1. Welcome to Tacoma World!

    You are currently viewing as a guest! To get full-access, you need to register for a FREE account.

    As a registered member, you’ll be able to:
    • Participate in all Tacoma discussion topics
    • Communicate privately with other Tacoma owners from around the world
    • Post your own photos in our Members Gallery
    • Access all special features of the site

Tell me about investing in rental properties

Discussion in 'Stocks & Investments' started by Junebug McQuinn, Oct 18, 2013.

  1. Oct 18, 2013 at 4:21 PM
    #1
    Junebug McQuinn

    Junebug McQuinn [OP] Well-Known Member

    Joined:
    Dec 9, 2010
    Member:
    #47445
    Messages:
    425
    Gender:
    Male
    Wylie, TX
    Vehicle:
    2011 TRD Off Road Pre-Runner
    Wife and I are thinking about purchasing a rental property in the next 6 months or so. It would be in the Dallas area. We're looking around now and finding properties in the $40-60k area that need some work but we have the know how and contacts needed to update and fix up these types of homes and the credit to keep our payments very low.

    My best friend from childhood is a real estate agent and has 3 rental properties in Austin and is our greatest cheerleader. To hear him talk, Dallas is an amazing opportunity compared to Austin and we can do no wrong and it's all guaranteed money. I know it can't be that easy or everyone would be snatching up these properties. I need someone to counter this with reality if possible.

    Doing the math, I've found a 3 bedroom 2 bath in a decent area with shopping and transit nearby for $47k. No foundation issues. We can get this house for $300ish/month and rentals in this area are going in the $8-900 range. I estimate we'll put roughly $10k into it updating and fixing issues.

    Someone set me straight. We have the money set aside to cover emergencies, vacancies and whatnot and we have 0 experience as landlords. It's just got to be harder than this for a first property.
     
  2. Nov 14, 2013 at 9:43 AM
    #2
    96Taco

    96Taco Well-Known Member

    Joined:
    Jan 6, 2011
    Member:
    #48827
    Messages:
    765
    Gender:
    Male
    Alberta
    Vehicle:
    2014 DBL CAB Tacoma
    I am facing a similar situation at the moment and this is where I'm at.

    You have a few questions to ask:
    - $300/month now how does this number change when interest rates start to raise? How does that affect the affordability.
    - $60k capital investment and $9600/year profit (thats $800*12mnths) = 9600/60000 = 16% return per annum. That is a fantastic return. Not to mention the capital growth you get as land prices appreciate. Almost seems too good. Any return over about 7%/annum carries a good portion of risk.
    -If the market crashes and you cannot fill the rental property do you and your spouse make enough money to cover the mortgage payment on it?

    Be extra cautious when hearing the terms "Cannot go wrong" and "guaranteed income". Statements like these to me are automatic red flags. Making money is never easy or guaranteed. Humans have the mentality of when things are up theyre never coming down.

    Also ask yourself if you want to be a landlord. Generally renters are young people or people who are not in a good enough financial position to be home owners. Think of yourself as a slumlord. Not saying all renters are bad, there's good ones out there. But balance this with all the horror stories. Renters are generally harder on your home meaning increased maintenance costs that need to be factored in. Also factor in property taxes, extra tax on your rental income, unexpected big ticket items (need to replace hot water system, roof shits itself etc).

    Alternatively you can get a property management company to manager the property/renters to save yourself the headache. Not a bad idea so youre not the one getting that phone call every second day with people complaining.. or chasing down your rental cheque's.

    So lots of risk, but making money always carries risk. REIT's offer good exposure to real estate income and are pretty cheap right now. They have a good 8%+ return. Check the rental vacancy statistics in the area/city. If you can get a place for $47k and rent in for $900/month ask yourself why everyone isn't doing this. Why aren't the major real estate rental companies (who are cashed up) all jumping on this.

    Good luck.
     
    Gunshot-6A likes this.
  3. Nov 14, 2013 at 10:03 PM
    #3
    Joe D

    Joe D .

    Joined:
    Nov 13, 2011
    Member:
    #66942
    Messages:
    7,202
    Right right.

    First off I'm NOT familiar with the Dallas metro market.

    Built them as GC & bought ragged out and repaired and kept or flipped them and bought some already in decent condition.

    It can be lucrative and it can bust your ass. General rule of thumb on single family units 1%. That is whatever the rent is per month multiply it by 100 and you'll have a rough estimate of it's value (or you can reverse it). $900 a month * 100 = $90,000 value. Or $47,000 value / 100 = $470 month rent. Also, you will not be able to get the same interest rate or term as you can on a primary. Further, Fanny Mae & Freddy Mac only allow 4 separate mortgages max. Most banks are financed through either of those two. Private funding banks often limit your investment to $500,000 to $700,000 in normal markets (total) so then your forced to finance yourself or find other funding. Prepare for 20 to 30% minimum equity stake depending on property condition on each property from day one. Find a good rental agreement, lawyer, tax accountant and file for an LLC and don't "pierce the vale" if you plan to grow much. Additionally you should figure 25% loss / vacancy.

    The property cost vs. rent value you mention don't jive. If its true, I'm moving to Dallas...soon.

    If you have specific questions shoot me a PM.
     
  4. Nov 15, 2013 at 12:48 AM
    #4
    DefyInertia

    DefyInertia Saratogian

    Joined:
    Dec 30, 2007
    Member:
    #4031
    Messages:
    107
    Gender:
    Male
    First Name:
    Nate
    NorCal
    Vehicle:
    '05 DCLB 4x4 SR5#8 (white)
    Toytec Ultimate: ~3" up front via coil overs, LR UCAs, and SB delete; 2+ out back with AAL and new shocks. Leer cap, padded sleeping platform in bed
    3/2 for $50,000??????? Holy shit.
     
