEL plus out of pocket cash?
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Feb 2, 2014 01:18
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Zero VGS posted:Do the HELOC and cash. It's way less trouble. You don't have to suck an underwriter's dick with mountains of paperwork to get a mortgage, you save a few thousand on closing fees, and you can usually negotiate a slightly better price because the sellers and bank know how much less of a hassle it will be. I just did the same thing to buy my second apartment, I closed a week ago and started renting yesterday. Now I'm getting a HELOC on this one that can almost pay for the next. I'm just daisy-chaining HELOCs to keep buying apartments in this building if it keeps working out. Yeah, you're right. Plus if I pay cash I can put the property in a trust for asset shielding purposes. Beneficiary of the trust would be an LLC, which I would be the sole owner of. Anyone want me to make an effort post about this? Bloody Queef fucked around with this message at 02:44 on Feb 3, 2014 |
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Feb 3, 2014 02:41
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 Shielding Assets: It's something the extremely wealthy do and something you as a rental property owner should do too**I am not an attorney and nothing below should constitute legal or tax advice. Please consult your attorney before employing any of the below strategies (you'll pretty much have to anyway) First: Why should you do it? Let's say you own 2 rental properties, you're not Donald Trump, but you've got some serious assets. On one of your rental properties, a tenant falls down the stairs and decides to sue the poo poo out of you. You're protected with an LLC, right? The tenant can't come after any of your assets outside of it, right? Nope. The corporate veil is pretty easy to pierce, especially if your tenant's attorney can prove negligence on your behalf. Stairs were 1/10" too short or too tall for code, carpet was slightly loose, whatever. So back to the tenant, he hobbles on in to an ambulance chaser's office and says that he wants to sue for a million dollars because his leg is broken and it hurts so bad. People in this position mostly are going to use an attorney who works on a contingent fee. So the attorney will run a title search on you, and BAM 2 rental properties and your primary residence show up. He sees that you have money, so he'll take the case! Now you're hosed. If, however you shielded your rental properties (and even your primary residence) the title search will yield zilch, maybe your car (depending on the state and how thorough the attorney is) The attorney thinks you're poor, thinks that you don't even own the tenant's apartment and sends the tenant packing. If he's not going to be able to recover a lot of assets from you, he's not going to take the case for 35% of a few thousand dollars. This scenario also applies to anyone in your life that may want to sue you, but this will NOT work if you're trying to hide your assets from someone that knows you. Your bitter soon to be ex-wife, a business partner, etc are all going to be able to figure out your full portfolio of assets relatively easily, since they know where to look, and they'd get it all in discovery and subpoenas anyway. Okay sounds great: How do I do it? Trusts are great. They're the primary step. This varies on a state by state basis (and you can get trusts in another state, Nevada is popular for this) but the beneficiary of a trust is impossible to find out without a court order. I would have an attorney set up the trust, tell you what type of trust you need exactly for your estate planning and tax circumstances, and he'll be the trustee. Who/what exactly do you make the beneficiary? If you bought the house in cash, it's easy. Make it an LLC/an LLP(if you have partners)/S Corp/whatever works out best for your business case, but don't be the beneficiary of the trust, you do want the corporate veil. If you used a mortgage to buy the house, your mortgage almost surely has a due on sale clause, which would trigger if you put the house's name in an LLC or almost any vehicle other than your name. However, the due on sale clause is NOT triggered by actions for estate planning purposes. You can tell your bank you are putting the house in an trust for estate planning purposes, but you'll have to be the beneficiary, you can't have an LLC be the beneficiary. Great! I just put all my investment properties in the Bloody Queef Trust, and the Beneficiary for each one is Bloody Queef, LLC! Anyone with moderate intelligence will be able to figure out who is the owner of the property. Here's were more strategy comes in. You don't want anyone thinking a business owns since they'll think the business has a lot of money, so Main Street Ventures Trust with a beneficiary of Main Street Ventures, LLC is out. But as above, you can't name it in your name, because that would ruin the whole exercise. So you can use a fictitious name (Ronald J McHengenberger Trust) or even better, the name of the person that was the previous owner of the house! Sounds kind of lovely, and it might be. But if someone is looking at your property's records, they'll see that Jim Smith bought the house 10 years ago, it was bought by some dude, and a day later is now in the Jim Smith Trust. They'll assume it was some kind of complex transaction and think that Jim Smith owns the house. They won't look too closely at the owner for one day, assuming he was an intermediary. In order to keep this up, you're going to have to tell your tenants that you're the property manager, not the owner (which is technically true, because the trust owns the house) Keep each property in a separate trust and LLC as well. This probably doesn't make a ton of sense if you're only going to get a property or two. Note, you probably will not have to file a different return for each trust and LLC, they'll most likely be treated as disregarded entities for tax purposes. Please consult your accountant on this. E: Ask any questions below and I can update the post to clarify things. I'll update the post to make it make sense if it doesn't. Bloody Queef fucked around with this message at 16:46 on Feb 3, 2014 |
