Rental Houses? Should I or not?

[tommie gorman]

Most everybody I run into and talk to want to ask more questions than I actually have spare time for! So I would say that this is a hot topic.

Anyway there are 3 good reasons to go into rentals.

One to defer your taxes.(keep it out of Uncle Sams pocket)(I am tax free, ask my tax lady ) 

Second to do it for a job! (me)

Third to build a retirement nest egg! (me also)

And now down to a basic decisions. Do I really want to do extra work besides my job. Most landlords complain about it because it takes so much time. I spend about 6 hours a day.

And as I always say, if you want to get rich overnight, forget it! You are watching Carlton Sheets Infomercials too much. His theories went out about 30+ years ago. But as long as people will buy, why not keep it running. I would not sell you a house that you would want for no money down any day of the week.

By the way I have successfully started several people on their way.

So rather than bore you with my long yammerings, start asking! 

[j3grizz]

Ok, what are some easy ways to get started? Do you list the houses with the Gvt.? Would I need to talk with a tax professional? I have a very qualified accountant @ my Church. How much capital do you think I would need to get started? What type of loans are the best for the rentals. I will think of some more later. lol

[tommie gorman]

To get started is easy or hard. It is up to your credit mostly. If you have none, it is difficult, but not impossible.

To start with a short story: My sister in-law moved into a new house and figured on renting out her old house instead of selling. GOOD. Her old house was in pretty good shape. She got a monthly income which almost paid her new house payment. The new house was double the value of her rental. One day she asked some questions about becoming a landlord, Lol I told it was too late to make her a landlord. That she already was one. 

Anyway all it takes is buying a house that you want to rent out. If you have no credit it would be best to go to the local tax auction and purchase one for cheap, and expect to work hard on it with your spare $ whenever it comes along. In the mean time remember that you are not making any $ until you have rented it out.

If you have none of the above I would have to start a whole new thread. So I will stick to basic 101 rentals.

A tax pro and a decent lawyer is always a good idea. The lawyer rights up your rental agreement, and if you get into stupid problems. Odds are that this will never happen. Also a good insurance agent is necessary also.

My father in law owned 10 rental houses and worked full time plus lots of overtime. I would actually not suggest over 5, if you still want a life with your kids. Unless your eager. First of all only start with 1. That way if you decide after a few short months that you want out all you have to do is get rid of one.

As far as listing with the gov't you might stipulate a little more.

As far as capital goes there are different ways to go about it. You could borrow you equity out of your present home. I did do a home equity line on my old home where all I had to do was call the bank and have them deposit it into my account, so I did not have to pay any interest unless I planned on spending it. For the least amount of effort I would pay the downpayment on my first home that only required a little paint and carpet to get it rentable. And the cheaper the better.

Remember also that you have to go in and do things on this house. So at least pick a neighborhood that you would be able to live in if you had to. Mine are in a very poverty stricken neighborhood. Which I am moving to a better one as soon as I can.

I got to thinking after 15 years, that I did not want to leave my daughters with houses that I did not want them near without my wifes or my supervision, after I have passed on. So as soon as I get mine in the shape that I will not have to come back too much, I am going to be buying new ones in a better neighborhood, and selling the old ones.

Anyway the idea is to paint, carpet, and repair drywall(easier than you think). Then when you have it in reasonable shape(not gorgeous, just rentable) go to a loan specialist, and get a 30 year fixed rate loan with no out of pocket expenses. NONE! All of them rolled into the loan. And check a few loan officers. If you get a good one you have a new partner, and your next resource. Take this money and put it in a new account with your new name on it, with DBA on it. Meaning Doing Business As. Mine is (last name)XXXXXX Rentals. Do not touch this capital unless you are doing rental business. Also anything you do with this account is now tax deductible.

Now you can go and make a new down payment on your next one. When you think you have your plate full, go and take the left over balance and go pay the bank back the original home equity loan. Now you have no money of your own in it and you are on your way.

