Buying a secondary property to rent out?

[fireweed farm]

Wasn't sure where best to ask this...
I've always wanted to buy a second property to rent out, to both generate a little income plus have something to sell in the future probably longer term.

Everything I'm looking at would only break even, or still cost you at least $100 per month out of your pocket. And if an appliance broke, roof needed repair or renter left and couldn't find a replacement fora month or so etc etc you'd be digging a hole.

Basically around here rental properties are revenue neutral or negative. When you add the price of any mortgage, plus property taxes, water/sewer and insurance or whatever other fees you have, the monthly cost is right around the price you can get from a renter.

Is this standard in most places? Thanks!

[plowjockey]

The "unofficial" standard here is the monthly rent should be at least 1% of the home purchase price ($1000/mo on a $100k property).

In reality it varies and depend on how much you can eat, if thing breaks and there are no renters for a long time.

The most important thing is what is the rental market? Do rentals have waiting lists or ther there "for rent" signs everywhere? What are current rents in your area? Having decent renters who stay for a good while, is the biggest goal, but you'll still have to be able to make payments and repairs, regardless..

We just purchased a rental, in 2011, but MIL, is renting it from us, so it will be a while, before I have to "evict" her and deal with regular renters.. The renters next door moved out because the rent was too high, but there were people looking at it, a day later.

I'm assuming you can operate a rental house as a tax deductible business, as we do here.

[fireweed farm]

Yes, here a property that goes for approx $150-180k rents around $1100 per month, could be more or less. I budget on $1000 as rent can go down. There are plenty of people looking to rent here at this time.

I had hoped to net around $300 per month from it which I'm unsure is feasible in any case, at least currently in this area.

[poppy]

I wouldn't do it if I had to mortgage it. I know a couple people who inherited some money and decided it was a better investment than CD's which pay next to nothing. Probably okay if you get good renters and can handle repairs yourself. Some renters will do hundreds or thousands of dollars to a home because they are trash and don't care. I know several who do it and they all say it is a pain in the rear. I know many others who quit and sold out because it was a money pit.
Don't know what houses cost there but you can easily find a 2 bedroom wood frame home here for $15K or less. Quite solid and liveable but will probably need some updating like paint or carpet. Not bad if you can do it yourself and at $400 a month the payback time is short. I've seen them sell for about $8K at auctions ready to move into. Get your investment back in 2 years. I inspected a ranch style home today with stone half way up on the outside and a 2 car garage attached that sold for $20K at auction. The old couple had passed away and the kids didn't live here. Very nice solid home but the old folks had not put new carpet in it for probably 40 years.

[7thswan]

I bought my Gp's place,mom rented it out to>>>.... It was my Mom's God Child. Seems she thought if she asked for "repairs" she could fix things up until she could spend all rent 4 on fixing up then...buy the property.She was devistated when she found out I bought it and she counln't scam it off my Mom.She's one of the 47%. This is how they think.

[Lazy J]

Pay cash or don't do it.

[plowjockey]

Paying cash for a rental property, nearly defeats the whole purpose of having it, IMO.

Mortgages are still pretty cheap and all of the the costs are tax deductible. Otherwise, unless you have a lot of maintenance, most of the rental income will be taxable.

It's all about managing business risk. We can afford our mortage payments, even if there was no rental income.

I would not do it, if it was not the case. A very cheap mortgage, or a very good backup fund is key.

[fireweed farm]

I agree on making sure you can make payments even without a renter, that is the plan. A renter just makes it easier. To me it's all about selling it way in the future.

I don't have a problem with mortgages and loans. Unlike some, I'm good with paying the bills and feel saving up $150k in the bank is a bigger risk than monthly payments that either make you money or pay for themselves through rent..

[Benny b]

My mom and dad used to have 41 rental units. The biggest problem was if its cold out you can't evict them, but you still have to keep them warm until spring. The laws benefit the renters not the owners. We had a lot of section 8 tenants , our check for section 8 was usually around 11000-13000 a month depending on vacant apts . Money nice Huge pain in the but. They sold them all but one . They lived there

[Ozarks Tom]

If you pay cash, you should be able to depreciate it just like equipment.

At one time I had 6 rental houses, never again.

[ronbre]

some states like where I live in Michigan have much higher property taxes on NON homestead houses..which a 2nd home or rental would be.

if you don't live in it yourself it is not your homestead..so you pay the higher taxes..here in michigan they are significantly higher

[TnAndy]

Originally Posted by Ozarks Tom

At one time I had 6 rental houses, never again.

