I've been thinking about dipping my feet into the rental business for a little while now. Been following this board for about a year.I currently live in a suburb of a major city. Every few weeks, I've been looking at homes in the city. Prices have stabilized out.Relatively new to the market are several multiplexes, all listed with the same agent (and all offered both individually as well as a package). It states that the current owner is getting out of the rental market. One of them in particular caught my eye - a duplex with both sides rented to long-term (6 yrs) tenants. Many things look favorable in the listing - new furnace and water heater, things like that. The numbers look good from my uneducated POV - one side's rent would more than cover the 15 yr mortgage plus insurance. The down payment is doable for us (and would be a 6 month ROI assuming the second unit is rented).Am I missing anything?TIA,Kristi
I recall from when I was looking at buying >10 years ago that the minimum down payment for a multiple dwelling was more than for a single-family. (I got a single-family in the end)I eventually rented out my house and landlord insurance policies can vary in cost and coverage, so that may be something to consider.I'm sure others will ask how you plan to deal with repairs (minor & major), periods of vacancy, tenant screening, etc.
I'm small potatoes in the investment property business; have three [old] houses, all in my neighborhood in a small town. But I'll take a stab at what you've given.Get lots of "comps" [if you haven't already]. Similar types of properties in similar locations and see what they've sold for. After you're satisfied w/your due diligence and have set a price for what you know is reasonable to pay, offer less.In terms of checking out the places you're interested in, see everything in writing: e.g., the invoice for the new furnace/water heater, the current lease, the last roof repair bill, etc. Any reason you can't talk to the current tenants? May be insightful.When regular maintenance is required, or a repair [because they will be needed], are you DIYers or will you be hiring the work done? Not so much talking about putting a new roof on here, but things like fixing a water leak, cutting up a fallen limb. You need to factor a certain amount to cover repairs and maintenance.You say that one side of the duplex's rent would more than cover your loan payment plus insurance. Plus taxes also? One should factor the rental income based on 9 mos rent, not 12 - just in case. And the down payment would be a 6 mo ROI "assuming the second unit is rented", which you can't assume. You hope it will be and it probably will be, but it might not be. In which case you should have x-amount of reserve funds to cover if it happens the bum way.Be diligent and thorough in knowing the landlord-tenant laws of your state. Do not hedge on having a good lease. Be a fair and responsible landlord: Be friendly, but not the tenant's friend.
Thanks for the feedback.Both units are currently rented to LT tenants, sorry if I didn't make that clear. Including taxes, second unit's rent would cover that in ~3 months time. It would be cash-flow positive. It's the fact that both apartments are occupied by LT tenants that makes this place more attractive to me - hit the ground running, so to speak. Allow me to learn.We have large savings from being frugal, so sudden expenses we would be able to cover. We could actually pay for the unit from our savings, but we don't want to be that illiquid. I would do this without a reserve. I priced everything based on a 15 yr mortgage to be conservative.Regular maintenance would likely be hired out for big things (I like the plumbers that came out here for our home) and smaller things we would do ourselves. Yes, I realize that cuts into the cash, but I recognize my limitations.I would set up an LLC to protect my family.Please keep any more thoughts coming. I'm am being cautious right now, just info gathering.
