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Location: Formerly Pleasanton Ca, now in Marietta Ga
10,351 posts, read 8,576,900 times
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Quote:
Originally Posted by Listener2307
It would have to be sort of a perfect storm, wouldn't it?
I mean, (A) I would have to lose my job, (B) the units would have to be empty so they couldn't pay for themselves, (C) I would have no money in savings to see me through, and (D) this would have to go on for several months in order for the bank to foreclose.
Not likely.
At any rate we did suffer the usual ups and downs during the 15years it took to pay them off, but it all turned out alright.
I have never - never in my life, even when I delivered papers for $4.50 a week when I was 10 - spent my entire paycheck before I got the next one. I think I was born that way.
I'm not saying what you did was right or wrong, but I will say that you already went through it at a time when jobs were perhaps more stable. During those ups and downs did anyone lose their job for a considerable time? In the future I expect a lot of people will not hold jobs for as long. I think you are older like me and have the majority of your working years behind you. For people today the idea of having a steady job you will hold for 30 years and never get laid off is becoming more and more rare. Technology, outsourcing, things like that can make what seems like a forever job end a lot sooner. I think many wil have interuptions in their earning years from here on out compared to people in the past.
The perfect storm isn't a worry until it is. What if in your lifetime you had a debilitating illness and only one person worked? Perhaps you might not have been able to meet all bills. The last crash of 2008 many things you listed did happen. Job loss, empty units, people ran out of money, etc.
If you have a large amount of income and cash reserve, sure pay it off in 15 if you like. But if you lose any of that and you are trapped in a 15, things might not go well. As I said with the 30 you have lower payments and always the option to pay it off in 15 years. Once locked into a 15, if you need the lower payments you are stuck. Cash is king
Location: Formerly Pleasanton Ca, now in Marietta Ga
10,351 posts, read 8,576,900 times
Reputation: 16698
Quote:
Originally Posted by artillery77
This. If you're buying correctly, and it appears you are, the rental will pay for itself. Whether you stuff the profit into the loan or put some aside until you have enough to make the biggest logical repair this is a doable deal.
A quick and dirty rule of thumb. Buy below 10X annual rents, Sell above 20X annual rents.
As someone from the bay area, you know that rule is pretty lose. All real estate is local. That 10x rule can be blown out with other expenses like areas of high property taxes like Texas, Michigan, or Wisconsin or high insurance like southeast coastal regions where wind, flood, and fire insurance alone can eat the entire year of rental income.
In the bay Area, even at the last great recession that might well have be the best time to buy, It was the only time to buy and even then 10x was very rare. In all my years of real estate that has been the only time to see 10x and that was a house bought from the bank that was right at 10x. Never saw that deal before or after that time. By your rule no one is going to buy any rentals in the bay area.
I bought 2 single family rental homes at the depth of housing crisis. Have worked out well for us. This probably won't bother most people, but once you get into rentals, the complexity level of your tax returns is much higher. You have to deal with depreciation and amortization.
And all that deprececiation you take (mandatorily) is recaptured when eventually sold.
Location: We_tside PNW (Columbia Gorge) / CO / SA TX / Thailand
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If possible I would buy (2), but.. I much prefer commercial (no bedrooms / triple net tenants).
If not for RE... I would have still been a 'wage slave' at age 50 (There are better things to do with your time)
I only buy stuff that:
1) Rents for 1% . month of Gross capital price (=~10% net) $100k prop must rent for $1000/ month
2) That I can sell for 110% tomorrow (cost of sale) =undervalued
3) I prefer to mortgage my rentals (100% deductible against income) and keep building a portfolio to pay the rentals off (if needed) or to buy more. When the tax returns say that is a good idea (not yet).
...or should we be putting our money somewhere else?
Yes. Do that.
If your post included even one sentence about any trade skill or mechanical capabilities...
I'd still have discouraged you from going into the retail land-lording business.
If you want to be in real estate... look at the REIT's
I bought 2 single family rental homes at the depth of housing crisis. Have worked out well for us. This probably won't bother most people, but once you get into rentals, the complexity level of your tax returns is much higher. You have to deal with depreciation and amortization.
And all that deprececiation you take (mandatorily) is recaptured when eventually sold.
I was an experienced Landlord who had taken a 20 year break to focus on a demanding career and personal life when I bought 10 single family rentals in the slumped housing market period 2009 - 2012. At that time, I was 59 years old and this was part of my “retirement plan.” Paid cash. All had deferred maintenance and I spent about 10% over purchase price on each to put into service. Each house supported itself in expenses and had below 5% vacancy rate. I didn’t use any profit for personal income...but each house had its own savings account and all income supported ongoing expenses. My concept was when each had savings that equaled the cost of the original purchase, I would sell the house at market value (which should be at least purchas price) and — after sales expenses — likely double my money.