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Feb 3, 2014 16:39
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DNova posted:If what you're saying is all accurate, then what's the point of the LLC being designated the beneficiary? If a court ordered is made to reveal the beneficiary of the trust, and it comes back as the LLC, finding the owner of the LLC is at that point trivial, is it not? So why not just skip that step and make yourself the beneficiary? The point of making the LLC the beneficiary is that if you do get sued for something not negligence related, it still limits your liability to that which is inside the LLC. And yes, 1 LLC per property is absolutely key. You want to keep your assets as separate as possible. None of this will do a thing if you're actually sued! This prevents people from thinking you have a lot of assets so it won't be worth their time to take a case suing you. To protect you if you're actually sued, you need an umbrella policy, but I thought that kind of went without saying.
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Feb 3, 2014 17:04
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lostleaf posted:Isn't the trust redundant though? In certain states(Nevada for example), you don't have to specify the owner or owners when submitting the application for incorporation. That means there is no official state record of ownership and the only way an attorney will be able to obtain your name is with a court order. You still get the limited liability without additional overhead of setting up a trust. You can change the beneficiary of a trust without it being a sale, so you can change around ownership of the property with just a call to your trustee. Some states charge a tax when a home is sold or transferred. This can also be advantageous for actual estate planning purposes (it'll skip probate, doesn't need to be in your will, etc), or if you need to change corporate ownership. Some of these you also can do with an LLC. But I also personally think someone is more likely to target an LLC than a trust, and more layers mean more work for the plaintiff's lawyers, which is always good. E: and doesn't a Nevada LLC require you have a place of business in Nevada? I couldn't find anything in a cursory search. Of course there are places where you can pay a fee to have a "place of business" there, but that would kill any lack of yearly registration fees. Bloody Queef fucked around with this message at 18:41 on Feb 3, 2014 |
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Feb 3, 2014 18:32
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DNova posted:Sorry if I'm being dense here but why not just rely on the umbrella policy? You can rely on insurance, but it's not exactly fun to go through a lawsuit, regardless of whether or not you'll have to pay up, and I imagine your umbrella policy premiums will go crazy through the roof if one happens. Single Member LLCs are by definition disregarded entities with the IRS. http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Single-Member-Limited-Liability-Companies Your state, however, is a different matter. I can find out specifically for your state if you want, but many states comply with the IRS in this regard. My home state, Delaware, does, so I don't worry about it too much. In terms of paying bills: This can all be done under your name, or the business name if it's a disregarded entity. With a sale, you get the cash. I'm not sure how this would work if you wanted to do a Home Equity Loan on the house, but worst case scenario, if you can't get one with an LLC (or trust) being the recorded owner, just transfer the property into your name. Registered agent business: Not sure about this, I happen to live in Delaware, so use Delaware LLCs and don't need a registered agent.
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Feb 3, 2014 18:55
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Four Finger Wu posted: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. As for the trustee bit. Use your Real Estate attorney, this is very common and an attorney will be the best trustee.
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Feb 9, 2014 04:41
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Zero VGS posted:I can (and would) tell a family there is lead paint, I'm required to disclose that. But then the govt says they can't legally be there, but I can't legally refuse to let them be there or even hint for them to look elsewhere. It's a wacky conflict that has never been reconciled. Which state says that families can't be there? I just put the lead paint disclosure saying that there might be lead paint, but I don't know and then the info packet about lead paint.
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Mar 25, 2014 17:24
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Can anyone speak to the unique differences between managing a multi family property versus a SFH? I'm running numbers on a pretty distressed triplex, and the comps I see seem too good to be true. Like 3-4% of the purchase price plus repairs in total monthly rents. Are the problems just dealing with the tenants maybe not getting along? Noisy upstairs tenant, whiney downstairs one?
