Investment Properties

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MC2 5678F589 MC2 5678F589
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Investment Properties

How many people on this board have them? Nepa? Tjf?

Do you buy the properties specifically for renting out, or did you get the properties in other ways (inheritance, etc.)? If you did buy, did you use the 2% rule (rent should be 2% of the purchase price)? Do you follow the 50% rule on rents (take 50% off the rent for expenses and then calculate the purchase price at 100% financing to see if you can still get positive cash flow)? If you use a property manager (nepa) do you count that as part of your expenses? Or do you add a bit of wiggle room?

Or are the places paid off and you guys are just sitting back collecting rents?

Just curious. I think about doing this sometimes, but I'm not sure I want to be a landlord. The property manager thing that nepa uses sounds nice.
Chris Chris
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Re: Investment Properties

My wife and I own two duplexes (in our area I consider a duplex a side-by-side, and would dub a "two family" an up/down scenario).  Purchased one on 11/12/13 which we're currently owner occupying; and purchased the neighboring, identical property 12/31/15.

Purchased the first because we were testing the waters of being landlords, knew we wanted to be in Wilton and knew that we weren't ready to purchase and take on the liability of a single family home...  We didn't even know what we wanted in a house.  The bonus was that it's on 1.4 acre and backs up to woods (single track friendly soil).

I keep things very simple.  At this stage I like going off of the monthly cash flow.  Our Owner Occ is still a liability, we're paying $300 out of pocket monthly to live there.  Once we move out (hopefully in the next 18 months) the property will become an asset, in the green for $700 each month (this includes our monthly expenses well pump, garbage removal.  Of this $700 'profit' we'll take  50% ($350) and dump that into principle each month to pay down mortgage and use the other $350 toward whatever.

The newest property we own is almost identical with the rents/costs.  We paid the same price for it.  Only difference is the mortgage payment is lower due to a larger percent down, no PMI etc..  We currently have the auto-draw set up similarly as to where each month about 50% of 'profit' goes toward principle and the other goes to 'whatever'.

Once we have a clump of 7-10 properties, and the majority of them are paid off that's when we'll likely hire a management company and collect the 'mailbox money'.  

Right now I'm young, work locally and only have 4 units to manage so things are pretty easy.  It's also going to help that we're building our house right around the corner for the properties so it's easy to sneak over, take care of any issues etc...  I am also surrounded by handy folks, and am not afraid to get dirty and take on some jobs myself.  I have no problem with septic systems, basic plumbing, electrical etc... because if I run into an issue I just call a friend/brother that can walk me through it, or help w the job.  I AM VERY FORTUNATE, because yes, stuff does comes up...  

My 'Armageddon' idea is that I want our investment properties to cover our living expenses.  Say we both lost our jobs... Could we survive the payments of our BILLS on our passive income, for how long?

My goal is always to be able to pay the BILLS (mortgage, electricity, car payment if applicable) with our properties.

We're building a home this spring, I hate the fact that our investment properties wouldn't cover the mortgage if shit hit the fan... but we do have a plan.... purchasing another investment property within 3-5 yrs of living in the new home.  This would bring our monthly real estate costs back into the "green".


I don't see how you can go wrong...  Cash flow now to help with bills, building your life/family...  Then in 15-25 years when the property is paid off you still have a building, and property that's worth money later.  It may not be worth as much as I paid for them (premium prices because of location, our desire for that street, ease because they're identical, and next door to one another).

The way I also see it:  Once our kids are college age - 20 years.  Both of our current properties will be paid off.  Those properties can then be their college education.  Whether it's monthly cash flow helping... OR just outright sell them.  
We do plan on starting college funds when they're born, because I would like to use the cash flow from the properties for the kids college and then when they're finished with school use the cash flow for Mom and Dad to continue living an active lifestyle skiing, biking and NOT being a salesman.

I know that there are many folks who see the way I'm doing things and say my investments aren't the best, and that I'm not taking depreciation and all that BS hairsplitting annoying, time wasting shit... or my investment return %'s are up to their standards.  But this is what I can comprehend at this point, it seems to be working well and I just don't see the need for Real Estate, especially in our area going down.

It's probably easier for me because of the business I'm in... Real Estate.  I have VERY minimal investment in stocks, almost embarrassing but again it's just not something I know well enough to get into nor do I have the desire to spend the time learning about it..

Longest post I've ever made?  probably.

*****All that waste of energy and I didn't answer your questions.  

My first determining factor is this example: Asking price 200,000.  Does this property bring in $2,000/monthly?  If yes proceed, of no pass or look a bit deeper.

What's the rent competition, Can I increase rents?
What is the MAJOR maintenance needed in next 5 years?  Roof, heating system, septic? - I don't care about appliances, paint, carpet, HW tank etc... If you can't wrap you head around that fact that these little things need to be replaced every few years than it's not the investment for you.  Who cares, it's a few hundred bucks.. I'm not a hair splitter.  I'm fine with giving up a months rent to bring the property back up to snuff.

I like 2BR properties.  3+ Bedrooms attracts families, houses stuffed with kids who beat the crap out of the building, appliances, septic system ect.. I like to stay away from that.
How long have these tenants been here?
I like side-by-side's- noise factor.
Off street parking? Laundry hook ups?  coin operated laundry?
How far is this property from ME?  Do I really want to drive 35 minutes each way if someone's drain is clogged?  If not.. do I want to pay a plumbing company $150 to come do a 5 minutes job?
TAXES don't forget the taxes!  Check assessment.  If it's super low.. GREAT... for your first year.  But you can BET YOUR ASS you'll get a nice increase on the next go around... Like magically it'll go up to what you paid for the property, which will effect your monthly cash flow GREATLY.