Does this sound too good to be true, right. It will not happen over night. And now you are working overtime for free until you get the bank paid back.

As in my case, when I get the 20-30 houses squared away, I then will be able to semi-retire. Meaning that my monthly expenses(about $7,000 a month) is now my raise) including my well experienced helper).  Not too shabby! And I only have to go to work when the renter moves out. Or they have a small problem.

Also your experience with HVAC will come in handy. You can do some free work without paying out. And you don't have to buy those tools. The more experience you have the less you will have to pay.

And never buy a house that you cannot fix, or have some knowledge of.(In order to know if you are getting ripped off by your contractors). If you go out to dinner just say rentals in one of your conversations, and you just made it a business meeting which you can now deduct.

Also when I need to do some repairs on my own house, some how the materials end up on my own house. What?  Deductible.

Bought my Zero Radius mower to mow the rentals.  I live on 2 acres.

Well this should get you started. I know, I enjoy talking. 

[j3grizz]

Yea, I been needin a new Zero turn!!  :haha:

Thanks for the info Tommie.

[AlmostHuman]

tommie...

sounds like you know what you are doing!!! good job...

we've been in the rental business for about 12 yrs... along with my reg job...

one thing to look at seriously, is commercial rentals... much more stable clientele and they take care of themselves for the most part while leased. although more expensive to get into, longer term leases and with the right lease, the tennant is resposible for most of the up-keep of the property.

we have 2 residentials and 3 commercials and now after the principal amounts have droped on loans and such, it's amazing how much you can net out a month. also with commercials, expect them to sit in between tennants longer, but that should be off set by longer leases and the other perks that come with commercials...

just my opinion

Almost

[amc11890]

my dad owns 4 homes 2 of which are rental properties and one my grandma is living in and the other one is the one we are living in now :  the one complaint my dad has about rental properties is that it is very hard these days to find someone who will take care of ur rental property and not just trash it, my dad, several times, had to kick out his tennats because they would not pay rent on time and they didn't propery maintain the property.  In the long run it is worth it because all the money my dad is getting off these homes is pure profit(they are all payed off).  I personally think this is a good way to make money is u r up to the challenge

[tommie gorman]

AlmostHuman most of my tenents are long term Section 8. They have for the most part taken pretty good care of the property. Since we are in the neighborhood all the time, and keep them up when called, we very seldom have too much problems. We have some that have been with us for over 10 years. People actually wait to get into one of ours. Our quality is very good, and they understand that we intend them to stay that way, and have no problems kicking them  out if they do not act right. I guess that I enjoy dealing with lower income families. Since I came from one myself.

Actually I was a roofing contractor/installer for 14 years. And one day I bought one, and another, and then one day I decided to aleviate my headaches of roofing. And become a full time landlord.

The money was better when roofing than rentals are right now, but when I reach my goal I should be retired in about 5 more years.  And making more than when I was roofing. If I had known in the beginning what I know now, I would have been retired 2 years ago. How many people have said that before.

[j3grizz]

Tommie, Section 8 housing is what you wanted me to elaborate on when I was talking about the Gvt. housing. Is it a big hassle to get involved with this?

Oh yea, What do you know now that you didn't in the beginning!! PM if you would rather not say. 

[tommie gorman]

First of all I chose Section 8 because, after working on new houses, I knew that I could not sleep if I became a slum lord and did not give good housing.

A slum lord can make a lot more $ because they literally fix hardly anything. No cost. Rent it cheap and go on. Lower the deposit if they will paint and clean for you. All you have to do is drop off some paint and they are in. But they do not stay long, and they will not take care of your investment. If they even keep up on the rent.

But Section 8 subsidizes their rent. In other words they are not expected to pay more than they can afford. I have had renters only pay $1 a month, and I have had them pay $600 as their portion. But the gov't pays the other portion for them. If it is $800 and the tenant pays $1, the gov't will send you a $799 check on the first of the month. The only stipulation is that you have to make the housing livable.

