So After today, I am reconsidering my ER plan.
I own two rental properties, and wanted to buy more totaling 8-10 dwellings. This would provide enough to live off of, and once they were paid off I would be VERY comfortable. Here is the problem, I only have two, and a lot of the great great deals that were around (when I bought these) have dried up. They average about 1000 profit a month when all rented, although i have a tenant now who isn't paying so I'll breaking even and this seems to always be the case. But even at 12K a year profit, as soon as I have to do a roof, electrical overhaul, or any major repair there goes the ENTIRE years profit. And Yes I will get the appreciation of the property down the line, but is it worth it?
I was going to the NYC meet up today, when I got the call there was a 'leak' I stopped there and indeed there was a leak, or it was a leak a month ago when they first noticed it,but decided not to call me since they owe me money. Now its a broken pipe in a wall so I spent the day opening a wall and sweating in new pipe (joys of an older home). While I was in there I also found a few other issues that needed to be addressed since the wall was already open.
I never considered rental properties as passive income, but more of an easier income then real work. But lately it's been a lot of head aches, repairs, and I seem to spend more and more time there. I'm not losing any money, currently, but its far from worry free.
I have already pulled 70k out of them on REFI, so I've made my original investment costs back. The plan to own lots of them is seeming kind of annoying. Sure it would be more money, but also more head aches. And it's not what I want. I want freedom, not riches.
I am thinking now, in the next 2/3 years if the market can get me a 30-40% profit, sell and take the money and invest elsewhere. It's easier to invest in REITs vs actual homes.
It may not be AS profitable over the long haul, but the amount of time/worry would be much less. And I could spend my time working on my home. Not only that since the likelihood of owning more is slim. If I kept these it would just be a lifetime of work for minimal profits.
I like the idea of of making a little less, but handling my investments from Etrade.com VS in dirty, water filled basements.
I think I am just discouraged right now because I missed the meet up, and spent the day working…but it seems to happen a lot more than planned, and wondering if its where i want to be.
My Original ER plan needs to be reevaluated.
@FPMLLC,
It seems that you're feeling discouraged right now with all the troubles you've been having lately with your rentals. It happens to all of us at one time or another.
Even investing in REITs isn't foolproof, but they are much more liquid than an individual rental property. Plus, you can diversify more to guard against failure.
Maybe after a month or so you'll be able to look at these recent troubles with more perspective and it won't seem that bad.
Larry
It seems that you're feeling discouraged right now with all the troubles you've been having lately with your rentals. It happens to all of us at one time or another.
Even investing in REITs isn't foolproof, but they are much more liquid than an individual rental property. Plus, you can diversify more to guard against failure.
Maybe after a month or so you'll be able to look at these recent troubles with more perspective and it won't seem that bad.
Larry
Sorry to here about your rental real estate challenges. The story you tell is familiar. I decided that it wasn't my passion to spend a lot of my time doing carpentry, painting, and especially plumbing (I HATE plumbing!).
I commend you for trying it out for yourself. Often times, we are discouraged by others to experiment like this. Just because others fail, doesn't mean that we will.
At least you would come out of this experiment with a gain. A lot of people have professional maintenance and management fees that put them in the red...
I commend you for trying it out for yourself. Often times, we are discouraged by others to experiment like this. Just because others fail, doesn't mean that we will.
At least you would come out of this experiment with a gain. A lot of people have professional maintenance and management fees that put them in the red...
@ Larry, its not that I'm discouraged. It just seemed like I'm setting myself up for another full time job. Sure I've owned them five years and if you add it all up its probably not that often I am there, but I AM there and with more properties I will have to spend more time there.
@dcj- I agree, sure after 25 more years they will earn me lots, but over the next 25 years I will have put a LOT of money and time into them. I think if you had 20 units and a manager, it would be profitable. But for just a handful it's not a dream gig. I like the extra money, but If i sold them, and invested all of the profits into a dividend paying porfolio, I could generate about 8k a year in dividends. Sure it's not 12k, and as time went on rent would go up, but its much more stable and all I have to do to earn it is buy the stock. Seems much nicer for the long haul.
