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Is acquiring rental property worth it?

S

steppinthrax

Diamond Member
My wife and I are thinking of buying a town house within our neighborhood. You can get a townhouse here for like 100K??? Five years ago it was 200K. I’m doing research into being a landlord, but based on the research in our area we could charge around 1100 to 1400 a month in rent and the mortgage would be around 600 a month. I’m not sure if these are good numbers or not? Is it generally worth it? Also within the next 5 to 7 years we could simply unload the property making a profit from some appreciation???? Anybody have any exp with rentals?
 
I can think of plenty of easier ways to invest money, but for some people, it can be lucrative. Just don't underestimate the hassle factor.
 
Hassle factor X 100

If the place is in decent shape AND you have decent tenants, easy money.

If either of the 2 above doesn't apply, PITA.

Subsidized renters(section8)? HELL NO!!!!
 
Property has other expenses than just the mortgage. You'll also need insurance, repairs, maintanence, advertizing, etc. Tack on at least $250 a month for those things. That brings your real cost to $600 + $250 = $850 a month.

Your customers, if you have any at all, often pay late or skip payments then you have to boot them out. Expect to not get any money for about 25% of the months. That brings your revenue down from $1200 a month to $900 a month.

In the end, you make $50 a month on average in this scenario.

The property will slowly rise in price, giving you wealth (but not yearly income). But, this only happens if you hold for a long time. Also, if you hold for a long time, your mortgage will eventually be paid off and the profits start increasing dramatically.

In the end, doing just one property for only 5 to 7 years will net you very little money and a lot of headaches. The only way to do well in rental property is to hold on for a long time and get at least a handful of properties. You won't have much income, but you'll retire a millionaire.
 
dullard said:
Property has other expenses than just the mortgage. You'll also need insurance, repairs, maintanence, advertizing, etc. Tack on at least $250 a month for those things. That brings your real cost to $600 + $250 = $850 a month.

Your customers, if you have any at all, often pay late or skip payments then you have to boot them out. Expect to not get any money for about 25% of the months. That brings your revenue down from $1200 a month to $900 a month.

In the end, you make $50 a month on average in this scenario.

The property will slowly rise in price, giving you wealth (but not yearly income). But, this only happens if you hold for a long time. Also, if you hold for a long time, your mortgage will eventually be paid off and the profits start increasing dramatically.

In the end, doing just one property for only 5 to 7 years will net you very little money and a lot of headaches. The only way to do well in rental property is to hold on for a long time and get at least a handful of properties. You won't have much income, but you'll retire a millionaire.
Click to expand...

Is it best to get a long mortgage (30 yr) or a relatively short mortgage (15 or 5yr). Because during a short morgage you pay the property off sooner, but your Debt-to-Income ratio is affected greatly.
 
steppinthrax said:
My wife and I are thinking of buying a town house within our neighborhood. You can get a townhouse here for like 100K??? Five years ago it was 200K. I’m doing research into being a landlord, but based on the research in our area we could charge around 1100 to 1400 a month in rent and the mortgage would be around 600 a month. I’m not sure if these are good numbers or not? Is it generally worth it? Also within the next 5 to 7 years we could simply unload the property making a profit from some appreciation???? Anybody have any exp with rentals?
Click to expand...

One main point: Since the house/apartment/trailer isn't theirs, they won't give a fuck about taking care of it or telling you when something goes wrong. It doesn't matter if you're renting out $300/month shitty double-wides to $1200+/month houses.


Interesting side note: I found one of my tenants dead Sunday night.
 
steppinthrax said:
Is it best to get a long mortgage (30 yr) or a relatively short mortgage (15 or 5yr). Because during a short morgage you pay the property off sooner, but your Debt-to-Income ratio is affected greatly.
Click to expand...

The only advantage to a shorter-term mortgage is the lower rate. With a 30 yr. mortgage, you can still pay it off early, in less than 30 years, so there's really no difference between a 30/15/5 yr. mortgage in the regard.
 
pcguru78 said:
One main point: Since the house/apartment/trailer isn't theirs, they won't give a fuck about taking care of it or telling you when something goes wrong. It doesn't matter if you're renting out $300/month shitty double-wides to $1200+/month houses.


Interesting side note: I found one of my tenants dead Sunday night.
Click to expand...
Are you the infamous Lurker Slum Lord?


j/k
 
Mursilis said:
The only advantage to a shorter-term mortgage is the lower rate. With a 30 yr. mortgage, you can still pay it off early, in less than 30 years, so there's really no difference between a 30/15/5 yr. mortgage in the regard.
Click to expand...

I makes a difference if you decide to sell or leave your main home and purchase a larger home with larger monthly payment. They look at your debt to income. So if your mortgage payment on a 5 yr loan is 2K a month and your 4 years into the loan, the bank dosen't really care. They will simply look at a 2K debt each month. I find most banks don't consider rental income as income. Or they only consider 75% of rental income as income.
 
Finding a good renter is the absolute key. If you can't run credit, look up criminal history, etc. it is well worth it to pay someone to do it for you. Never rent to friends, family, etc. since they feel since you're "rich" (hey, you can afford "extra" property) they may not feel the need to pay on time, if at all.

