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My Pro's and Con's of real estate investing

97guns

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#1
since RE income is my sole source of income I've become pretty passionate about it and always get into arguments of how much of a headache they can be, repairs will be costly and that I'm not really truly retired. Just thought I'd throw out the positives and negatives that I've encountered in my 8 years of rental investing, start with the Con's because everyone without RE investments shoots me down with them.

1) had to replace 3 water heaters, $2000
2) installed high wear flooring in 3 units, $7500
3) finishing up an eviction, lost 2 months rent, payed $1600 to eviction company, had 1 other eviction prior
3) replaced 2 A/C units $8000
4) replaced fence in 1 unit, $2400

The Pro's
1) don't work and spend 10 minutes a week tending to them, more now with the eviction
2) rents have kept up with the pace of inflation
3) $3000 pocketed on insurance claim
4) IRS tax benefits are off the charts
5) tenants have literally paid me in full for the homes they are living in
6) equity has tripled up in 7 years
7) net worth has jumped 6 fold in 8 years
8) leaving for Seattle next week, came back from Hawaii 2 months ago and Las Vegas/Los Angeles 3 months ago. did Hong Kong, Thailand, Taiwan, S Korea, Ohio and Denver last year.


So for me the Pro's outweigh my Con's by a wide margin, I have a great property manager and spend very little time tending to them, I've managed to keep my repairs down because I bought the newest units my money would buy, all late 90's early 2000
 

hammerhead

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Thanks 97guns
Congratulations on doing this successfully. This is a great insight. I have been reading books by Robert Kiyosaki (currently one co-authored by Donald Trump) and he lists many of the pluses that you do. He is especially fond of the tax advantage. Just like anything else, there will be draw backs. But if a person is aware of the ups and downs of any investment and meets the challenges as a learning experience, they usually come out ahead.
 

Howdy

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#3
How many units? When I had a couple rent houses, I did all my own repairs and remodels, never used a property manager (what for?). It's much harder to discriminate against bad renters with a manager, isn't it?
 

davycoppitt

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#4
Nice write up. Looking and researching into getting into rental properties in the next 5-10 years. Currently have none.
 

97guns

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I have 5 single family homes, they are 70 miles away from me, that's why I want a property manager and to keep my hands off as much as possible.

Last month I had a main water line bust in the front yard of one of the units, I never knew about it until I got the bill for $180. I thought $180 was a deal since they had to dig up the front yard, I give the property manager the green light unless it's something big, she won't drop more than $300 or $400 without getting my approval.
 

nickndfl

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Congratulations. In Florida you would need to deal with 5 scumbags before you got 1 decent tenant that didn't destroy the house.

I went in a different direction and bought several vacant lots in my area which is the last affordable place to build a new home in South Florida. Some lots I paid 15 cents on the dollar and others I paid more. There is no income and I just watch the equity build. I pay property taxes, but they are directly written off my small business income.

I have petitioned the city that some lots on main roads get converted to commercial zoning which would increase my ROI to 1000% in < 3 years. My wife wants to open a marijuana business on one and this town is the only one in the county that allows medi pot sales. I also have another triple lot that would be perfect for a daycare. It's just having enough time to get everything done while I am busy working everyday already at my first business.
 

Ensoniq

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#8
What kept me out if it was the realization that you need to deal with lowest caliber of people to make a reasonable return.

My friend has 12 units, maybe 50k each and he get $500 to $750 per month but has to show up on payday after the first of the month for cash.

He's always evicting or replacing the plumbing that the last tenant took with him
 
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hammerhead

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What is the initial avenue to get in? Would it be good standing with a financial institution or cash?
 

Howdy

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#10
Timing and location are very important. Either one can make or break you. Tenant bankruptcy is a pitfall, too.
 

Merlin

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#11
My property management company uses social media to find renters; ads in newspapers weren't getting it done for me. Further, since I began using property management, all the day-to-day headaches became someone else's problems. And, remember, problems with your rentals can be inconveniently timed. When David was in the last month of his life, I, as his caregiver, did not have the time or the emotional energy to deal with a vacancy. I actually chose to sell the house because I was unable to deal with the problem.
 

97guns

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Congratulations. In Florida you would need to deal with 5 scumbags before you got 1 decent tenant that didn't destroy the house.

I went in a different direction and bought several vacant lots in my area which is the last affordable place to build a new home in South Florida. Some lots I paid 15 cents on the dollar and others I paid more. There is no income and I just watch the equity build. I pay property taxes, but they are directly written off.

I'm a fan of value buying anything, not limited to RE, it's hindsight that you must have to understand that it's a value play. I've done well with buying and selling guns, knives, ammo, shoes and just about anything and everything.

