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OT - any Landlords out there??

Discussion in 'Off Topic Threads' started by Bisi, Jun 12, 2010.

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  1. Bisi

    Bisi TS Member

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    Got a couple of questions for any or you who own rental property.

    I’m thinking about doing something I swore I would never do. Purchasing some rental property. When I was a kid my Dad owned a couple rental houses, all I remember is what a mess. When people would move out it was take a scoop shovel and start shoveling trash. People were hogs and that was 45 years ago when you could choose and be selective on who you rented to. Now you gotta rent to anybody and everybody.

    My business is off 75% the last couple of years, so now I need income. A friend has told me about a guy who has a 4 plex for sale. The unit is about 2 miles from my home. It is a 2 story unit built in the very early 70s, brick exterior. From outside unit looks solid, roof looks to be about mid life cycle. Unit has 4 electric meters so that means tenants pay own - electric. Only saw 1 water meter pit. So I’m guessing landlord pays water and sewer. Average water/sewer bill in this are is $45 a month for single family home. So I’m guessing 4 plex apartment would be in area of $150 a month?

    Here are the numbers: asking price 125K, 2 ground units rent for $450 a month, 2nd story units rent for $425. All units rented would bring in $1750 a month (if you can collect).

    Taxes - don’t know for sure. Will find that out next week. I’m guessing 2 grand a year.

    Insurance - will ask agent next week. My question is what kind will I need? Will I need a separate commercial policy? I can’t/don’t want to add the unit to my existing business policy because of a pending lawsuit.

    This is how ignorant I am when it comes to rental business. Will I have to pay “self employment tax” on this income, or will it be treated as investment income?

    I’m going to meet with owner first part of next week. I just need some questions to ask? What am I over looking. Any help/input from any of you landlords would be appreciated.

    One other thing I should add is - I don't think there is much chance of this unit appreciating in price. I was approach about purchasing a unit on same street 20 years ago and the price then was approximately the same as asking price now.

    Thanks
     
  2. W.P.T.

    W.P.T. TS Member

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    You insure the building, the tenants insure their property and you must have that in the lease or rental agreement ... I had a few rentals, God gave me good tenants so I had very few problems getting the rent or with their keeping the place up and clean ... The outside was maintained by the homeowners association which I will never get into again, they were the pain in the AZZ with special assessments and all but did keep it maticulous ... The laws have changed but you do have to pay a rental tax on the property or at least I did back then and I know some people out here in Arizona that do also ... You will need a slush fund for when something goes wrong and needs to be repaired right now to prevet anymore damage ... I was told that my rents should of been 1 1/2 times my mortgage at the time when I had them not sure what they use today ... Can be good, can be bad, you won't know till you try it and all you got to lose is $125,000 plus or minus ... $125,000 plus taxes, insurance, and up keep will be close to 8 years rent if you do it right, then you can starting making a profit ... Thats better than buying lottery tickets but the lottery pays better if you hit it ... lol ... WPT ... (YAC) ...
     
  3. crusha

    crusha TS Member

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    You going to pay cash for the 125k, we assume? Seems obvious...but needs to be asked, to make an economic analysis.
     
  4. wayneo

    wayneo Active Member

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    What state are you in? You might want to look at some laws on evicting tenants with dependent children. I've heard in some states it could take months to get them out. I have not rented houses in years, had some good renters, and bad. Wayne
     
  5. southjblue

    southjblue Active Member

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    Have fun getting them out---lawyer fees--legal service will protect them at no cost to them---Thats my opi---gL---sjb---
     
  6. pyrdek

    pyrdek Well-Known Member

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    Not a landlord but have been involved in looking over several leases for daughters in college and out on their own. It is amazing how poorly some of these leases were written. Obvious contradictions as to tenant responsibility vs. landlord responsibility, different costs quoted for the same thing in different parts of the lease and a whole slew of spelling, grammatical errors (some of which could easily have been the basis for a legal challenge if the situation had come up), date of beginning and/or ending of lease. In one case, there were two copies of the lease, one given to each of two room mate tenants and the leases were completely different as to dates and some costs. The other girl's dad was a lawyer, but in another state and working in a different area of law and he could not believe what the landlord had done with the (note plural) leases.

