- 24,487
- 45,378
Yea, generally. It really depends on the profit margin and the management cost and the finance rate. Fiddle with those numbers and you can make all-cash properties make sense or you can make fully leveraged properties make sense.
Okay bros - Oil Prices & Energy Stocks - time to buy?
- Thread starter Cad
- Start date
Khane
Got something right about marriage
- 19,836
- 13,353
Cad I strongly suggest you look into commercial real estate properties rather than residential if you have enough money you're thinking about buying an entire complex. Commercial should have a better ROI than residential unless rental prices are absurdly inflated in your area but the real reason is dealing with residential properties is just a goddamn pain in the ass. Even if you hire a property management company it's a pain in the ass and a lot of property management companies completely phone that shit in and let tenants do whatever the hell they want anyway.
- 24,487
- 45,378
The complex idea would be commercial. The residential properties are just a test-run to see if I can stand doing business with my brother in law. Haha.
Residential would def be easier to pull out of. I'm considering doing w similar thing on a smaller scale... i can handle the management myself so why not be leveraged to the max with ~4% loans. We have 2 houses now. One renting for 1750 on a 1400 payment with a 15 year loan, one renting for 1k with a 420 payment on a 30 year loan. Not big bucks, but it's easy to get on cruise control and end up with some decent equity...and it gives some tax latitude.
Khane
Got something right about marriage
- 19,836
- 13,353
So many things can go wrong with a building in general. With residential properties that are still mortgaged the profit margins are very thin in most markets and you have to worry about major catastrophes at a property. The more properties you have the more you have to deal with.
Even if you're handy enough to do all your own work and enjoy doing it that still precludes the people aspect. It doesn't really matter how diligent you are when background checking someone even good tenants kinda suck. It's really hard to find tenants that treat a place with any real respect unless you're talking about luxury apartments and the more people you're dealing with the bigger the hassle becomes. Some people can deal with it I suppose but after 8 years of being a landlord and even living in one of the apartments myself I am realizing that it's just not worth the hassle for the lousy return. I mean, it's a very, very long term investment so until you're free and clear and only paying taxes on the property it's a lot of potential headaches for not much return.
To each their own of course but I don't think I'd ever buy another residential investment property. They just aren't worth it in my opinion.
Even if you're handy enough to do all your own work and enjoy doing it that still precludes the people aspect. It doesn't really matter how diligent you are when background checking someone even good tenants kinda suck. It's really hard to find tenants that treat a place with any real respect unless you're talking about luxury apartments and the more people you're dealing with the bigger the hassle becomes. Some people can deal with it I suppose but after 8 years of being a landlord and even living in one of the apartments myself I am realizing that it's just not worth the hassle for the lousy return. I mean, it's a very, very long term investment so until you're free and clear and only paying taxes on the property it's a lot of potential headaches for not much return.
To each their own of course but I don't think I'd ever buy another residential investment property. They just aren't worth it in my opinion.
I totally understand your position but there's a reasons margins can be thin, it can be an easy way to get ahead with a low downpayment. We just had a nightmare tenant that caused some serious evaluation of the headache but we're that much stronger from dealing with it. Personal choice really. I probably wouldn't fuck with it if I were in cads position but who knows, getting enough for it to be completely autonomous with smaller margins could be glorious.
- 24,487
- 45,378
So lets say you buy a $150k house with 20% down in an average neighborhood. What are your costs going to be? PITI + management/upkeep.
PITI is around $904/mo with a 4.5% interest rate (not owner-occupied, rate is a little higher than market), $2300/yr property taxes and $1200/yr homeowners insurance. I'm estimating the homeowners insurance based on my own insurance, it might be a little higher? Not sure on that.
I don't know what expenses for upkeep will be, lets call it $3k/yr for carpets and odd appliance failures and shit like that. Could probably get a better feel for this when we own a lot more properties.
So thats $13,848 a year to own this property. Break-even rent would be $1,154. To make 10%/yr on the 30k invested, we'd have to rent it for $1,404/mo and keep it rented most of the time.
