Rental Properties

[stnicralisk]

Just wondering if anyone with experience in this has any advice on it. I have been considering it for a while.

My parents have some rental properties but all the property was purchased with the intent of living there and then they moved.

I am thinking about it as a long term investment for retirement but am wondering on the possibility of overcoming the expense of mortgage and maintenance.

What class of house would you suggest? What mortgage? And how do I screen my renters - specifically rental history?

 

[ThePresence]

You do a credit report on your tenants before you approve them.

Just realize that the mortgage rate for an investment property is gonna be substantially higher than a house you are buying to live in.

 

[stnicralisk]

Not if I start out living in the house though correct? Also what if I have a substantial downpayment ~30%? The credit report automatically shows rental history?

 

[Kaieye]

I just rented out a garage(holds about six cars) and a flat last week. What do you want to know? All the folks that I know who retired in their early years (some in their forties and fifties) all owned rental property and one of these guys never went to college.

 

[DrPizza]

I'm curious about home equity loans on rental properties - can you pay cash for a rental property, and turn around and use it as collateral for another property?
That sounds too easy.. but around here, you can pick up houses occasionally for 10-20k and rent them out for well in excess of mortgage and taxes.

However, the caveat is that many of the people renting in areas where mortgage is less than rent are doing so because they don't have good enough credit to purchase a home themselves, or they don't want to be bothered with the costs of upkeep on a house.

 

[everman]

You need to research the area you plan to buy in, and the type of tenants you're looking for. There are short term vacation rentals, long term leases, and everything in between. You could even do commercial or industrial. Furnished or not? Who will handle maintenance?
I know a few people who have done very well in these things, but it's not exactly easy money as many would lead you to believe.

 

[tnitsuj]

It can work if you reaserch the renatbility of the area, tax implications, mortgage rates, maintenance costs (deductible), etc.

My folks rent out 6 houses they bought in a college town..they are self sustaining, two are paid off and the rents pay the mortgage on thier new primary residence. Also with all the deductions they end up paying about 15% income tax on a huge amount of income. Good road to early retirement.

 

[stnicralisk]

Originally posted by: DrPizza
I'm curious about home equity loans on rental properties - can you pay cash for a rental property, and turn around and use it as collateral for another property?
That sounds too easy.. but around here, you can pick up houses occasionally for 10-20k and rent them out for well in excess of mortgage and taxes.

However, the caveat is that many of the people renting in areas where mortgage is less than rent are doing so because they don't have good enough credit to purchase a home themselves, or they don't want to be bothered with the costs of upkeep on a house.

I dont want to be a slumlord.. how can you get a house that cheap? Foreclosures?

 

[Fingers]

Duplexes and townhouses seem to bring more of a return foryour money, good tips include buying in areas near military bases. Military personel are good at paying rent and the area will be in high demand. Also very important foryou to be mechanically inclined and do most of the work yourself as hiring out cuts profit.

 

[jacob0401]

Originally posted by: Fingers
Also very important foryou to be mechanically inclined and do most of the work yourself as hiring out cuts profit.

yes, this is very important. being able to do simple repairs and maintainence is key to cutting costs as hiring people to do even very simple repairs will cost a lot.

 

[OS]

I wonder if this is profitable at all in CA given the disparity between the cost to rent and the cost to buy property. Rent is still relatively cheap here compared to insane costs to buy property. Hell I'm starting to think that it makes more sense to perpetually rent at 1K a month, than to buy a 500K house (common/average) considering property tax alone is like $500 a month on a 500K house.

I have a friend, her parents recently sold a 750K house in OC and decided to start renting again. Let's say her parents made like 400K off the sale, at 1K a month rent, they could pay rent for the next 33 years. :Q

 

[Fingers]

Originally posted by: OS
I wonder if this is profitable at all in CA given the disparity between the cost to rent and the cost to buy property. Rent is still relatively cheap here compared to insane costs to buy property. Hell I'm starting to think that it makes more sense to perpetually rent at 1K a month, than to buy a 500K house (common/average) considering property tax alone is like $500 a month on a 500K house.

I have a friend, her parents recently sold a 750K house in OC and decided to start renting again. Let's say her parents made like 400K off the sale, at 1K a month rent, they could pay rent for the next 33 years. :Q

Makes a lot of since to have somebody else pay your mortgage for you doesn't it?

