The linked article was surprisingly thin but I think the idea has merit in certain circumstances. The strategy can be simple and obvious. While there is a mortgage, the rent from the one unit can offset some portion of the monthly payment and after the mortgage is paid off some portion can go toward your living expenses (there would be at least minimal expense in maintaining the rental unit).
The article linked above seemed to focus more on shorter term profit which would be nice but I'm not sure attempting to profit in the next couple of years is the right goal. Prices are low in many places but I don't think it would shock anyone if they went lower and I don't think it would be a shock if prices did not go meaningfully higher for a long time. That does not mean that there are not affordable situations that could be paid off in 15 years and then generate a decent cash flow as part of a retirement plan.Strategically I would target less house than I could afford to avoid desperation when the unit is empty. The other big thing that comes immediately to mind is being handy. Among other things it would be helpful to know how to pull a toilet, know a little about plumbing that you can see (under sinks for example) and some basic electrical, surely there are a couple of other basics not coming to mind at the moment.
This is clearly not for everyone and really not even for most people but for some folks this would work very well. We all know someone who is not wealthy but ok and who is very handy. Someone like that would seem to have the best shot of succeeding with this idea. I would also note that some people are quite comfortable managing a bunch of properties which is fine for them of course the context here is relative simplicity.
The bigger idea here is innovative (even if not original) solutions that work with your lifestyle, temperament and interests. That and not buying new Shelby Super Snake Mustangs that will cost "less than $100,000." That picture is awesome though.
8 comments:
"This is clearly not for everyone and really not even for most people but for some folks this would work very well."
I followed this seemingly good advice on my first house. Never again.
Many renters have no respect for property. Did not make a lot of money over the few years I owned it to go to a new job.
I have found saving, investing, and living below my means to be quite rewarding.
I try to address this point in talking about not being desperate for a renter because of too large of a payment. Maybe I should have included the word selective.
The only thing I would like to add is anon 05:31 should have been all caps, underlined and in bold print. Then the article could be digested in proper light.
Selective
I tried that went months waiting for "good" tenants and believe me their were BAD tenants I did not rent to. The good are not truly good.
Life's to short to take on other peoples problems.
Having had rentals for years,I cannot tell you about the number of "bad" tenants out there. I believe this tells us something about our society. I'm not sure how different we are from more primitive societies.
I did rental property for 20 years with duplexes and condo's. It worked well when I lived in the area and responded to problem calls and then personally took care of the problem or used my choice of professionals.
I stopped my rental property venture 2 years after moving out of area. I had hired a recommended professional property manager. This manager raised the rents, was inattentive to tenant's unit problems. When one good tenant turned bad, stopped paying rent, did $17000 damage to unit and skip town before eviction notice became effective. A timely $1000 repair to a broken A/C in the heat of summer would have avoided this problem. I decided to cash out rather than deal with being an absentee owner. I was living out of country at the time and heard that this Pro manager had taken the $$ of all his accounts and did not do his job.
Here are some rules I used while managing my properties.
I personally met prospective tenant(s) at a cafe or coffee house to discuss renting of my unit. If after 20-30 minutes I did not feel or think this was a good deal I ended the meeting with statement saying there were other people interested and I would put them on the list if they wished. The list was to avoid discrimination charges. I have rented to people who would appear not desirable on paper but in person they made the grade. Situations like recently divorced, loss of job, low income but multiple family members working, on paper they were financially challenged, but made great tenants. I have paid for a credit report when I had any doubt.
I collected first and last month rent plus a security deposit (deposit of a different amount than rent to avoid tenant claim that they thought it was rent - never happened ). If they were unable to initially pay full amount I put together a plan to pay over a few months.
I rented at 10% below the market to eliminate lower rent reason for tenant moving. My fellow landlords told me this was like leaving $$ in the street. They had higher vacancy rates. Who made the most $$ I do not know. I do know I had minimal problems and peace of mind and was making $$.
I paid for water so I could turn it off if needed.
Rental contract included owner right to give 2 week notice to enter and inspect. A phone call requesting to enter suffice.
The duplex was my preferred rental unit when I alternately lived in one unit and then the other. I upgraded units between tenants and enjoyed upgrades.
A friend and fellow landlord eventually sold his singles and bought an apartment house thus putting all his problems in one basket and hiring an on site manager.
Hope this is helpful. Thanks for the blog - Roger
- Richard
@anon 1255
Thanks. Great advice with some ideas I'd never thought of.
Buying a duplex makes sense, but the downside is having your renter a wall away.
I own 9 duplexes in good suburban neighborhoods (all bought prior to 1992). They have been wonderful money machines with generally great tenants. One stayed 13 years. Average, about 4 years.
The free cash flow (they carry no paper) is outstanding. One of my top five investments overall.
I think it makes sense to invest both in and out of the stock market to create diverse income flows. While every investment has it's season, rental real estate (bought smart)more often than not is the Energizer Bunny.
Of course, if one cannot deal with people and repair/maintenance issues, it usually won't work out.
There are lousy stock pickers, too!
T
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