@farmone I actually like that kind of work. I grew up doing it, and I'm looking to build four Spec houses this year. Problem is building is a passion of mine, and I love carpentry, When I want to do it. Rental maintenance isn't enjoyable its just another job. And right now, at my age I'm ok with that. But a decade, a month, hell a week from now I may be fed up.
Luckily, I could sell now and still pay off loans and pocket 150K. And I'm hoping over the next two years I can sell for a little more. If I can get 200K out of them, that would be a VERY nice boost for my portfolio and open up Lots of free time. Well maybe 2 extra days a month, but would lessen the mental load of if I am going to get paid, what's breaking, how long till they screw me...and that would be worth it.
@dcj- I agree, sure after 25 more years they will earn me lots, but over the next 25 years I will have put a LOT of money and time into them. I think if you had 20 units and a manager, it would be profitable. But for just a handful it's not a dream gig. I like the extra money, but If i sold them, and invested all of the profits into a dividend paying porfolio, I could generate about 8k a year in dividends. Sure it's not 12k, and as time went on rent would go up, but its much more stable and all I have to do to earn it is buy the stock. Seems much nicer for the long haul.
@farmone I actually like that kind of work. I grew up doing it, and I'm looking to build four Spec houses this year. Problem is building is a passion of mine, and I love carpentry, When I want to do it. Rental maintenance isn't enjoyable its just another job. And right now, at my age I'm ok with that. But a decade, a month, hell a week from now I may be fed up.
Luckily, I could sell now and still pay off loans and pocket 150K. And I'm hoping over the next two years I can sell for a little more. If I can get 200K out of them, that would be a VERY nice boost for my portfolio and open up Lots of free time. Well maybe 2 extra days a month, but would lessen the mental load of if I am going to get paid, what's breaking, how long till they screw me...and that would be worth it.
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George the original one
- Posts: 5406
- Joined: Wed Jul 28, 2010 3:28 am
- Location: Wettest corner of Orygun
I have a (by my refurbished) school rented out first to a semi-public organisation and later to the city itself. It is used for (semi-) public health services. This year I have it for twenty years now.
By first investing in quality materials and installation I have had no maintenance problems other than regulary inspections and doing repairs before harm appears.
I have constructed the rental agreement in such a way that the tenant has to maintain all installations (plumbing, central heating sliding doors, sunscreans, water, telephone, electricity, damage by burglary) and I as owner am reasponsable for maintain the outer "skin" of the building. The maintenance of the garden/landscaping I have outsourced. This rental agreement has and is still working out very well. I have the lease price lowered a bit to construct it in this way.
Other than renting out houses, I have had only once a change in tenant. The lease contract started with a period of 12,5 years and later in periods of about three years. Doing it this way give's me a real "landlordly" feeling.
It will not help you now with your housing units, but perhaps it is an idea for a next investment in real estate.
By first investing in quality materials and installation I have had no maintenance problems other than regulary inspections and doing repairs before harm appears.
I have constructed the rental agreement in such a way that the tenant has to maintain all installations (plumbing, central heating sliding doors, sunscreans, water, telephone, electricity, damage by burglary) and I as owner am reasponsable for maintain the outer "skin" of the building. The maintenance of the garden/landscaping I have outsourced. This rental agreement has and is still working out very well. I have the lease price lowered a bit to construct it in this way.
Other than renting out houses, I have had only once a change in tenant. The lease contract started with a period of 12,5 years and later in periods of about three years. Doing it this way give's me a real "landlordly" feeling.
It will not help you now with your housing units, but perhaps it is an idea for a next investment in real estate.
I'm sorry to hear about these challenges. I purchased a small apartment building (second biggest mistake of my life) and learned a lot of hard lessons from it. Now I manage a small complex and love the fact that I call professionals to fix things right the first time. The owner can afford to do so because they have owned the building forever and owe nothing.
There have been a few big changes in the rental business that people tend to gloss over when going into it that I believe are game changers.
