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Other Discussions => Off Topic => Topic started by: Greenbean on November 15, 2012, 12:43:53 AM

Title: Need Advice On Buying Rental Property: Pros and Cons
Post by: Greenbean on November 15, 2012, 12:43:53 AM
Any recommended literature?

I understand the basics...I can put together a balance sheet.

I am just looking for some advice on how to get started basically.

Any and all advice is welcome. I have good, steady income, good (not great credit) and about 20k in the bank.

I am handy and could most likely avoid paying full time maintenance/ property management.

Thanks in advance CB!
Title: Re: Need Advice On Buying Rental Property: Pros and Cons
Post by: Ogaju on November 15, 2012, 01:05:53 AM
I ventured into this enterprise about 7 years ago and I lost big time. Here are some poiinters from my experience. Dont buy in the slums unless you are comfortable with dealing with deadbeats. Scout the area you are buying in during the day and at night, if possible check with the local police department about crime in the area. Research the city you are buying in, some cities are not business friendly and may run you out of business. Dont trust the rent roll from the seller, talk to the tenants and find out how long they have lived there - some sellers hire scabs to stay in the rentals and once you buy the move them out (tricks of the trade). Dont buy in an area you would not live in yourself.
Title: Re: Need Advice On Buying Rental Property: Pros and Cons
Post by: Greenbean on November 15, 2012, 01:19:11 AM
I ventured into this enterprise about 7 years ago and I lost big time. Here are some poiinters from my experience. Dont buy in the slums unless you are comfortable with dealing with deadbeats. Scout the area you are buying in during the day and at night, if possible check with the local police department about crime in the area. Research the city you are buying in, some cities are not business friendly and may run you out of business. Dont trust the rent roll from the seller, talk to the tenants and find out how long they have lived there - some sellers hire scabs to stay in the rentals and once you buy the move them out (tricks of the trade). Dont buy in an area you would not live in yourself.

Thanks for the feedback!

None of whjat you say seems refutable...

I can handle deadbeats, but I have my limits if rent is not paid.

Really interesting to hear about what sellers will say and pay people to do to sell their property...

I have a perfect city, location picked out.

Your info will go a long way.

Thanks again!!
Title: Re: Need Advice On Buying Rental Property: Pros and Cons
Post by: arambone on November 15, 2012, 04:36:38 AM
You've already received good advice here. All I would throw out there is that Israel might drag the US into a war with Iran, which could hit the housing market really hard.

4 years ago exactly, Israel invaded Gaza and killed 1,400 refugees before Inauguration.

Just don't buy anything before inauguration, I'll leave it at that. You'll also want a functional economy to allow your tenants to pay rent, or you lose the property. Happened plenty in 2008.
Title: Re: Need Advice On Buying Rental Property: Pros and Cons
Post by: Mr Green on November 15, 2012, 06:47:19 AM
Hi Greenbean,

It's easier to say no to deadbeats when they apply than to rent them the property only to jump through all the hoops to have them evicted down the track.

Always get everything in writing.

Always get at least two quotes.

GGenerally, the longer you hold an investment property the greater the equity you will receive in the future if you do choose to sell it. Or, after 10-15 years you can enjoy the rent received as your passive income.

Best of luck!   
Title: Re: Need Advice On Buying Rental Property: Pros and Cons
Post by: Rondo2287 on November 15, 2012, 07:37:36 AM
I have also been enticed by the idea of buying a rental property, so let me know how things work out for you.  It all looks so easy on HGTV  ;)
Title: Re: Need Advice On Buying Rental Property: Pros and Cons
Post by: thirstyboots18 on November 15, 2012, 08:02:20 AM
Greenbean, I have rental property.  One thing I would advise you, before you rent, while your property is in good shape, take pictures.  Then have the renters sign a statement as to the shape of the property when they rent it.  That way if they do damage, they can't come back at you in a he said/she said when you claim any or all of the deposit when they leave or are evicted.  Always check multiple references,  and don't accept excuses why they can't get any.  I am a softy about buying hard luck stories, and that is not always a good thing to be.

