Investing in Rental Property
 

Anyone here do well in rental property? It's something I might want to get into in the next 5 years or so. I'm curious how one would get started besides having unrestricted cash. Also, any good books to start reading? PM me if you wish.

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Once you've got your info, pls PM me with info on 'having unrestricted cash'. Thank you.

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Chippewastud does some of that kind of investment. If you can pull him away from the thread where he bashes the Cincy Reds incessantly :D, he can offer up some advice I would think.

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+1

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I had 5 rental properties. Aside from being a royal pain in the ass and a crazy amount of work, they were great for my taxes and paid for themselves and my home.
I never paid a dime for any of them. We used the equity in our home to buy the first rental and bought well. We used the equity in that one to buy the second, and so on.
The only drawback is that all the stacked second mortgages tie up properties when you want to sell, so it's very important to use the same bank.
You also won't have the equity in your home available for a loan, but I've never taken a home equity loan in my life, so it's a non-issue for me.
If you want to really learn a lot about being a landlord and hear about things you'd just never think about, get on ebay and buy the Carlton Sheets course. It's full of very valuable info and will head off a lot of problems you'll run into in the future.
You'll also want to learn how to search title at the courthouse so you can make sure properties you're interested in have clear title before you act. Otherwise you'll spend a lot of lawyer money for nothing and waste a lot of valuable time.
Good Luck, man!!! :tu

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If you don't want the hassle of actual property ownership, explore real estate investment trusts geared toward rental property: rREIT

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I own a few rentals, depends on what you want to accomplish with them and how much work you want to do.

Do you want cash flow or equity?
Easy money and more headaches? Less money and potential easier tenants?
Long-term tenants? College kids?

We own college rentals, the money is greater because I can charge by the room instead of the entire unit. We also rent a residential condo that was our former residence, the income is slim to none and we have problems with our HOA allowing rentals.

Expect to put down a minimum of 20-30% and the best rate you will be able to get is prime +1%. A lot of banks are shying away from income properties, so qualifying for conventional loans has become more difficult, expect to get better rates on 5-10 year balloon, ARM or <15 year loans.

It is a headache, its a lot of work, but you get your own hours. With rentals expect to break even a lot, there are always expenses and lots of unforseen issues. Our rental 'income' last year was enough to reduce our tax liability into the lowest possible bracket. Thank you very much, $5000 in our rental vehichle repairs, 2 new wells in 9 months, evictions and vacancy. :bh

If you have specific questions about anything, shoot me a PM or post them in here. Its not like I am a some super slumlord with all the answers, doing something other people haven't. :tu

Reading:
Your local Circuit Court documents on:
Small Claims
General Civil
Evictions
Landlord/Tenant Rights

Look at lots of leases, seriously, start throwing parts of leases together to make one that works for you. Our lease changes every time we change tenants because of one issue or another. I have seen leases as short as 3/4 of a page and as long as 12 pages, ours being in the middle of those extremes. :tu

I apologize for this being a jumbled mess of crap. :lv

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Often thought about this as my neighbors has rentals. Problem is I already have huge pains in the ass with normal living. I'm going to keep on buying lottery tickets.

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As a teenager, my father owned 15 or so rental homes. It kept me and my best buddy (builder's son) in very good cash flow doing the constant repairs where needed, plus putting every one of the houses back in livable condition when the renters moved out. It was pretty much a given that every vacated home would need plenty of renovations to get them back into lease-able condition.

If you can do some of the renovations yourself, you will be able to keep those cost to at least a manageable level. Just be prepared that most renters will leave a property in worse condition than they found it. I wish it was otherwise!

On the positive side, there's hardly a better time than now to be to be buying property!

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I am a landlord by necessity not choice. I moved for work and could not sell my house without taking a huge hit ( thank you economy) so now i rent it. Im not in it for investing but i can tell you finding good renters is key. I have yet to do that. No matter how hard i screen people i seem to get the dregs of society. You should have seen my house after the last people moved out. They smashed windows, ripped the banister off the wall, ripped the control panel for the sprinkler system out, and broke all of the shelves in a brand new fridge. Just to name a few things.This was a family mind you, a mother and two 10 year old kids. If you dont mind dealing with people im sure theres plenty of money be made. As far as im concerned once i can break even im selling the house and i will never rent out property again. :2

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What kind of rental property are you looking to buy? Who is the the renter most likely to be? Students, family, or Section 8? Each group has its advantage. Do you plan to manage it yourself or have a property management company take care of it?

Most of my friends are in a real estate business in Boston, as was I a long time ago.

Section 8 - Guaranteed money, but hard to kick out and may have to do more work on unit to qualify. Easiest money route

Students - Higher rent, but more damage to unit and may need to pay rental commissions more often due to higher turnover.

Family - Can be good or bad. Can be a hassle to kick out, but may be gentler on property than Section 8 or Students.