 

[thedarkwolf]

I am trying to do that here since houses are so cheap. You can pick up 2br duplexes and a few triplexes for around $40k here and have one side pay the mortgage with a little left over. I just can't scrape up a down payment. Think I am going to raid my retirement fund since I think this would be a greater return.

Anybody have HUD aprroved rental properties? Just wondering how that works and what all HUD will cover. One of my friends thinks the HUD people will cover damage aswell as rent.

 

[thomsbrain]

crazy, i have just been thinking about doing this too, because my cousins are getting into it over on the east coast and doing well with it, AND my local newspaper just ran an article on people doing this. in fact, all my family members do this except for my parents, whose own house is owned and maintained by my mom's work and they own several paid-off properties as well. but my aunts and uncles all own properties and rent them out. my cousin is 25 and owns like 9 proporties. he owes an incredible amount on all the mortgages, but he does the work on them so their value increases, and he's building a crapload of equity every month, even if he doesn't make pocket money off of them. if he liquidated everything he'd be a millionare already. my grandpa, who ALSO did this for many years, has been pretty generous with loaning my cousins money for down payments...

this seems like such an obvious way to invest your money. there is very little money to be made in the short term, but in the long term you're making great money. there is some risk obviously, and lots of work, but overall and over the long haul, real estate is a pretty sure-fire investment.

 

[stnicralisk]

Originally posted by: thedarkwolf
I am trying to do that here since houses are so cheap. You can pick up 2br duplexes and a few triplexes for around $40k here and have one side pay the mortgage with a little left over. I just can't scrape up a down payment. Think I am going to raid my retirement fund since I think this would be a greater return.

Anybody have HUD aprroved rental properties? Just wondering how that works and what all HUD will cover. One of my friends thinks the HUD people will cover damage aswell as rent.

In general HUD people dont destroy houses because their free rent will be taken away.

 

[Orsorum]

I've thought about getting into real estate in the Seattle area for a long time; unfortunately I haven't had the time or the knowledge to pursue it yet. The fact I'm a college student doesn't help either.

 

[stnicralisk]

Originally posted by: thomsbrain
crazy, i have just been thinking about doing this too, because my cousins are getting into it over on the east coast and doing well with it, AND my local newspaper just ran an article on people doing this. in fact, all my family members do this except for my parents, whose own house is owned and maintained by my mom's work and they own several paid-off properties as well. but my aunts and uncles all own properties and rent them out. my cousin is 25 and owns like 9 proporties. he owes an incredible amount on all the mortgages, but he does the work on them so their value increases, and he's building a crapload of equity every month, even if he doesn't make pocket money off of them. if he liquidated everything he'd be a millionare already. my grandpa, who ALSO did this for many years, has been pretty generous with loaning my cousins money for down payments...

this seems like such an obvious way to invest your money. there is very little money to be made in the short term, but in the long term you're making great money. there is some risk obviously, and lots of work, but overall and over the long haul, real estate is a pretty sure-fire investment.

Yes, this is what I am interested in doing. I am not very conserned about positive cash flow over all, however I would like to enjoy some safety buffer between expense/profit.

I am not the most handy of men - however I am only 23 right now and I am a quick learner. I do however know some people who happen to be very handy. I know someone who paints for a living with his own business and I know someone who does carpentry. As far as plumbing etc I would rather leave it to the experts anyways. I am not worried about losing 1 to 200$ on a particular month (obviously dont want this trend to be an every month ordeal) I am more interested in the nest egg that develops. I would like to retire before I am too old to enjoy it.

 

[stnicralisk]

Originally posted by: Orsorum
I've thought about getting into real estate in the Seattle area for a long time; unfortunately I haven't had the time or the knowledge to pursue it yet. The fact I'm a college student doesn't help either.

I am a college student as well. I am researching for the future. I graduate next Fall (if the right classes are offered! UGH!) and I want to begin preparation for retiring as soon as I begin work.

I also have Forbes magazine and I am interested in investing in foreign currencies that I believe will outpace our lackluster dollar. Unfortunately I wont have money until March.