If real market value is 200k and it's assessed for 120k that's great (for them), they went under the radar for years... but the town is going to step right up to your doorstep smiling with their hand out.. Again this is FINE as long as you factored the new taxes into your monthly budget.  This is very often overlooked.


The day begins...  Your mountain awaits.
MC2 5678F589 MC2 5678F589
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Re: Investment Properties

Thanks for the info, man. Really appreciate you putting the time and effort into that post. And I learned a lot from it, too.
ScottyJack ScottyJack
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Re: Investment Properties

I was walking around Saratoga last Wednesday while I waited for warranty work on my truck.  ended up walking from exit 15 through downtown to the racetrack and up and down a bunch of blocks in the city.  was thinking it be cool to have an investment property in Saratoga.  checked  out a house for sale on east street which backed up to the training track.  it was a million dollars!  
I ride with Crazy Horse!
nepa nepa
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Re: Investment Properties

In reply to this post by MC2 5678F589
I actually have 3.  2 were bought with part of our retirement savings.  Both are modern dormitory style facilities that are used to house migrant labor.  There are several of these type of dorm style facilities in my area.  They are kind of like motels without a front desk.  The rooms have basic furnishing.  The bathrooms are shared.  The property management fee covers regular cleaning of communal areas, and cleanup upon vacancy.  Orchard work is plentiful 10 months out of the year.  The population of our area can swell over 500% depending on the agricultural season.  The migrants are hard workers, most are great tenants.  Occasionally, there issues (often related to drinking), but I'm insulated from all of the challenges via the property manager.  The net income from these 2 investments is plowed back into the IRA.  

The other property is our house in PA. My wife chose to buy this house moments before the bottom fell out of the real-estate market in 2007.  Needless to say, she paid top-dollar for it.  We paid it off last year so it's now all income (-10% for property mgmt.).  If we sold it at market today, we would still loose quite a bit of cash.  It's a modern town house near the University of Scranton, but it's on the edge of a real shitty neighborhood.  In front of you, you see nice historic Victorian style houses.... behind you are dilapidated Victorian style crack houses.   We are currently renting to a faculty member at the U.  A property manager is also critical for this property.  For a while my father in-law was taking care of it for us, but we got tired of listening to him complain.

My setup is pretty simple too.  It's pretty much completely hands-off.  For me the property manager is essential.  I like you, would not want to be (or even be a good) landlord.     Until I recently left my job, we were living a fairly frugal DINK lifestyle.  We were able accumulate cash quickly, therefore all of our financing was very short term.  To be honest, I didn't pay too much attention to the rules you mentioned.  The house in PA was an accidental investment.  I got the idea for the migrant labor housing on a ride up chair 2 my first season at the mountain.  

Along with taking distributions, using IRA money with financing can be a bit complicated for real-estate investing.  Along with a property manager, I also have a decent accountant.  

nepa nepa
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Re: Investment Properties

In reply to this post by Chris
Awesome... sounds like a very well thought out plan.  In my opinion, this is the of the safest long term investment strategies.  
MC2 5678F589 MC2 5678F589
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Re: Investment Properties

In reply to this post by ScottyJack
I almost bought a 4 unit place near Skidmore college when I was house shopping to use as an owner-occupy place, but didn't want the long commute for work and was unsure of whether I would be a good landlord.

I made a different decision, but sometimes I think of how different my life would be (both positively and negatively) if I pulled the trigger. The property is worth way more now, but I would have been pretty cash poor for a while and there would have been some major stresses if one or two serious things went wrong (which, I think, would have been inevitable with a big old building).

I would have loved to be able to ride my bike over to SMBA every day, though.
tjf1967 tjf1967
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Re: Investment Properties

If you buy a 4 unit or less and plan to live there(even for a month) then you can go with a traditional financing.  Put the minimum down 5% I think and do the math.   You know what your mortgage and taxes will be and you know what they are getting for rent.  If it cash flows great.  Then  you have to decide if you want the hassle of rental property.  I have been in the game for 24 years.   Its a PITA once in a while but its another asset that will be used for retirement.  I don't get rich off it but it covers itself and 6 more years and the mortgage is GONE.    Never buy anything that does not cash.  
jjbrady jjbrady
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Re: Investment Properties

NEPA- I think I know where your property is...I graduated from the U of Scranton...was actually there this past weekend when I was driving through for business.

My family bought an investment property at Greek Peak after it was purchased out of bankruptcy. We were able to get a discount since we purchased all 4 shares of the room (1/4 property), that way, we own it year-round.  No worrying about Christmas week one year, presidents the next, etc...We get a good % of rental income (compared to other types of timeshares) and the resort takes care of the maintenance upkeep, etc... The rough winter last year wasn't bad because of the indoor waterpark and other year round amenities that they offer so we have banked a decent profit each of the few years we have owned it. We anticipate getting all of our money back in a few years, then the rest will be extra profit. If we have a good snow year, the mountain will continue to improve and hopefully update/expand which could drive up sales as well. Either way, it is a nice place to go when we have the opportunity and the income we are earning is more than paying for itself. For what it's worth...  
nepa nepa
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Re: Investment Properties

When did you graduate from the U?
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