I have been wanting to get started renting but have been holding back. I have everyone including my husband telling me it is not worth the effort. I would like to give it a try, but everyone I have spoken with in the area that I buy tells me they have such an awful time with renters. The town I buy homes in have very old and new homes there is not a lot of in between. There are probably more renters than homeowners. And from what I see there is a lot of “I just live here I don’t have to take care of the place mentality”. So, I keep holding back and just buy, rehab and flip. Maybe I need more experience before I step out of the comfort zone? Anyone out there wrestle with this? Any thoughts? Graciez
Any work has it’s down points, no matter how great a career it is most of the time. Dealing with problem tenants is one of the down points of landlording.
There are several methods of lessening this pain. One is to simply find a good, preferrably referred, property management company and let them deal with 90% of the problem.
Others are have a very good, strict and uniform guideline for picking tenants. Very rarely do tenants suddenly just become bad. There has been a long history of it and if you check them out, you’ll find it.
Don’t be a friendly landlord. By that, I mean, don’t try to become friends, don’t let them get to know you on even a general personal level. Operate your rentals as a business and be the manager.
Enforce the rules of the lease. If they are late on the 5th, and supposed to be evicted on the 11th, then follow it to the tee, NO EXCEPTIONS. If tenants, even problem tenants, understand that there is no leeway, they will either learn quickly to pay you first, or will be gone.
One of the ways weathly people became weathy was simply to own RE. Flipping generates cash, but rarely weath.
Raj
hire professional prop. management! sure it cost a few bucks, but I have the rent payments deposited into my rental acct from prop. mgmt and mortgages are paid on auto-draft. Some months I don’t spend a single minute on a given property. Allows me to focus on other things or new RE deals.
Excellent post by Roger. However, I do not recommend using a property manager, primarily because it will cost you somewhere between 30% and 100% of your profit. The idea that you just buy the property and sit on your yacht waiting for the checks is simply fiction (taught by most of the gurus). The numbers don’t work if you are using no-money down to buy the rentals. The same goes for hiring someone to do all the maintenance.
Graciez - my advice is to really, REALLY research the actual costs associated with rentals before you jump in. Rentals are an excellent way to make money and build wealth IF you buy cheap and do the management/maintenance yourself (at least while you’re building your portfolio).
Good Luck,
Mike
I agree Propertymanager and while you were at it I also recommend not using other people check out these savings!!!
be your own plumber and save $50.00 an hour
Be your own painter and save $40.00 an hour
Be your own Doctor and save $125.00 an hour
Be your own Dentist and save $130.00 an hour
Do your own haircuts and Save $200.00 a year
So look at it like this do your plumbing and painting. Stich your own stiches pull your own teeth and by this time you will be pulling your hair out so you won’t need a hair stylist!!!
In the time you manage your own property and were not looking for the next deal you lost money!! AND LOT’S OF IT!
Do what you do best and outsource the rest!!!
Yep, you definitely need to know the actual costs of owning and renting properties, and despite the guru’s claims, I still haven’t gotten my yacht yet, much less have nothing to do but wait on the payments to roll in.
However, Mike and I do disagree on a few fundamental principles. Nothing wrong with that, it’s just a matter of different business practices.
I still management my properties myself, but I don’t keep alot of inventory as rentals and I still pay myself for being the property manager. This way, I know how much I’m making (or not) as an investor, not as a property manager or as a handyman. I mean, if you want to know the ACTUAL costs involved in rentals, property management is one of those costs. Ignoring it by saying, “I’ll do that myself” doesn’t make it go away. It just blurs the numbers at the end.
Depending on your area and rental market, using no money down techniques may or may not work and still have a positive cashflow. Personally, I’ve borrowed 120% and better of purchase and still have a positive cashflow.
Again, cashflow is only part of the equation. Personally, I never recommend including appreciation in your calculations because I consider it the “icing on the cake.” However, appreciation, either through time or forced (rehabbed), is how REI’s generally become wealthy. Your debt minus your value equals your networth. Lenders love networth.
Raj
yes, I can absolutely guarentee you that being a landlord is work. Moreover, in-depth into the marketplace both on what current rents are and what it cost to buy those associated properties are. Some areas, it simply does not make sense to be a landlord (IMHO) as you are always cash negative. Be sure to figure your true holding cost (mortgage payment, taxes, insurance, repairs, etc). This is critical and key step people overlook!
as for property management, there are vareity of opinions out there and certain situations lend themselves to using it or not. I use prop. mgmt as I have a full-time job, many properties; none of which are close to my home. Yes, I do a lot of the maintenace and repairs work myself (when I have time), but I busy/out of town, etc my prop. mgmt company as a good rodex of folks to handle any issues that come up.
