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Real Estate Investing: dream or nightmare?

SteveO

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Being a landlord / property manager is a slow lane business.
It can be. But like most anything else, you can make a lot of money off of it. Now I am at the point of collecting strong monthly income without doing much.

It is all about having a plan and a process. For the most part, I would make over 200% annually while active in the "investment cycles". Sometimes, much more...
 
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GMJimmy

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I think wether investing inRE os a nightmare or not depends on a lot of circumstances.

- are you managing your properties? If yes, you can expect midnight calls about boiler issues or lost keys. I have a property manager who takes care of the entire business and I have very little interactions with them. My properties are in another country and not even in the same city but 100s miles away from each other so I don't have any other options, but it really gives a peace of mind.

- Property parameters: what type of tenants does it attract? Dodgy ghetto-street with tiny flats and tiny rooms for cheap? Or a nice renovated flat in a nice neighbourhood? Very different.

A few years ago I was considering buying multiple flats in a poor part of a city (for profit-maximizing), but convinced myself that it would not be a hands-off business. A single, better flat for the price of those four is a lot better. Less profit, but less headache.
 

Bila

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It can be. But like most anything else, you can make a lot of money off of it. Now I am at the point of collecting strong monthly income without doing much.

It is all about having a plan and a process. For the most part, I would make over 200% annually while active in the "investment cycles". Sometimes, much more...

This.....A plan+ process.
 
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D

Deleted35442

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Landlords, house flippers, blah blah...Look, you can look at this from several angles. If you've got any contracting/construction experience, find something that has good potential for a flip, go for it. Why? I've seen properties where a house was in such bad shape the owner wanted it just gone, and priced it well below even the market value of the land it sat on. If you can fix that, sell it, imagine your margins. Now, imagine scaling this. Imagine doing this enough where not only you make a bunch of cash, but you also build credibility to raise a real estate asset management fund that works on larger properties.
 

JustAskBenWhy

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Landlords, house flippers, blah blah...Look, you can look at this from several angles. If you've got any contracting/construction experience, find something that has good potential for a flip, go for it. Why? I've seen properties where a house was in such bad shape the owner wanted it just gone, and priced it well below even the market value of the land it sat on. If you can fix that, sell it, imagine your margins. Now, imagine scaling this. Imagine doing this enough where not only you make a bunch of cash, but you also build credibility to raise a real estate asset management fund that works on larger properties.
No one said it's easy. But, the reason I don't pay taxes is because I own real estate - and it makes money too - and it builds the balance sheet in its own right... When folks look at RE is a means of instant gratification, more that 75% of the benefits of RE are being overlooked :)
 
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GMJimmy

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No one said it's easy. But, the reason I don't pay taxes is because I own real estate - and it makes money too - and it builds the balance sheet in its own right... When folks look at RE is a means of instant gratification, more that 75% of the benefits of RE are being overlooked :)
I couldn't agree more. There's a lot more than flipping or renting. Can't discuss any details because we operate in different countries, but RE is just like any other business. You should know it inside out in order to make informed decisions and work efficiently. As with other business-related activities in other industries such as adwords, copywriting, sales, management etc, the RE has its required skillset and anybody involved in it should now its legal and tax environment as well.

And it will become easier once you gain confidence and experience in the required specific skills.
 

Chazmania

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No one said it's easy. But, the reason I don't pay taxes is because I own real estate - and it makes money too - and it builds the balance sheet in its own right... When folks look at RE is a means of instant gratification, more that 75% of the benefits of RE are being overlooked :)

Exactly.
 
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Deleted35442

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No one said it's easy. But, the reason I don't pay taxes is because I own real estate - and it makes money too - and it builds the balance sheet in its own right... When folks look at RE is a means of instant gratification, more that 75% of the benefits of RE are being overlooked :)
Well said Ben, agreed. Just checked out your website and also see you're from Ohio. What's your take on the real estate market in places like Cleveland and Dayton? I came across dirt cheap flipper properties on eBay and http://www.bid4assets.com/ and was wondering if fixing, making them Sec. 8 ready, hiring a property management company then speculating was all a good idea. This was back in college between breaks though.
 