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Good points by Cliff and Scott. I can't begin to convey all the $3,000 bills (and worse) from bad renters. It's very frustrating when they're destroying your property and it takes almost a year to get them out when you go through the "legal channels" to have them evicted. Bad renters know the system and rely on it.
Most all landlords try the "take the doors off" trick or "shut the power and water off" trick, and that just gets them in trouble. It's illegal.
I used subtle persuasion. I waited till they left and moved all their things to storage. It was a simple process. They always called the police and they'd come talk to me. I'd explain that they hadn't paid rent in months (which was ALWAYS the case) and that I'd tried to contact them dozens of times (also true) and assumed they'd abandoned the property based on the condition of the living quarters. All I had to do is show them and they immediately took my side and asked me to return their items. I'd explain that all they had to do was go to the storage facility and pay the bill and they could retrieve their personal effects.
It never failed. It wasn't my idea, either. A good friend of mine who had a number of rentals gave me the idea. It saved me a fortune. :tu

When keeping security deposits in these instances, it's law to send a letter to the renter outlining the conditions why you've kept it. It's a good idea to add in all the other costs incurred and to send it certified. If you don't, they can take you to court, sue for their deposit, and you'll have to pay them double plus court costs. If you arrive at court with the returned certified letter (that you sent to their address at your property because they never leave a forwarding address with the PO) the case is over before it starts.

Those are just a couple horror stories I thought of. There's lots more.
If rental properties are personal, it's not something to get into. Things like renting your current home, or the home you've lived in for years, or the family homestead, things like that.
If there's emotional attachment, it'll drive a person mental. If it's just a business, not so much. It's still tough, though. It's not for the faint-hearted.

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I think 2-3 years ago, I saw one of the condos for sale that I lived in on campus about 15 years ago. It was a decent location when I was there and was pretty good sized place to live for a 3 BR apt. My thinking it would be something nice to have for my daughters to live in while they were going to college.

I looked into the current housing situation because the area is night and day difference compared to when I attended because they've changed so much. The end result was that they're currently renting it today isn't much more than what I paid 15 years ago. I figured after management expenses and to clean carpets, I'd manage to break even at best, with anything else over that being a losing proposition.

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I rarely contract out any work, except electrical and plumbing. Having to drill a brand new well pretty much kicked our ass (I don't drill wells either). Also went through a huge debachle of deadbeat renters who lived for 5 months, paid for 2 and cost me another month cleaning up the mess. :bh

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The two best tips I have learned.
>Don't rent to family or friends! It just invites awkward and unnecessary problems. Also they seem to feel like on time and full payments are optional.
>Charge a premium and or invest in "better" property's and skip the slum lord route. There are plenty of people looking to rent a house and more all the time with the current foreclosure rates.

I have been involved in the rental business since I was eight or nine years old, My folks have had many rentals and they still continue to be my problem. I have seen some of the grossest nasty things you could imagine (including a suicide) in a rental.....It can be tough.

With decent planning it can be a very lucrative proposition though.

As a side note....with all I have seen I still am trying to purchase another property.....:fp2

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I would like to buy decent homes to rent out to families or young couples. Part of making money on this is buying nice homes for bargains and then charging a premium. I know a guy that has made tons of money with his rental property business, however he rents to really bad people. He has TONS of issues with his people, and I know its because he rents out crap property for cheap. He has told me many times he carries his Glock with him whenever he makes stops at his property. I DON'T want that type of property or those people renting from me. I know now is the time to buy property, but I don't have enough cash. 5 years down the road I'd like to have enough.. I want to plan right now to have enough cash when the time comes..

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I want to buy homes and rent to families or young couples. A family friend I know rents tons of apartments.. But he is renting to low lifes.. Thus, he fights them all the time, carries a handgun, and is in court often..

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I should also add I want to actively manage my houses, therefore I won't be needing many rentals..

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I'll take a look into this tonight.. Sounds interesting..

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Section 8 is the easiest rental as long as the numbers work

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I run a rental management business and my number one piece of advice is to perform proper background checks on all applicants. This includes criminal history, credit history, landlord referrals and rental history. Not everyone I rent to is a perfect candidate but you can make a more informed decision. There are a good number of companies that perform this service and the cost is generally $15-35 per report and is worth every penny. If you want to save the cost to yourself, charge an application fee.

Next make sure you understand landlord/tenant law and equal housing laws. Follow them to the letter and you will avoid most legal issues.

Check with your local chapter of NARPM and see if they allow non members to attend the seminars and classes. They are a wealth of knowledge for property managers and landlords.

Last, learn to be fair but firm. This may sound like an easy thing but I have rescued so many landlords that just wouldn't stand up to their tenants. You have a signed agreement with the tenant, make them follow it.

If you want to start sooner check out Homepath.com for a list of Fannie Mae foreclosures in your area. You can then find a lender that participates in Homepath loans and they even have options for investment borrowers and renovation loans.