The question is, can we do that? Can we minimize the time we spend on each one to make 10%? If I could make 10% on $30k by investing it this way I'd buy 30 of these properties tomorrow, and I have the cash to do it.
Going to do a test run of 5 properties and let it ride for a year, and see how it goes. Do I only rent to white people? Only females? Have credit requirements that would make Sanders blush? Would make it harder to rent out but probably higher quality tenants. Need to do some testing and figure it out.
Khane what catastrophes are you thinking about?
This is also discounting appreciation and equity, those are kinda bonuses in my book and shouldn't really be budgeted.
Apostolos
Golden Knight of the Realm
- 430
- 219
I had been playing with some local oil stock REI (I am in west TX). I had sold a bunch at around 10.50 and then bought some back when it dropped down to 9.. then it kept going down and got more at 6. It fell all the way down to 4 about 3 months ago and has been steadily moving up to over 7.50. I read some about OPEC, but looks like there may be a merger in the works but I cannot seem to find any information. (I am also still very new at this..disclaimer disclaimer.. so take it with a grain of salt).
Khane
Got something right about marriage
- 19,836
- 13,353
We should probably move the discussion to a different thread but $3k/yr in maintenance and upkeep costs seems like a pretty big understatement. Does it only cost you $3k/yr to keep your own home up? Catastrophes like weather related nonsense or just major appliance failures/tenants royally fucking up your house.
For instance I had a retaining wall fail the first year I was in my house. $14k to fix + put better drainage in so it doesn't happen again.
I know its my experience so YMMV (and a new build) but I've probably only put maybe $2k into my house since moving in 5 years ago. That may end shortly since I may need to rehab the back patio, though.
- 24,487
- 45,378
My only major expense so far has been 1 water leak and 1 A/C unit failing, A/C unit was under warranty but I had to pay for the plumbing/drying for the water leak, it cost me about $5k. Otherwise no expenses, but my house is only ~8 years old. I've been in it almost 7 years now.
Yeah, and roof is always a 10k job on the clock. But I think 3k a year is fair. Even then, you have a new retaining wall or a new roof you can show off that you can deduct from earnings and realize equity on.
Khane
Got something right about marriage
- 19,836
- 13,353
I'm not sure what you mean by this. Anyway, if you're looking to spend money on 5 residential properties I think you're better suited buying a commercial property Cad. One building to manage instead of 5 and no families so you don't have to worry about whatever absurd tenant laws Texas may have Cad. Maybe it's better in TX but in CT tenants have all the rights and can fuck over their landlord pretty much however they see fit. That whole silicon valley bit about Jared having to let his AirBNB guest stay indefinitely isn't all that far fetched.
$3k/yr might be reasonable in TX as far as costs go but my costs have been ~$9k/yr over the 8 years I've been here. Don't underestimate how badly a tenant can destroy shit in your house and just how much crap can break when people who don't give a shit are constantly abusing it.
Plumbing has been a nightmare here, every single appliance has been broken, tenant's side of the garage has a broken door, my deck has needed repair. Shit... snow removal (which you don't need to deal with) alone costs me ~$2k/yr. People equate what it costs them to live in their own home to what it's going to cost them to rent a home to someone else. It's apples and oranges. Especially if you're planning on having a full time job AND having 5 properties. You are going to need to hire whatever work needs doing out, you won't have the time.
And this is all completely ignoring the added stress of having to just deal with tenants. I've lost sleep plenty of nights because of this shit and I only rent out one apartment. It's not a bad move financially speaking. And in the long run can pay off quite well, but it's also not just a financial decision.
If you build something new, you now own something new and people generally pay more money for new shit. In residences this is valuable because you get to deduct off the top of your income, and when you sell it you're paying capital gains, which is lower generally.
For example your retaining wall should have been priced into your home because it was an old piece of shit that was about to collapse when you bought it. You may sell your home for 10k more because buyers genetally prefer walls that aren't collapsing. If you showed that 14k as a deduction off your income at 33% then sold the crib for 10k more than you bought it for paying 20% on that, you lost less than you think, i think.
