The Making of a Landlord

Commercial Real Estate Agent with NAI Tampa Bay

I saw the story's title and was instantly drawn to it. A wonderful, realistic read. I hope you enjoy as much as I do. Image004 <----"The Landlord of the Shadows"


written By Christopher Palmeri s a senior correspondent in BusinessWeek's Los Angeles bureau.

I was chased by a wild dog.

I saw a home so stripped someone had even taken the front door. I attended a foreclosed-home auction that featured cheerleaders yelling in my ear. Finally, in March, I closed on a home I'm now renting out as an investment property.

I paid $125,000; it had sold for $345,000 four years ago. In my one-year search, I came to expect surprises and to realize that even a good credit score doesn't get you far.

One thing I learned: Avoid foreclosure auctions. The homes need lots of work, and most buyers don't have time to do proper inspections.

Ditto for "short sales," where an owner tries to sell a home for less than what he owes the bank. There are too many decision-makers involved. I made an offer on a short sale. Nine months later it's still on the market.


I began my search in my Los Angeles neighborhood, but even with a big down payment, prices hadn't fallen enough to produce positive cash flow for a rental property. So I searched for homes in suburbs a train ride away that seemed likely to have job growth. I found a two-bedroom, one-bath Spanish-style bungalow listed for $129,000 in Ontario, Calif. I offered $123,000; we settled on $125,000.

I figured getting a loan would be easy. I have good credit, no debt, cash in the bank, and a job. I was pre-approved for hundreds of thousands of dollars. Bank of the West wanted to charge me five points -- a $5,000 fee to borrow $100,000. Says a bank spokesman: "Higher points for an investment property reflect the higher risk on that mortgage." A rep at a major national bank said it wasn't "competitive at loans under $100,000." promised to find me five offers in 48 hours. Two days later it said it couldn't help.

Ultimately, an independent broker, Los Angeles' Legend Mortgage, found me a loan with an institution I had never heard of, Burlingame (Calif.)-based Provident Funding Associates. I had to put down more than planned: 25%. And I'm paying 6.2% and one point in fees, more than the 5%, without points, I would have paid if the house were to be owner-occupied.

Provident put me through the wringer. Bank statements, tax returns, notarized interspousal escrow instructions. At one point, I was scraping and painting a house I didn't own because the lender wanted damage repaired. I was out about $1,000 for inspections and other work before I was even sure I was going to get the loan.

The bank that owned the property wasn't much fun, either. With such properties, banks offer a tight window for you to cancel your purchase based on inspections -- seven days, in my case. And the bank wanted me to pay $100 a day if I didn't close on the agreed day. This led to stress -- and requests for waivers -- on my end. On the bright side, bank-owned properties commonly sell "as is," but with mine the bank paid more than $5,000 for a new sewer line, termite abatement, and other repairs.

Then it was time to rent it. I checked similar properties on Craigslist, then underpriced the rent at $1,100 a month to get a tenant fast. I had 16 interested parties in a few days. Some of the stories were heartbreaking -- families living in cramped apartments and on food stamps just wanting a house for their kids. I showed it to two people and took an application from one, verifying employment and paying $30 to to check his credit. In the end, my total cash investment was $47,000. Payments -- taxes, insurance, everything -- will be $750 a month (plus any repairs). If my tenant pays me for a year, I'll get a 9% return, not including tax advantages or price appreciation.

If being a landlord is a hassle, the hope of a 9% return will ease the pain.

We wish you the best of luck Mr. Palmieri, the best of luck!


This entry hasn't been re-blogged:

Re-Blogged By Re-Blogged At
ActiveRain Community
Apartments (For Sale / Want to Buy)
Commercial Real Estate Guru
Multifamily Investment News
The Lounge at Active Rain
business week
commercial real estate
for sale

Spam prevention
Show All Comments
Charles Perkins
Charles G. Perkins, CPA - Burien, WA

I have had similiar headaches while tracking down real estate that makes sense.

Aug 17, 2009 04:46 PM #1
Show All Comments

What's the reason you're reporting this blog entry?

Are you sure you want to report this blog entry as spam?


Sean Dreznin

Commercial Investment Real Estate Agent
Ask me a question

Additional Information