If you have one or two properties close by your home, then it can work out OK, but there is a learning curve. Have you ever looked at credit report? Do you know how pick from a collection of tenant applications (renters rarely have good credit)? Do you know what the first step is to evicting a tenant for non payment? My point is it can be done, but it takes time and effort that you may or may not be interested in investing. BTW, you need to know the answers to those kind of questions anyways.
Bottomline is landlording is work, but it can be profitable. Don’t just dive-in and try and wing-it even if you do use property management. Read books, forums, etc and arm yourself with knowledge and knwo your marketplace!
Mike
P.S. I agree with prop mgr that the no money down, late night TV gurus are bogus. and No, I do not own a yacht (and never will).
REO,
Seems like we’ve had this discussion before. Here’s the problem: if you have a rental property with a mortgage (no money down deal) and you hire a manager and a repairman, and you include all the real expenses; it is nearly impossible to get adequate cash flow. It’s just that simple. If I’m wrong, then post the numbers on a real rental and let’s see how you do it!!! I’d love to know because I’ve tried and I can’t make it work.
Also, it’s nonsense to say that while I’m doing the plumbing, I’m passing up another deal. I’m expanding my business at the max rate consistent with good judgement. I already have more rentals lined up to purchase, but haven’t done so because I’m still stabilizing the last batch of units. Hiring a manager and various repairmen would not help me to expand faster, it would cause me to move slower because I would have less money and might even need a job to feed my family.
I have thrown down the gauntlet many times over this issue. If anyone has no-money-down rentals that will provide significant cash flow with paid management, paid repairmen, etc, I’d love to hear about it. Maybe I can learn something.
Mike
Thanks for the advice, I think. Even though I have done a lot of reading and feel like I am educated, I still am not sure about it. Maybe taking it slow and learning as I go will help. Graciez
graciez, don’t be discouraged. What you have in front of you is far more powerfull than anything on Barnes and Noble bookshelf. It shows there is a vareity of opinions on how OPERATE a property, but I think everyone would agree you have to know you market well (i.e. buy at the right price) and in conjunction accurately calculate your real cost (per month) vs. rent PRIOR to buying.
Do your homework, if your find a deal that the numbers work then jump on it and if you hate it then sell in it in a year or two. REI is very experienced based; you can read books all day but you have to live it to gain true understanding of whether its somehting you want to do or not.
Happy Investing
Mike,
I really enjoy our rivalry on most issues I think it provides a huge amount of entertainment! And everyone reading this topic please do not think Property manager and I can’t agree on issues.. I will break this down for you all to understand both sides of the debate..
Mike- Buy’s a rental looks for best loan program for max cash flow. Fix’s everything he can himself. runs an ad, finds a tenant runs credit. Moves them in Then finds another property and starts all over. Now if something does go wrong at the property (and it will) Mike will fix it himself. Problems with this approach NOTHING it works for him. AND I AM HAPPY ABOUT IT!
Robb- MARKET’S to everyone finds properties keep’s the best and wholesales the rest. Close on house’s that allow me to put enough cash at closing to cover mortgage for 3-5 years. Call my property manager to go to property. They then call needed repairmen to fix the problems. My Property manager finds tenant (If I do not already have one lined up from marketing). Now I sale the wholesale deals that I found and concentrate my efforts on finding newer creative way’s to do more marketing. My newest thing now is to find properties with 20% equity carry a second get someone in with there 80% down and make $300-$400 per month on the note with no repairs out of pocket and sale the house in two weeks… Problems with this approach NOTHING it works for me and I am HAPPY!!
So who is wrong here neither Mike nor myself we just have two different approaches to this business and I feel as though people can learn a ton from both of us depending on what you want to do with your business…
On the other hand I think now that everyone has seen and read this we all agree that if I were to go out and do my own minor repairs it would personally cost me money as I can find at least one wholesale deal a day paying me 3-5k. So if I were to go out and fix a leak in a faucet by not paying someone $100.00 bucks to go do it could potentially cost me $4,900.00…
Best of luck to all and I hope this has helped!
Robb