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Mar 29, 2014 14:56
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KaiserBen posted:It's mostly that you'll have more turnover (people see apartments as a place to live, where a house is "home"), and possible tenant conflicts (though I've found those are pretty rare). A lot of 2/3/4 unit properties in older areas are shoddy conversions from single family houses, and that can cause some major issues WRT permits and construction quality when you go to fix something. I posted this when I was looking at just numbers, but just the purchase price and rental income don't tell the story. I actually did a walk through and found out the previous owner was a straight up slum lord. Roaches everywhere, holes big enough to fall through in the floor/ceiling between units, water damage everywhere. I like the location, but I don't have the cash to gut it and fix it, and I'm not going to keep the current situation as is and just rake in the cash. The numbers are even better now as the price dropped. Triplex is $49,000 and monthly rents are $2150.
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Apr 29, 2014 19:46
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KaiserBen posted:That's a ridiculously good price:rent ratio, even if the condition is crappy. I couldn't buy the land for a building like that at that price here (DC area), much less a building. Even the crack-den slumlord specials here are more like 2%, and that's with all utilities paid by the landlord. Yeah. The numbers are great. Rent is way out of wack with property values in the Philly metro area and even more so in Wilmington, DE (where the slumlord triplex is) I've thought about buying it with an investor who would be willing to dump the purchase price and 100k in renovations, but I just can't justify the cash flow hit for myself. I can do almost three single families in a nicer area with less work to be done for that amount of cheddar.
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Apr 30, 2014 18:10
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In the interest of keeping this thread alive, I figured I'd share an update on my rental property business. I just had my offer on a sweet 3br 1.5ba row home right in the heart of a downtown office business district accepted for 40% less than the original listing price. Listed for 130, seller is in a nursing home and running out of money, dropped to 98 for a quick sale and accepted my offer of 80! With a little (sub 3k worth) of floor refinishing, paint and polish I'm fairly certain I can get 1200 a month in rent as a residence. It's also zoned for dual use and I'm hoping to find someone who would use the downstairs as an office and upstairs as a residence for maybe 1,300.
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Jul 15, 2014 03:41
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baquerd posted:I mean, great deal, but you basically just robbed a desperate old lady. I didn't know his situation when I offered 80 on it, just found out after. And he had an attorney advising and representing. I won't lose any sleep over it. Bloody Queef fucked around with this message at 22:08 on Jul 15, 2014 |
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Jul 15, 2014 22:05
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pac man frogs posted:That's pretty good, 1.4% on rent of purchase + rehab. Nice one. How did you purchase, cash outright or financing? Missed this at first sorry. I'm going financing because I'm trying to pick up 1 or 2 more properties by year end so it'll be nice to have the cash for that. With mortgage rates so low, leveraging is a good strategy for me. Fake edit: double post. Had phone posting issues.
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Jul 15, 2014 22:08
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poopinmymouth posted:We will be taking over their loan Is this common in Iceland? This was huge in the US in the 80s when mortgage rates shot up and banks really cracked down on this by putting due on sale clauses in their paperwork. They got burned by having non vetted buyers not making them mortgage payments.