Real Estate has been good to me, due a lot to the various tax deductions allowed.  If those deductions are eliminated, I would say it is still a good thing, but will take longer to recoup your investment.    This is a good time to buy.  Yesterday was better, I think, it is finally getting a little harder to find top value at distressed prices...and this is a good thing for property values.
Title: Re: Need Advice On Buying Rental Property: Pros and Cons
Post by: Stizz44 on November 15, 2012, 08:07:56 AM
If your truely comfortable dealing with deadbeats, i'd suggest keeping a short leash on them.

--Keep them on a month-to-month lease. If that rent isnt in by the 5th, hit them with the 15 day notice to quit.

--Monitor the water meters!!! Even a deadbeat knows that the landlord pays the water bill. If anything hits the fan, they will run the water up.

Also buy fully or 80% rented; make money day 1. Look at areas with colleges and local area developments being constructed. There has to be a "reason/driving force" that attracts people to the area.
Title: Re: Need Advice On Buying Rental Property: Pros and Cons
Post by: Roy H. on November 15, 2012, 08:08:04 AM
My advice:  Learn the law, know the law, apply the law.

Never, ever mess around with a tenant's security deposit.  Most states require you to keep this in a separate interest bearing account, and it can't be touched until the tenant moves out.  When they do move out, if you're keeping part or all of the deposit, send a specific, itemized list of damages and costs to repair.  Otherwise, you can be in hot water legally (double or even triple damages to the tenants).

Don't ever change locks on a tenant or resort to "self help" in evicting them.

If you're going to use a sample lease you find online, make sure you ask an attorney to look at it before using it. 

Also, make sure you take the time to get a good tenant.  Have a background check done by a 3rd-party agency if necessary, and don't take Section 8.
Title: Re: Need Advice On Buying Rental Property: Pros and Cons
Post by: thirstyboots18 on November 15, 2012, 08:23:38 AM
My advice:  Learn the law, know the law, apply the law.

Never, ever mess around with a tenant's security deposit.  Most states require you to keep this in a separate interest bearing account, and it can't be touched until the tenant moves out.  When they do move out, if you're keeping part or all of the deposit, send a specific, itemized list of damages and costs to repair.  Otherwise, you can be in hot water legally (double or even triple damages to the tenants).

Don't ever change locks on a tenant or resort to "self help" in evicting them.

If you're going to use a sample lease you find online, make sure you ask an attorney to look at it before using it. 

Also, make sure you take the time to get a good tenant.  Have a background check done by a 3rd-party agency if necessary, and don't take Section 8.
Roy is absolutely right.  I meant the "he said/she said" pictures and statement for use in a court setting.

The interest bearing account can be a problem now because a lot of banks have minimum deposit requirements to get interest on accounts...so if you have a lesser amount, you are stuck.
Title: Re: Need Advice On Buying Rental Property: Pros and Cons
Post by: moiso on November 15, 2012, 08:41:28 AM
My advice:  Learn the law, know the law, apply the law.

Never, ever mess around with a tenant's security deposit.  Most states require you to keep this in a separate interest bearing account, and it can't be touched until the tenant moves out.  When they do move out, if you're keeping part or all of the deposit, send a specific, itemized list of damages and costs to repair.  Otherwise, you can be in hot water legally (double or even triple damages to the tenants).

Don't ever change locks on a tenant or resort to "self help" in evicting them.

If you're going to use a sample lease you find online, make sure you ask an attorney to look at it before using it. 

Also, make sure you take the time to get a good tenant.  Have a background check done by a 3rd-party agency if necessary, and don't take Section 8.
Why no section 8?  I have section 8 tenants moving in to my inlaw apartment on the first of the month.  I thought the guaranteed payments are good, and the tenants are less likely to do something wrong because the housing authority will stop paying their rent if they mess up.
Title: Re: Need Advice On Buying Rental Property: Pros and Cons
Post by: Roy H. on November 15, 2012, 08:43:51 AM
My advice:  Learn the law, know the law, apply the law.

