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Thread: Rental Properties

  1. #1
    One man.....one pie Moliere's Avatar
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    Default Rental Properties

    There are a couple nice homes in my neighborhood that have been on the market for quite a while (over 90 days). I've recently been thinking about looking into buying one and using it as a rental property. I don't have a ton of money sitting around but I have some that I would like to invest in something other than the stock market. I also figure if I can get something close to my house I can at least keep a decent eye on it and hopefully screen out the tenants much better.

    Does anyone have experience with rental properties? Do they offer a decent return or is it more trouble than it's worth? This would be in a middle class neighborhood and the properties would probably go for around $200K to $225K.

    Just trying to do some initial due diligence and gather some thoughts before I decide to seriously look into it.

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    Quote Originally Posted by Eddie Jones View Post
    There are a couple nice homes in my neighborhood that have been on the market for quite a while (over 90 days). I've recently been thinking about looking into buying one and using it as a rental property. I don't have a ton of money sitting around but I have some that I would like to invest in something other than the stock market. I also figure if I can get something close to my house I can at least keep a decent eye on it and hopefully screen out the tenants much better.

    Does anyone have experience with rental properties? Do they offer a decent return or is it more trouble than it's worth? This would be in a middle class neighborhood and the properties would probably go for around $200K to $225K.

    Just trying to do some initial due diligence and gather some thoughts before I decide to seriously look into it.
    Now's a great time to do it. This is when everyone panics but Mr Potter keeps his cool and buys pennies on the dollar.

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    Peanut Gallery Asshat HBCoug's Avatar
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    Quote Originally Posted by Eddie Jones View Post
    There are a couple nice homes in my neighborhood that have been on the market for quite a while (over 90 days). I've recently been thinking about looking into buying one and using it as a rental property. I don't have a ton of money sitting around but I have some that I would like to invest in something other than the stock market. I also figure if I can get something close to my house I can at least keep a decent eye on it and hopefully screen out the tenants much better.

    Does anyone have experience with rental properties? Do they offer a decent return or is it more trouble than it's worth? This would be in a middle class neighborhood and the properties would probably go for around $200K to $225K.

    Just trying to do some initial due diligence and gather some thoughts before I decide to seriously look into it.
    I have a former home that we've used as a rental since moving into our newer home (about 4 years ago). The home was built in 2002 so there hasn't been a lot of maintenance and upkeep as of yet but this last group of girls (BYU grad students) has really tried my patience. Prior to this year everything had gone perfectly. It's tough to say at this point whether or not I'm getting a decent return as we're in it more for the long haul. The rent pays the full mortgage, HOA, plus a little each month that we stash away in a rental slush fund. Having the rental is great come tax time. Send me a boardmail or post more specific questions here if you'd like.

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    Boom Bitches!!! BlueHair's Avatar
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    My advice would be to be very careful. Price out insurance, property taxes, rental rates, and vacancies in your area, etc. I don't know where you live, but 225K seems kind of high if it is only one unit. Assuming you put 20% down ($45,000), you could probably get about a 5% interest rate. The P&I would be around $960 per month plus taxes and insurance. It's going to be several years in most places in the country before prices rebound significantly, so you might have $45,000 tied up with very little appreciation or cash flow. Home ownership is down so the number of renters is obviously higher, but many of them have bad credit. If you do buy, you could always sell a lease option to get higher than fair market rent and get serious renters. The only downside is you would be obligated to sell if the renters exercise the option.

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    Senior Member myboynoah's Avatar
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    Quote Originally Posted by BlueHair View Post
    My advice would be to be very careful. Price out insurance, property taxes, rental rates, and vacancies in your area, etc. I don't know where you live, but 225K seems kind of high if it is only one unit. Assuming you put 20% down ($45,000), you could probably get about a 5% interest rate. The P&I would be around $960 per month plus taxes and insurance. It's going to be several years in most places in the country before prices rebound significantly, so you might have $45,000 tied up with very little appreciation or cash flow. Home ownership is down so the number of renters is obviously higher, but many of them have bad credit. If you do buy, you could always sell a lease option to get higher than fair market rent and get serious renters. The only downside is you would be obligated to sell if the renters exercise the option.
    I think BH is giving some pretty good advice in this market. I don't know what interest rates are, but 5% sounds pretty good for a rental property.

