rental property

[jus1975]

I would like to get into some rental properties. Anyone here own rental property that can give me some info, direction and guidance toward getting started. I have no money to put down but my credit is better than good. Propably excellent. Do those Carlton Sheets tape have any truth to them. A friend is going to let me borrow them as soon as he finds them

[68Formula]

The lenders are tightening down on requirements.

Also keep in mind, if you don't have a renter, you don't have an income. So be sure that you can hanle "dry" periods.

Not to mention, periodic maintenance costs will occur so you need money available for this. We had the furnace go last year and a deductable for insurance after a water pipe broke this year.

Now is the time to buy in terms of potential long term value though.

Good Luck.

[bochnak]

I looked into buying a 3-4 flat before purchasing my first home. With less than 20% down, the cashflow would have been negative (at least in my area). Depending on where you are located, rent rate, etc.. you definitely want positive cashflow at the end of the month, otherwise it is not worth it.

Also, do you want the headache of tenants? My brother has 2 condos that he rents out. Some tenants have completely trashed the place, including one that set a room on fire!

Instead, I have chosen to buy a fixer upper home. It will take me 5-7 years to completely remodel, at my pace, DIY, with all remodel costs paid in cash. If the market is on my side at the time, I will sell, otherwise I’ll have a nice home to live in.

[Boyd]

I've never listened to the Carlton Sheets tapes, but I have a friend who's been very succesful with them.

His wife was in pharmecutical sales (the legal kind) and made very good money. They eventually decided to start a family and he was adamant that she stay home.

When he told me he ordered the Carlton Sheets tapes and was going to start buying rent houses to make up for the income they would lose after she quit working, I LAUGHED in his face and told him he was crazy.

That was 5 years ago - and he now owns 36 rental properties. At one point, he owned 54 but said that was too many to manage. He's the one LAUGHING now,......all the way to the bank.

[Chad-1stGen]

A couple of general guidlines:

What do you want from your RE investment?
- Cash flows
- immediate gains
- appreciation (usally at the cost of current negative cash flows)
- etc

Almost EVERYONE who starts out in real estate underestimates the operating costs associated with renting. Espcially given that some of the biggest costs are infrequent rather than monthly. A good rule of thumb in assessing operating costs for cash flow purposes is that operating costs will be approximatley 45%-50% of gross rents.

For example a place that rents for $1K over the long term will provide operating cash flows of $500 to $550. Operating income/cash flow does not take into account any debt costs.

Learn to calcualte capitalization rates. Most sucessfull RE investors of rental property are sucessfull because they got lucky on appreciation or they purchases properties with good cap rates (10%+).

This barely scratches the surface.

[70bird]

Right now is a good time to be putting your RE investing PLAN together, but may not yet be the time to buy. Although the market is quite soft right now and sales are slow, pricing is still relatively high. That is changing by the month and I don't think we have seen the bottom yet.
For example, my next door neighbor has had their house on the market for about 7 months, and has lowered the price $90,000.00! It still hasn't sold! The comps in my neighborhood just keep dropping and there has not been much activity. And this is in one of the countrys best economic areas. (SoCal)
I read a study that said over 60% of home loans during 1999-2004 were either adjustable rate mortgages (ARM) or similar negative amortization type loans. These "EZ squeeze me" type loans allowed people to buy way more house than they would be able to afford with a conventional 30 year loan as the monthly payments are quite low for the first 5 years or so. Money was so cheap, and qualifying requirements were so low during this time. Many people could not resist the big beutiful house of their dreams, and bought thinking that 5 years was a long way off, and their income would likely increase or they would just re-finance at a later date. Well, here we are 5 years later and these same people are seeing there payments going up 10-40%. Couple this with the fact that during this time values also increased, and many took out equity lines to re-model, or pay off other debt, or just buy "stuff" (maybe build that PT car of their dreams) LOL. Those folks are in a world of hurt right now as their payments are much higher, equity line payments are due every month, and the value of their home has dropped. They can't re-finance for a lower monthly payment because they no longer qualify, and they can't sell for near what their debt is.

Consequently, the banks are getting a lot of these homes back and foreclosures are on the rise. Another year and you will be able to buy these for pennies on the dollar. If you have your "ducks in a row" you could be in a position to buy one or more and make a tidy sum when the market turns around. (I predict 3-5 years)


As far as rental property is concerned, If you go into it knowing that it will likely be a long term investment,with high maintenance costs,
some headaches with tenants, and expecting a negative cash flow, you won't go wrong. Just make sure you can afford it based on a CONVENTIONAL loan that won't adjust in the future.
Remember, as the RE market softens, the rental market strengthens as people need a place to live and will rent if they can't buy.
JMHO

[shizzy]

70 bird, you are speaking the truth. last year houses in my neighborhood were a solid 50k higher. now there are a few that are sitting due to the price the seller "must" get. Also a friend of mine is buying a house that has been reduced 100k from the original price. Im going to have to sit for about 2 more years till I can qualify for a house and after seeing what the market is doing that doesnt bother me

[bigvegan]

Amen to those who mention that this might not be the time to buy.

Make sure you're reading:

http://patrick.net/wp/
http://thehousingbubbleblog.com/index.html
http://www.doctorhousingbubble.com

to get an idea of what's really going on in the housing market.

Depending on where you live, the coming months may be an awesome time to pick up some rental property, if you put together a decent plan and make sure there's positive cash flow.

In Southern California, it's a mess, as way too many people decided to be landlords, and decided that a negative cash flow was acceptable, since they'd make up for it on the increasing value of the real estate, since SoCal real estate never goes down. Well, now it's going down and going down hard, and greedy real estate buyers and even greedier banks are now asking the government to rescue them from their own bad decisions.

I wouldn't go with Carlton Sheets, especially after reading this - http://www.johntreed.com/Reedgururating.html#anchor537525

John T. Reed, the author of that article, on the other hand, seems to know what he's talking about - http://www.johntreed.com/HGS.html

There is money to be made in real estate, but at this point it's going to those people who do their homework.

Good Luck!

[TonyHuntimer]

Never heard of Carlton Sheets.

As others have mentioned...be sure you have enough money to stand the dry spells when you don't have any renters.

A Tri-plex or Four-plex is a good way to get your feet wet. Be sure the area rents will pay your mortgage, otherwise it doesn't make sense to buy...unless you know you have extra income to cover the loss until the property value goes up or you can raise the rents to cover the mortgage if they are not too high for your area.

The rental market was much better 5 years ago. Right now not so much, but if you can afford to get in while the prices are down... :fingersx:

Just remember. There is always a risk of losing your butt. The old saying of location, location, location... rings true. If you buy a property in a bad area, don't pay too much for it because it goes back to the rent covering your mortgage. Bad areas bring low rents and in most cases these units are harder to fill when they do go empty.

Most laws protect the renters...not the landlords, so be careful.

Try to buy in your area if you can do your own work...or at least buy in an area close enough to where you live that you will put up with driving to if you need major repairs done. If you can't do repairs by yourself, you can buy anywhere, but it's going to cost you extra money when things go wrong.

Things are not going well with my rentals right now, but we're going to stick it out. They've been good to us in the past, so we hope they will be better again.

Tony Huntimer
RaceHome.com