Rental advice: own locally
Tuesday, May 6, 2008
I meant to write a post about the other side of owning rental properties. You know, the part where you actually make money, but I thought I should stick to things I know about.
Rental properties can be a good investment. In theory. The things you have to know, though, are the things I haven’t told you about yet. (A woman has to keep secrets in order to maintain the mystery.) One of those things you have to know is that small time investors—that would be us—need to keep their properties local. That way, you know if people are violating the rules, like the one about keeping pets. The cat that fell through the ceiling in the middle of the night on the naked 500+ pound man sleeping in the bedroom? That wouldn’t have happened if I was on the job. You have to keep an eye on the place. (Well, I’d be sure to leave my glasses at home in the case of the cat man.) Note to renters: always take the top floor apartment. The top floor apartment is always the best. If it leaks, at least you know it’s rain and not something else.
That’s why when I was driving through our new town on my visit to the farm, I slammed on the brakes when I saw this certain house. It was perfect, well, almost perfect if you don’t look at the boarded windows, sagging A/C units, and yard that looks more like a South American jungle than a city lot.
Me: Ring. “Honey, I got this idea.” After waiting for him to pop some Advil, I explain how the house sits on the main drag next to the college in town—perfect. There are a few cosmetic issues, but nothing that can’t be fixed with a 2 x 4 and some paint. And some windows and doors. And a new floor. And appliances. But that’s minor. “It’s a bank foreclosure. What do you think?”
Greg hangs up the phone and concurs with my son that I’m nuts. The voice of reason, a nine-year-old, wants to know why I want three more units when the seven we already have…well, let’s not go there again. Here’s the thing: why give up now that I’ve paid so handsomely for this education? I mean, we know a ton of secrets—one of them is to stay local—so why leave the business now? We’re just about to make a return on our time. I can feel it. I know this. Besides, worst case, we can always use another tax write-off.
They probably won’t take my offer, and if they do, I’m going to find out what they’re hiding (or drinking).
It’s in my blood. I can’t help it. My name is Amy Scott, and I’m a real estate junkie. Please pray for my marriage. Thank you.
21 Comments
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What they’re hiding is that on the scale of renters, with 10 being the best and 1 being the worst, college students get a -3. Been there, done that.
I agree with all your reasons not to own rental properties and add that one.
Comment by rebecca (May 6, 2008 @ 4:16 pm )
Don’t do it Amy! Just take a deep breath and say “NO!”
Stacey, yes it’s me….
Comment by Anonymous (May 6, 2008 @ 4:27 pm )
With regard to your penchant (notice I didn’t say “insanity”) for buying rentals, Greg wrote “On Wives” a couple of days ago on your blog. The man seems desperate, not to mention McGregor, without an “a.”
Perhaps an intervention is in order.
Sign Me,
Worried in CA, AKA, Cathy
PS Notice my tongue protruding firmly in cheek–I think Greg can handle ya! My husband always tells me that he needed to marry someone with spunk (like me) and I tell him that I needed to marry someone (like him) who’s not crazy. It works for us.
Comment by Cathy (May 6, 2008 @ 6:03 pm )
I must add to the negatives and say that you really DON’T want to rent to college students. Collecting rent from them is a nightmare, and they party Thursday - Monday every week. Expect a lot of visits from the cops, bounced checks, and trashed houses. You really don’t want to add that stress on top of raising kids, homeschooling, settling into a new house, etc. Wait a few years. I know the house is a good offer, but college kids have no respect for other people or property.
Comment by Heather (May 6, 2008 @ 8:52 pm )
The renters don’t have to be college kids; it’s downtown near the square. Advice taken though. I do think college students are a step up from what we’ve been doing though (seeing as how they have jobs)….I just deleted a whole paragraph explaining why, but it was too depressing.
And when ya’ll do the intervention, bring chocolate!
Comment by Amy Scott (May 6, 2008 @ 9:27 pm )
All I know about rentals, I learned from you. Therefore, my advice is to smile, nod and back away.
Comment by Lady Why (May 6, 2008 @ 9:46 pm )
Oh, and let’s do the intervention/chocolate thing!
Comment by Lady Why (May 6, 2008 @ 9:47 pm )
Hang on, sis.
You aren’t ‘local’ yet. Or are you getting closer to moving in?
I’m loving this Amy. I really want to buy a house. I’ve got it bad!