    What I strongly suggest is that, BEFORE you enter into the sales and subsequent leasing arrangements, you spend a few bucks to get a lawyer who is well versed in landowner and rental law IN YOUR STATE and discuss the entire issue with him/her.
     
  7. halfmile

    halfmile Well-Known Member

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    Green Bay Wisconsin
    A couple of tips for you. ( I think this is a good deal depending on how many vacant properties your area has)

    Beware of recently combined families. Beware of brown cars with one red fender.

    Beware of income sources such as: Disability, Child support, Alimony.

    No one has a right to rent your place if you do it the right way.

    I have 2 different application forms. One is long and complicated, and most bottom feeders and non English speakers return them.

    One is short and sweet and gets the info you need.

    Watch out for references, they may be tainted for one reason or another.

    Go see where the prospects live on your own, unannounced.

    When you have a few applications you can choose a good tenant. Maybe.

    Caucasians leaving a neighborhood because of the Brown Wave of Destruction are good prospects.

    Non drinkers are good. Non smokers even better.

    Finally: You will guess wrong about 30 per cent of the time. Getn used to it.

    And with all that, I would buy it. It looks like a good positive cash flow even if you mortgage it (Buy CD's at a credit union and let the renters pay for your increase in equity)

    HM
     
  8. neofight

    neofight TS Member

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    Your experience in all this, good or bad will depend somewhat on your attitude, getting accurate info. on your tenants and the luck of the draw. I was lucky for a number of years until one of my tenants decided to sub-rent a room. Alcohol started flowing one night, the guns came out, shots fired, police, stun-guns and handcuffs entered the fray and off to jail they went.

    It took awhile, but i finally managed to get their '70's crappy motorhome out of the driveway(Breaking Bad??)cl,eaned up the place, rented it out, painted it and sold it, never looking back. My overall experience was just fair i would say. The late night calls were always fun when the toilet over-flowed or the sprinklers stopped working after their dog chewed up the wiring, just before the fireplace fire that caught the roof ablaze. Other than that, it was fine, really : )

    When checking references, rental history, etc, be sure to check the previous landlord, not just the current. The current one will usually give a glowing report while the previous one will tell it like it was.
     
  9. need to shoot more

    need to shoot more Active Member

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    I have been a lanlord for 15 years more positive then negative thats for sure, been too court twice. My income increases every year and the homes increase or hold thier value not like some of those McMansions I see.
    I rent too section 8 only the money is always there,Tennents pay water and are generally in the rears ( water is cheap)I put a 25k kitchen in my own home when I refinanced the one rental property years ago.
    Its most likely better to have a mortgage tax wise? There are not too many things in life that are 100% no agg, marriage,kids, job, neighbor.
    I closed on a house yersterday 25k, 2k in closing costs and 3k in paint,flooring etc 30k total I have a 10 year note that a buddy is holding the paper monthly payment to him is $330.00 plus taxes and insurance cost me $100 month,it should rent for $650-$750 depending on the tennents package. Please dont bust my b@lls about section 8 my tennents are generally have physcial disbilities.Rember no pain no gain, no risk no growth.
     
  10. Big Jack

    Big Jack Well-Known Member

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    Location:
    Erie, Pa
    Throughout the country there are apartment associations that will assist you with most all your questions..do it legal and you can protect yourself & your property most all the time. Beware the "Backyard Lawyers" that will tear properly prepared leases apart crossing out paragraphs and making changes to their advantage. They are probably the worst tenants you could have anyway. As long as you comply with the fair housing rules you covered legaly most of the time. Don't be afraid to ask prospects to pay for credit checks..if they don't pay their bills they probably won't pay your rent.
    Owners that rent to students can and usually ask for outrageous deposits because of the "usual clean-up" required when they vacate. I've seen owners ask for an entire semesters rent in advance and they usually get it. Student leases should be signed by the parents as well as the students to further protect you. Lay down the rules and stick to them.

    Big Jack
     
  11. MGeslock

    MGeslock TS Member

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    PM Sent
     
  12. whiz-bang

    whiz-bang Active Member

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    Always do a criminal back round check before choosing a renter. My brother and myself have around 50 rental unites and don't have a lot of trouble. At times there can be a lot of maintenance. It's important to keep your property up. If you don't that is when trouble can start.
     