1) Bedbugs: DDT almost wiped them out. They are back with a vengeance and they cost a fortune to treat. If the unit was not inspected by a licensed pest-control company confirming that it was bedbug free prior to lease then the owner must pay the cost of treatment. It costs a fortune and requires the tenant to jump through unbelievable hoops. Few choose to stay.
2) Mold: Unlimited liability. Medical liability. Specialized attorneys are targeting small owners who tend to fix things themselves without following proper mold remediation practices. Insurance companies are quietly removing mold coverage from policies, leaving the owners 100% liable.
There have been a few big changes in the rental business that people tend to gloss over when going into it that I believe are game changers.
1) Bedbugs: DDT almost wiped them out. They are back with a vengeance and they cost a fortune to treat. If the unit was not inspected by a licensed pest-control company confirming that it was bedbug free prior to lease then the owner must pay the cost of treatment. It costs a fortune and requires the tenant to jump through unbelievable hoops. Few choose to stay.
2) Mold: Unlimited liability. Medical liability. Specialized attorneys are targeting small owners who tend to fix things themselves without following proper mold remediation practices. Insurance companies are quietly removing mold coverage from policies, leaving the owners 100% liable.
@Ego- "The owner can afford to do so because they have owned the building forever and owe nothing. "
This is why I'd never do real estate Kiyosaki/debt style. Friends I have that do it this why seem to really suffer through things, because they have to DIY everything or lose on their thin margin.
Most houses I have rented the landlord was sorry to see me go and remarked I was one of the best tenants. We never did anything special to our rentals to earn that compliment. Honestly, that memory makes me nervous when thinking about being a landlord!
This is why I'd never do real estate Kiyosaki/debt style. Friends I have that do it this why seem to really suffer through things, because they have to DIY everything or lose on their thin margin.
Most houses I have rented the landlord was sorry to see me go and remarked I was one of the best tenants. We never did anything special to our rentals to earn that compliment. Honestly, that memory makes me nervous when thinking about being a landlord!
I know someone who bought his first rental house as a graduate student. He did so with advice and assistance from a college professor that he knew very well who also happened to be friends of his parents.
He added a house or two each year for the next 30 years with a duplex, triplex and quadplex sprinkled in every 3 or 4 years. It didn't take him long, before he had to get his contractors license. Now he owns a contracting company with 5 or 6 full time employees just to take care of his numerous rentals.
Primarily, he only rents to college students. He told me that they actually pay on a much more regular basis than most other people in his area of town. Many times he gets the rent up front for the entire semester or year.
He now teaches classes for other investors for a minimal fee that just barely coveres the room rent where he holds the classes. He hasn't bought anything new in several years and has even sold a few units at this point for a large profit.
He advises his students to find a niche and stick to it versus trying to do low end, middle end and high end rentals all over the board.
I attended several of his courses, but based on what I learned and my brother's own experience renting a couple of homes for 10 years, I know that I want nothing to do with rental property.
I am one of those who always pay their bills early or on time and expect others to treat things (including when they visit my own house or ride in my personal vehicles) as if they owned it, so I am smart enough to know that my personality will not mix well with owning rental properties.
I find investing in dividend paying stocks more plausible for my personal situation.
He added a house or two each year for the next 30 years with a duplex, triplex and quadplex sprinkled in every 3 or 4 years. It didn't take him long, before he had to get his contractors license. Now he owns a contracting company with 5 or 6 full time employees just to take care of his numerous rentals.
Primarily, he only rents to college students. He told me that they actually pay on a much more regular basis than most other people in his area of town. Many times he gets the rent up front for the entire semester or year.
He now teaches classes for other investors for a minimal fee that just barely coveres the room rent where he holds the classes. He hasn't bought anything new in several years and has even sold a few units at this point for a large profit.
He advises his students to find a niche and stick to it versus trying to do low end, middle end and high end rentals all over the board.
I attended several of his courses, but based on what I learned and my brother's own experience renting a couple of homes for 10 years, I know that I want nothing to do with rental property.
I am one of those who always pay their bills early or on time and expect others to treat things (including when they visit my own house or ride in my personal vehicles) as if they owned it, so I am smart enough to know that my personality will not mix well with owning rental properties.