Kind of like your own home:would you have broken switch plates, outlet plates, windows, etc... All you have to do is find a poverty stricken area and go and put it in the paper and list it as a section 8 house. To make it easier call your local housing authority and ask for an owners packet. Poverty stricken, because it is for the poverty stricken people.

Only a hassle if you do not someone telling you that you have to make this a livable house. They mainly go by city codes. And a few Fed laws. I personally think it is less hassle, but I probably am a little unusual. Really? Seems tough at first, but it did not take long to get used to it.

[tommie gorman]

As to your second question I figured I would spam a little(what). Actually different info.

My first influences were from my in-laws(true slumlords). Everytime I would start to spend some $ my wife would start whining. Finally I started to fix them up anyway, and my in-laws started to stop by goinghow nice, how much $. Well pretty soon I just did not care what they thought. Second they thought that a paid for house was the only way to go. Well I differ. In my opinion,(debatable) it is just a right off(interest is a right off) and what do I care if it is paid off.

You do not have to make it glamorous, the tenants do not expect this anyway. Just solid and nice. Ceilings, A/C, garbage  disposals, no leaks, dry basements, kept up exteriors,nice hardwoods or nice carpet($6 a yard), no cracks in walls, clean, etc...

Different, well. One thing I would not change is having them as close as possible without being nextdoor(big no no), Mine are in a 10 block by 12 block area(about 800 homes in area). All built in the 50's.

I started out carpeting every room, including bath room.

Better yet I will tell you what I do now. Kitchen and bath is vinyl flooring, Bedrooms are maroon carpeting, and the rest is refinished hardwood. The hardwoods are easier to clean, and the carpet is nice to step out of bed onto. Generally the plumbing is replaced including the drains down to the concrete floors. New toilets, shower kits, vanities, and tubs if the old one looks worn. We literally gut the kitchen and bath out up to the ceiling. The floors are pretty well rotted, the drains and water lines are in disrepair, and their is no GFI outlets. We add cheap border. And all new exterior doors. All new interior door knobs. New smoke detectors. New floor vents. Usually new countertops in kitchen. Or cabinets if necessary. New vinyl windows. New water lines and drains. New A/C units(most don't have one) inside of a cage with a padlock. And even removing all tree's. Repair chainlink fencing. Paint inside and exterior.

I would have picked a neighborhood that I would not have to move to later. This is my second move. My first one was to get them in the smaller neighborhood. My second one will be to get them closer to my house. And where I won't worry about leaving them to my kids. They will feel safe taking my grand-children in there if they want to, to work.

Moving them is time consuming. I have to buy, fix up, rent, and sell others. Would have been done this fall, if I had not changed my mind. Retired at 47. Oh well, 5 more years. I don't take as long, since I now know what I have to do when I first walk in. Gut and rebuild. We make a mess too. But as I said, I do not have to do much later on. Now do not do this if you have a job. Buy better houses.

A good one I did was I bought one for $2000 and spent $4000 on it. I rented it out for 5 years to same lady, section 8 for $500. $500 times 12 months is $6000, for 5 years, is $30,000. Another one is I bought one for $5000 and spent $25,000 on it. And when it appraised it brought a $63,000 tag. Borrowed 80% on it. It rents for $721 a month. Makes $200 profit a month, and put $23,000 in the bank. Both very good deals. But don't expect  that very often. Really.

Difference between me and Carlton Sheets. I will tell you a story, but don't expect it very often. 

[j3grizz]

Sounds like you have a lot of great knowledge here Tommie. Thanks. I will go and get the owners packet from the local  housing authority.

[cholla]

tommie gorman ;I don't plan to start doing this but a very interesting read.This doesn't apply in most cases but you might mant to check the property you plan to buy or what you already have for abandonned water wells,Septic tanks.cesspools ;etc.These may have been there even before the current houses were built.I'm not sure the exact method to use if there's no public records through building & plumbing permits.I think a good metal detector might find a lot.Check out any area that it found that shouldn't have anything there. Just a suggestion.