Never, ever mess around with a tenant's security deposit.  Most states require you to keep this in a separate interest bearing account, and it can't be touched until the tenant moves out.  When they do move out, if you're keeping part or all of the deposit, send a specific, itemized list of damages and costs to repair.  Otherwise, you can be in hot water legally (double or even triple damages to the tenants).

Don't ever change locks on a tenant or resort to "self help" in evicting them.

If you're going to use a sample lease you find online, make sure you ask an attorney to look at it before using it. 

Also, make sure you take the time to get a good tenant.  Have a background check done by a 3rd-party agency if necessary, and don't take Section 8.
Why no section 8?  I have section 8 tenants moving in to my inlaw apartment on the first of the month.  I thought the guaranteed payments are good, and the tenants are less likely to do something wrong because the housing authority will stop paying their rent if they mess up.

Good luck with that.  Having both lived near Section 8 tenants, and dealt with them via the court system, I think it's asking for trouble.  I'd recommend resisting temptation, and renting to middle class families.  While politically incorrect to say, poor tenants seem to be more involved in drugs, crime, and yes, damage to property.
Title: Re: Need Advice On Buying Rental Property: Pros and Cons
Post by: Moranis on November 15, 2012, 08:46:42 AM
My father was an inner city landlord for a long time before he retired.  He never really had difficulty finding tenants, you just have to be very particular, use credit checks, etc.  And he never accepted Section 8.  It is a pain in the butt to deal with and the quality of tenant is lower.  He was also very up on all of the laws and always followed them.  You just don't want to mess around with that stuff.  He would do much of the maintenance himself (including roofing), but never messed with electrical or plumbing issues, it is just too much work and too many hidden problems can exist. 

He lives in the Toledo, Ohio area and could often find properties to buy for less than $20,000, which he could rent for $350-$500 a month depending on the area, and a lot of those didn't require much fix up work (toledo is a lot cheaper than the boston area as nice 5 bedroom homes in the nicer suburbs go for under 200k).  Obviously those aren't exactly the good areas of the city, but if you are just starting out the inner city houses are a much safer investment in that if you totally flame out, you aren't out nearly as much money and you can get a lot more cash coming in a lot quicker (since you can buy more house more quickly).  You also won't need loans or nearly as much in a loan, so you won't have to tie up other collateral.  If you buy houses out in the suburbs or by colleges, you are going to spend a lot of money on the house, which won't leave you much wiggle room should there be a problem, and won't allow you to expand quickly at all. 

Also, as long as you do your homework and keep an eye out, I'd rather have an inner city family living in my home than 6 college students.  The money will be a lot less with the family, but you will keep the house occupied a lot longer and it will be in better condition, which means you won't have empty houses and won't spend near the time or money in maintenance, allowing you to buy more houses or spend more time on other activities.
Title: Re: Need Advice On Buying Rental Property: Pros and Cons
Post by: Fafnir on November 15, 2012, 08:53:25 AM
You need to have the energy and time to commit to being a good landlord.
Title: Re: Need Advice On Buying Rental Property: Pros and Cons
Post by: thirstyboots18 on November 15, 2012, 08:56:49 AM
Oh, an important point to remember.  Just because you legally evict someone and are awarded a monetary judgement, does not mean you will ever actually receive that monetary judgement.  You will probably be out whatever rent is due you, so don't things drag on too long before you start the eviction process.
Title: Re: Need Advice On Buying Rental Property: Pros and Cons
Post by: Roy H. on November 15, 2012, 08:58:25 AM
Oh, an important point to remember.  Just because you legally evict someone and are awarded a monetary judgement, does not mean you will ever actually receive that monetary judgement.  You will probably be out whatever rent is due you, so don't things drag on too long before you start the eviction process.