Comment by Janet (May 6, 2008 @ 9:48 pm )
No, we’re not “local” yet. We’re still in Florida. But I am cooking up a scheme to get us there this summer. Part of that has to do with getting some additional cash flow going, and this is one idea. The other idea is Taco Bell. Toss up?
Comment by Amy Scott (May 6, 2008 @ 9:51 pm )
Yikes.
Comment by Amy Scott (May 6, 2008 @ 9:53 pm )
Greg tells me that it’s a Methodist college. I’m not sure if this helps or hurts my case. I won’t touch that one.
Comment by Amy Scott (May 6, 2008 @ 10:01 pm )
Amy,
You said, “why give up now that I’ve paid so handsomely for this education? I mean, we know a ton of secrets—one of them is to stay local—so why leave the business now? We’re just about to make a return on our time. I can feel it. I know this.”
This sounds suspiciously like things said in Las Vegas and Reno…they may have a 10 step group for this…
check into it…seriously…
Cheri
Comment by Cheri (May 6, 2008 @ 10:16 pm )
i say: go for it! what the hay, there are worse addictions. like coffee frappaccinos. a solid year of starbucks will land you straight in the poor house. with no tax-write off!
y’know, some people can excuse their expensive starbucks habit. but at least amy can say her habit pays her back—most of the time.
Comment by Elizabeth Esther (May 6, 2008 @ 11:07 pm )
Giggle! Let us know how you go! I do think the idea of of buying locally makes a lot more sense. We are actually looking at buying interstate, but I’m having second thoughts, now!
Comment by Valerie (May 7, 2008 @ 12:08 am )
Hi Amy
Can I recommend http://www.garynorth.com he has some great advice. Well worth the investment to subscribe IMHO.
We live in New Zealand but rentals are rentals. We had 2, which we sold when the prices went up. We had borrowed all of the money, but the prices went up so much we were going to make more money selling: paying back the mortgages and using the extra money to pay down our mortgage so we did. Basically we buy if there will be positive cash flow allowing for repairs,financing the whole thing, if it an area with lots of solo parents etc we allow more for repairs and more unpaid rent. Then once we have worked out all the expenses there should be a little each week for my time to manage them. We also work out can we pay all the mortgages even if we have no rental income for 3 months at least.
I personally prefer houses rather than flats because the tenants are a little more stable. But that can be factored into the price.
I can’t agree more about the advances of being local. We got to know our tenants and often things can be dealt with so much quicker and easier when they are close by and I am visiting often!
The Prov 31 woman was involved in real estate.
We lost money on the first home we bought and we learned so much. So many people make a loss then get out rather than learning and then gaining.
The best time to buy is at the bottom of the slump just before things pick up. That’s when investors have been trying to manage the houses for a some time, having no capital gains and decide that they want out whatever the cost.
Comment by Tarnya Burge (May 7, 2008 @ 5:57 am )
Hi Amy (et al)!
Pray about it with DH and then go for it!! Tile *everything*, and get the parents signatures on the lease.
Free advice is worth what you pay for it! lol.
~Teri
Comment by ~Teri in VA (May 7, 2008 @ 7:19 am )
You know, I think a different season of life would be better for this. Seriously.
If you want to make money on rentals, you need to have property that rents for high prices rented by people with good jobs. You are messing with rentals that even rental property companies want NO part of-because they are too much trouble. WAY too much trouble. It isn’t worth the aggravation. And since you have already had a big dose of that aggravation, perhaps you need to reconsider.
Comment by connie (May 7, 2008 @ 12:21 pm )
As I already stated, thanks for the chuckle, you crack me up! In a good way, after all that is why I read your blog.
Have fun and let us know how this weekend trip ends - more rentals or none?
Comment by Theresa (May 8, 2008 @ 12:45 am )
I haven’t heard back yet, but I will post the verdict here.
Comment by Amy Scott (May 8, 2008 @ 9:59 am )
I wish you lived near me. We are lovely tenants in need of a nice landlord!
Comment by Amy Shaw (May 9, 2008 @ 3:06 pm )
I said I’d post the verdict here, soooo… we didn’t get the house. Apparently, the former owner took out a home equity line, defaulted, and now the bank is way upside down on it. We are too far apart to meet in the middle, so it’s onto the next thing.
Comment by Amy Scott (May 12, 2008 @ 1:53 pm )