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[polly_mer]

Point being, landlording can be very hands-off. There's no reason you can't go out of town. You just have to have some contractors that you can rely on in an emergency.

This.

Contrary to Grasshopper's assertions as a non-landlord about best/worst case-scenarios, my actual landlord experience (1700 miles from that house) is that renting to generally responsible people means you as landlord occasionally get a call of "I called the air-conditioning guy and it's going to be X dollars to get it running again.  It's 105 degrees here so this needs to be fixed now.  Is X dollars ok or do you need another estimate?"

My experience as a generally responsible renter is the same.  Small stuff we handle and send the bill for materials to the landlords.  Big stuff (like the toilet that almost fell through the floor resulting in a redo of the bathroom) is a phone call to the guy on the approved repair list and an estimate to the landlords.

Once the house is already in pretty good shape, people are not constantly renovating or upkeeping.  That's a meme from people who bought cheap houses that were on the market as cheap for a reason.

[pathogen]

Contrary to Grasshopper's assertions as a non-landlord about best/worst case-scenarios, my actual landlord experience (1700 miles from that house) is that renting to generally responsible people means you as landlord occasionally get a call of "I called the air-conditioning guy and it's going to be X dollars to get it running again.  It's 105 degrees here so this needs to be fixed now.  Is X dollars ok or do you need another estimate?"

Pleeeeeeze, if you're going to landlord, be prepared for this. My landlord's response to "It's 105 degrees here so this needs to be fixed now," was "you really can't expect air conditioning to cool your place below 90 when it's 105 degrees. There's nothing wrong with it." In my experience as a renter, it seems like the way to make money is to have a lot of property, do  no maintenance so it costs no money, and BS your tenants as much as possible about giving deposits back. Our best landlady was like 80 and had all her properties for so long she owned them all outright, so she was willing to spend a little on them. Others, not so much.

[polly_mer]

Contrary to Grasshopper's assertions as a non-landlord about best/worst case-scenarios, my actual landlord experience (1700 miles from that house) is that renting to generally responsible people means you as landlord occasionally get a call of "I called the air-conditioning guy and it's going to be X dollars to get it running again.  It's 105 degrees here so this needs to be fixed now.  Is X dollars ok or do you need another estimate?"

Pleeeeeeze, if you're going to landlord, be prepared for this. My landlord's response to "It's 105 degrees here so this needs to be fixed now," was "you really can't expect air conditioning to cool your place below 90 when it's 105 degrees. There's nothing wrong with it."

Holy cow.  Our response was "Why did you wait two days to call us?  Get that fixed today if he's available.  Deduct the payment from the next rent check."

[larryc]

So there is a world of difference between renting low-income units and middle-income units? That sounds about right. Yet as I compare market rentals to asking prices it looks as if the only positive cash flow is on the low-income units.

[monarda]

So there is a world of difference between renting low-income units and middle-income units? That sounds about right. Yet as I compare market rentals to asking prices it looks as if the only positive cash flow is on the low-income units.

Your bullet points on the previous page are right on. The middle income units are going to (in general) attract better tenants with better incomes who take better care. Of course you know this. What about that neighborhood you mentioned that's about to gentrify (somehow, I really dislike that word) is it full of fixer-uppers? Is that on the edge of a better neighborhood? Take your time and look for a great deal on the edges of a middle-income neighborhood. Near a coffee shop and convenient to shopping. Look at the city's plans for which streets they're going to be paving and improving sewer/water/utilities.

Re: cash flow... We financed one of our fix-up houses with an interest-only ARM. That way, we could decide when we paid our principal- the monthly positive cash flow was significant. We ended up paying a lump of $20K in principal after the third year we owned the house. That way, more cash was free in early years for projects. Now our monthly interest payment is only $300. (Rent is $1000)  Point is, you can be creative with financing to increase cash flow, depending on your project plans for the house. After project, increase rent.

Our favorite tenants have been ones who are almost ready to buy their own house, rent from us for 2-3 years, and then graduate to home ownership. We've had those sorts of tenants at both of our 2-flat properties, the one in the cool, trendy middle-income neighborhood and the one in the not-so-trendy lower income neighborhood.  We have had most of our trouble when we rent to folks in the lower income neighborhood. They tenants started off looking qualified, but if something goes wrong in their life, they are more likely to be trouble. (our example- Everything was fine as long as the marriage was intact, but then came the divorce, deadbeat dad, drinking, aggression, restraining orders, broken windows, broken bones.)  Sad to say, its more likely in the not-so-trendy lower income neighborhood, but of course, possible anywhere.

You're in a great position already having contractors who you know and trust. You're totally in control of what work you do yourself and what you hire out and go kayak. It'll often come to cost. We're trying to decide whether we want to drywall ourselves or hire out. We'll be able to buy a really nice vacation from the money we save doing it ourselves. We're good at drywall. But do we want to do it? Not sure yet. Play it by ear.