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JustAskBenWhy

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Well said Ben, agreed. Just checked out your website and also see you're from Ohio. What's your take on the real estate market in places like Cleveland and Dayton? I came across dirt cheap flipper properties on eBay and http://www.bid4assets.com/ and was wondering if fixing, making them Sec. 8 ready, hiring a property management company then speculating was all a good idea. This was back in college between breaks though.
I wouldn't touch it with a 10-foot pole - not unless I was local and could manage, and wanted a hell of a job! lol
 

MattR82

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Whatever you do, have damn good insurance (landlord as well as building) and a kick a$$ property manager. My first IP is a brand new house in a high growth area due to the commonwealth games being on it's doorstep in the next 18 months meaning a huge boost in infrastructure to go along with it being in a growth corridor between 2 large cities an hour apart. However I would never buy off the plan with what I know now. I got lucky I think but also had some help from a family friend involved in RE development.

Anyway, my first tenant that looked great on paper, PA for a large company CEO, started smoking meth there and turned it into a junkie den. 6 months after it was built it needed to be repainted, recarpeted etc etc. I paid in the meantime but am about to get my insurance claim back any day now also including loss of rent. Property manager took care of every single thing at no extra cost as it's in the agreement.

I definitely think there's a lot of opportunity with RE but from my limited research (I actually did a fair amount over the last 3 years) I would forget flipping, units/apartments and brand new houses in developments where you are paying top dollar to cover their marketing expenses.

There's a great app in Australia that doesn't just break things down suburb to suburb, but street to street incorporating a bunch of variables. There's such a huge difference that even 1 mile can make.
 

MidwestLandlord

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Old thread, never saw it before. I know this is not the reason this thread was bumped, but I had to speak up...

A word to the wise for everyone about discrimination, since this thread is downright scary.

Social media, including this forum, CAN AND WILL be used against you in a discrimination complaint or lawsuit.

I HAVE BEEN on the wrong side of discrimination complaints before (in retail, not rentals) and part of the investigation(s) included my social media accounts being searched for evidence that I had a "history" or "propensity" to commit discrimination.

I "won" all 3 cases (age, race, & gender) against me because I protect myself, and I legitimately do not discriminate, but my "award" for "winning" was combined attorney bills of over $100,000 and they took over 2 years each to complete.

I now take my employees through HOURS of anti-discrimination and anti-harassment training.

When I interviewed tenants myself and didn't use a manager(s), my application included not only the date, but also the TIME they applied. If 2 qualified people applied on the same day, I picked the one that applied first based off the time.

The EEOC and the EHOC are NOT to be messed with. (keep in mind these have both state and federal departments)

Be careful what you write on this forum and anywhere else on the internet.

That concludes the MidwestLandlord PSA for the day, now back to our regularly scheduled programming.
 
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Finance_Machine

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Old thread, never saw it before. I know this is not the reason this thread was bumped, but I had to speak up...

A word to the wise for everyone about discrimination, since this thread is downright scary.

Social media, including this forum, CAN AND WILL be used against you in a discrimination complaint or lawsuit.

I HAVE BEEN on the wrong side of discrimination complaints before (in retail, not rentals) and part of the investigation(s) included my social media accounts being searched for evidence that I had a "history" or "propensity" to commit discrimination.

I "won" all 3 cases (age, race, & gender) against me because I protect myself, and I legitimately do not discriminate, but my "award" for "winning" was combined attorney bills of over $100,000 and they took over 2 years each to complete.

I now take my employees through HOURS of anti-discrimination and anti-harassment training.

When I interviewed tenants myself and didn't use a manager(s), my application included not only the date, but also the TIME they applied. If 2 qualified people applied on the same day, I picked the one that applied first based off the time.

The EEOC and the EHOC are NOT to be messed with. (keep in mind these have both state and federal departments)

Be careful what you write on this forum and anywhere else on the internet.

That concludes the MidwestLandlord PSA for the day, now back to our regularly scheduled programming.
 