Yeah, that's a great point.
Title: Re: Need Advice On Buying Rental Property: Pros and Cons
Post by: Moranis on November 15, 2012, 09:20:01 AM
Oh, an important point to remember.  Just because you legally evict someone and are awarded a monetary judgement, does not mean you will ever actually receive that monetary judgement.  You will probably be out whatever rent is due you, so don't things drag on too long before you start the eviction process.

Yeah, that's a great point.
especially with a new tenant.  If it is someone you've had awhile, you might give a bit more leeway because a car accident, health scare, etc. can be really problematic for lower income families. 

Also, if you do go the lower income tenant route, you aren't going to find very many people with impeccable credit, but certain things showing up shouldn' be as much of a concern, like medical bills.  If they fall behind on those, not nearly as big a deal, as if they fall behind on rent.  You just need to use your common sense on that type of stuff.
Title: Re: Need Advice On Buying Rental Property: Pros and Cons
Post by: SHAQATTACK on November 15, 2012, 09:21:35 AM
DON'T   ;)
Title: Re: Need Advice On Buying Rental Property: Pros and Cons
Post by: Chris on November 15, 2012, 09:28:13 AM
My advice:  Learn the law, know the law, apply the law.

Never, ever mess around with a tenant's security deposit.  Most states require you to keep this in a separate interest bearing account, and it can't be touched until the tenant moves out.  When they do move out, if you're keeping part or all of the deposit, send a specific, itemized list of damages and costs to repair.  Otherwise, you can be in hot water legally (double or even triple damages to the tenants).

Don't ever change locks on a tenant or resort to "self help" in evicting them.

If you're going to use a sample lease you find online, make sure you ask an attorney to look at it before using it. 

Also, make sure you take the time to get a good tenant.  Have a background check done by a 3rd-party agency if necessary, and don't take Section 8.

This is what I was going to say.  And I would highly recommend if you are looking in MA...RUN.  Seriously, it is not a landlord friendly state.  Yeah, you can make money, but you need to be prepared for more headaches than you can imagine. 

From what I understand, other states are a little more landlord friendly.
Title: Re: Need Advice On Buying Rental Property: Pros and Cons
Post by: hardlyyardley on November 15, 2012, 10:25:18 AM
Three points:

Have plenty of cushion in your cash flow projections

Doing it for tax benefits is like the tail wagging the dog

Pay attention to the previous posters

Title: Re: Need Advice On Buying Rental Property: Pros and Cons
Post by: bdm860 on November 15, 2012, 11:33:56 AM
Any and all advice is welcome. I have good, steady income, good (not great credit) and about 20k in the bank.

Are you looking for a multi-family property? Like something with 2-3 units?  And if so would you be living in one unit while renting out the others? Or renting them all out?

Or are you looking to buy a single family home, and just rent it out or possibly flip it?

I ask this because I've always heard a lot of lenders will require at least a 20%-25% down for an investment property that you're not living in.  And if you’re in the Northeast, a dilapidated house in the slums is likely going be valued at more than 80-100k, your 20k down payment might not cut it.  So maybe talk to a lender first, as I think many of them have different guidelines and lending practices for a primary residence vs an investment property.  A 20k down payment might get you a good primary residence, but not an investment property.
Title: Re: Need Advice On Buying Rental Property: Pros and Cons
Post by: Ogaju on November 16, 2012, 10:07:23 PM
NICE THREAD Wish I had read something like this before my experience.

No, dont do section 8.. it is a nightmare and you will fidn out that the experienced section 8 renters have more smarts than you. If you can, make them pay the water. They can kill you with water usage. I am telling you, if you do not do this right you will be financing folks you do not know for months at a time.

Check the plumbing and the electricity of the property you are buying.

Check with the local city bldg dept to make sure that there are no code violations or any improvements that have not been signed off by the city. I really thought there was no way you could buy property in violation, but I found out the hard way.

Dont buy a fourplex.. they present a whole set of problems.