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Jul 28, 2014 03:05
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SpclKen posted:So I haven't posted in here, but I thought since the thread is slowing down and I enjoy it. I will share my landlord by accident story. Do you have a property manager? $300 in positive cash flow a month seems very low on a house valued around (I'm assuming based on your other stuff) at least 300k
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Aug 1, 2014 04:59
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Dead Pressed posted:How do you guys feel about investing in real estate vs. traditional retirement investing accounts? Those of you voluntarily invested in real estate, are you maxing retirement accounts before getting into these taxable income streams? Any specific chat about returns is going to be insanely region and market dependent, but I've been getting well north of 25% returns just on a cash on cash basis with financing properties Basically I am recouping my down payment, closing costs, and reno expenses in just over three years. Now the market where I am is insanely landlord friendly. Housing prices are still way down due to a crazy amount of foreclosures still on the market, but rental prices have shot back up to pre to mid bubble levels. My wife and my plan is one more property a year the next five years, then two a year the next five years after that and then from there either quit my full time job and be full time landlords or dial back the acquisition rate and hire a property manager while still working. Huge caveat, children have not yet, but will enter the picture, and I'm certain that will savage those glorious plans of retirement by 40. E: didn't post about retirement funds. I get 11.5% of my income in a 401k through work (6% my own, rest employers) But this isn't maxing the 401k out. I throw 10% of my take home from my job into a taxable investment account and 10% of all proceeds from rentals into the same account. At the end of each year, I figure out if I want to reinvest personal assets into the rental business and then max out the IRA with the remaining funds with the remainder staying in the taxable. The 90% of proceeds from the rentals stay with the business for new acquisitions. Bloody Queef fucked around with this message at 03:42 on Aug 7, 2014 |
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Aug 7, 2014 03:35
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Tricky Ed posted:bad housing crash could leave you in a position where you literally can't sell due to being underwater. This is really important and shouldn't be ignored. Know how much your local market tanked in the most recent housing crisis. Some areas were barely effected, some lost half or more of their value. If I was doing income properties in Arizona, I would only buy with cash. I'm in the northeast where markets went up 10-15% during the bubble and then dropped about the same amount. So if I'm insistent on getting a loan, I do 20% down 15 year, so I'd very quickly be in a crash resistant equity position.
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Aug 8, 2014 12:13
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particle409 posted:I need help with management software and collecting rent. I currently use LandlordMax, which is ok for tracking and bookkeeping. I have about 20 units, spread over 3 different properties in Yonkers and the Bronx. Most of my tenants don't have internet access or even checking accounts. They prefer to pay cash (which I stopped accepting) or with money orders. I use a management company, but they're doing a subpar job. Collecting rent is awful, just because none of my tenants are home at the same time. I would spend my entire week driving around just to meet tenants to pick up rent. What % is your property management company charging? Unless you're getting some kind of stellar deal, it might be time to look around. With 20 units you may even be able to hire someone part time.
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Aug 31, 2014 12:38
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n8r posted:Years ago I had a place where I could drop off an envelope into the landlord's locked mailbox. I think the reason you are having huge hassles with picking up the rent is because you are picking up the rent. Set a policy that rent checks need to be mailed by X date, no cash (even though it's surprisingly rare cash gets stolen out of the mail) and if they don't, follow your late rent procedures as set out in your rental agreements. People will follow the rules as long as you make it a firm rule and follow your rental agreements. Did you read his post where he stated that his tenants typically don't have internet or checking accounts? He's kind of dealing with a different situation then is common.
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Aug 31, 2014 14:43
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Harry posted:
I wasn't referring to their lack of access to checks, more the type of person who wouldn't have a checking account also wouldn't be the type to pay rent on time without prompting.
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Sep 1, 2014 20:14
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CatchrNdRy posted:I've been trying to advertise my rental on craigslist (the POS management company I use does not advertise on craigslist for some reason). Renewing a post doesn't happen instantly for me, usually an hour or so.
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Sep 1, 2014 20:18
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ShaqDiesel posted:What is the most effective means of advertising an open rental unit these days? I've had pretty good luck keeping the small number of units I have occupied but now I have an opening and I feel like putting ads in the newspaper is bush league these days (especially our dinglef*ck local paper). I have only had success with craigslist. I just keep the ad up in the top by reposting and I've always had tons of respondents. I'm sure that my pool is being limited to 20-35 year olds or tech savvy older folks, which doesn't match the demographics of the area well, but it's worked so far.
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Sep 30, 2014 15:00
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ShaqDiesel posted:I'm considering selling a property due to lack of profitability and wondered what you guys think. Some monthly numbers: How much do you think you could sell it for? The economics of that property are pretty lovely from a rental perspective.