Right now I'm selling these maglite glass lenses on Amazon for $8.50 a pop, I picked a lot of 100 up for .24 each, I make $5 a pop and I'm well into the Gravy on the deal, recouped my investment months ago
 

97guns

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#13
What is the initial avenue to get in? Would it be good standing with a financial institution or cash?

Both, you need cash and good credit but you build it all. I'm a firm believer that the key to any kind of investing and success is the ability to save money, if you can't save you can't invest
 

97guns

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What is the initial avenue to get in? Would it be good standing with a financial institution or cash?


I had always wanted real estate because I knew and seen it for my own eyes that it was a way to become financially independent.

My game plan before the market crash was to buy 1 house all cash and continue saving through work and the rents, when I had enough saved I would take the the equity from the house and buy house #2 all cash, save again and take equity from #2 to buy #3 all cash, always having 1 home paid for. I'm not sure if it would have worked or not, I got lucky with the market crash with cash on the sideline
 

Treasure Searcher

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Where I live, renting farmland is the only way to go. If a farmer does not pay the land rent, I can put a claim against their farm payment(s) at the USDA-FSA office.
Any improvements to the farmland (windbreaks, drain tile, etc.) and even my tractor is tax deductible.

Why don't I like housing rentals?
1) Tenants with pets. I have seen way too many rentals torn up/urinated on, etc. from pets. Even if you ban pets, they still get brought in.
2) Meth kitchens. Seems like illegal drugs and narcotics are used/distributed by some tenants. Sheriff tear gases/knocks down doors/shoots up place makes costly repairs.
3) Theft. Anything from the water heater to the kitchen sink can be ripped out. Air conditioners are a great one to walk away.

Day in and day out, where I work at, I see people skip town and do not want to be found. Bills and other debt pile up for these people, who have no intention on paying.
Rentals are not my thing, unless it is farmland.
 

Howdy

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#16
Farmers in general have better character than rent house tenants in general. Another good rental is storage units. There are hardly any protections for tenants compared to housing.
 

Treasure Searcher

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Farmers in general have better character than rent house tenants in general. Another good rental is storage units. There are hardly any protections for tenants compared to housing.
The downside to farmers, is if they declare bankruptcy, they can farm the land without paying you rent. To help reduce this issue, only rent for a three year contract, so if they
declare bankruptcy the contract can run out. Some farmers want a five year contract. If they file bankruptcy in say year two of the contract, they may be able to keep farming the third fourth and the fifth year without paying you rent. Bankruptcy is a strange creature.....
 

Howdy

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The downside to farmers, is if they declare bankruptcy, they can farm the land without paying you rent. ...
Same with residential property. They declare bankruptcy and you carry them for a year. Really sucks.
I guess there's lots of ways for farmers to go bankrupt, what with bank loans on farm equipment and seasons of dry weather.
 

hammerhead

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Both, you need cash and good credit but you build it all. I'm a firm believer that the key to any kind of investing and success is the ability to save money, if you can't save you can't invest
I lost a couple of years of income. Managed to hang on to our house and owe much less than it is worth, on paper anyway. Hoping to sell, pay off debt that racked up, buy cheap fix it upper and maybe then be able to focus more energy into accumulating assets. Way too bogged down I debt.
 

Agavegirl1

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I used to have a rental property, a small single family home. It wasn't much of a problem. I also rented farmland at one time. It is something I have looked into again recently. You are correct on the tax breaks 97guns. Great until it comes time to sell. Then there are all these recapture rules for depreciation as well as capital gains. There is a sweet spot for continued investment in the property and tax write-offs.
 

hammerhead

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I used to have a rental property, a small single family home. It wasn't much of a problem. I also rented farmland at one time. It is something I have looked into again recently. You are correct on the tax breaks 97guns. Great until it comes time to sell. Then there are all these recapture rules for depreciation as well as capital gains. There is a sweet spot for continued investment in the property and tax write-offs.
What would be the tax implications if a person doesn't sell and transfers while either alive or after departing this ol' world? The difference between flipping and gaining asetts in my eye.
 

hammerhead

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Oh wait. I know. I could make the kids partners. I'm just dreaming at this point but to me, it's got to start somewhere. Thanks again for the thread, guns.
 

Treasure Searcher

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Oh wait. I know. I could make the kids partners. I'm just dreaming at this point but to me, it's got to start somewhere. Thanks again for the thread, guns.
Partners? NEVER!!!

I am in a partnership with 4 other relatives. Their debt is YOUR problem. Found out this week that one of our partners has a $29,000 state lien (with interest accumulating).
Essentially his share is owned by the state. Now we have to hire an attorney for $200 an hour to straighten out the mess. We cannot sell the property with this lien.

