I've been studying up on real estate investment clubs because there are radio shows, TV shows, even that GET Motivated thing, about real estate investing.
There are not enough rental properties out there to meet demand right now. Especially in the $650-850/month price range. Lots of people have lost their house or just gone through a divorce and need a house to rent. This current market is a landlord's dream. In my office we get more calls on rentals than on any other type of property.
But, should you jump into the landlord business? It is very, very scary to hand over a very large amount of money to a Title Company for a real estate investment. The future is just so unknown. Here is what I have experienced over the years with real estate investing.
My first experience with real estate investing started in 1973, when I was about 7 years old. My parents purchased a very nasty house for a very good price. They recruited some friends and spent a few days hauling garbage out of the house. We then moved in and lived in the house until 1991. We worked on upgrading it along the way. After that, my brother and I were in college, and my parents got transferred back to Fort Worth. So, we rented the house out until around 2002. They paid around $23,000 in 1973 for a house that was listed for $49,000. They sold it many years later for about $180,000. They rented it for about 10 years for approx. $1000 a month. It was paid off for many years before they sold it. They made nice money on that deal. They have lived in 2 other houses past then, which were both paid for with cash. Ironically, this house, which is in Seabrook, TX, is in a flood zone. It never flooded while we owned it, but when Hurricane Ike came through, it took about 5 feet of water. We always feared this for that house, and it was so sad to see it go through that, even though it's not ours any more. It is still a great location for a rental, but I would have repaired it to withstand future hurricane threats.
This long term picture of living then renting then selling is very profitable, but it is emotionally difficult. It is hard to lease out a house in which you have memories. Timing and condition owe a lot to our profit, however. Just like a game of poker, and this might be.
My next investment was my first house. It was a very strange house. We paid $87,000 for it. We have spend about $30,000 on re-hab for this house. This house was built by Romanians that needed to sponsor fellow Romainians that were immigrating from communist Romaina (at the time). So, it had a little apartment on the side. These people built this house by hand by themselves, and built it in stages. Garage first, with a bathroom in the back, then main house, then the little apartment. They did not understand American measurements, and they did many things well, but made many mistakes in the construction of the house. The first thing we did was divide the apartment off from the house, update the kitchen and rent out that side of the house. We now owned a duplex. From the money we got for renting the small side of the duplex, we rehabbed the kitchen and downstairs bathroom on our "big" side of the house. Then we moved out and up to our next house and rented out the big side. Then renter's then suggested we turn the back of the garage to a 1 bedroom apartment, so we did, and they sublet it for us. We eventually added a laundry room to the small side of the house to up that side's quare footage and rental value. We now rent the large side for $900 a month on a long-term corporate lease to a company that is located a few blocks away. They have been our only renters, but several of their employees have come and gone. The company pays a maid to come clean the house every week. They take great care of the place. The smaller side we have had many renters, we entered into a DHAP lease agreement after Hurricane Ike--that was a mistake. The guy lied, the guy tore up the house and smoked in there. We "convinced" him to move out after 6 months, now we have a very nice young couple in there. They pay $875 a month. The first 'big" side more than covers our expenses for the mortgage and gives us $200 a month. The small side is icing on the cake as far as rent is concerned. We have paid off about half of the loan on this house. We refinanced it about 6 years ago to a 15 yr loan with great terms. So, we bring in about $1100 a month after mortgage and escrow is paid. This is exceptional income for a rental. Multi-family is why. This was not as hard as renting out the house in Seabrook, because I wasn't so emotionally invested in the property, and I knew from the start what the end goal would be. We stayed focused on that goal.
There are more of this type of property is out there. I've showed 5-6 houses similar to this in the last few months, and have one listed right now. There is more money in a converted duplex, but it takes money to set it up.
Our next investment is a house we also lived in. We purchased the house in 2005 for $110,000. It is 2000 square feet. We lived there for 5 years. We actually did very little fixing up of this house. We planned to do more, but in the end we ended renting out the house for $1250 a month. We pay $1000 a month on the mortgage, etc. so we are only making 250 a month on this house, but we were alright with this in this current market.
