Anyone have rental properties?

[Jesse]

Me and the wife have been saving and wanted to make a smart investment in a few years. I wanted to buy into a franchise. She wants to buy and rent  properties.   Which isn't a bad idea cause I'm a good handyman after 10 years of construction. She is finishing up her masters degree and is very book smart.   She wants us to retire at 55 if possible.  

 

Anyways I told her we should start with a couple of trailers, then move on to house auctions.  Do any of you guys have experience with rentals?   Is this a smart investment and should we even dip into the whole trailer thing?  No bank loans are going to be used. We are just going to use our savings for the long term investments and let it snowball.   

[charlessummers]

I spent much more money than I made the one year that I decided to rent our old house. The only person that made money was the rental agent...

[bersaguy]

there are Pro's to it and Con's to it and I would look at ever aspect of it before I put my life savings into it..........jmho

[Randall53]

I had 6 one time. Rentees have all the advantage over rentors and they know it. It was a nightmare and I lost my a$$. Maybe you will do better. Good luck.

[UncleJak]

I assisted with one and it was waay more hassle than I imagined. I ended up selling the house for them and it was the best idea ever. I'd pick something else unless you plan on being a slum lord.

sent barefoot from the hills of Tennessee

[Guest TheDrip]

It all depends on your tenants.

 

I used to manage 24 units (8 triplexes). Took a while, but I finally convinced the owner that empty units were less of a loss than bad tenants. For years he had filled empty rentals with the first tenants that came along, and never made money. Once he got a little pickier, he made money at it.

[tnguy]

I am currently and have good tennants at the moment. It's a long game though and can be costly and annoying for periods of time.

 

Trailers may be a good start. You are fishing more towards the bottom of the barrel but there's a lot of good people who just aren't making lots of money (and that's likely to grow). The agent who manages our trailer ran background and credit checks on our potential tennants.

 

Oh, in addition, rentals are likely to become more in demand once the last (and probably next) round of mortgage bailouts fail spectacularly. I also (and this is just my opinion) would consider not putting your whole savings into it. Make sure to diversify. If you are successful, reinvest into property but not all of it.

 

One more, whatever you do, don't be a long distance landlord. At least 50% of the issues that have been arisen, that has been a factor. It also means you usually can't do emergency work yourself if needed so that's $$$.

Edited September 29, 2013 by tnguy

[frankmako]

if you do low end rents, then you get low end renters.  lots of problems and you lose your money.  if you go for high end, high dollars units, then you can have a better renter.  do background checks (pay a pi to conduct the checks), have lots of rules on the contract.  check the property  bi weekly to see what is going on.  even if it only a drive by to look at the outside.  there is more dirt bags and dead beats than good renters out there.  good luck, when the police finds the meth lab in one of your units. 

[McGarrett]

Jesse,

 

I have one rental house. We used to live in this house but started renting it when we built our house in 2002, we have 10 acres so the houses are not right next door. Me and my wife both handle some of the rental house duties. I would say go for it, the trailers sound like a good way to start out. I had a friend who had a double wide that he rented and he did ok with it. I will list below a few key items.

 

1. Be selective who you rent to: background checks, credit checks, gut feelings, etc. We use a service call Tenant Check. We interview potential renters and try to make sure they are good people. You can't win them all but it pays to not go with the first person that comes along because you feel desperate.

 

2. Rent: The friend with the double wide gave me a piece of advice about setting your rent. You do not want to be the cheapest around. Do not gouge but you may do better asking a little more toward the upper limits of what the going rates are for your properties. Low rent... well it explains itself. Make sure to iron out all payment terms and such up front and stick to your guns on any late payment policies or procedures you put into place. Remember to treat this as business and don't let it get too personal, almost as if you are answering to someone else, even though you are not, so that you do not make exceptions to your own rules.