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Oct 14, 2014 15:24
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Azur posted:Run your numbers again. This time split your mortgage payment into two, interest payment and principal payment. Interest payment goes to costs, equity payments go under profit. Yeah, something feels very odd about those numbers. What did you put down and what was the purchase price. You're way over the 1% of purchase price in monthly rent line. Which, as you probably know, it's used as a quick back of napkin calculation with assumptions that most things like vacancy and maintenance are average. E: are you on a 10 year mortgage? I just bought a house with similar monthly expenses ($85 more) and purchase price was 80k and I put 20% down. A tenant in one of my other properties wants to upgrade from her studio and is down with the $1200 number I threw out when she inquired about it. Motivation to get the new carpet in and finish the wd hookups. Bloody Queef fucked around with this message at 00:23 on Oct 15, 2014 |
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Oct 15, 2014 00:14
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you ate my cat posted:I've been living in the same rental for about 8 years now, and while it's a very nice place it's getting to the point where it no longer suits my needs. My work situation has finally become stable as well, so I'm starting to think about moving again. I'm also starting to run the numbers on buying vs renting. I have a studio apartment with a separate entrance in the attic of my house. It got me hooked on being a landlord. The apartment is 650 sq ft and the portion of the house I live in is 2k sq ft Great advantage is that your mortgage rate will be good, and you don't need to do 20% down. You can even do FHA. I did 20% down conventional anyway. Just make sure you can afford the mortgage payment if you don't have a tenant in place. If you screen your tenants really well it works out great. As a renter, you can't pick your neighbors. In this particular apartment I probably wind up passing on four potential tenants for every one that I choose to sign the lease. Be VERY picky. They're basically almost a roommate so screen accordingly. My advice overall is to tell the tenant you manage the property for the owner (not technically a lie) I'll give you the financial breakdown of my house. Bought for 215k, 20% down. Mortgage, insurance and taxes sum up to 1065 a month. I get 800 a month for the apartment and I include cable, WiFi, and all utilities. I've noticed $50-75 a month jump in electricity. I'd get 1500-2000 if I rented out the portion I live in. In fact once I need more space, I'll buy a new house and rent my portion out. Magical loving numbers, yes. And if I could get deals that good all the time, I'd leverage myself to my eyeballs and quit my job. Let me know what specific advice you need. Feel free to PM me if you want to keep your details private.
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Nov 1, 2014 03:39
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Pompous Rhombus posted:How does one cover one's rear end from a discrimination suit during that process? Don't reject someone because they're black? Or if you do, don't tell them thats why? But seriously if you have multiple people looking, you're going to have many legal, non discriminatory reasons reasons why each applicant that you reject isn't as good as the one you pick. Kiwi Ghost Chips posted:There's an FHA exemption for owners who live in a 4-plex or smaller building.
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Nov 3, 2014 22:43
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Claverjoe posted:Location is downtown, really close to my work, I do enjoy renovation work (and I love old houses), it's something to do while I'm new in town building up a social circle and trying to avoid missing my fiancee since she is finishing up her research work in Dallas and can't come here to write her dissertation yet. And I'm going to negotiate a bit off my rent, the question is "how much", since I literally don't know anything on the pricing of renovation work, I only know the "how to do it" part. Get a contractor to come out and give you an estimate and provide the landlord with that estimate. Then ask what he thinks is fair for the work based on that estimate. I've never allowed a tenant do work on one of my places, but I've had many applicants say they'd do work for reduced rent. Sorry, I just want someone licensed and bonded in case something was hosed up.
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Dec 14, 2014 14:42
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Dragyn posted:
Was it really hard to find this tenant? Even if it meant sitting on the unit for another month, I'd tell the Woman no deal. You'll lose a lot more than a month of rent if you have to evict her, her daughter, her daughters fiance, etc.
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Dec 30, 2014 01:51
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about a future nightmare tenant
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Tricky Ed posted:So... newbie question. I'm looking at buying properties at a distance, because I can't afford any rental properties in California, and I know/have family in the area where I'm looking. Currently I have a choice of the following: You haven't evaluated the issues with property management from a distance. I'm phone posting so it'll be brief, but you seriously need to look into this aspect. Your property management company takes a month rent up front and 10% of gross rent. (probably the lovely price you'll pay with only one unit) If they choose a lovely tenant, you suffer the repercussions and they don't. Worst case for them is losing a client. Worst case for you is a destroyed property and several months of lost rent or worse. Unless you want to fly in and screen every tenant? Property management companies drive out most of your profit and are generally only worth it if you can personally screen your tenants and you don't want to handle those 3AM lockout calls.