For the first year with a tenant, I had a management company. Just this month, my tenant signed a two-year lease only with me and it's working out very well.

Good luck, PM with any questions if you'd like.
 
steppinthrax said:
I makes a difference if you decide to sell or leave your main home and purchase a larger home with larger monthly payment.
Click to expand...

If you think you might do that in the near future, then you'd probably want a 30-year note, which you can then pay off early if you choose to do so.
 
Mursilis said:
The only advantage to a shorter-term mortgage is the lower rate. With a 30 yr. mortgage, you can still pay it off early, in less than 30 years, so there's really no difference between a 30/15/5 yr. mortgage in the regard.
Click to expand...

The 15 year mortgage will almost always have a lesser interest rate than the 30 year mortgage.
 
dullard said:
Property has other expenses than just the mortgage. You'll also need insurance, repairs, maintanence, advertizing, etc. Tack on at least $250 a month for those things. That brings your real cost to $600 + $250 = $850 a month.

Your customers, if you have any at all, often pay late or skip payments then you have to boot them out. Expect to not get any money for about 25% of the months. That brings your revenue down from $1200 a month to $900 a month.

In the end, you make $50 a month on average in this scenario.

The property will slowly rise in price, giving you wealth (but not yearly income). But, this only happens if you hold for a long time. Also, if you hold for a long time, your mortgage will eventually be paid off and the profits start increasing dramatically.

In the end, doing just one property for only 5 to 7 years will net you very little money and a lot of headaches. The only way to do well in rental property is to hold on for a long time and get at least a handful of properties. You won't have much income, but you'll retire a millionaire.
Click to expand...

I find that this slump in property prices and surplus of bank held properties actually allows me to purchase properties that are profitable immediately with large monthly cash flows.

I'm looking at a 5 unit apartment building that is going for $250k, foreclosure property. There are monthly expenses (heat, trash, water, sewer, insurance, taxes etc...) but after all that and using the mortgage I am pre-approved for, I am expecting $1300 a month profits. As long as I keep the units rented I am golden. Of course I still need to do the inspection and walk through, but assuming no physical problems with the property I'm going to jump at this.
 
NetWareHead said:
The 15 year mortgage will almost always have a lesser interest rate than the 30 year mortgage.
Click to expand...

Right but if the spread is very small, the slightly higher interest might be worth it for the flexibility it buys you. It depends on how big the spread is at any given time and how much you value the flexibility.
 
pcguru78 said:
One main point: Since the house/apartment/trailer isn't theirs, they won't give a fuck about taking care of it or telling you when something goes wrong. It doesn't matter if you're renting out $300/month shitty double-wides to $1200+/month houses.


Interesting side note: I found one of my tenants dead Sunday night.
Click to expand...

Easily remedied by a clause in their lease that makes the tenants responsible for the first x amount of $ for repairs. Negligent or willful damage/destruction is the full responsibility of the tenant.
 
NetWareHead said:
Easily remedied by a clause in their lease that makes the tenants responsible for the first x amount of $ for repairs. Negligent or willful damage/destruction is the full responsibility of the tenant.
Click to expand...
Around here, good luck collecting. If they are going to mess the place up, they don't care about their credit either.
 
ajskydiver said:
Finding a good renter is the absolute key. If you can't run credit, look up criminal history, etc. it is well worth it to pay someone to do it for you.
Click to expand...

Good advice here. I run credit checks, job history, consult with tenant blacklists and criminal background checks. I insist on meeting with anybody who rents with me. I've had nearly 100% sucess rate with young just-starting-out families, man and wife and if a kid or two is in the picture then that spells stability and usually no problems for me. I generally avoid college kids or ghetto types though. I go with my gut reaction when meeting someone. if I have to turn down someone, I make it a legally lawful reason to not rent to them such as unacceptable credit history, presence of name on a black list etc... etc...
 
highland145 said:
Around here, good luck collecting. If they are going to mess the place up, they don't care about their credit either.
Click to expand...

Thats why I have a security deposit and eviction procedures. You get a judgement against them. Then the judge slaps them with a lien on any personal property they own or a wage garnishment. Those 2 things follow you around pretty tenaciously. Eventually I will get repaid.
 
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Bought a duplex in 2002 for $64k ... worth ~$110k in current market with another $15k in investments. Rented half up until last year @ $450/mo.

Paid off duplex and bought a second house last year for myself and now rent the duplex for about $1k a month.

Figure I am making about ~10 - 15% of the original investment yearly after expenses and taxes. Fortunately it is close to a University and by keeping the rent slightly below market attracts good renters. Have had almost zero rental downtime since 2002. Maybe 2 months out of that whole time. In the end I still have the equity in the house.
 
you also have to consider property taxes & the HOA - and set aside funds for possible upgrades that your tenant demands (under threat of ligitagation), plus insurance, plus paying for when they flush diapers down the toilet - etc.

it depends a little on your view of the economy. not saying it's a bad idea - one of my brothers paid for his MBA by buying & selling a fourplex in Oakland, and it was nice - but that was in a price-rising market.
 
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