Thread: Renting Real Estate: Worth It?

Originally Posted by Denis

I have been doing research on becoming a landlord as an opportunity for the future. I can honestly say my mind is blown. Never before looking into this would I have believed the sheer headache this venture could cause nor the lack of rights you have to your own property. The only idea I've seen that avoids a lot of these issues is renting on a transient status for vacationers and other temporary residents.

I'd like to hear from the landlords on this forum. If you were to do it over again, would you?

Yes, I have been doing it for 5+ years now and would do it again, but slightly differently. Some headaches you see are absolutely the landlords fault. Some headaches are due to state renting laws. If you learn how to manage rentals properly and you are in a reasonable renting state then your headaches would be reduced.

Also, everyone has their own level of crap that they want to deal with. I would rather do what I am doing than some of the other things I hear about. To each his own.

Rentals seem easy to me. The lower the price you pay, the easier it gets.

I have rentals in Toronto, Canada and Phoenix, AZ. If you can get 20% gross rental yields, it's pretty smooth sailing. Free money.

Disclaimer: I barely know how to change a lightbulb.

I have been a landlord for 10+ years. I enjoy the passive income and the tax benefits. Once you get past about your 5th rental house, you'll never paid income tax again generally speaking. At one time I had a lot of properties but I selectively fixed and flipped out of the ones that were hard to rent. I kept the ones that rented easily to quality tenants. I've been at 100% occupancy now for 5+ years. The rental market in Colorado is steadily improving with low vacancies and increasing rents. This mixed with having my properties on free floating ARMs that have all adjusted way down (some as low as 2.5%) has created a perfect storm of cash flowing growth. Now that I've had my properties for awhile, the mortages are starting to pay themselves down also. Overall I'd do it again, no doubt, but I'd be sure to only buy in nice areas and stick to props 3 bedrooms and larger!

Expenses will eat up at least 50% of the gross rental income of an investment property. I got that from David Lindahl and the rule works great.

Never pay more than 5x gross annual rental income unless you like working for free.

Originally Posted by Denis

Has anyone had success with temporary rentals of vacation homes? I may be speaking from ignorance but they seem like the best of both worlds. You can charge more for the stay and the tenant laws do not apply.

Remember with vacation rentals you are responsible for utilities, pot&pans, cleaning crew, towels, linens, boats, bikes, etc... whatever else you would provide. Expenses will be alot higher.

Originally Posted by moneymaker

Is this true? Seems like that would be really tough to accomplish. So are you saying that a $250,000 house should rent for $4166/month or am I misreading?

The math is correct.

With regards to being tough to accomplish - most investing opportunities are not easy to find, otherwise everybody would be wealthy.

Originally Posted by Rickson9

Expenses will eat up at least 50% of the gross rental income of an investment property. I got that from David Lindahl and the rule works great.

Never pay more than 5x gross annual rental income unless you like working for free.

Where can you find anything remotely close to 5X gross except the states?

I noticed you mentioned Toronto, Im in Montreal and nothing is at 5X, with Toronto being even higher. Depending on size, 10-11X still works.

Unless im missing something?

Correct. I buy in the U.S.

Originally Posted by biophase

Remember with vacation rentals you are responsible for utilities, pot&pans, cleaning crew, towels, linens, boats, bikes, etc... whatever else you would provide. Expenses will be alot higher.

Yup. I currently own some vacation rentals and at one point had a property mgmt company for vacation rentals. Vacation rentals are totally different than regular rentals. If you do decide to go this route, I'd be more than happy to create a list of my lessons learned and pointers to consider--just let me know.

Some other factors to consider when looking at vacation rentals are that you property mgmt expenses vary considerably. In my area, PMs charge 20-30% in Hawaii or Florida they charge as much as 70% of gross rents. Just something to keep in mind when you are figuring cash flow for a property. So know this number before you even start looking at properties!

The pros of vacation rentals are that you are able to access your property on a regular basis if you so choose, or at a minimum a cleaning crew is in there on a regular basis=no deferred maintenance. The downside (like with any rental) is your occupancy is dependent upon how good your PM is. You will want to see what they do as far as online marketing efforts before you list with one. If you are going to buy a property as a vacation rental, get an idea of when peak season is as well as the average nights per year a place is rented (as well as how many of those night peak/off peak) as well as the average rate per night. (For example, a place might rent for $100/night off peak, but $300/night during peak.) There are soooo many lessons I learned. If I had to do it over again, I'd use the 5x gross income rule. It's easy to crunch the numbers to get them to show what you want to see--but the reality is that you really want a big cushion because crazy renters happen, gas goes up to $5/gallon and people don't leave home, etc. ...I have about 14 years experience with rentals, and no I really have no desire to do SFH rentals to vacationers or to long term residential tenants again. (I would however consider buying residential real estate and renting it to businesses that are involved in assisted living or group homes= long term tenants, more stable and better cash flow.) If you are thinking about getting involved in RE, I highly suggest finding a local REI group and attending some meetings. Find a mentor and learn all you can. Good luck to you!

Biophase--I'd be curious to know what your thoughts are on owning residential real estate. I know you mentioned that you have (or had) some rentals in a post many moons ago. Given that your focus seems to be mainly ecommerce these days, would you even consider touching RE?