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Dec 30, 2014 13:17
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EB Nulshit posted:So how bad of an idea is it to own rental property in an area you don't live in? Is better if you've lived in that area, or at least that state before, or is still pretty much a foolish thing to do? I honestly feel that it's a pretty foolish idea. Partly due to the fact that not living there means you probably don't know the area well enough to make a decision about the purchase of the property. I posted about this a little earlier in the thread, but I feel that management companies make SFH/triplex or smaller investment properties unprofitable. Different management companies do fees differently, but generally when they place a tenant for you, you pay a flat fee sometimes up to a month. Then after this, they are going to take up to 10% of monthly rents. For all that money, they do the work for you, but take on none of the risk. If they place a tenant with you that pees all over every carpet, smears his poo on the walls and costs you several grand in lost rents and damages. The worst they get is fired. So it's in their best interest to place a lackluster tenant quickly, rather than search around for a spectacular tenant. I will use one of my properties as an example: It's a 2br/1ba row home and cost about 80k. I took a mortgage for this with 20% down and my property tax, insurance, and mortgage payment totals up to roughly $500 a month. Rents are $1200 a month. (This is a sweet spot in the market and I don't have many of these, but this is my best money maker property) Let's say that Property Management, Inc places me the perfect tenant. Said tenant stays for exactly 12 months and causes no headaches, no damages on moving out. They did exactly the job I hired them to do, it's the best scenario (except perhaps the tenant staying longer). Over the course of the year: Rental Revenue = 15,600 Management Place Fee = (1,200) Monthly Management Fees = (1,440) Mortgage/Insurance/Taxes = (6,000) On a property that inexpensive, I double the usual annual 1.5% of property value for repairs/maintenance to 3% = (2,400) Net $4,560 on an investment of $20k is pretty solid (25% of total property value for down payment and fixing up costs) 22.8% ROI While not as good an ROI as self management (36%) this could work. I generally discount principle payments on the loan as I think this can Now what happens if the tenant that Prop Man, Inc places turns out to be a scumbag and after 9 months of successful rental payments stops paying rent? Say 2 months of lost rent due to eviction proceedings and since we're evicting they decided to trash the place to the tune of $1,500 over and above security deposit and another month of property cleanup and finding the next tenant. Over the course of the year: Rental Revenue = 10,800 Management Place Fee = (1,200) Monthly Management Fees = (1,080) Mortgage/Insurance/Taxes = (6,000) Same repair/maintenance since this is for wear and tear stuff= (2,400) Replacing carpets = (1,500) Net loss of $1,380 That sucks, but things happen. Now if you self managed, you'd be able to clear $900. Still an embarrassing profit for all that risk, but you didn't have to tap into personal funds for this property. Yes I made some assumptions and ignored the court costs of eviction, and that property is a smashing good ROI. But it always seems to me that management companies push investment properties from a good idea as an investment to a questionable one. E: Those management fees are sky high, but what I've seen if you only have 1 property. Some investors I know with portfolios of 10+ properties seem to pay 1/2 month placement fee and a 6-7% management fee.
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Jan 11, 2015 20:58
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EB Nulshit posted:So basically, as long as I live in NYC, owning rental property is not feasible so long as my income is due to an ordinary job, since local property would take me a lifetime to afford, and distant property has its own management issues. Thanks! Depends on where in NYC. I know a guy that lives in North Jersey and train commutes who has investment properties down in Trenton
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Jan 11, 2015 23:34
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DNova posted:Thanks. I would obviously give them at least 24 hours of notice, but I didn't know what else to say. It can sometimes depend on your relationship with the tenants. I had one tenant that basically sold the apartment when an applicant came to look at it. Talked about all the cool things that she liked about it. But it's up to the tenant whether they want to be present or not. I'll usually do something nice for the tenant if I'm showing it while it's still occupied like drop off flowers or something as a thank you. I lived in an apartment and it loving sucked to have strangers trampling through your space so I can empathize.
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Jan 12, 2015 17:31
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DNova posted:All of your expenses, basically, plus depreciation. It gets complicated if you want to be sure you're doing everything right. I pay a tax guy. I missed this back when it was posted, but the Turbo tax version that includes Schedule E income has excellent tools for rental income. It couldn't be easier and does a thorough job of walking you through what to examine. It also tracks depreciation year to year, so once you've entered the asset you're depreciating in, you don't have to worry about it anymore. The only reason you should hire someone to do taxes for rental properties is if they were in a C corp. I'm also a tax accountant so you probably shouldn't take my advice. But I do use Turbo Tax because I'd gladly pay the $80 per year to reduce my tax prep time in half during my busiest part of the year. fishhooked posted:Just found out today my current tenants are going to stay for another year! This is the first time in 4 tenants that I won't have to flood Hotpads, craigslist, zillow, to fill the vacancy. This is a nice turn of pace with this house as just a few months ago I was replacing the sanitary service to the tune of $2.5k. I know, It could have been worse. This is the best scenario. Congrats
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Jan 29, 2015 22:37
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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 tried opening an umbrella policy, but all the companies wanted 500k (or 3, I forget) insurance limits on all my vehicles. They also demanded everything I had insured be through them. I shopped a lot for all my property insurance, vehicles, etc and was with a different company for all of them. It got prohibitively expensive. Just make sure that you have a good landlord's policy on each rental property and you should be good.