Not to knock your children, but I would think twice. Anyone filing bankruptcy, becoming incapacitated, racking up debt and divorce will alter your partnership.
 

hammerhead

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True that, Treasure Searcher. I think you posted about that in another thread. I would not want to lose control and that is what I think the best thing is to invest in. Control. My 2 daughters have spouses. Number 1 son is engaged. Then there are the 3 step kids that wouldn't be in the equation in my plan but somehow I think my wife would want to include them. I would consider helping them also but there is no respect for me.

I still want to be a winner regardless of circumstances.
 
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Thecrensh

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I have a house in a nice neighborhood...in a military town. If you rent to military, you may get a higher quality tenant. Maybe not...but in general, military people are more responsible and they probably aren't cooking meth in the basement.
 

Ensoniq

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What is the initial avenue to get in? Would it be good standing with a financial institution or cash?
Plan for the worst and work for the best outcome. I don't work in this area but have several friends who are successful. You need to have a willingness to be confrontational and assertive/aggressive or tenants will eat your lunch. Examples

- Toilet plugged 4 days ago but they only call you Sunday night at midnight when it flowed down the steps and started to smell.
- professional tenants who specialize in rent avoidance and maximizing free stay days
- no you can't raise chickens in the living room
- I don't want five refrigerators on the front lawn
- stop by for the rent collection, which they don't have but notice the new big screen

People that get burned do so from over leveraging. They fall in love with the concept of using the cash flow from rent to pay the mortgage. 97guns uses the Dave Ramsey method (posted above). Save save save then buy your first property with all cash. snowball those payments into the all cash purchase of house #2

In real estate money is made on the buy. Take your time and find the right property (usually a fixer upper sold in distress). My one friend will only buy property that is < 60% of comperables. One man's desparation is your long term capital gains
 
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hammerhead

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Plan for the worst and work for the best outcome. I don't work in this area but have several friends who are successful. You need to have a willingness to be confrontations and assertive/aggressive or tenants will eat your lunch. Examples

- Toilet plugged 4 days ago but they only call you Sunday night at midnight when it flowed down the steps and started to smell.
- professional tenants who specialize in rent avoidance and maximizing free stay days
- no you can't raise chickens in the living room
- I don't want five refrigerators on the front lawn
- stop by for the rent collection, which they don't have but notice the new big screen

People that get burned do so from over leveraging. They fall in love with the concept of using the cash flow from rent to pay the mortgage. 97guns uses the Dave Ramsey method (posted above). Save save save then buy your first property with all cash. snowball those payments into the all cash purchase of house #2

In real estate money is made on the buy. Take your time and find the right property (usually a fixer upper sold in distress). My one friend will only buy property that is < 60% of comperables. One man's desparation is your long term capital gains
I've seen some waste cases in my day. They have no regard for what others accomplish.

I've spent a great part of my working career adding value to other people's properties. Would like to increase my own worth by doing what I do.
 

nickndfl

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If anybody wants to buy some property there are a few public listings I can send links. Expect to pay $22k-$25k and $500 annual taxes.
 

nickndfl

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There are 2 lots for sale east of A1A on the beach in Ft. Pierce, but they are $150k. Others I will send too.
 

Area51

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The most important part of being a landlord is screening tenants.

I don't do credit checks and NEVER call references. The former can be badly misleading and the latter is a joke.

The most effective method is to drop by their current residence unannounced. Once they fill out an application, you've got their current address. Drive past and see what the outside is like. If the yard is filled with junk and the front door is ajar and off it's hinges, just keep driving and toss their application into the nearest recycling bin.

If the yard looks decent, then it's time to check out the inside. Give them a call - - you'll have their phone number on the application - - and tell them you need to get another document filled out and signed and since you're in the neighbourhood you'll stop in RIGHT NOW. If they make up a story about how it's not a good time, that's a red flag. You want to get inside with as little advance notice as possible to see how they actually live day to day. If it's a shithole, guess what they'll do to your place? Same thing applies if it's neat and clean.
 

EO 11110

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#35
if you want to make 3x the money and do 10x the work, buy vacation properties and do everything yourself

tip - all debt should be taken out against the properties and never your home(or anything else not related to the rental properties). the tax benefits make it so
 

hoarder

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#36
if you want to make 3x the money and do 10x the work, buy vacation properties and do everything yourself

tip - all debt should be taken out against the properties and never your home(or anything else not related to the rental properties). the tax benefits make it so
Since capital is usually not unlimited, it often makes sense to do 10 times the work for three times the money. Anything from lake cabins to a full blown bed and breakfast operation can be very profitable.

Another kind of real estate investment that is worth looking into is storage units. Vacancies run higher, but the income per square foot is almost as high as residential property even though you don't have to deal with much maintenance or tenants rights.