 

3. Lease: Make sure you have a good lease. You might even want to involve an attorney if you have one you trust, I'm laughing as I was typing that. There are probably some leases you can download from the web and customize from there. Make sure to spell out things very clearly and go over all of this up front with them. You may have certain things to add like how many vehicles they can park on the property, restrictions on boats, rv's or trailers, vehicle maintenance, etc. Just remember if they tow some old car in there and pull the engine out of it and move away you are left to clean up the mess. I find this procedure very similar to dealing with employees at our business. Better to go over what is expected up front and you will find that things go better in the long run. I think one key thing is making sure you put something in there about waiving notice of eviction, this speeds things along in the event they do not pay rent. I do not have our lease in front of me. Keep in mind that laws vary from state to state so do your research if you do not use an attorney. I could probably email you a copy of the lease I use.

 

4. Damages: Make sure you charge a damage deposit that will cover carpet cleaning, painting, repairs, replacements, etc. in the event that they leave the place a mess. Inspect the property regularly. Know what is going on there and who is really living there. 

 

I think you and your wife would make a good team given your background in construction and her book smarts. Don't plan on making a killing at it and believe me there are ups & downs. Going into it not having to borrow money is a huge advantage. Hope this helps you out. Feel free to pm me later on when you get further along if you need any more help.

Edited September 29, 2013 by McGarrett

[Lumber_Jack]

Only advice I can offer is stay away from mobile homes. It's the only home that depreciates over time regardless of upkeep and maintenance.

[bersaguy]

TheDrip and tnguy pretty much summed it up so I will elaborate more on my previous post. I have been renting this 2 bedroom cottage I live in with is part of a triplex with has a Duplex up in front of me. I have been living here almost 15 years. The people in the front two units have been here as long as I have or longer. We have a great landlord that has not raised our rent in over 7 years and the rent is affordable and all of us here live on Social Security. I'm sure they could get more for rent than they do but they have said they would rather have people living in their  properties that will take care of their property and pay their rent on time.  We all got a shock when we learned that one of the two had passed on and the lady was putting the property up for sale. That is scary to have learned because you never know what the new owners are going to expect. I have another place to go that I could have moved to 10 years ago which is a father in law house behind my daughters home that is setting empty just waiting till I move out there and I would not be paying any rent. It is just a little farther out in the country than I would like to live but at least I know I won't be living under a bridge someplace on the street.   Good luck with that ever you decide for your future........ :up: :up:

[waynesan]

I rented a home twice several years ago and both times I had to take the renters to court to get my rent. They were crooks and deadbeats and had no intent to pay what they owed. I decided then I was not intended to be a landlord. Sold the house and never looked back.

[tnguy]

if you do low end rents, then you get low end renters.  lots of problems and you lose your money.  if you go for high end, high dollars units, then you can have a better renter.  do background checks (pay a pi to conduct the checks), have lots of rules on the contract.  check the property  bi weekly to see what is going on.  even if it only a drive by to look at the outside.  there is more dirt bags and dead beats than good renters out there.  good luck, when the police finds the meth lab in one of your units. 

 

Had a good renter. He was top notch. Then he moved out and his wife went off the rails. That was a nightmare. And expensive. Like I say, it's a long game sometimes.

[Jesse]

Thanks guys, I have a buddy that is doing the same thing, he already bought his first house a year ago. Said he had 15 people wanting to rent it before he had it ready to move in. But he also got bad renters. They were dating and split up while renting, the guy left and the girl didnt want to leave. She was a bit of an issue but finally left. My buddy was smart to take pictures inside the house before she left In case she tried to mess it up. It didnt take him long to rent it again. We arent doing it to get rich. I actually would rather that be my job than the crap I do now for someone else. And maybe down the road we could live better and hand the business down to our kid/s. Its just scary to dive into something new on that scale.

[Patton]

I have learned from my parents mistakes, good guys get taken to the cleaners with rental property. If you can't kick someone out who is a week late on rent you will loose your ass, just to give you an example. You will hear every type of experience imaginable. Some folks do ok, some pay their lawyers more than they would have ever hoped to have made. Like someone else said, renters have all the rights, don't think that all it takes is 30 days to evict someone. If they try to sue you they can be there a long time, and they don't have to pay while doing so. I am not saying it is completely bad, it's just not a sit back and collect money adventure like most believe. If there was a for sure way to retire at 55 I and everyone else would be doing it. Commercial renal property seems to be where it is at, I don't know this for sure but some of the richest people I have known had commercial rental property.