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Feb 6, 2015 17:38
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DNova posted:I think it's a bad idea to invest all of your savings into a criminal enterprise in a foreign country. What? Are you seriously referring to airbnb as a criminal enterprise.  As to the poster, investing in a real estate market that you have no knowledge of is a terrible idea. Also scroll up a little bit to see my analysis on having a management company do everything for you, this gets even pricier when they know you're international.
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Feb 12, 2015 17:06
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DNova posted:Yes. What tentish klown is proposing is illegal in the state of New York. It is my opinion that pouring your life savings into an illegal activity is a bad idea. AirBnB isn't always illegal in NYC. I can't remember the qualifications, but I think it was a week or more and a whole apartment didn't qualify as an illegal hotel. There's also a possibility for legislation that would make it clearer. Either way, AirBnB being illegal or not is not why this is a horrible idea. Seriously stick to a location you know.
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Feb 12, 2015 17:39
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lord1234 posted:I own a house I am considering renting out. I pay ~1600 a month in PITI on it. Rental value would be ~2200. House value is probably around 230k. House purchase price was 209. I'm right around the 1% mark. Is this a terrible idea? While on the surface this doesn't seem to be a great rental income equation, anyone giving advice would need a little more info in order to give informed advice. Please note that I am very biased towards rental real estate. If you don't want to disclose any of the answers in the thread that's fine I'll work with whatever you can give. Also feel free to PM me. Your house purchase price was 209, what is your current equity in your house? And what are your annual insurance and RE taxes? Based on what's going on nationally with housing prices, it kind of sounds like you bought the house within the last 5 or so years. While this is bad for a personal property, if you're converting this to a rental, look at your return based on your equity, not the total house value. You can also look at not just your cash flow return, but also the increase in equity due to you paying down that mortgage. What marginal tax bracket (fed and state) are you in this year and foresee being in the next 5 years? This is also very important. You may very likely have a taxable loss on this rental real estate venture over the next 5 years due to margins not being super high and factoring in actual costs such as repairs and things like depreciation. If you're in the 15% bracket, this loss won't be as useful as if you're in the 39.6% bracket. What regional market are you in? If you're in or around a major metro area, properties are generally easier to rent. If you're in rural Wisconsin, you will likely take longer to rent out. What condition is the house in and what major repairs do you anticipate having in the next 5 years? If you're going to need big dollar repairs/updates (ie roof, AC, etc) soon, this may be too painful. Are you planning on managing yourself, or are you having a property management company do that? This one will greatly affect the do or do not rent one. If you're doing it yourself, the answer will be maybe based on the above. If the answer is you are going to hire a property management company. Scroll up through the thread and read my post about how a property management company can turn a rental property with good to great returns into an overall money loser. Keisari posted:To me it seems like there's a lot of capital in one basket. Unless you have many more houses, which I doubt you do, I'd probably just sell the thing for 230k and put it in many blue chip stocks. They probably net you more on the long-term and they're almost 100% hassle-free. BEHOLD: MY CAPE posted:Also your insurance is going to go up when you convert to a landlord policy. Yes, it will definitely go up. However, insurance is so loving hard to predict because the insurance companies have private actuarial tables so insurance may go up a lot, or it may go up a little. If things are shaping out to be pretty good number wise, I'd get a quote. I've considered converting my personal residence into a rental when it's time for me to move out of my starter home (if I do) and insurance goes up like $200 a year. I do, however, have a lot of policies with my insurance company and based on my area insurance is low as poo poo. poo poo. That was a lot of words for "it depends" I hope you can provide us with numbers like this because I think both you and anyone reading this thread can get some good knowledge if we have good details.
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Feb 21, 2015 13:24
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