So, I sold 3 of these properties that ripened according to plan between 2013 - 2016. Good profit that helped me recover from stock market losses during 2008. One impact that is a downside was the increased medicare premiums we must make because all investment income is regarded as pure income for medicare premium calculations. Oh well.
At this time, all but 3 of the remaining properties have “ripened” and I am ambivilent about selling. They produce a nice income and I have started pulling funds from them for personal use.
I think its important to understand what the acquisition and disposal goals are, how funds will be utilized, etc. as with any investment. But rental properties are ACTIVE investments. IMHO, to maximize profit, the owner should be quite “hands on” ..... especially in tenant selection and maintenance issues. One should expect a decent return to pay for the personal involvement needed to sucessfully manage rental properties. Otherwise, just invest in CD’s and get less return but have more personal freedom.
During my Active Duty career, I have known many sailors who bought Single-Family homes at their homeport. Then after 3 or 4 years when they were transferred on to their next duty station, some of these guys would turn their house over to a Property Manager to rent. It is very rare for any of those guys to break even renting a Single-Family-Residence.
Location: Formerly Pleasanton Ca, now in Marietta Ga
10,351 posts, read 8,576,900 times
Reputation: 16698
Well all this is good info and probably has the op wondering what to do even more. Many viewpoints and all valid.
To the op, IMHO real estate is often not a one and done. Do your best, but don’t be surprised if you make less than you project. The first rental is often like an education. Your payoff is whAt you learn for the next one.
Real estate was good for me allowing me to quit working after 5 years. I have a Few friends in their 30s that no longer work thanks to real estate investing for 5 or 6 years. We’re not talking about 50 k either. One is over 200k and just traveling the world.
Location: Formerly Pleasanton Ca, now in Marietta Ga
10,351 posts, read 8,576,900 times
Reputation: 16698
Quote:
Originally Posted by WorldKlas
I was an experienced Landlord who had taken a 20 year break to focus on a demanding career and personal life when I bought 10 single family rentals in the slumped housing market period 2009 - 2012. At that time, I was 59 years old and this was part of my “retirement plan.” Paid cash. All had deferred maintenance and I spent about 10% over purchase price on each to put into service. Each house supported itself in expenses and had below 5% vacancy rate. I didn’t use any profit for personal income...but each house had its own savings account and all income supported ongoing expenses. My concept was when each had savings that equaled the cost of the original purchase, I would sell the house at market value (which should be at least purchas price) and — after sales expenses — likely double my money.
So, I sold 3 of these properties that ripened according to plan between 2013 - 2016. Good profit that helped me recover from stock market losses during 2008. One impact that is a downside was the increased medicare premiums we must make because all investment income is regarded as pure income for medicare premium calculations. Oh well.
At this time, all but 3 of the remaining properties have “ripened” and I am ambivilent about selling. They produce a nice income and I have started pulling funds from them for personal use.
I think its important to understand what the acquisition and disposal goals are, how funds will be utilized, etc. as with any investment. But rental properties are ACTIVE investments. IMHO, to maximize profit, the owner should be quite “hands on” ..... especially in tenant selection and maintenance issues. One should expect a decent return to pay for the personal involvement needed to sucessfully manage rental properties. Otherwise, just invest in CD’s and get less return but have more personal freedom.
What I like about this was that there was a plan in place.
I think that real estate should be an active investment, at least until you know how it all works. At that point you can hire a good manager who won’t be able to pull the wool over your eyes and will pretty much make it passive. For my 25 rentals I have an hour or 2 each month as the manager does most of the heavy lifting.
As someone from the bay area, you know that rule is pretty lose. All real estate is local. That 10x rule can be blown out with other expenses like areas of high property taxes like Texas, Michigan, or Wisconsin or high insurance like southeast coastal regions where wind, flood, and fire insurance alone can eat the entire year of rental income.
In the bay Area, even at the last great recession that might well have be the best time to buy, It was the only time to buy and even then 10x was very rare. In all my years of real estate that has been the only time to see 10x and that was a house bought from the bank that was right at 10x. Never saw that deal before or after that time. By your rule no one is going to buy any rentals in the bay area.
Shopping in the pretty areas perhaps. I live in San Jose, but my living on my own years were in arguably up and coming parts of Chicago...making me laugh at the concept of San Jose having a ghetto. We had a ton of 2 bed condos on offer from the mid 100's and homes in the high 200's that were pretty close to turnkey condition. And I would agree that it didn't last very long. A lot of the first foreclosures in 08/09 were completely ratted junk. If I'd had more money though. I took my roommate with me and she called them monster homes. Bashed in walls. Two had basements filled with water that were setup for it. Another one was really scary water...so black and the basement was full. One had let their dogs poo all over the floor and you almost threw up on entering (I wanted to buy that one by my agent said on general principle she wouldn't let me, I relented). There was a beauty of a 3/3 in Hayward along the reservoir, but the agent was obviously working an inside deal of some sort and took a much lower bid than mine....can't get em all.