Finance_Machine

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I will elaborate:

First, if you are spending your own time primarily working on property management, it is indeed slowlane. Not all slowlane is bad.

I invest heavily in property management because it gives me control. If PM didn't give me control to drive the value of my assets, then I wouldn't do it. It is a necessary component of having a fastlane business (the real estate investment company).

If you look at a company that focuses on just property management (or even mostly property management)...what you will most often see are people that have built themselves a "job".

On the other hand, if you have a property management business to ensure control of your product (meaning, tenants get a high quality product and you are creating a financial product of which property management helps you manager results), then you have a completely different animal.

In summary, a property management business by itself is indeed slowlane. If you invest in human resource systems (property management) to get a better result from your real estate investment company, then it is just an added and necessary component to a fastlane business.

Lastly, I know very few people that were able to amass the "chips" necessary to play the REI game by being solely a property manager. Even if you do convince some people that your PM skills are so valuable that you should get a crumb of ownership, it isn't the kind of skillset that warrants people throwing huge junks of equity your way.
 

Chazmania

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Oh this old thread again......aye. I'd hoped it would stay buried!


In case anyone cares, that was one of the houses that were sold off - certainly not because of the tenants (I was able to keep everything cool with her with some good old fashioned face to face problem solving chit chat) but because there were other reasons that warranted moving on from it. I won't bore you with the details except to say we walked away with a pretty decent check in hand and we were happy.

Social media, including this forum, CAN AND WILL be used against you in a discrimination complaint or lawsuit.

I HAVE BEEN on the wrong side of discrimination complaints before (in retail, not rentals) and part of the investigation(s) included my social media accounts being searched for evidence that I had a "history" or "ptharopensity" to commit discrimination.

I "won" all 3 cases (age, race, & gender) against me because I protect myself, and I legitimately do not discriminate, but my "award" for "winning" was combined attorney bills of over $100,000 and they took over 2 years each to complete.

That sucks.

I've since sold off all properties that no longer fit my long-term approach to business and life. Some of them just were not worth the money they generated, so to speak.

I've reshuffled my priorities and TMF certainly had a big impact on that. Time, health, and happiness come before money now. I'm still in pursuit of the big money (of course!) but I've realized that I'm creative enough to get there and enjoy myself along the way.

Some of the things I wrote in this thread at the time certainly wouldn't be considered good legal advice, but they were written from experience to help small property owners avoid some of the problems that can come when you put the wrong tenant in your REI. It can be a nightmare. The same conversations I've had privately with other landlords I know and I was also a bit emotionally charged at the time I wrote it, so yeah - maybe a bit too much info.

Take it all with a grain of salt - or just disregard it completely if there's nothing useful.
 
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MidwestLandlord

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Some of the things I wrote in this thread at the time certainly wouldn't be considered good legal advice, but they were written from experience to help small property owners avoid some of the problems that can come when you put the wrong tenant in your REI. It can be a nightmare. The same conversations I've had privately with other landlords I know and I was also a bit emotionally charged at the time I wrote it, so yeah - maybe a bit too much info.

Take it all with a grain of salt - or just disregard it completely if there's nothing useful.

Yeah, I wasn't picking on you specifically. More just a general warning to the group.

This is actually one of the biggest reasons I use a property manager, is not only do they keep up on the laws concerning equal housing, but it also takes the emotion out of it for me. I just make sure I buy properties that tend to attract the kind of tenant I want, and let them do the rest.

Specifically, families tend to be the most stable, so I buy family homes. If I can get a family home near a school, even better because people are less likely to move (and therefore more likely to pay) when there are kids involved.

I don't buy 1 bedroom places, places near colleges, etc. I have a 2 bedroom condo, but it's luxury so it attracts the professional type, and they tend both pay and be gentle with my property.

I go so far as to take any form of heating out of my garages, so I don't attract the "do it yourself mechanic" types, who tend to trash the place. In the places where I can still easily rent without accepting dogs, I tear out any fencing so I don't attract tenants with dogs in the first place (and less likely to sneak one in later).