I find investing in dividend paying stocks more plausible for my personal situation.
I have a couple of rentals and want one or maybe two more. They're single-family homes and I've been doing it for about 2 years now. So far I've had good tenants and have gone over 12 months straight doing nothing but depositing the rent checks. And when I do have to deal with something it usually only takes a phone call with the tenant and then maybe a few hours of fixing something. I'm good with putting things out of my mind so unless I'm actually dealing with an issue they don't cause me any worry or stress. What will be will be.
But I could see how managing ten or more places could be getting close to equalling the hassle of just working a regular job or running a more profitable business with lower capital requirements and risk. Which is why I plan to stop at 4 and then start diversifying into securities with my future savings. And I'd like to be able to sell them all off before I'm 40 just so I can have the luxury of not needing to think about dealing with even the occasional problem.
Ten properties sounds like a lot of income too. Are you planning on really high personal expenses or were you planning on carrying a lot of debt on the properties?
Also, are you working a job right now? That would make things more stressful. Those little landlording hassles are a lot more manageable when your schedule is completely wide open anyway.
But I could see how managing ten or more places could be getting close to equalling the hassle of just working a regular job or running a more profitable business with lower capital requirements and risk. Which is why I plan to stop at 4 and then start diversifying into securities with my future savings. And I'd like to be able to sell them all off before I'm 40 just so I can have the luxury of not needing to think about dealing with even the occasional problem.
Ten properties sounds like a lot of income too. Are you planning on really high personal expenses or were you planning on carrying a lot of debt on the properties?
Also, are you working a job right now? That would make things more stressful. Those little landlording hassles are a lot more manageable when your schedule is completely wide open anyway.
@Seneca, I agree. There are some - like MMM - who love to tear things apart and fix them. That's easy when you've got a vacant house and all the time in the world. When you've got tenants who are being flooded, without electric, heat, water.... it's a whole different story.
And people who like DIY are being legislated out of existence by the EPA's Lead-safe rules put in place in 2010. If you're thinking of buying a rental built before 1978 keep in mind that you are legally required to use EPA certified Lead-Safe contractors who must use Lead-dust techniques when repairing or remodeling. You are not allowed to do the work yourself if you're not EPA certified.
Imagine, one of the angle stops on a toilet is leaking. You've got to cut away a small piece of wallboard to install a new one. Nope... can't do it yourself. You have to call a certified contractor who must follow these procedures....
https://www.youtube.com/watch?v=U-3U1pcSIyg
The world is changing fast. What was once a simple twenty minute fix is now illegal, "dangerous", and exposes the owner to a significant lead-dust liability.
And people who like DIY are being legislated out of existence by the EPA's Lead-safe rules put in place in 2010. If you're thinking of buying a rental built before 1978 keep in mind that you are legally required to use EPA certified Lead-Safe contractors who must use Lead-dust techniques when repairing or remodeling. You are not allowed to do the work yourself if you're not EPA certified.
Imagine, one of the angle stops on a toilet is leaking. You've got to cut away a small piece of wallboard to install a new one. Nope... can't do it yourself. You have to call a certified contractor who must follow these procedures....
https://www.youtube.com/watch?v=U-3U1pcSIyg
The world is changing fast. What was once a simple twenty minute fix is now illegal, "dangerous", and exposes the owner to a significant lead-dust liability.
FPMLLC, I'm very sorry to hear of your troubles, but thank you for sharing your experience. You are one of the few people I have heard openly admit that being a landlord can be royal pain in the ass.
I have sat down several times to try to convince myself that having rental properties is significantly better than investing in REITs. Initially, I see that it is easy to get a better "yield" (i.e. annual rental income divided by original investment) with a rental property than with a REIT. But when I think about maintenance, vacancies, and other Charlie Foxtrots, REITs are comparable if not better. If you invest in a quality REIT like "O" and "NNN", you don't have to lose any sleep (both are overvalued right now, but they are great investments at the right price).