Go for it. Wait for 12 months to decide if its right for you or not. It's a business, not like buying a stock or a CD. If you like it, keep going, if not, sell and get out. You can read and play with the numbers on excel all you want but its a different feeling when you are playing for real. I say buy it and see what happens.Jesse
Hi Kristi,I'm going to give a bit of advice that has been hard-earned over the years, and almost a dozen doors (property dwellings... mostly single units.) It is advice is virtually guarantee you will ignore, *AND, if you stick it through and survive, it is advice you will have wished you had taken from the very moment you got serious about the topic.My advice;Never buy retail.What does that mean?If a seller has spoken with *anyone* other than you... the deal is retail (with very close to, but not absolutely, zero exceptions.)What about just checking sellability with a realtor? That makes it a 'retail' sale.What about strictly running a FSBO ad in Craigslist, not on the MLS? Retail.What about if they only stuck a 'For Sale' sign in their yard, behind a tree, on a cul-de-sac?Retail!OK, but what if they didn't advertise anywhere... they only talked about it with a few of their closest friends & family?... THAT IS STILL RETAIL!Why is this an issue?Because the profit of every deal is captured at the buying price and terms... *not* in the subsequent managing nor selling of the business.Price... and *TERMS*....You can afford to offer a very reasonable (even approaching retail market) buying price, *IF* you can also structure favorable finance terms (which are better than you could get from banks... a very real scenario in the current markets, even despite traditional mortgages being so cheap at present.)When a seller is speaking with you FIRST... rather than floating their ideas by non-buyers, friends, agents, Craigslist, etc.... you are far more often in a position to mutually craft a deal that solves whatever their real-life problem is... *AND* keeps you in a profitable position from the beginning.HOW DO YOU GET SELLERS TO TALK WITH YOU FIRST?(This is how & why I know you'll likely ignore this advice...)1. Ignore *ALL* deals that have already been exposed to anyone other than you (same as above,)2. YOU advertise (papers, Craigslist, etc.) that *YOU* are a buyer/investor with immediate cash to solve immediate problems,3. You build out a farm list of specific addresses in your target neighborhood that you strongly suspect you would like to buy. Do your diligence of their current market values, their comparable rent rates (keeping a list & chart, perhaps of a few dozen at first, but always searching & adding to your farm list,) and having your Title Agent feed you the owner contact info for each property. Additional research might be necessary (you can use cheap helpers, school kids, etc. to rummage out the data) to get phone numbers, personal addresses (when the owners are also investors renting out to tenants... a valuable seller prospect!)*THEN*You 'advertise' by hand-writing a simple, short letter directly to the owner of each property in your farm list, saying basically "Hi Mr. Jones, my name is Medgoddess, and I live here in your neighborhood with you. I am not a real estate agent, and I don't buy or sell properties for commissions. I am a local real estate rental property investor trying to build my portfolio of homes, and I really like yours. I would like to talk to you about buying it, if you are ready to sell. I can offer cash closings for great pricing, OR I can offer very advantageous terms if you prefer to get a higher price paid out as cashflow over time.Can I buy your home? SincerelyMedgoddess, 425-555-1234 (my cell number, call anytime!)"I've done this, and sent out the exact same handwritten letter, to the exact same farm list of owners, repeatedly every 6-8 weeks for about a year... and consistently got responses around 8-10% of the list... for up to 3 years after my last round campaign even!The SELLERS have courted ME...I have been the one in the selective drivers' seat.They have called me *FIRST* in most cases (though not all.)Many retired real estate investors decide to unwind their own portfolios at a certain time or age... and although they are far from suckers (they are actually extremely sophisticated,) they are also empathetic and appreciative of fellow creative-term real estate investors... often times offering advice & "taking under a wing" type attitudes... even as we have negotiated on THEIR OWN property sale.WHAT IS THE DOWNSIDE:A) You have to work... *YOU* have to put yourself out there for the SELLERS to find you,B) You have to work... YOU have to do your diligence to build out your prime target list in your preferred farm area,C) You have to work... YOU have to really dig in and learn financing terms (especially the terms that can work to your advantage, *and* a sellers advantage, which traditional banks DO NOT USE... and therefore you can't learn from them... but which sets you apart as a problem solver!)D) You have to work... you must approach this *AS A REAL BUSINESS*... not a speculation.Of course... the latter 4 points are why I'll lay my dollar bet on the table that you'll ignore this advice ;~)Helpful, though?Dave DonhoffLeverage Planner
What state / city are you in? In some areas like Massachusetts I would not recommend being a landlord.
What state / city are you in? In some areas like Massachusetts I would not recommend being a landlord.Could you be a little more specific. I manage property in CA a supposedly 'tenant friendly' state and have no problem. Although I avoid rent controlled areas. What do you dislike about Mass?
Could you be a little more specific. I manage property in CA a supposedly 'tenant friendly' state and have no problem. Although I avoid rent controlled areas. What do you dislike about Mass?Yeah I've landlorded in CA and don't think its bad. I have a friend who had an eviction drag on in Mass, but reading some sites maybe that is not a typical case. Most sites seem to say 2 months, so maybe it is not so bad there.