[jeffmem]

What franchises are you looking at? Don't rule out section 8 if you are going in to the rental business.

[analog_kidd]

We had three rental houses, but just sold one (to my son and his new bride), and they have been very successful for us. I buy foreclosures and serious fixer-uppers. My strategy is to buy them at a very inexpensive cost and fix them up to a top notch property. I've found that if you have a really nice house, you can charge a better rent,  get a better renter and rarely get calls about something being broken.

 

We do credit checks on potential renters, and my wife has a Spidey sense about people, so she is always included in the interview process. Plus we do not take HUD, or allow anybody to be creative in paying the security deposit or rent, i.e. "I'll pay the security deposit next month". Come with everything or don't come at all. And we advertise them as no pets. If we like the renter and have a good feeling about them and the pet, we'll allow a small animal, but they have to pay a $200 non refundable fee up front.

 

We took out a HELOC on our residence to use for purchasing the rentals. We use the HELOC for the 20% down payment and the repairs during the initial remodel. We buy the house with an interest only loan. While we are remodeling, the mortgage and HELOC payment is about $100 a month, so not a big deal to cover. Once the remodel is done and we are ready to rent, I have a ton of equity in the house, since I bought it cheap, and did all the remodel myself. With so much equity, I can refinance the whole house, pay off the Interest only loan and the HELOC. The mortgage on both of the houses we currently have are about $300 a month (including tax and insurance) and we make an average of $700 a month on both properties.

 

I take all the profits and am paying down the mortgages. I never pocket any of the money, but I will put a little bit aside for repairs. I'm taking the profit from both houses and paying down the mortgage on one of the houses. I ran the numbers and discovered that by doing it that way, I could have one house totally paid for in just a couple of years, without a single dollar coming out of my pocket. Then I'll focus on the other house and pay it off in a few more years.

 

I started off by putting all the rentals on a month to month lease. I figured that if I got a tenant that was going to walk out on me, there wasn't much I could do and it would just end up costing me money for a lawyer if I wanted to try and get what owed to me. I also read that on a monthly lease, it make evictions easy, since you just cancel the lease and kick them out. Now I am leaning more toward having them sign a year lease that converts to a monthly. Most folks will easily live in a house for a year, and then it makes it easy if they want to move on after that. I figure if they can easily get out of the lease, they will do it and respect my property in the process. Beside, I have no problems renting my houses, so I'll find someone, and probably raise the rent in the process.

 

I have heard of landlords who build rent increases into the lease, 15% a year for example. I haven't tried that yet. I figure that I would rather have a good tenant and keep the rent the same, than to be greedy and get more money. But that's just me. Maybe I'm too easy going.

 

My goal is to have about 4 or 5 rentals, totally paid for, by the time I retire. I figure rents will be close to $1000 a month by then. An extra $4-5k a month will nicely supplement my retirement savings. By then, I'll probably turn them over to a management company do I don't have to deal with anything.

 

When I buy my next one, I think I'll start an LLC and move the properties into that. It will help protect me if I do get a crazy tenant. I also got a checking and savings account that I use strictly for the rentals. It makes it easy to do the accounting. I also bought Quicken Property rental Manager software, which is pretty good at keeping track of everything.

 

I have a lease that I got from someone who had their lawyer write it up. I took it and used it as a starting point and found some others online to write my own. I'll gladly email it to you if you PM me your email address.

[Patton]

Analog_Kidd, I am only going off of what others have told me but they say it is much easier to evict and sue if you have a lease than if you don't. I used to be a cop in a town with lots of rental properties, even though there wasn't much I could ever do to help anyone I often got called and explained all the difficulties wih tennants. I heard more than once that if the lease had no expired they would have been gone yesterday.

[analog_kidd]

Patton, I do have a lease, and it is written such that it spells it out that it is for one year and then converts to monthly after that. Are you saying that the lease would give me trouble? If so I had no idea and probably should have it reworded. I've had other rental property owners tell me that is how they do it too.

