New Investor looking for advice..

Thanks… should I contact realtors who may know of such situations or look for trigger words in some advertising to know that it is a landlord that wants to get out from his/her property?

You can network at your local REI club or try sending letters to owners of rundown looking rentals. Just drive around looking for them and pull the owner’s name/address off the tax records.

Iboogie, when starting out landlording, its really best to work in your local area. Property management companies(PMC) can be a nightmare and they can eat your ENTIRE funds collected from rent, leaving you to foot the bill for the mortgage YOURSELF. They’re in it to make a buck too.

Imagine being charged $150 by a PMC for minor maintenance when that could have taken you 30 minutes and a $20 trip to home depot.

What if you have a busted pipe? could run you $300 if you got the plumber yourself, a PMC would prob get you a $500 plumber.

Filing the papers for an eviction, property management adds quite a bit to the standard cost.

Get where I’m going with this? So many things that can go wrong and a long distance property management company could make this MUCH worse. Why not start in your local area, get your feet wet, and manage the property yourself? You’ll learn A WHOLE LOT and your expenses will be A LOT lower.

As to what’s “a deal” that’s for you to decide. To find what most here call a deal requires the right connections, much time, and research. You might not find a deal that could cover the PITA + 45-50% when you’re new, but try to get better #'s than what you posted initially, so your first buy is not a horrible experience.

First off, do you think that most business that open their doors start making money on Day 1? If you look at most large business, they have a business plan that says they’re going to be losing money for 3 years after opening their big box store, but once they’re established, they expect to increase their business in the following years. Over time, the rents continue to go up, but if you’re in a 30 year, the mortgage stays the same. I’m also not sure how many people think they’re going to be making money from day one, most money made in REI is probably from long term investments, not short term. Your goal may be to make a living from buying investement property while the goals of others may be different. The focus around here is probably more to supplement your income or to get into it as a retirement option in the long term.

As for your expenses, my own experience has been that it runs about 30-35% for my area just because the rents tend to be higher and the cost of repairs and maintenance tends to run just a little bit higher, but is smaller as a percentage of rents when you’re in a high rent area. My rents range from $750-$1475 a month.

As for those other items, they can happen, but my parents bought a rental property about 20 years ago for family and after the family moved out, just continued to rent it. I guess you could say we’ve been lucky and haven’t had those things happen. I’ve done one eviction in those times. Most of the time telling them to leave has worked for us. Our best tenant stayed 7 years and we hardly did anything to the place until they moved out and that cost us about $4k. I dug up the original papers and rents back then ranged from $200-$300 a month. What a difference a few decades make. Oh and the mortage was paid off years ago so it’s mostly positive cash flow even if there is a vacancy.

Again the key thing is good screening such as running credit checks. That won’t help in every situation though, sometimes people start out well, but then get addicted to drugs which was the one eviction I had.

Thanks for the feedback. I am looking at this as a long term, supplemental income/retirement plan. I’m not trying to make a quick buck and I would like to start off the right way. I’ve spoken with a few seasoned investors and all say the same as the folks in this forum, which is stay local. Being jobbed by the PMC did cross my mind, but hearing it again, I’m giving it more credibility. This forum is a great learning tool for me and any other suggestions/ideas I’ll be looking forward to reading. Much appreciated!

First off, do you think that most business that open their doors start making money on Day 1?

No, most businesses have large startup costs as opposed to the rental business where there are almost no startup costs. That’s one of the great things about the rental business. If you buy right, you will make a profit from day one!

If you look at most large business, they have a business plan that says they're going to be losing money for 3 years after opening their big box store, but once they're established, they expect to increase their business in the following years.

That’s true. This is mainly because of the overhead and large startup costs which we don’t have with the rental business. Fortunately, we can make money from day one.

Over time, the rents continue to go up, but if you're in a 30 year, the mortgage stays the same. I'm also not sure how many people think they're going to be making money from day one, most money made in REI is probably from long term investments, not short term.

In my experience, taxes, insurance, and other expenses are keeping pace with rent increases. In fact, if anything, it is difficult to raise the rents at a rate that will keep up with inflation and increasing expenses. Therefore, raising rents isn’t improving your cash flow, it’s just preserving it. If you don’t buy right, raising rents over time won’t bail you out (until your mortgage is paid off, of course). I certainly wouldn’t put up with tenants for 30 years in hopes that I’d start making money in year 31!!!

As for your expenses, my own experience has been that it runs about 30-35% for my area just because the rents tend to be higher and the cost of repairs and maintenance tends to run just a little bit higher, but is smaller as a percentage of rents when you're in a high rent area. My rents range from $750-$1475 a month.

I’ve seen a lot of people make claims of low operating costs, but in every case they are not including all the expenses. It is true that in higher rent areas, maintenance costs as a percentage of rents are lower. However, in these areas taxes, eviction costs (due to liberal laws), vacancy expenses, etc are higher. It all equals out so that the expenses are 45% to 50% of gross rents. Of course, if you are doing the management and maintenance, you will earn back 15% to 20% of the operating expenses.

As for those other items, they can happen, but my parents bought a rental property about 20 years ago for family and after the family moved out, just continued to rent it. I guess you could say we've been lucky and haven't had those things happen.

One house isn’t a large enough sample size to be statistically significant.

Mike

Oh, I forgot to mention that was a 3 family property. As I’ve always said, all real estate is local and that’s what things are like in my area. I also have a couple other 3 families, but those I acquired within the last few years. Still haven’t run into those problems you mentioned, but I’m aware that they may happen.

It’s sorta like driving a car. There’s always accidents every day. If you listen to the news every night, you’d never leave the house.