    We rented out our first home for several years. It worked out great through 2007 when we sold it. Had we waited two more years it wouldn't have worked out so well. But still, good tax write off and built equity. I'd be careful given today's market.
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    Living in the Past ... FMCoug's Avatar
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    Quote Originally Posted by BlueHair View Post
    My advice would be to be very careful. Price out insurance, property taxes, rental rates, and vacancies in your area, etc. I don't know where you live, but 225K seems kind of high if it is only one unit. Assuming you put 20% down ($45,000), you could probably get about a 5% interest rate. The P&I would be around $960 per month plus taxes and insurance. It's going to be several years in most places in the country before prices rebound significantly, so you might have $45,000 tied up with very little appreciation or cash flow. Home ownership is down so the number of renters is obviously higher, but many of them have bad credit. If you do buy, you could always sell a lease option to get higher than fair market rent and get serious renters. The only downside is you would be obligated to sell if the renters exercise the option.
    BH makes great points. Also remember that in TX, property taxes are huge. So that $960 could easily become $1300+ with Taxes and Insurance. What are market rents?

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    One man.....one pie Moliere's Avatar
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    Quote Originally Posted by BlueHair View Post
    My advice would be to be very careful. Price out insurance, property taxes, rental rates, and vacancies in your area, etc. I don't know where you live, but 225K seems kind of high if it is only one unit. Assuming you put 20% down ($45,000), you could probably get about a 5% interest rate. The P&I would be around $960 per month plus taxes and insurance. It's going to be several years in most places in the country before prices rebound significantly, so you might have $45,000 tied up with very little appreciation or cash flow. Home ownership is down so the number of renters is obviously higher, but many of them have bad credit. If you do buy, you could always sell a lease option to get higher than fair market rent and get serious renters. The only downside is you would be obligated to sell if the renters exercise the option.
    Thanks, this helps a lot. The bolded part above is the biggest deterent to me pulling the trigger on something like this. I worry that maybe I will go many months without a tenant and having two mortgages for an extended period would be burdensome. The original plan was to pay off our current mortgage (which we could do in 10 years or possibly even shorter than that if my car holds up for a while longer) on our current home and then possibly move into a newer/bigger home and continue to own the old home free and clear. We would then rent the older home and use that money to pay for the newer home. However, with interest rates being so low and with home values low as well I've been thinking about buying a home for rent.

    There is one person in my ward that rents out a home and we've chatted before about it but I think she either owns the home free and clear or she doesn't have a rental/mortgage payment where she is currently staying.

    I'm going to run the numers again. I ran them 3 years ago and decided against it but my income has increased and interest rates have come down. Real estate values haven't really changed in my area over the past 4 years but then again we didn't have the big run up in home values either. I'm thinking my conservative nature will keep me from pulling the trigger based on teh bolded part in your post but we'll see.

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    One man.....one pie Moliere's Avatar
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    Quote Originally Posted by FMCoug View Post
    BH makes great points. Also remember that in TX, property taxes are huge. So that $960 could easily become $1300+ with Taxes and Insurance. What are market rents?
    This is true. I refiananced last year and it dropped my P&I down to where it was less than the escrowed amount for property taxes/insurance. This year I finally decided to stop escrowing and I just put 1/12 of my estimated taxes into a savings account to be paid out at year end.

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    Investment rates are actually below 5% right now. Now would be a good time however most lenders are now requiring 25% down instead of 20.
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  10. #10
    Senior Member Clark Addison's Avatar
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    This thread is as good as any for this somewhat random question, I guess.