[seez52]

Rental is good with good tenants its a nightmare with bad ones. Eviction rules varies by county in TN. Buy properties carefully and try to determine what the neighborhood is going to look like 10 years from purchase. Inspect every 6 months. Don't buy trailers, ever. Purchase properties with an eye toward selling them. I like duplexes but they tend to be in neighborhoods with other duplexes which is not usually good. Analog has a sound plan. Edited September 29, 2013 by seez52

[Jesse]

We had three rental houses, but just sold one (to my son and his new bride), and they have been very successful for us. I buy foreclosures and serious fixer-uppers. My strategy is to buy them at a very inexpensive cost and fix them up to a top notch property. I've found that if you have a really nice house, you can charge a better rent,  get a better renter and rarely get calls about something being broken.

 

We do credit checks on potential renters, and my wife has a Spidey sense about people, so she is always included in the interview process. Plus we do not take HUD, or allow anybody to be creative in paying the security deposit or rent, i.e. "I'll pay the security deposit next month". Come with everything or don't come at all. And we advertise them as no pets. If we like the renter and have a good feeling about them and the pet, we'll allow a small animal, but they have to pay a $200 non refundable fee up front.

 

We took out a HELOC on our residence to use for purchasing the rentals. We use the HELOC for the 20% down payment and the repairs during the initial remodel. We buy the house with an interest only loan. While we are remodeling, the mortgage and HELOC payment is about $100 a month, so not a big deal to cover. Once the remodel is done and we are ready to rent, I have a ton of equity in the house, since I bought it cheap, and did all the remodel myself. With so much equity, I can refinance the whole house, pay off the Interest only loan and the HELOC. The mortgage on both of the houses we currently have are about $300 a month (including tax and insurance) and we make an average of $700 a month on both properties.

 

I take all the profits and am paying down the mortgages. I never pocket any of the money, but I will put a little bit aside for repairs. I'm taking the profit from both houses and paying down the mortgage on one of the houses. I ran the numbers and discovered that by doing it that way, I could have one house totally paid for in just a couple of years, without a single dollar coming out of my pocket. Then I'll focus on the other house and pay it off in a few more years.

 

I started off by putting all the rentals on a month to month lease. I figured that if I got a tenant that was going to walk out on me, there wasn't much I could do and it would just end up costing me money for a lawyer if I wanted to try and get what owed to me. I also read that on a monthly lease, it make evictions easy, since you just cancel the lease and kick them out. Now I am leaning more toward having them sign a year lease that converts to a monthly. Most folks will easily live in a house for a year, and then it makes it easy if they want to move on after that. I figure if they can easily get out of the lease, they will do it and respect my property in the process. Beside, I have no problems renting my houses, so I'll find someone, and probably raise the rent in the process.

 

I have heard of landlords who build rent increases into the lease, 15% a year for example. I haven't tried that yet. I figure that I would rather have a good tenant and keep the rent the same, than to be greedy and get more money. But that's just me. Maybe I'm too easy going.

 

My goal is to have about 4 or 5 rentals, totally paid for, by the time I retire. I figure rents will be close to $1000 a month by then. An extra $4-5k a month will nicely supplement my retirement savings. By then, I'll probably turn them over to a management company do I don't have to deal with anything.

 

When I buy my next one, I think I'll start an LLC and move the properties into that. It will help protect me if I do get a crazy tenant. I also got a checking and savings account that I use strictly for the rentals. It makes it easy to do the accounting. I also bought Quicken Property rental Manager software, which is pretty good at keeping track of everything.

 

I have a lease that I got from someone who had their lawyer write it up. I took it and used it as a starting point and found some others online to write my own. I'll gladly email it to you if you PM me your email address.

 

 

Thanks for the on hands insight!  I like hearing from people who are actually doing it and what problems they have learned.  I'm hearing good and bad. I think the success depends on how people do it from the start.  My wife likes to take it slow and use cash. She's against loans when it comes to risks. She rather lose 10 years of her own savings than to owe a bank.  

 

 

I myself would rather buy into a franchise like the Dollar Store or Mosquito Joe ( up and coming pest control service).

 

 

[Patton]

Patton, I do have a lease, and it is written such that it spells it out that it is for one year and then converts to monthly after that. Are you saying that the lease would give me trouble? If so I had no idea and probably should have it reworded. I've had other rental property owners tell me that is how they do it too.

No, I have seen issues when renting without a lease.