Be leery of condo purchases. Condos often have association fees which can be as much or more than your mortgage payment. This can seriously eat away at your profits. I am not saying that all condos are bad investments but its something to watch out for, same goes with homes that have HOA fees. On that note, make sure that if purchasing in a subdivision that the HOA allows rentals.

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Moses is right, and Section 8 does not only apply to bad areas. In most cases it is a voucher program where the tenant asks for assistance and is allowed to find a place they want to rent. Once the tenant finds a place and a landlord that is willing, the govt. agency will determine if the property is priced fairly compared to other rentals in the area and perform an inspection to make sure it is up to their qualifying code (which is not that stringent). Once the tenant is in they have to pay a portion of the rent and the government pays a portion. Section 8 tenants are, most cases, no harder to evict than non assisted tenants and as a landlord you have part of the rent guaranteed. The amount of assistance given is normally based on family size and income level.

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Easiest for rent, most issues. :2

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At least here you are allowed to screen Section 8 just like a regular tenant. If the person has a history of abandoning leases or a criminal history you are not obligated to rent to them. Plus people are in the housing program, not properties so if Section 8 doesn't work you can always return to non assisted tenants. I've had more issues with college students than with Section 8.

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Benefits of college student are higher rents and hight turnover. Higher turnover allows for more dramatic rent increases, but could also mean more prep work to unit each time it is re-rented and possible rental commissions.

College students rents around Boston have always been high and have been the best investment vs. Section 8. Boston is unique though and this opposite would be true in the greater metro-Boston area.

College students can rent a 5+ bedroom house, where most families can't afford such a property or wouldn't want to live in a student neighborhood.

College students tend to have a parental co-signer and are willing to pay last month's rent and a security deposit.

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In PA, Section 8 tenants get one shot. If they fail their rent or are evicted for any cause, they lose their eligibility and can never get it again. In a way, it makes it seem like it'd be safe to rent to them because the tenants have something to lose.
It all sounds great, but there's one string...
If you rent to Section 8 tenants you have to agree to use a Section 8 lease. That's not a big deal if you're not a dick like me. I absolutely refused to use their lease, or be dictated the rules by which I'd rent my properties.
My lease was designed and modified to protect me and my interests. Section 8's lease was not, and didn't need to be because they had nothing to lose.

In my experience, background checks were a 100% waste of time, effort and money. In Albert's business they'd be necessary, it goes to culpability. The best way to root out a good tenant is when they have good rental references and you can talk to their prior landlords. Most won't have any because they're lying, but when they do, it's very important to verify that the references are real and speak to them at length.
Talking to brothers and sisters helps. They'll generally be honest enough for you to read between the lines.
If you're still not satisfied, and I never was, I'd swing by the place they were currently living and do a quick drop-in. They never imagine you'd be bold enough to do that. One 10 minute visit will show what kind of housekeepers they are, and verify most of the things they told you. 8 times out of 10 you'll find out the applicants lied about everything they spoke to you.
It's a lot of work finding good tenants, and when you get one, it's very important to bust your ass to keep them. Good tenants are what makes the wheels go. Lots of times I'd be too busy to do my due diligence screening renters and it'd bite me in the ass.

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The company that does my reports goes as far as to find prior landlords and references. They will also handle my evictions. I check credit, work history, criminal, and landlord references as well as rental and eviction history.

If I was doing this for myself exclusively, I love the idea of paying them a visit in their current residence :tu

I have done some research and it appears the rules vary state to state on Section 8 even though its primarily federal funding. In GA we don't seem to have the issues you mention but I would not use any other lease than my own either!

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There is lots of good info in this thread. I'm looking to purchase a new house in the next couple of years, and am planning on keeping my current house as a rental although we'll see what happens at that point.

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My family has been buying residential rental property since 1984. I manage that business and have rentals of my own. From reading this thread you can tell there are several approaches to it, but to me knowing the market you want to be in and focusing on that is really important.

At one time we were more into the multi-unit buildings. As that market evolved in our area, we started moving more into single family homes. With the foreclosure situation in Florida in the last few years we have really been able to capitalize on the market because we had plenty of cash on hand and liquidated a large multi-unit building to use those funds as well.

We also focused buying in one large residential area that we knew well and it is close to where I live. It really makes the day to day operation much more manageable. We are also very familiar with the pricing in that area, so when something comes on the market we are able to move quickly and with confidence.

Our goal with any property is to have it pay for itself in no more than ten years, preferably eight, including insurance and property taxes. To do that we have used a rule of thumb getting income of 1/10 of the purchase price per month in rent. In other words, if we pay $80,000 for a house we want to know we can get $800 per month in rent. That has served us well and the last few years we have been able to better than ratio consistently with our purchases.

Bottom line for me is know your market, have a solid plan for purchases, screen your tenants well, be very upfront with what you expect, and be fair.