This is actually a pretty standard situation for a rent house, as far as numbers.
Our last property is not owned by us, but by my husband's father. It is a manufactured house that is on our lot next door to the house we live in now. My father in law has not been smart with this property. He has made many, many mistakes in managing this house, and has lost some money. My husband and I have now stepped in and are managing it for him. Here are the mistakes he has made:
1. renting to friends. After renting from him, they are no longer friends. Funny how that works.
2. Not having a lease written out on paper. No explanation needed.
3. Not enforcing a due date for the rent every month. How can this be done with nothing in writing?
4. Letting the house be abandoned for many months before taking legal action to remove the belongings and re-rent
5. Not keeping records of when and how much the tenant paid each month. Then, when he started losing his health and memory, it was not pretty...there were law suits...
6. Not insisting his renters maintain the house. 3 times now he has had tenants destroy the house and has had to spend thousands of $$$ to clean it up and repair before he could re-rent.
7. Not picking attractive materials when repairing the house. He went the cheap route, with ugly, stick down tiles in the house. Not good for a trailer, for when the floor and house settles, the tiles crack. Plus they look like a school or hospital floor that hasn't been properly waxed...The cheaper the materials, the less you will get per month for rent. We just redid those floors, and upped the rent price from $600/month to $875. It rented with in a couple of weeks at the higher price, and I got 10-15 calls a day on that listing. I wish I had 20 more houses like this. There are many, many people that would like to rent a trailer. If you are interested in this, try to keep the price of rent between $600-900/month.
Here are a few aditional tips I have learned along the way if you are interested in investing:
1. Houses that are dirty and need paint and carpet are good candidates for rentals. You need to have the money to paint and put in floors. Then bang. It's good to go. You can build the repair money into the loan. These houses do not sell as fast, or for as much, but it doesn't take long for a paint crew to come in and spray the house. THEN change the floors. Don't do carpet or laminate. Stick with tile. It lasts longer and holds up better for rent houses. There are great deals on tile out there. YOU don't have to like the tile, and neither do your renters. That's what throw rugs are for. Ok, maybe a cheap carpet in bedrooms, but be ready to replace it regularly. The big key to this is you need to be able to PAY someone to get the work done and turn around and rent it out quickly. Don't try to do it yourself, unless you can recuit some folks to help you. You need a CREW that can split the work up and get it done.
2. Rent your house with a realtor and screen the applicants well. I recommend a criminal screen as well as a credit screen. Remember, if renter's had good credit, they'd BUY a house, but you want to consider the nature of the credit problems. You DON"T want to rent to someone with warrents out, or recent drug posessions...Many programs do not recommend this because it costs. It costs more to evict if you do not screen your renters well enough.
3. Go check on the property every month just this way: The air conditioner filter needs changing. That is YOUR job---collect the rent when you change the filters. (or pay someone to, if you are out of town). My renters get the routine down. They know we'll be over on the 2nd of the month to change the filters and collect rent. They clean house for the occasion. If they are not there, they leave us the check on the kitchen table. We have a good level of trust built up and know each other better because of this. This also builds loyalty, and keeps the airconditioner in good shape.
4. REPAIR things WHEN they break. Save up some money to improve on the properties while the folks are living there. This adds value to the property, makes renter's happier, and keeps the place in tip-top shape. We just added a fence to our duplex. This was a great investment for us, and now our renters are extremely happy. One of the keys to being a successful landlord it to reduce the amount of turnover in renters. The longer they live there the better it is for you in many, many ways. You want long term renters.
5. Buyer's markets like we have today are a great time to dive in and buy rental properties. If you think you are interested, give me a call. I'd love to be the REALTOR part of a team I can help you build so that you, too can have a good return on investment. I know some great lenders, too, and some great contractors...I can help you build the team you need to make money with rental property.
6. DO it! Jump in there! You don't need to join a club. Just pick the right REALTOR, who will help you with the rest.
Comments(1)