    My son, as many know, is in college. Next year, he will be moving off campus. He just found an apartment, and he sent me over a document the property manager said I need to sign. It reads:

    I (We), the undersigned, being Resident(s) of the state of ____________________
    and parent(s)/guardian(s) of the resident(s) hereby Guarantee performance by the
    resident(s) of the Lease and any extensions thereof. I authorize a check of my
    credit history.

    **NOTE: Delinquent accounts will be turned over to a collection agency**
    What in the. . .? When I was a student, my parents never needed to sign anything for a place I rented. I was an adult, as is my son (legally, at least). Is this sort of thing standard now? Are college students so unreliable these days that they can't be trusted to rent an apartment without guarantees from their parents? I am not thrilled about a hit on my credit report, and I am sure not thrilled about the possibility of the Property Manager coming to me with a bill in a year for some sort of vague claim about damages.

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    I wouldn't sign that crap.
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    Quote Originally Posted by Clark Addison View Post
    This thread is as good as any for this somewhat random question, I guess.

    My son, as many know, is in college. Next year, he will be moving off campus. He just found an apartment, and he sent me over a document the property manager said I need to sign. It reads:



    What in the. . .? When I was a student, my parents never needed to sign anything for a place I rented. I was an adult, as is my son (legally, at least). Is this sort of thing standard now? Are college students so unreliable these days that they can't be trusted to rent an apartment without guarantees from their parents? I am not thrilled about a hit on my credit report, and I am sure not thrilled about the possibility of the Property Manager coming to me with a bill in a year for some sort of vague claim about damages.
    Eff that. I'd never sign that.
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    Quote Originally Posted by Surfah View Post
    Eff that. I'd never sign that.
    Me either.
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    Member Sans Gravitas Donuthole's Avatar
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    Yeah, no way in hell. That is clearly designed with the hopes that you are 1) wealthy enough (or careless enough with money) that you'll just sign, and/or 2) so wrapped around your son's finger that if he pouts about your refusal to sign, you'll give in.
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    I can see them asking for a co-signer. We ask for that in our rental property for younger renters that don't have any credit history. However, asking for it because you are the parent/guardian seems a little off. It could be that it was poorly worded.
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    Stepping Razor wuapinmon's Avatar
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    If he has roommates, no way.
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    Senior Member il Padrino Ute's Avatar
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    I wouldn't sign it. If it were my son, I'd encourage him to find another place than be subjected to a weasel like that as a landlord.
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    Quote Originally Posted by Clark Addison View Post
    This thread is as good as any for this somewhat random question, I guess.

    My son, as many know, is in college. Next year, he will be moving off campus. He just found an apartment, and he sent me over a document the property manager said I need to sign. It reads:



    What in the. . .? When I was a student, my parents never needed to sign anything for a place I rented. I was an adult, as is my son (legally, at least). Is this sort of thing standard now? Are college students so unreliable these days that they can't be trusted to rent an apartment without guarantees from their parents? I am not thrilled about a hit on my credit report, and I am sure not thrilled about the possibility of the Property Manager coming to me with a bill in a year for some sort of vague claim about damages.
    Maybe things work a little different on the East Coast or Atlantic Coast. I got a request like that from my younger sister who was trying to rent an apartment in Brooklyn, NY. She had little renting credit history since a roomate, to that point, was always named on the lease. Our parents wouldn't cosign because they had already said "No" to one of our brothers trying to buy his first house and our older sister cosigned instead.

    I wasn't going to cosign but our older sister called and both sisters together did a full-court press. My wife and I were the only ones that could help because we were dual income earners and topped a certain income threshold and had a high credit score. She had undergraduate and graduate degrees from top schools, had a good job, but would soon be homeless on the mean streets of NYC unless she could get this apartment. So I cosigned and she got the apartment. Now, I've got a place to stay if I ever visit NYC.

    Anyway, I think this is common in NYC for renters with no renting history. Not sure about a college town though. I would guess landlords are used to this and its reflected in rent prices. Isn't that what last month rent is for?
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