  5. Nov 15, 2013 at 3:13 AM
    #5
    memario1214

    memario1214 Hotshot Offroad Moderator Vendor

    Joined:
    Oct 1, 2009
    Member:
    #23628
    Messages:
    19,756
    Gender:
    Male
    First Name:
    Colton
    Missoula, MT
    Vehicle:
    SOLD - 05 Dub Cab TRD Sport 4x4, CURRENT - '21 Tundra MGM Limited
    :popcorn:

    I'm interested in this as well.
     
  6. Nov 15, 2013 at 7:30 AM
    #6
    Joe D

    Joe D .

    Joined:
    Nov 13, 2011
    Member:
    #66942
    Messages:
    7,202
    Yea really do the math on the return guys. If the property is $50,000, most non owner occupied finance is going require around 20% down (using normal financing) that's $10,000 down. He will do a D&A on his repairs (not the sweat equity part) so the repair expense will be spread over a period of time for tax purpose (we'll leave it out in this basic calculation). So rent is $900 a month. He thinks he can get a mortgage for $300 a month (most banks will not finance non-owner occupied as favorably as owner occupied). We'll use a pretty standard loss vacancy of 25%.

    25% of $900 = $225
    Mortgage of $300

    $900-$300-$225=$375
    $375*12=$4,500
    $4,500 (operating profit) / $10,000 (actual non-depreciated expense) = a 45% ROI.

    It sounds WAY too good to be true. Granted that is a very basic calculation but it's the basic method used by a lot of people I know in this game. I'm betting either the property cost more then $50k or the rents are not $900 a month.

    There are certain times and economic events that drive rents or values (low interest rates, easy credit, high unemployment etc) but normally that effects the property cost vs. rent income to vary proportionally.

    Plus OP how far do you live from where you plan to invest? I've got a place that's almost 500 miles from my home right now. It can be a major PITA.

    I use $10k as non depreciated. He may depreciate the cost of the house but, in the end he'll pay capital gains on the adjusted property value. So whatever the tax his spread is, it's not included.
     
    Last edited: Nov 15, 2013
    TireFire likes this.
  7. Oct 14, 2020 at 8:01 AM
    #7
    JDR07

    JDR07 Well-Known Member

    Joined:
    Feb 23, 2012
    Member:
    #73481
    Messages:
    1,363
    Gender:
    Male
    Colorado
    Vehicle:
    2016 DCSB TRDOR
    Duct Tape
    I would love to hear an update on this?
     
    henryp likes this.
  8. Oct 14, 2020 at 8:06 AM
    #8
    BSK

    BSK Keyboard not responding. Press any key to continue

    Joined:
    Apr 3, 2018
    Member:
    #249320
    Messages:
    778
    Vehicle:
    Trabant 501 Kombi
    Cigarette Lighter Delete
    Junebug McQuinn was last seen:
    Oct 4, 2020

    I'd say send a PM and have him update this post; would be interesting to see what happened in the past 7 years.
     
  9. Oct 14, 2020 at 8:28 AM
    #9
    JDR07

    JDR07 Well-Known Member

    Joined:
    Feb 23, 2012
    Member:
    #73481
    Messages:
    1,363
    Gender:
    Male
    Colorado
    Vehicle:
    2016 DCSB TRDOR
    Duct Tape
    let’s give him a few hours/days to chime in...I’ve heard nothing but great stuff about the Austin and Dallas real estate markets
     
  10. Oct 15, 2020 at 5:03 PM
    #10
    kairo

    kairo >_>

    Joined:
    Jun 1, 2016
    Member:
    #188456
    Messages:
    11,332
    Gender:
    Male
    Nor Nev
    Vehicle:
    '20 OR DCLB Quicksand
    One bit of advise I would offer, having learned this myself the hard way -- Have a company manage the property and find tenants. It's not that expensive, and it will save you so much heartache and financial loss if a bad tenant gets in there.

    I have one that still owes me $8k from years ago, but you can't squeeze blood from a stone. Tried to handle it all myself. Lesson learned. Never again.
     
    Gunshot-6A and JDR07 like this.
  11. Oct 25, 2020 at 7:10 AM
    #11
    c212

    c212 Well-Known Member

    Joined:
    Jan 16, 2020
    Member:
    #316269
    Messages:
    76
    Gender:
    Male
    Just passing through to drop this in. Please remember to include the intangibles (i.e. non-monetary concerns). A third-party manager, already mentioned, is one. A second intangible, especially relevant today, is that the federal government has wildly overstepped its bounds in banning evictions. Read https://thehill.com/policy/finance/...ing-industry-sue-cdc-to-overturn-eviction-ban for a decent overview. Then ask yourself whether you want to be a landlord under such a scenario. And don't be fooled -- If they did it once, they'll do it again, if not on the federal level then at the state/county level where outside (oh, all right, I'll say it: unamerican) interests are really getting a foothold. Which states and counties should be obvious to anyone who's even remotely paying attention.
     
    TireFire likes this.
  12. Oct 25, 2020 at 6:40 PM
    #12
    BSK

    BSK Keyboard not responding. Press any key to continue

    Joined:
    Apr 3, 2018
    Member:
    #249320
    Messages:
    778
    Vehicle:
    Trabant 501 Kombi
    Cigarette Lighter Delete

Products Discussed in

To Top