Stay away from one bedroom units. Folks that rent one bedroom units do not hang around that long. They are usually transients.
Title: Re: Need Advice On Buying Rental Property: Pros and Cons
Post by: Celtics18 on November 16, 2012, 10:18:22 PM
My parents rent an apartment in their owner occupied house out to a woman on section 8. They always get their rent, and have had no significant problems with her.  It seems like they have a very good tenant/landlord relationship.

Title: Re: Need Advice On Buying Rental Property: Pros and Cons
Post by: mgent on November 17, 2012, 09:28:44 AM
My advice:  Learn the law, know the law, apply the law.

Never, ever mess around with a tenant's security deposit.  Most states require you to keep this in a separate interest bearing account, and it can't be touched until the tenant moves out.  When they do move out, if you're keeping part or all of the deposit, send a specific, itemized list of damages and costs to repair.  Otherwise, you can be in hot water legally (double or even triple damages to the tenants).

Don't ever change locks on a tenant or resort to "self help" in evicting them.

If you're going to use a sample lease you find online, make sure you ask an attorney to look at it before using it. 

Also, make sure you take the time to get a good tenant.  Have a background check done by a 3rd-party agency if necessary, and don't take Section 8.


^^^
Most of my successful friends say that's a mandatory rule.  My own observations make it hard to disagree.
Title: Re: Need Advice On Buying Rental Property: Pros and Cons
Post by: Brendan on November 17, 2012, 09:42:23 AM
FYI - advertising that you don't take section 8 can get you sued, I know of one case in CT where this happened and the landlord lost and had to pay a settlement. (Don't know all of details.)

Use a lawyer for any legal action: leases, notices, evictions. Etc.

Property maintenance is harder than people think. Saying you are handy isn't enough, I'd plan to have significant out of pocket expenses, especially in first few years. (Every house I've had has some sort of upgrade needed in first few years that inspection didn't predict.)

Getting rid of bad tenants is really, really hard so:
1. Be careful bringing them in
2. When you have a good one, especially multi-year one, take the certainty over marginal increase in rent. My aunts have a tenant in a multi family who has been there for years, and they don't raise her rent because: they know she pays, she takes care of the place (like its her own) and she has brought in family to fill vacancies in other units in the building. This certainty and good relationship is worth a lot - so if you get that, don't jeopardize it for short term cash flow.
Title: Re: Need Advice On Buying Rental Property: Pros and Cons
Post by: crownsy on November 17, 2012, 09:58:40 AM
My advice:  Learn the law, know the law, apply the law.

Never, ever mess around with a tenant's security deposit.  Most states require you to keep this in a separate interest bearing account, and it can't be touched until the tenant moves out.  When they do move out, if you're keeping part or all of the deposit, send a specific, itemized list of damages and costs to repair.  Otherwise, you can be in hot water legally (double or even triple damages to the tenants).

Don't ever change locks on a tenant or resort to "self help" in evicting them.

If you're going to use a sample lease you find online, make sure you ask an attorney to look at it before using it. 

Also, make sure you take the time to get a good tenant.  Have a background check done by a 3rd-party agency if necessary, and don't take Section 8.


^^^
Most of my successful friends say that's a mandatory rule.  My own observations make it hard to disagree.

Yea just be aware that's HIGHLY illegal, it's the same as discriminating based on race according to federal housing laws.

Not saying it isn't done ALL the time, but you pretty much have to "get creative" on how you ferret out if they are section 8.
Title: Re: Need Advice On Buying Rental Property: Pros and Cons
Post by: thirstyboots18 on November 17, 2012, 11:48:19 AM
I should have specified...when I said get references, I meant previous landlords.  Ask the condition of the unit when they left it, as well as their payment record.  Remember, "Normal wear and tear," which  is expected, is subjective...you may or may not get a ruling in your favor over "improvements" they have made.  Make sure to have a good lease drawn up stating what they are and are not allowed/expected to take care of.