Anyone in the rental property game?

[PocketElevens]

Ive been considering investing in a rental property for a few years now. Even though mortage rates are very low there seems to be no shortages of renters, and no matter what happens to the market, 25 years from now when the house is payed off and im ready to retire the property will be worth much more then it is today.

Im having trouble coming up with a plan since I hear so much mixed advice.
I know someone whos bought there second income property, all they do is go for a cheap house near a college with many bedrooms. The place isnt in great shape, but they really dont care since the students dont and you can rent 6 bedrooms out for $400 each.

Other people have preached the more units the better. Ive seen some houses that have been split into triplexs and it usually means cheap appartments. Cheap appartments can attract undesirable tennents.

Others say get a nice house, charge high rent and look for a good family. The price of the house will atleast double in 25 years. If you can sit back and have them pay off the mortage + a litte extra for repairs you'll have a nice chunck of change at retirement.

Anyone have experience with this? Any feedback would be greatly appreciated.

[hyde]

I have owned several rental properties. I hated it. the financial aspect was valid, it was the landlord aspect that I struggled with.
One thing I would do differently is not have entry level rentals. I admit I was a sucker for the sob stories and the promise of rent "next week". It helps to be a hardass.
I was also an absentee landlord, living in a different state for some of the time, I had to pay big money for simple repairs that I could have done myself easily.
I would consider a multi unit if I was going to live in one unit or nearby.
If you have carpentry skills, it can be financially rewarding.

[keikiwai]

i have a friend who uses a property management company to rent out one unit. he was picky about the tennants, and the rent is pretty solid, as it is in San Diego, Ca. but he hasn't had any major problems, and manages from Switzerland. repairs are expensive, but the rent covers it for him.

[PocketElevens]

[ QUOTE ]
i have a friend who uses a property management company to rent out one unit. he was picky about the tennants, and the rent is pretty solid, as it is in San Diego, Ca. but he hasn't had any major problems, and manages from Switzerland. repairs are expensive, but the rent covers it for him.

[/ QUOTE ]

This sounds like good advice for the Hydes troubles. Thanks both for the feedback.

I think the thing to do for repairs (since I dont have a lot of time) is to make sure the property generates a decent surplus, put it in a savings acount and if it grows above a certain point knock extra off the mortage.

It is my understanding that I want to put every penny of profit into the mortage or repairs so from a business stand point I make zero income

[slickpoppa]

[ QUOTE ]
25 years from now when the house is payed off and im ready to retire the property will be worth much more then it is today.


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In terms of inflation adjusted value, this is not necessarily true.

[bwana devil]

i own several units.

multiunits cash flow much faster but hardly ever appreciate. single family houses take longer to cash flow but appreciate faster.

you make your money off the appreciation. go single family. i hate the duplex i own. i havent raised the rent on the duplex in 3 years and it's worth the same amt. the single family barely covered costs when i first bought it. now i cash flow more than the duplex on it after 2 years and it's appreciated beyond what i had hoped.

when i weigh all the factors of looking at making $100 or $300 a month on rent from each unit, that's nothing in comparision to the $40,000 in apprecation the single family house has seen in two years.

my recommendation, dont get sucked into the quick cash flow and forego where the real money is.

bwana

[turnipmonster]

my folks did this for my whole life, and generally did very well with it. the key was they always invested locally in stuff that were near where we lived, and my dad did all repairs and rent collection and anything else that needed to be done on the weekends. management companies seem to charge a lot and I get the feeling it's not nearly as good a deal, but who knows. I know one person who owns property in sf and it's managed by a management company, he claims to not do very well with it and regrets the decision.

[talentdeficit]

i'm an out of state landlord. i let a management company look after everything for me. i have lost, on average, $72 per month since handing the property over to a rental company. i make about $210 over my mortgage payments each month, even after the management company's cut, but repairs, maintenance and a 23 day vacancy have hurt. i'm planning on selling as soon as my contract with the management company is up.

edit: i'm not implying this was a bad investment, i'm going to net a fairly signifigant amount when it sells, it's just not something i'm interested in keeping long term. i bought the property to live in, and only turned to renting it out when i was unable to sell due to a lien imposed by my ex-fiance.

[microbet]

[ QUOTE ]
multiunits cash flow much faster but hardly ever appreciate. single family houses take longer to cash flow but appreciate faster.

[/ QUOTE ]

This has been true recently in most markets, as rents have been relatively flat and the single family market has been hot.

Whether or not this is true in the long run is a little tricky.

On one hand, there is some truth to it because land appreciates and buildings depreciate. In general, a multi-unit property will have a higher ratio of building to land.

If you correct for this, it will not be true. Otherwise, single family properties would constantly be getting more and more expensive relative to multi-family properties.

OP, I have owned a few small apartment buildings. There are many many many possible problems. If you are starting with a small building, I think it is extremely important that you are very close to the property and that you make a number one priority of having good tenants with jobs and good credit. I don't really have much experience renting to students. I'm not sure about them. Either way, do not skimp on checking out prospective tenants. Also, management companies are generally not nearly as good as you would like them to be.

[Riverman]

I know someone who does student rentals in a college town. The houses are complete crap but the students don't care and they almost never ask for repairs/upgrades. Also it's generally pretty easy to find a reason to keep the deposit as there is often structural damage at the end of the school year.