I paint my property manager's number above the washer/dryer in each place. This way tenants easily have the number if they need to call, and I am less likely to get complaints to the government that they didn't have hot water or whatever. At the very least this gives me defense if they do complain to the government but we were unaware of the issue.

There's ways to get the tenants you want, keep them, and protect yourself, while staying 100% in the clear with the law. But it starts with the property, not the tenant application.

I'd just hate to see someone get in trouble with a discrimination complaint or suit, because it is a living nightmare to go through.
 

Chazmania

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Yeah, I wasn't picking on you specifically. More just a general warning to the group.
No doubt, I didn't feel that way at all - and yes totally I agree, it's a good warning to all of us. Better to err on the side of caution.

I just make sure I buy properties that tend to attract the kind of tenant I want
attracts the professional type, and they tend both pay and be gentle with my property.
There's ways to get the tenants you want, keep them, and protect yourself, while staying 100% in the clear with the law. But it starts with the property

^^^This is exactly where I'm at now^^^

I got rid of what didn't really fit that criteria and there's no question it's the ONLY way to go. :thumbsup:
 

SteveO

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I don't understand why you say this. A PM business is just like any other business -- if you operate it well, it's "fastlane." If you don't operate it well, it's a "job."

A friend of mine owns a PM business that manages 1900 units. If he wanted, he could completely extract himself from the business and collect dividend checks on an island somewhere. How is that not fastlane?
I know someone that manages over 10K units with the bulk of them in three states. He works it as a job for sure but generates a large amount of cash. He has been given ownership stakes in a number of 200 plus unit apartment complexes.

But, all in all, I don't like the business either. PM is a necessary evil.
 
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Finance_Machine

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I actually enjoy interacting with the managers and setting direction. Most importantly, I feel much better about having the ability to deal with problems with people that work from me rather than "hoping and praying" that someone else will actually fix mounting issues.

I maintain that if I had a true "fee for services" property management company that it would just be a high paying job. If you can convince clients to give you small amounts of ownership, then you are indeed creating a backdoor into wealth generation. I personally wouldn't want to pursue this path for purposes of creating a war chest.

A true property management company has a multiple that looks something like: 2.5 years of guaranteed salary with a baked in 25% raise, a Ford Taurus, a nice set of steak knives, and a few lollipops.
 

Finance_Machine

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I don't understand why you say this. A PM business is just like any other business -- if you operate it well, it's "fastlane." If you don't operate it well, it's a "job."

A friend of mine owns a PM business that manages 1900 units. If he wanted, he could completely extract himself from the business and collect dividend checks on an island somewhere. How is that not fastlane?

Let me try to address this:

First, I'm strictly addressing a true/pure property management business. This means that you aren't negotiating small ownership stakes nor getting big real estate commissions.

With this kind of business you basically have a pile of consulting contracts. These contracts will vary in duration, but for the most part it wouldn't be unusual for terms to be 12 months. You will eventually end up with a number of employees and various other fixed costs. If you are managing 1900 units and go sit on a beach and the guys back home screw something up, you could wake up one morning with a really important client sending you a termination notice. If it is a big client and he is pissed, word could get around and spook some of your other clients. In the meantime, your business is built up around the "hope" that either these contracts would get extended or you would get new ones. If you don't get new contracts, this is when the pain of the fixed burn will set in. (this will get you off that beach in a hurry).

Now, if you had a company that owned 1900 units and something went wrong, you would simply re-focus and change the situation. Completely different.

I could go on with reasons why a pure/true property management business isn't fastlane, but for starters the situation above depicts lack of control.

Sometimes you need to start a slowlane business to get off the blocks. It is just best to be cognizant that you would eventually need a switch in strategy if you really want to nail it.
 

JustAskBenWhy

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I don't understand why you say this. A PM business is just like any other business -- if you operate it well, it's "fastlane." If you don't operate it well, it's a "job."

A friend of mine owns a PM business that manages 1900 units. If he wanted, he could completely extract himself from the business and collect dividend checks on an island somewhere. How is that not fastlane?
Agreed.
 
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