At one time I had 3, never again.

I did make a dandy profit from the sales, but only because I built them, including sawing the framing, building the house, cabinets, trim, etc.

The biggest gripe I had was that almost NO renter will take care of a place, and you can figure 1-2 months income between renters just to repair the damage they will do.......and that's if you don't get a particularly bad one.

Great income.....we averaged nearly 20% return on the actual cash we put in them ( not counting my labor ).....and rental income is "unearned", meaning you don't pay Social Security taxes on it....but you sure have to have a "landlords" stomach for the folks you'll have to deal with.

[larryfoster]

I had 29 units at one time and down to 2 right now.

The 2 are either a hobby or inconvenience. I haven't realized any net income to me in the last 2 years

Any profit will be realized only when I sell them

[Alice In TX/MO]

We have eight rental houses in three cities, in two states. Paid cash for them all, and most were in distressed condition and discounted. Fixed them up, doing as much of the work myself as possible. Renting them out now. Yes, there is positive cash flow.

We have been luckier than most with renters, I think. A couple of crazies, but good on the whole.

As we are now older than we used to be, we are selling them as they become vacant. However, we are selling them as 'owner financed', so the cash flow is still there, and now no expense or work.

[theemon]

im going to try in the future to buy forclosed homes and rent them out... if i pay cash and fix it myself i dont see how it isnt worth it

[TheMartianChick]

We have had rental properties for about 20 years. There are a lot of factors that go into whether or not they will be profitable. My area has relatively inexpensive housing. I can buy a rental for $25k on up, depending on the neighborhood. Here, a 2 family is most profitable and has the least amount of regulation. One apartment (doesn't matter about the number of units) can pay the mortgage/taxes/etc and the other apartment's rent can be used for repairs or as profit.

If you don't know how to repair the basic systems of a home, then you will be paying through the nose everytime something goes wrong. You should know how to repair plumbing , heating, air conditioning and make basic structural repairs.

If your market needs additional rentals, then you will have a steady supply of willing tenants lined up. If not, then you must be as competitive as possible in quality of the housing stock and rent pricing.

The most important factor in being successful in the rental business is the ability to select tenants and ignore sob stories. Everyone looking for an apartment has a sob story, it seems.

If all of that seems doable, then the rental business might be for you!Of course, you'll want to check into your local regulations regarding rental properties and tenant's rights. Some areas make it darn near impossible to evict.

[Kevingr]

I've owned between 1-5 properties at one time over the past 13 years and currently I own 4. None of them are positive cashflow. They need roofs, minor repairs, new furnaces, etc etc. And that's the stuff that just wears out over time, you need to add in the damage that renters do because most of them don't care since it's not their own. I do get a considerable amount of money back on my taxes because of depreciation and other losses, but that money goes back into supporting the properties. They'll be paid off by the time I retire so at that time I'll sell them and get my money back, or keep them for income. None of them are worth the effort and the houses that I've flipped over the years weren't worth the aggrevation and stress of doing the flip.

[TxMex]

Never again!!!!

If you can make enough to pay the note, the insurance and the taxes you will be very fortunate. If you make enough to cover all of that and do the repairs that will be needed when they move out.....I'd like to make a trip to Las Vegas with you because you are crazy lucky!

[unregistered168043]

Pay cash, the mortgage and interest will eat up any profit you can realize. Don't forget that 'breaking even' assumes full occupancy all the time which probably wont happen, so you'll be taking a loss. Combine that loss with your interest payments and you'll be taking a bigger loss. Don't assume the property will appreciate.

I have a few rental units, paid mostly cash for them. Yes, I make a steady income of about 15k per year more or less from it. But wouldn't have made a dime if it was all mortgaged.

[littlebitfarm]

I bought my neighbor's house. I had no desire to be a landlord but owned the ground on 3 sides of the house and knew that whoever lived there could be a PITA if they decided to. By owning it I gained control of that potential problem.

Bought in 2005. Put some time and effort into it (all new electrical and drywall). House is now safe to live in and worth more than I paid for it.

Have to say the renters haven't been a problem. Current renters are now friends and their daughter is my shadow.

I have since bought 2 more properties. Only have a small mortgage on one. So I guess it all works for me.

Kathie