 

[Nuriko]

stnicralisk~
As far as information goes, I could go on and on, but I don't really want to type it all up But I suggest reading Landlording by Leigh Robinson (the bible for landlords), there should be a copy at your local library. Online there is mrlandlord.com for landlord specific issues, including a great forum section. Finally, there is the mother of all real estate investment sites creonline.com with forums, articles and so on. As far as the market for rentals, I feel that b/c of the low interest rates for the past two years, more people have tried to sell rental properties as well as many tenants with halfway decent incomes and credit scores have bought their own houses, both of which result in overvalued property with a smaller pool of not so great tenants (granted, there are still a lot of good tenants, it's just they can be a bit more picky about where they live, oh and rents seem to have been stable or even gone down in many places, along with the higher vatancy rates). But that's just my view.

There are still some great deals to be found, they just take a bit more trying than they used to. As for your idea about the lower rate, it should be fine, though I would suggest that you live in the property you buy for at least 6 months and preferably a year or longer. You can pm me with any other questions you have.

 

[ThePresence]

Originally posted by: stnicralisk

Originally posted by: thedarkwolf
I am trying to do that here since houses are so cheap. You can pick up 2br duplexes and a few triplexes for around $40k here and have one side pay the mortgage with a little left over. I just can't scrape up a down payment. Think I am going to raid my retirement fund since I think this would be a greater return.

Anybody have HUD aprroved rental properties? Just wondering how that works and what all HUD will cover. One of my friends thinks the HUD people will cover damage aswell as rent.

In general HUD people dont destroy houses because their free rent will be taken away.

Unfortuantely, that's not really true. I'm a property manager and several complexes which I manage are HUD properties. They are generally damged much worse than non-HUD properties.
No, HUD doesn't cover damages, why would they?

 

[NL5]

Originally posted by: DrPizza
I'm curious about home equity loans on rental properties - can you pay cash for a rental property, and turn around and use it as collateral for another property?
That sounds too easy.. but around here, you can pick up houses occasionally for 10-20k and rent them out for well in excess of mortgage and taxes.

However, the caveat is that many of the people renting in areas where mortgage is less than rent are doing so because they don't have good enough credit to purchase a home themselves, or they don't want to be bothered with the costs of upkeep on a house.

You can borrow up to 80% LTV in general on rental properties, and pay just a very small amount in extra interest.

I just refi'd my rental.

 

[LuckyTaxi]

Yep - you'll need 20% for downpayment. However, one way around it is, if it's under 5 units, then it's consider a normal mortgage and you can get it for less downpayment. Anything over 5 units is considered a commercial property. Dont ask why but it is.

My business partner and I are heading to an untapped market in our area. There are triplexes for $50k and with the rent, it will cover the mortgage and then more. You can use the equity from the house if it's paid off or close to being paid off. We plan on doing this once we fix our triplex we bought. We paid $50k and it's worth $133k. That's a lot of equity which we plan to pull to buy some more rental properties.

 

[cainsdive]

One bit of advise I can give you is do your research on the area you are interested in. Also join an investment group, lots of free advice. Suggest you take an investment course in property as well. I know there are some good areas in Florida. CA is a bust unless you can handle a negative each month. We invested in LasVegas, but when you invest in a nouther state you have to have a property manager.
Be carfull and you can do it. Have fun:beer:

 

[Vic]

Do like your parents did and think long-term. Buy a house to live in, do so for a couple of years, then move and buy another one, keeping the old one as a rental. After a decade or 2, you will have quite a number of rental properties, all of them a write-off on your taxes, and all of them getting their mortgages paid off by someone else, i.e. the renters. You'll have a tidy nest egg when you retire.

I suggest the owner-occupied route because (1) there are no zero down loans for rental properties like there are for owner-occupied properties, and (2) owner-occupied financing is less expensive and easier to qualify for but only requires that you intend to live in the property for the first 12 months.

The key issue to watch with rental properties is cashflow. Are the rents paying for your mortgage and maintenance costs? If you have a large income and can afford negative cashflow, that's great, because you can simply write the negative straight off your tax returns and it's as though that income never existed. If however you can't afford the negative, or losing rent on the property for just one month could cause you get behind of the mortgage, then you might want to re-think your plan.

Also, mortgage interest on rental properties is not I repeat NOT tax deductible. That is a common misconception. In order to deduct mortgage interest from a property, you must live in the property for at least 14 days or more each year. Instead, taxes on investment properties are calculated income and loss style, with rents received in the income column and mortgage payments and maintenance in the liabilities column. If the net comes out to a profit, you pay taxes on the profit and fire your accountant. If the net is a loss, then you can write that loss off your taxes pre-AGI. If you break even, then you pay no taxes but someone else is still making that mortgage payment fr you.