Rental homes: how to do it the right way

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  • hoosierdoc

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    I'm considering getting into the rental home market and am seeking advice from those on here who do it/have done it.

    do you have a particular ratio of rent to purchase price you look for? Where do you look for deals on purchases?

    i have looked at sheriff sales but i don't understand how you can show up with a cashier's check for a property when you donMt know what bid will be. Are these sealed bids?

    how often are you inside the home inspecting for damage? Curious as to the amount of busywork it will take beyond rent/repairs
     

    Dirtebiker

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    Doc, best to pay cash, of course.
    Don't get into rentals if you don't want to deal with people who are always trying to get one over on you.
    Make sure you get a good lease agreement and know it forward and backward. Any clauses I want tenant to pay special attention to, I have them initial next to it. They can't say "I didn't know", not that it really matters.
    include in the lease how tall the grass may be, how often it must be cut, how the trash cans must be stored, etc.
    Make sure the tenant knows ALL complaints/communication must be in writing! Cover your ass!
    You can NOT be friends with tenants! You can be friendly, but never give an inch!
    Have late fees in the lease and enforce them! If you let them slide once, they will always expect it.
    Run a credit report, criminal background, and eviction report on every tenant over 18yo(which they pay for at time of application) and they all sign the lease.
    Inspect (quick walk through) each property every month or two.


    ....just to get started!
     

    TB1999

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    Go to indy real estate investor meeting. I used to go to CIREA when I was investing. I don't know if they are still around but I'm sure there are a couple groups you can get involved with. Tons if resources available, good networking opportunity with other investors.
     

    jd4320t

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    Buy the cheapest houses you can find in Broad Ripple. Only fix what you absolutely have to. Charge super high rent and rake in the dough. :)
     
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    spec4

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    My guess is that as a physician there are many demands on your time. You would only invest in rental property to enjoy a positive cash flow (consider tax consequences also) or have capital appreciation over time.

    That's if everything works right. My preference would be to build an investment portfolio that would be much less time consuming and provide for diversification and less risk. If you get one clown who defaults and trashes your property you can face serious losses.

    My investments are all handled right here with my PC. Works fine and sometimes fun if you catch the market right.

    Anyway, good luck if you choose to go forward.
     

    Libertarian01

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    I have friends who have done this for many years, and make money at it.

    I have a CPA friend who has many clients do it, he says 95% break even or lose money.

    My friends who are successful at it have a simple strategy.

    #1) They review the property and determine what work will need to be done. There is ALWAYS some work to be done.
    #2) They have a good guess of how much they can rent it for once it is up to snuff.
    #3) They plan to get 100% of their money back in three (3) - four (4) years - tops!
    #4) Then they offer the bank (they use bank foreclosures almost exclusively) and offer less than their repayment amount.
    #5) They pay cash, no mortgage, no loans, nothing. If they cannot pay cash, they don't buy.

    So DO NOT BE AFRAID TO INSULT THE BANK! I have seen them offer $20k on a home the bank is asking $85k for! They do not care about the banks feelings, because the bank doesn't have any. They are fully prepared to walk away from the home with no problem. This is business, nothing more. In this case you must be cold and heartless with the money.

    They just sold their biggest property (value wise) because they were going to take that money and invest it in more properties that would make them more money. It didn't matter that they had lived in that duplex. It didn't matter that they had owned it for a very long time. Cold and heartless, no emotional attachment to the properties.

    The biggest way they make money is that they do the majority of work on the property themselves! NO contractors, except for limited issues. Contractors will eat your profits like maggots on dead tissue. They had a furnace installed because they couldn't do that, but otherwise they put up drywall, tear out olde windows and put in new ones, replace garbage disposals, you name it.

    As others have pointed out you have to be cold and heartless with respect to rent money. If it is one (1) day late, late fee automatically. You are a business, you must enforce the contract otherwise you are setting a precedent for future legal arguments. Obviously this doesn't apply if a renter has been good for seven (7) years and is late. You'll want to contact them right away and find out what the problem is, but as a good renter they have earned some compassion.

    Take your business plan to your accountant. Tell him/her how you plan to do this. Be prepared for him/her to offer legitimate, constructive criticism.

    Good luck,

    Doug
     

    GodFearinGunTotin

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    I've never done it, never had a desire to do it. Sometime I'll tell about the story about my mom's place and my brother not wanting to sell it--ugh! But I do have a friend that has/had rental properties in Bloomington. (This information is several years old but I'd imagine it's still valid). One day he and I were talking about the ins and outs of renting property. He said his best advice is when renting, ask for references and CHECK them. Do your background checks, etc. He also said once he got a "good" renter in one of his places, he did whatever he had to do to keep them. And yeah, he did a lot, if not most of the maintenance work himself.