[fleabite]

As a long-term renter, may I suggest a couple of other considerations if you are thinking of going the multiunit route? 1) Do you like to know your schedule in advance and prefer to avoid unexpected demands on your time? This is something to think about, because if you have rental tenants in an apartment building, there are likely to be many situations that arise without warning and need to be dealt with immediately, sometimes in the middle of the night (e.g., tenant locks himself out and needs to be let in; heat goes off and needs to be restarted, etc.)

2) Even with great tenants, expensive emergencies happen. I have at least twice called my landlord at 4:00 AM, after waking up to massive amounts of water in the apartment. These weren't things caused by a negligent tenant. In the most recent case, I think the cause was a sudden break in a pipe feeding water to the toilet. The tenant of that apartment had no idea anything had happened, because the pipe was beneath the floor, but staggering amounts of water were cascading down into the two stories below and into the basement. The basement is kept locked, so only the landlord could turn off the building's water supply at the source.

Essentially, what I'm saying is consider how you would most like to spend your time. If dealing with the frequent small issues and occasional big issues wouldn't bother you, this might be a good investment. But I also wonder if financially, it wouldn't make more sense for your wife to transition into a new line of business somewhat related to her prior work (grant writing for nonprofits? development?). I suspect that even a part-time job might leave the two of you with more ready money and retirement savings, at lesser aggravation, then managing real estate. In particular, it seems that she would have more time to devote to this venture, but you are the one with most of the home-improvement skills—but you already have a full-time job.

[glenwood]

If this is intended as a long-term investment, have you considered buying land instead of house or apartment? I currently own land where the renters use it for agricultural purposes. No one lives on the land except the animals who graze there. Yes, you do still need to make sure that the land is cared for, and agricultural tenants  may also wreck the property. But if you intend to stay in the region and you care about it, you might consider this option.

I suppose one question to ask is whether you'd rather learn to repair a house or improve a pasture. If the latter sounds appealing (it's a lot of work!), then maybe you should have these guys as tenants .

[grasshopper]

Once the house is already in pretty good shape, people are not constantly renovating or upkeeping.  That's a meme from people who bought cheap houses that were on the market as cheap for a reason.

Forgive me if I'm overlooking something, but isn't that exactly what Larry C is hoping to do?

[pinky]

I rent out a 2-story, end-unit townhome that I owned before my husband and I got married and we can't sell in the current market, so I guess I'm an involuntary landlord.  We moved about 2 miles down the road, so we are local and can come over to fix just about any issue, though.  We break even right now or make a few thousand a year.  Good enough for us, but we were just looking to stem the money hemorrhage rather than use a rental as an investment strategy.  So, take all of this from that perspective.

I will mention that I have had good luck renting to international grad students.  The international students have a community grapevine going and we don't have to advertise to rent our unit.  It's all word of mouth amongst the students.  They mostly come from one lab in one (scientific) dept.  When one moves out, they tell other students in the lab, and we encourage them to spread the word amongst their friends.  We've found them to be extremely reliable (in terms of paying rent or calling us when things go wrong rather than just letting the problem get worse) and we've never had complaints about the property maintenance.  They all seem to be very quiet and studious; not big partiers (which is ideal from my landlord perspective).

I will never, ever rent to traditional undergrads from my university (SLAC).

Oh, and like you mentioned, screen the hell out of perspective tenants.  We check credit, employment/salary history, previous rental references, and personal references.  Get a good landlord law book (or have a good lawyer) and write up a solid application and make ALL perspective tenants fill it out, no exceptions.  Ditto for leases.  Don't be afraid to add to a lease and put in clauses specific to your needs/preferences.  We include things like requiring renter's insurance (you have to explain this to the international grad students, I've found), no water furniture on the 2nd floor, bonuses for referrals of other tenants when they get ready to move out, etc.

[larryc]

Once the house is already in pretty good shape, people are not constantly renovating or upkeeping.  That's a meme from people who bought cheap houses that were on the market as cheap for a reason.

Forgive me if I'm overlooking something, but isn't that exactly what Larry C is hoping to do?

Well, I am trying to figure out just what I want to do! One of Wonderboy's friend's fathers owns rental property in our city. We got to talking at the Superbowl party and later this week he is going to drive me around to look at some of his rentals and talk landlordism. I will report back.

[navelgazer]

I'm going to keep an eye on this thread. If we leave here, I'd like to keep this house and rent it out. We'd be able to afford an additional house in our new location. Right now we're in a quickly improving neighborhood, very desirable with a very low inventory. I don't think we'd be making money on the property right away. It's more like a longterm investment that someone else is paying 80 or 90% of. And, we'd pay a property manager and a gardener.