I have sat down several times to try to convince myself that having rental properties is significantly better than investing in REITs. Initially, I see that it is easy to get a better "yield" (i.e. annual rental income divided by original investment) with a rental property than with a REIT. But when I think about maintenance, vacancies, and other Charlie Foxtrots, REITs are comparable if not better. If you invest in a quality REIT like "O" and "NNN", you don't have to lose any sleep (both are overvalued right now, but they are great investments at the right price).
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dot_com_vet
- Posts: 603
- Joined: Mon Jan 31, 2011 2:07 am
Like anything else with potential, it's a ton of work. I don't think there's much passive about it.
My first landlord simply converted the entire complex to condos and bailed out after a few years. This was with new units that shouldn't have needed any maintenance.
Myself, I want fully passive income. If that's not enough, I'd probably work a few days/month to cover anything unexpected.
My first landlord simply converted the entire complex to condos and bailed out after a few years. This was with new units that shouldn't have needed any maintenance.
Myself, I want fully passive income. If that's not enough, I'd probably work a few days/month to cover anything unexpected.
Hey Everyone, thanks! I needed some other thoughts. I really do think that being a landlord is very profitable. I ran the numbers and these properties have paid me pretty well over the past few years, despite all the headaches. And right this second in my life I am ok with having to work on those houses as well as my own...for right now.
My goal in ER is actually ER, I love working on my house, and I love building new houses. But the former is a hobby, and the latter is projects i take on when I FEEL i want to...not because something is broken.
I think that the money earned will be less, maybe even half of what I make now if I sold and took the money from the rentals and invested it, but it would be much more passive income, and that's ultimately what I want. Truly passive income. Income where I can pick up and leave for an entire summer and not have to worry about it.
So For now, I'll grit my teeth, get up there next week, clean maintain and deal with tenants...but when the market turns around...and I see an opportunity to sell and make a 40-50 ROI...they are gone....I'd rather take a nice profit now then the potential of a lesser profit 20 years from now.
I guess we will see what happens.
My goal in ER is actually ER, I love working on my house, and I love building new houses. But the former is a hobby, and the latter is projects i take on when I FEEL i want to...not because something is broken.
I think that the money earned will be less, maybe even half of what I make now if I sold and took the money from the rentals and invested it, but it would be much more passive income, and that's ultimately what I want. Truly passive income. Income where I can pick up and leave for an entire summer and not have to worry about it.
So For now, I'll grit my teeth, get up there next week, clean maintain and deal with tenants...but when the market turns around...and I see an opportunity to sell and make a 40-50 ROI...they are gone....I'd rather take a nice profit now then the potential of a lesser profit 20 years from now.
I guess we will see what happens.
My take on residential landlording (based on my father's experiences when I was growing up) is that until you have enough property to justify hiring a property manager you have bought into a 24-hour-on-call DIY and collections agency job. Not a passive source of income at all, but maybe enjoyable if you enjoy carpentry etc. and don't mind being awakened to unplug a toilet in the middle of the night. My father didn't enjoy the business or make much money off his two rental houses.
On the other hand, one of my Great-Grandfathers went your route at about age 40 after "retiring" from the shipyards post WW I. His plan was to buy distressed houses near Lake Michigan and either refurbish them or tear them down to recycle materials to build lakeside cottages. In addition to operating some rentals, he would live in and put finishing touches on the house he (re)built last year while gutting or framing the house he would live in next year, while he was selling the house he started two years ago. He liked building things and was prosperous enough at it that he never worked for anybody else again, it financed a divorce and remarriage, and it put his daughters through college.
I wouldn't exactly call it retirement, but it definitely is a business strategy that works for some, but not all people.
On the other hand, one of my Great-Grandfathers went your route at about age 40 after "retiring" from the shipyards post WW I. His plan was to buy distressed houses near Lake Michigan and either refurbish them or tear them down to recycle materials to build lakeside cottages. In addition to operating some rentals, he would live in and put finishing touches on the house he (re)built last year while gutting or framing the house he would live in next year, while he was selling the house he started two years ago. He liked building things and was prosperous enough at it that he never worked for anybody else again, it financed a divorce and remarriage, and it put his daughters through college.
I wouldn't exactly call it retirement, but it definitely is a business strategy that works for some, but not all people.