    Doc, I know you're on Facebook. So is 88GT. She has rental properties and I'm sure she'd give you all the info you need.
     

    BehindBlueI's

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    My dad had rental property for years. I learned quite a bit from his experience. My recommendation, don't do it :)

    This.

    Unless you want a part time job, don't run rental properties yourself. If you aren't handy, you'll also be behind the curve as hiring a maintenance man is expensive. My honest recommendation is look for a REIT that specializes in rental property with a nice mix of commercial and residential.

    Having one house is tough. When it's empty, you have to float the mortgage and the utilities. Figure most rentals have a 75% occupation rate. If you can get four or five houses that are cash flow positive, the occupied properties can generally float the unoccupied. That's also 4-5 houses to maintain, and the added worry of can you float multiple houses if occupancy crashes? If one is empty, one has a deadbeat in it facing eviction, and one is undergoing repairs? If you really really want to run rental properties yourself, get a couple, hire a property manager, and let them deal with the logistics.
     

    eldirector

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    My in-laws have 2 rental duplexes (4 units total). They make good money, but are a complete headache. They are holding on to them, hoping that one day my wife will inherit them. I've told her they will be sold the day she takes possession.

    As said above, if I WERE to get into the rental business: buy the absolute cheapest property in a half-way decent area. Do the bare minimum to make it habitable. Write a lease agreement that would make a lawyer blush. Charge outrageous rent. If it isn't insanely profitable, dump it on the next chump and move on.
     

    Libertarian01

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    One other thing, my friends take very good care of their property and make it decent. Their renters like staying there and don't look for a reason to move, at least not due to living in a :poop:y house.

    They told me the profit is about 50% of what they charge, the rest goes into care and maintenance of the property. Furnaces and water heaters eventually go out. Roofs eventually leak. That sort of thing.

    They background the hell out of tenants and only rent to the best. That is one of the many advantages of paying cash for the property, there is no pressure to rent now because you are losing money to a loan payment. You may have a good rental property sit empty for monthes while waiting for a good renter. The upside to a good renter is a well cared for property and stable income for years.

    Regards,

    Doug
     

    hoosierdoc

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    Thanks for the advice. I wonder if commercial is the way to go rather than residential.

    i work 28 hours a week so I have some time to play with
     

    Libertarian01

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    Doc,

    It sounds like you have some spare cash and are wanting to invest it in something other than a growth stock mutual fund or an IRA.

    As you have some time on your hands what about buying something cheap, fixing it up, and selling it for bookoo cash? You could restore cars, motorcycles, or even (gosh!) firearms.

    Find something you love doing (besides patching us up or making us say "Ah...") and figure out where some elbow grease could be turned into big bucks.

    You'll have fun, it won't be work, and you won't have any near-do-wells to evict.

    Just a thought...

    Regards,

    Doug
     

    PGRChaplain

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    Years ago I worked for a Contractor who also had rental properties. Go in Clean & Paint, repair everything that's broken. Repeat this after every Tenant moves out. My Wife's Cuz has 15 Rentals, he does all his own repairs. 40 hours at his job, 10 hours per week with repairs/ tenant problems. The Small Claims Judge is on a first name basis with him. Take a Thousand Dollars and buy a small Fishing Boat, you'll be much Happier!

    :bacondance:
     

    Alamo

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    My dad had rental property for years. I learned quite a bit from his experience. My recommendation, don't do it :)

    My employers had several rental houses in San Antonio, they sold them off and instead bought a self-storage property -- much less headache with tenants, repairs, etc. (In a moment of supreme business savvy, they hired me to do the day-to-day management. :naughty: ). That was five years ago and they have since bought an existing industrial facility and converted it to storage rental and built a brand new self-storage facility from the ground up. The market has been great in Texas, everyone and their cousin has been moving here and they need places to store their stuff until they can buy a house, and the guy they bought the house from needs a place to store his stuff while his new house is being built, because his old house sold so fast.

    If the market in Indy (I think you are in Indianapolis?) or whatever city would support it and you want some kind of rental/real estate vehicle, you might consider this. It has its own workload of course, it's not necessarily less work than renting a house, but the owners say the people headaches at far less, and I can see how that would be the case.
     

    Spear Dane

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    Bro the best advice I can give you (having done this in the Indy area at one time) is DON'T. You don't want the 2 am phone call in February from your tenant about the heater being broken and it's literally 5 degrees outside. You don't want the MAJOR LEGAL HEADACHES that come when your renter quits paying.
     
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