So, it's not so much the (non-existent) income that bothers me, but rather the other issues like time, emergencies, crazy people and such. I'm going to look into the resources mentioned up thread and keep an eye on things.

On the plus side, if we end up having to take some time in the summers coming here to paint, etc., it is a pretty great place to visit and much more interesting than where we'll end up moving. So, it would be a working vacation of sorts with lots of swimming.

[larryc]

OK, so I spent a few hours with my friend driving around and looking at his rentals and some properties for sale.

Tom owns four houses, in a scabby neighborhood of run-down rental houses. However the neighborhood has some advantages and he and I both think it is going to improve in a few years. The homes are 2-3 bedrooms. He has owned them for four years.

He bought them run-down and cheap--$25-60k each. He fixed them up pretty nice and in some cases put considerable money into them. None of his own money, BTW, they are 100% financed all at around 6% for 15 years. They rent from $500-700. He almost always gets his rent, sometimes with delays. He has a handyman who he can call as needed.

Here is the thing, though--he is just breaking even. He is a commercial pilot with a lot of spare time, he figures that these (and additional homes he will buy) are his retirement. He is fine breaking even because in 15 years they will be paid for and generating considerable income.

He told me how a few weekends ago he had some repairs to do. One of his tenants, a young single mom, got in an altercation with some women she met in a bar. They followed her home and beat the s*** out of her in the house. Tom had to repair some broken windows, clean a carpet and repaint a wall "because of all the blood."

I don't think this is for me. But there is also a duplex for sale, new and clean and in a good neighborhood, that it seems would more than pay the mortgage with both units rented. Maybe I will take a look at that. Or maybe instead pursue my idea for an iBook...

[rachaeltalcott]

I read this thread with interest because I'm seriously considering doing the same thing.  A few years back I became an involuntary long-distance landlord, and that property (which is paid off) brings in a nice chunk of cash, even after the expenses are paid. 

Like you, I've talked to someone local who already owns rental property.  Unlike Tom, she has a positive cash flow on her four houses.  The difference may be in the rent ratios in the two locations, although the numbers you gave in your original post are pretty close to my area.  But for what it's worth, it appears one difference is that she emphasizes the importance of NOT buying in a neighborhood of rental houses.  Apparently she had one bad experience with that.  In my town, neighborhoods of duplexes are nearly all rental areas, and her bad experience involved a property that was too close to the duplexes.

Also, she emphasizes screening.  Several people have mentioned the concept, but I don't think I would have thought to check photo ID to make sure the applicant wasn't using a relative's name and SS#.  Her screening involves verifying income of 3-4X rent and getting a good reference from a former landlord.  Most of her renters have a foreclosure in their past, which she allows as long as they are otherwise paying their bills.  She does not allow pets.

Is it possible to find someone in your area who is bringing in a positive cash flow and ask how they're doing it?  What works in one area might not work in others.

[professor_pat]

OK, so I spent a few hours with my friend driving around and looking at his rentals and some properties for sale.

Tom owns four houses, in a scabby neighborhood of run-down rental houses. However the neighborhood has some advantages and he and I both think it is going to improve in a few years. The homes are 2-3 bedrooms. He has owned them for four years.

He bought them run-down and cheap--$25-60k each. He fixed them up pretty nice and in some cases put considerable money into them. None of his own money, BTW, they are 100% financed all at around 6% for 15 years. They rent from $500-700. He almost always gets his rent, sometimes with delays. He has a handyman who he can call as needed.

Here is the thing, though--he is just breaking even. He is a commercial pilot with a lot of spare time, he figures that these (and additional homes he will buy) are his retirement. He is fine breaking even because in 15 years they will be paid for and generating considerable income.

He told me how a few weekends ago he had some repairs to do. One of his tenants, a young single mom, got in an altercation with some women she met in a bar. They followed her home and beat the s*** out of her in the house. Tom had to repair some broken windows, clean a carpet and repaint a wall "because of all the blood."

I don't think this is for me. But there is also a duplex for sale, new and clean and in a good neighborhood, that it seems would more than pay the mortgage with both units rented. Maybe I will take a look at that. Or maybe instead pursue my idea for an iBook...

LarryC, what about conducting an experiment? Ask your friend (or some other acquaintance) if he'd be willing to pay you a bit (or offer for free, if you'd rather) to act as his property manager for some period: say, 6 months or 3 months or maybe even a year. See what that's like for you in terms of interruptions, doing repairs hands-on, splitting your attention, getting to know tenants. Of course you wouldn't have the satisfaction of their being your own property/income/tenant-relationships, but it might give you a feel for the experience.

[prytania3]

Larry, you won't make much on the rent. Where you make the money is in buying cheap and waiting for the market to come back.

It's a lot like buy-and-hold stock.