- 24,487
- 45,378
All valid points sir, I'll figure this out and adjust the rent to suit. Also I'd probably push a lot of the day to day off on the brother in law and a handyman, and you may be right just buying a small garden-type building might be better. We'll see. I've looked at the P&L's for a few of those buildings and they aren't great. Probably why they are for sale...
Frenzied Wombat
Potato del Grande
- 14,730
- 31,802
I highly advise against buying new as so much shit is designed to fall apart around the 5 year mark these days. I bought a brand new home, and eight years later I'm dealing with $50,000 worth of damage and very little recourse against the builder who literally installed flashing backwards in some places, and didn't bother installing any at all in others. IMHO, look at houses that are 5+ years old, as most latent issues will have been discovered by then.
Landlords have all the rights in Texas and can basically fuck you over to their heart's content. When I first moved here I stayed at a Post Property apartment complex and they started massive renovations that made the hallways unbreathable, elevators offline half the time, and the pool was shutdown for months. Yet all these things combined were not enough to break the lease, and it took the combined effort of multiple lawyer tenants to bully Post into at least giving us a rent reduction. Oh yeah, they charged a 10% fee for each day your rent was late, and by the 2nd week or so you'd have an eviction notice on your door.. It is good to be a landlord in Texas.
That being said, I couldn't imagine renting property. Dealing with my own home in terms of repairs/problems has been an utter nightmare, not necessarily from a cost standpoint (which is bad enough) but the fact that the entire home repair & contractor industry is utter garbage. Scam artists, incompetents, and illiterates about sums them up. Electricians/Plumbers/AC are ok since they're licensed, but for pretty much any other home repair problem get ready to deal with the most frustrating segment of humanity you've ever encountered. I had major home damage about eight months ago due to leaks, and despite having the repair money in hand and literally waving it in front of vendors' faces I am STILL waiting for it to be all repaired. I've never encountered an industry so lazy and incompetent in the face of huge sums of cash.
Landlords have all the rights in Texas and can basically fuck you over to their heart's content. When I first moved here I stayed at a Post Property apartment complex and they started massive renovations that made the hallways unbreathable, elevators offline half the time, and the pool was shutdown for months. Yet all these things combined were not enough to break the lease, and it took the combined effort of multiple lawyer tenants to bully Post into at least giving us a rent reduction. Oh yeah, they charged a 10% fee for each day your rent was late, and by the 2nd week or so you'd have an eviction notice on your door.. It is good to be a landlord in Texas.
That being said, I couldn't imagine renting property. Dealing with my own home in terms of repairs/problems has been an utter nightmare, not necessarily from a cost standpoint (which is bad enough) but the fact that the entire home repair & contractor industry is utter garbage. Scam artists, incompetents, and illiterates about sums them up. Electricians/Plumbers/AC are ok since they're licensed, but for pretty much any other home repair problem get ready to deal with the most frustrating segment of humanity you've ever encountered. I had major home damage about eight months ago due to leaks, and despite having the repair money in hand and literally waving it in front of vendors' faces I am STILL waiting for it to be all repaired. I've never encountered an industry so lazy and incompetent in the face of huge sums of cash.
One thing about roofs - you can get it done with insurance, at least in Florida. Basically:
- roof company inspector comes out
- he finds wind damage
- correlates to when a storm hit
- clears with insurance inspector
- insurance pays for roof
My roof was a $12,000 job but I got it for just a $500 deductible. Also paid an extra $600 for upgrade to architectural shingles.
- roof company inspector comes out
- he finds wind damage
- correlates to when a storm hit
- clears with insurance inspector
- insurance pays for roof
My roof was a $12,000 job but I got it for just a $500 deductible. Also paid an extra $600 for upgrade to architectural shingles.
^ How is it fraud when the Insurance company's inspector has to verify? It's a lot cheaper for the insurance company to put shingles on a house than fix water damage.