  13. dmarbell

    dmarbell Active Member

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    The income or loss is rental income or loss. It is treated as active participation in a passive activity. The income is passive income, and the losses can be limited based on your AGI. Consult your tax professional. It is not subject to the self-employment tax, unless you are a dealer in real estate (which you will most likely not be, based on one rental quad).

    If you are going to spend $125k on a property, get it inspected. Things like the "roof looks good" or whatever might work on a $500 backup trap gun, but not on a major real estate investment. You can make an offer subject to the inspection.

    Gross rents of $1,750 per month, or $21,000 per year, put the property value in the $210,000 range, at 10 times annual rental. This is only a rough rule of thumb, do your own analysis.

    Danny
     
  14. Bisi

    Bisi TS Member

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    Thanks for the input guys. There is a lot of knowledge on this site.

    Last night I got in the car and took the dog and walked the neighborhood. There is a grammar school that backs up to the property, parked the car there and walked over. Not much going on, on a Saturday night, which is good. A few guys drinking beer on one of the front porches. A few old pickups parked in front of a couple of the 4 plexs. I like the idea of a school being there, I figure less chance of somebody cooking meth, or dealing drugs that close to a school.

    This apartment complex was owned by the same company at one time. It is a street that has a cul de sac at the end. They are 10 - 4 plex units on both sides of the street, and one unit at the end of the street that was the clubhouse. During the last recession big recession of 79 - 81 the company went belly up. They then sold the 4 plexs off to individuals.

    Yesterday out of the 20 - 4 plexs, I counted 15 "For Rent" signs. So it looks like there is a high vacancy rate in the area. Even in Indiana $425 a month is cheap rent and they are still a lot of vacant apartments. That is something to worry about.

    The other thing that worries me is interest rates. I won't be borrowing any money if I make this purchase, but with my luck next year at this time CDs will be paying 10%, and in 2 years they will be paying 15%.

    I remember Jimmy Carter well, and now we have Barack Carter. Jimmy Carter wasn't really a bad president if you had money. If you had money in the bank you did well. Everything else sucked, but getting 15% interest, sweet!

    All well, it is always something.

    Thanks again.
     
  15. Steve W

    Steve W Well-Known Member

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    Owning properties is one of the best way to build your retirement plan. Property value and rent income goes up in the long run, mortgage won't.

    Being landlord since I was 31 or 32, one piece of advise is, figure out what kind of landlord you want to be.

    I realized when I was young, I can't (in the long run) deal with people I have to slow down to communicate. I can't stand people paying late, that pretty much means I can't have bad tenants.

    Watch "where and what" you buy, because that single decision will determinate what kind of tenants you'll be dealing with.

    One friend made a lots of money in buying sub-standard & rent control buildings, he had the ability to kick bad tenants out using boarder line legal methods. I'm not, so those are not the kind of money I can make.

    I own certain type of properties in the beach cities of Los Angeles, where rent applications usually came from people with FICO scores above 700. My management company does the screening, then I'll personally meet qualified applicants at the property to see if I "like" them.

    I set the rent low ($4750 on a $5000 property for example), so I'll have multiple applications, that gives me the opportunity to cherry pick. Remember one month rent lost will cost you over a year's rent increase to recover.

    I believe if I like the person, it'll bring more pleasure to treat them nicely.

    99% of my tenants maintain very good semi-professional friendship with me, some even says they have the best landlord in their blogs.

    Figure what kind of landlord you want to be first.
     
  16. mobear

    mobear Member

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    You should also learn the Fair Housing laws, because a lot of the information you were given above, will get you sued in a heartbeat!
     
  17. Bruce Specht

    Bruce Specht Well-Known Member

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    I owned a four flat for 10 years and really had no complaints. Had my share of bad pays and pigs but overall it was a money maker. From the insurance stand point you need a requalr coverage on the building for fire and so on in additon a million dollar unbrella policy would make sense and it's inexpensive. Each renter should have renters insurance to cover personal property and belongings. FInd out from the current owner what the tenatns are responsible to pay and how long each lease is for as you have to live with the leases until renewal time. What kind of security deposits is he holding and as to see his books on the building. As for taxes it should be treated as income property.
     
  18. Urbans

    Urbans Member

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    My neighbor is a landlord, the people were 4 months behind on the rent, family services said they could not be evicted. The next day he removed the windows, so that they could be replaced with new ones, not yet ordered, the people moved out that afternoon(mid November).
     
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