[j3grizz]

Tommie, how many accounts would I need to get started? How should I set them up so that they aren't a hassle? Thanks.

[tommie gorman]

I actually have one bank account for rentals if that is what you mean. I just go through the checks and the monthly statements at the end of the year, and sort them into piles, for the tax lady. But as I mentioned before, I am not much of an office person. I am sure there is a lot better way. For me one account is easiest since all the money is necessary for all of them. An accountant would probably disagree with me, and wonder how I get along.

I just use the memo section to name the reason for the check usage.

One thing I learned from a slum lord friend of mine, is that every body can learn from others, but in the end each will do it in his or her own way. If you come with a better way, let me know. I am always learning. 

If you are to big to learn something new, then you just went stale. 

[j3grizz]

Trust me I am always learning as well. Just this morning I learned AGAIN that when you stub your toe on the door casing it hurts bad. 

[j3grizz]

I don't know which type of repo it is. The guy is supposed to call me back today or tommorrow.

[rammolo]

Wy rent if you can buy, my advice buy now before mortgage rates keep going up, you will be suprised the equity you will have in a couple of yerars. By the way Im a Realtor.

[justinlay]

Yah buying a house is the way to go. I bought my very first house and im 21 with a very good interest rate on it. 4.75%. The best thing about buy is you can do what the f*ck you want to it! My house was listed at 99,999 and I talked them down to 84,000, and appraised at 106,000.

[tommie gorman]

Wy rent if you can buy, my advice buy now before mortgage rates keep going up, you will be suprised the equity you will have in a couple of yerars. By the way Im a Realtor.

Yah buying a house is the way to go. I bought my very first house and im 21 with a very good interest rate on it. 4.75%. The best thing about buy is you can do what the f*ck you want to it! My house was listed at 99,999 and I talked them down to 84,000, and appraised at 106,000.

Actually the thread was more along the lines of being a landlord.

But as always it is best to own your own home. Much cheaper in the long run. And instead of walking away with nothing, you have some equity to move on with. But some people still prefer not having to sell just to move. And still some people still prefer not having to fix things, single women with children mostly. And justinlay, was that a fixed rate, or an ARM? 15 or 30 year?

[justinlay]

Actually the thread was more along the lines of being a landlord.

But as always it is best to own your own home. Much cheaper in the long run. And instead of walking away with nothing, you have some equity to move on with. But some people still prefer not having to sell just to move. And still some people still prefer not having to fix things, single women with children mostly. And justinlay, was that a fixed rate, or an ARM? 15 or 30 year?

Its a 30 year term, and its a fixed rate

[tommie gorman]

Then you did very well indeed.

And I did the 15 year fixed, so I would not die with it. Lol

[Shug7272]

Me and the wife just bought our first house. 100k and I CANNOT IMAGINE renting it out. That would drive me bat shit crazy worrying about some douche bag messing up my house.

[tommie gorman]

I would never pay that kind of money for a rental anyway Shug7272. You are not suppose to. And the idea is to fix it up clean, not expensive. No fancy stuff, just nice basics.

After it is just a rental.

[j3grizz]

Wy rent if you can buy, my advice buy now before mortgage rates keep going up, you will be suprised the equity you will have in a couple of yerars. By the way Im a Realtor.

Thanks for the advice. I was talking about renting it out though like tommie said. One day when I grow up I want to rent houses like tommie! 

Seriously though tommie, as soon as I find out about the type of repo I will get back with ya.

[j3grizz]

Me and the wife just bought our first house. 100k and I CANNOT IMAGINE renting it out. That would drive me bat S#!t crazy worrying about some douche bag messing up my house.

Congrats on your new house Shug7272!! Wish ya well.