What happened is all of this crap was on the market, dragging down neighborhood values. That was the only volume happening...and it dragged down the neighboring properties and people starting no equity suddenly saw that they were paying ballooning rates for a property that was worth $200K less than what was owed. A lot of the short sales worked because they were literally going to buy a property in the same complex before their credit turned to siht and then sell property handing the loss back to the banks. I didn't get it, but I used an FHA bid for a 4 plex for $505 2 blocks away from where nice built up downtown stopped. I was amazed at how many homes I didn't get. And I wanted to bid on more, but my agent (who later left the biz but was a nice guy) was confused as well. We eventually got my first place by bidding $150 for a list of $120 for a 2/2, so at least I got him something. So I started going to listing agents. I had enough examples to look for the differences and inquire on them...so why now?
I scored a 1/1 in S. Fremont for $149, but the beyotch seller then came back and wanted an extra $10K for her troubles. There was a 5 bed home on Cunningham that I got for $225 plus there was a bad garage conversion (that I changed back). That's when I realized that these short sales on the decent homes would ONLY go if I double ended with the listing agent. (They then get 6% for the same amount of work and an easier transaction) What was great is if I could be that guy, then these agents were also helping me get financing. Once you're approved by the banks, that's the sale. They don't want it to fall down.
From there you just go right to the listing agents on short sales or foreclosures. My last one was the only one where I got pressure to go up. The golden age was done and I got the last rose. Beauty of a home on a huge corner lot. Listed at $400, zillowed at $475, and a former contractor home. High grade everything inside, none of which was listed in the listing. It was a dream home (for those that can dream in less than 2000 sf) and in decent schools. Anyway, while it listed for all of 2 days, they came back and said they needed another offer, so I went to $410. Ended up getting it for $400 so it wasn't even the highest offer from me. Bank of America and Chase combined lost about $360K on that deal. The old owners were able to get another place beforehand.
I looked at one home in Pleasanton that fell in the price range, but the jerk tenants had ripped out all the copper and appliances which was a shame because it was a newer townhome. I don't know anyone that can fix stuff that far out so it had to be turnkey for me.
Anyway it was here in the Bay Area. It really was. A lot of condo Associations needed special assessments around that time because people weren't paying. Your area to look is those areas that never got enough to be desirable, but had some decent new construction in them. Condos built in 2006 (like 88 Jackson) were just decimated. In the next downturn....all these million dollar plus townhomes that are being bought by people last in to the area....I'm going to be watching them.
But yeah, I looked at properties in San Francisco once and concluded....no thanks, not my game. I'll stick to the working class. People with low expectations that actually enjoy having a place nicely decked out for them.
Next month (depending on speed) may mark my first empty month on any unit. Tenants have lived there since 2010. We're still very friendly, but they've had some success, and after 4 people have lived in a admittedly small 2/1 for 9 years, they're ready for something bigger. So I'm going to drop $6K on the place and get some better windows installed to bring in more light, add some insulation, repaint, make the closet more functional and replace a wall that got damaged, get some more outlets and hang some new cabinets. I want to switch to natural gas dryer and water heat as well. Basically, I want it to look new and am not sure how long it will take. But the last tenant has paid me over $100K, so I figure there's plenty of room for some work in there. As I jump on craigslist for the first time in years it looks like my greedy price adjustment up to $1700 may be a little low....and I've got a small pang of sympathy for the rent stabilizing folks, though still against the gov't control. I'm 800 ads in and I've seen exactly 1 ($1,995) for less than $2,000. I guess $1700 should get plenty of demand, hopefully I can help someone nice.
Anyway, it was here. It happened. It made me more money than working as a CPA did. Those greedy landlords charging $4K for a modest townhome are the ones to watch. When the next downturn comes, if they start losing money at $3500 they bought too high. When you buy low, you can slide down the price line without a problem. The new buys are in trouble if we drop too much....when they get in trouble, they sell, which puts pressure on the next group until demand stabilizes, setting up the next buy season. There was certainly money to be made after 2012 in home acquisitions, but I was already leveraged to the hilt and I wasn't a pro...I needed the price advantage while learning. Now they just pay off the loans, and I should be in a decent spot come the next downturn.
I'd also agree with you that the Bay Area is different. It actually swings up and down. Most places have periods of modest increases with slow markets with barely perceptible decreases. They don't have home price appreciation of 300-400% a decade on the "ghetto" properties, only to crash back down 50-60% and repeat. Personally, I think we've topped for a bit. If I were following my own rule I'd be selling...if I was a steely corp I'd be raising rents on the existing tenants...maybe I'll just be lazy.
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