What state / city are you in? In some areas like Massachusetts I would not recommend being a landlord. I was a landlord in MA for 16 years, and DH has helped his dad with some rental issues as well. MA laws are very much in favor of the tenant, but if you follow the law very closely, it is possible to do well here and even get evictions when needed.We're even considering getting back into the rental business in MA again. Like most things, if you follow the rules, you'll be OK.
Ohio. I've read the relevant code as well as "the idiot's guide to Ohio law" and it seems to be relatively balanced in terms of tenant/landlord.My DH is leery, so I am likely to give it a pass.Kristi
I was a landlord in MA for 16 years, and DH has helped his dad with some rental issues as well. MA laws are very much in favor of the tenant, but if you follow the law very closely, it is possible to do well here and even get evictions when needed.Same in CA, 12 years now. Follow the law and the law supports you. Don't follow the law and it doesn't. In small claims, be sure to bring copies of the law you're using to support your position, not all small claims commissioners/judges know landlord/tenant law and need a polite education.Jack
I wasn't going to respond but after the past day or so I feel the need. Being a landlord is hard work. It is a part time job or more depending on the number of units. I have two that I manage - a condo and a townhouse - in a town where I live part time and I have a close friend and a son who back me up. One year you can have a fabulous tenant and just one that's a total PITA the next. I'm fine with a true hardship story but sometimes the lies are amazing.I bought mine hoping they would simply carry themselves and hoping for capital appreciation in about five years. Sorta,kinda.But don't kid yourself - it's a job.
I'll add a late reply here to 100% second everything reallyalldone said above. I closed on a condo about a year ago that we bought in order to rent out for income. Luckily we paid cash, so there is no mortgage. The only monthly expenses are condo fees and property taxes. But the condo needed a lot of work. I spent $4000 for a new HVAC system, $600 to install a new dishwasher (there had never been a dishwasher there before so the plumbing makeready was expensive), and $800 to replace the fusebox with an updated panel. I repainted the entire place myself and did a lot of other minor work. It took many weeks because I work full-time during the week.The building has a serious roach problem, so I carefully patched literally hundreds of holes and cracks. I had to unhook the garbage disposal and pull the kitchen counters away from the walls so as to access and patch all the holes in the drywall behind the kitchen sink. Eventually I got a tenant in there, and he turned out to be a deadbeat. Last July I started eviction proceedings. Even though Virginia is considered to be a "LL friendly" state, it took a full two months to get him out. He packed up and fled just hours before the sheriff, locksmith and I made it over to the apartment. Now I'm in small claims proceedings to get the owed rent back. I've been to the county courthouse probably 6-8 times since July to get all of this done. In the year since closing on the place, it's been vacant 50% of the time, and even when occupied the tenant paid only 50% of the rent due. Bottom line - being a LL is a lot more than kicking back and collecting a rent check every month. As others here have said, it is a lot of work. Luckily I got a great deal on the condo and so my yield is pretty high, but that's only if I can get a paying tenant in there (something I'm working on now). Paul
I know of a case here in VA that took 7 months for the landlord to obtain an eviction.
A smart tenant can drag out the process by contesting the eviction every time it goes before the court. Fortunately for me, the tenant never showed up in court or tried to contest anything, so it went fairly quickly.
Eventually I got a tenant in there, and he turned out to be a deadbeat. Last July I started eviction proceedings.Obviously we don't know more about your situation than what you shared, but this scenario sounds like a serious failure in your credit check and applicant screening.If you could go back and do it all over again, what would you have done differently?
James - Good question, and something I've thought a lot about. I did credit checks on the tenant. He had a checkered credit history, but it was better than any of the other applicants. No previous evictions, no settlements against him, and his employment checked out. He paid on time for the first two months, but then quit both of his jobs and wasn't able to pay the rent. At this price point in the Washington, DC area ($1100 per month), it's hard to find applicants with really solid credit. Nevertheless, in retrospect the guy I evicted had enough red flags (no checking account, assault conviction in 2007) that I should have turned him down. Better to keep the apartment vacant for another month than to rent it to a sub-par tenant and have to go through all this trouble.Another option is to use a management company, which is what I'm doing now. I'm going to move out of town next summer, so I need a property manager in any case. The mgmt company will do the credit checks and screening, show the apartment, deal with the HOA, etc. Using a mgmt company cuts down on your cash flow, but can save you a lot of effort for a relatively small amount of money every month.Paul
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