My rentals are making me crazy

[fdjake]

That's OK John.....I don't need exact numbers...What you provided is plenty....

Here's how I see it.....

I'm gonna carry $500/month for those 14 units...As you know this could be for evictions, late or no payments, heating, electrical, plumbing or any of the other 2 million things that go wrong in these homes.

So let's say BEFORE taxes you clear $3500/month....

Sounds good......or IS IT????

$3500/month is $42,000 per year.....I just spent a few minutes trolling Raleighs real estate listngs....The MEDIAN home price there is OVER $200,000!!!   The SAME as MY BACK YARD....

Here's the REALITY.........You could EASILY do ONE FLIP a YEAR and make MORE than you're making now dealing with 14 roofs, 14 heating systems, 14 bathrooms, and COUNTLESS MORONS!!!

What you need to do is FIND that HOMERUN first deal!!!!   And you FIND them by THINKING DIFFERENTLY than everyone else....

Ask yourself WHO comes into CONTACT with people that are ELDERLY, have lots of EQUITY in their homes, and don't have the INCOME required to FIX THINGS!!!  These people are.....

PROPANE DELIVERY DRIVERS  (they stop by these homes MONTHLY for deliveries)....Offer the drivers $3000 CASH if they find you a deal and TELL THEM what you want....keep in touch with them even if the lead is crap.......Your WIFE can handle these calls EASILY.....She takes the info, looks it up on line...She or YOU make the intial contact and within 5 minutes you know if a lead is WORTH PURSUING.

MAILMEN.........GOLD.....GOLD....GOLD......They SEE everyhouse, EVERYDAY in EVERY NEIGHBORHOOD....They know who DIED, who's DIEING, who's getting DIVORCED......Offer THEM $3000 for a deal.....these guys are GREAT because the POSTAL SERVICE already divides their routes....You can actually PICK the neighborhoods you like and they see these houses 6 days a week!!!

FIREFIGHTERS........GOLDMINE......Pipe bursts in a house.....Who do you call????  House BURNS, no insurance????  Right there in the FIRE REPORT.....Make up a flier and put in it EVERY FIRE STATION in your area.  These guys also see LOTS of elderly people on a DAILY BASIS....Once you tell them what you are looking for THEY WILL CALL...

OH and MAKE SURE that the DAY a Firefighter finds you a deal and you close on it.....You find out WHAT shift he's working on and precisely at LUNCH or DINNER you stop by that Station with an envelope STUFFED with $3000 in 20 dollar bills and slide it across the kitchen table to him.....Say......"Here's the $3000 for that house you found for me."

THEN LEAVE!!!!

THAT will get talked about for YEARS!!! and then the calls will come POURING IN!!!

Get off your @ss FLY BOY.....and don't try and bullsh*t a bullsh*tter with the......"There aren't any DEALS in RALEIGH.".....

They're OUT THERE....YOU JUST AIN"T LOOKIN in the right spots!!!

You could EASILY DOUBLE your current profits and deal with a FRACTION of the BS....

Even the buy and hold part doesn't hold up against the FLIP.....

Do the math......You now own 14 units and are going nuts.....Some are TRAILERS so they'll NEVER be worth anything...But even the houses, how long will it take you to pay them ALL off???  10, 15 YEARS....

In just 10 years you could have EASILY flipped 30 houses......E A S I L Y !

In a  market with a median price of $200K you should be making at LEAST $40K NET per deal....AND you DO NOT have to REHAB all of them....I sell a TON of these on the MLS in AS IS condition.....The investors out there are SICK of dealing with banks on foreclosures so I put in BOLD LETTERS....NOT A FORECLOSURE, NO BANKS INVOLVED....ALL OFFERS PRESENTED TO OWNER ON 3/3/2010 at 5pm....

Do the math........30 X $40K = $1.2 MILLION.....

Let's say you SUCK at this and can ONLY find 15 (just over one per year) X $40K= $600,000 and your KIDS could run this once you get it going.  You'll find GREAT, RELIABLE CONTRACTORS who know what their doing.....YOUR WIFE will be in heaven picking out colors and interior details that MAKE YOU BOTH MONEY!!!

AND NO MORONS!!!   If you do encounter a LOSER......SHOW THEM THE DOOR.....They'll be another buyer tomorrow!

How much is your LIFE WORTH???

[John_in_NC]

Pete,

Thanks a ton for your advice. It is weighing heavily on this big decision I have. My wife has been keeping up with this thread too. We are thinking of testing the waters a bit before we sell everything. We have two properties that don't have much upside potential, and would net around 100K at current market values. I am thinking from what you are telling me that is about the right amount to try this.

Well thanks for the tips again.

John

[fdjake]

The decision will be EASY once you find that first great deal.....

Just BLOW IT OUT......Have it cleaned out, sweeped out, and DUMP IT to a rehab contractor.....You might own it for 30 days...

You do this ONE TIME John......and you'll have every house you own for sale in a week.

It's a great business....You just can't expect to find these deals through realtors or from normal sources....

BE CREATIVE.....THINK....THINK.....THINK!!!!

[propertymanager]

Ok, I wasn't going to comment again, because I truly believe that John should get out of the rental business if it's making him miserable and I believe that the business that FDJake is talking about is as good as any other.  However, I feel as if I must make a few comments:

You could EASILY DOUBLE your current profits and deal with a FRACTION of the BS....

I'm not buying that.   EVERY SINGLE BUSINESS has b.s. and flipping is certainly no exception.  Dealing with buyers; dealing with contractors (YUK - worse than tenants if you aske me); dealing with the building code department; dealing with real estate agents if you put them on the MLS, these are only a few of the many sources of b.s. in the flipping business.  You already know that.

Do the math........30 X $40K = $1.2 MILLION.....

Yes, 30 X $40K = $1.2 Million, but unfortunately if you're flipping - the government isn't going to allow you to keep it.  Profits from flipping are taxes as ordinary income -  OUCH!  That's one of the BIG differences between rentals and flipping.  With rentals, your taxes are shielded because you get to depreciate the property.  In addition, as you know, you're not only getting the $42K per year in profits from operating the rentals (cash flow + management/maintenance; FDJakes numbers), but you also get all the equity buildup as the tenants pay down your mortgage).  Obviously, any long term appreciation is just icing on the cake.

So, again using FDJake's numbers, you would have $1.2 MILLION dollars at the end of 10 years flipping LESS TAXES.  If you were in the 28% tax bracket, that reduces your actual profit to $864,000 after income taxes.  With the rentals, you would have the $42,000 X 10 = $420,000 (largely tax free) plus all the equity from the principal paydown + the equity you picked up by buying at a discount in the first place.

Again, I'm not suggesting that John should stay with the rentals.  What I am saying is that EVERY business is filled with B.S. and no business is easy money.  Maybe another option is to get rid of the trailers and move up the rental ladder one or two rungs.
 

[rookieNYC]

Mike,
 Why is the rental income tax free?

[Bluemoon06]

Mike,
 Why is the rental income tax free?

You depreciate the house and take that off the taxable income.

Example:

Buy a house for $100k

You rent the house for $1,000/month minus expenses of $700/month you make $3,600 year.  You depreciate it over 27.5 years.  That is $3,600/ year
After you subtract the depreciation of $3,600 you end up with no taxable income.


This is of course simplified but pretty close to reality.

[rookieNYC]

what about if you sell the house after the 30 years after you depreciated it down to zero and sell it for 200k because of market appreciation???.,...You owe long term capital gains on the sale..

[fdjake]

Mike makes some good points....

Notice I NEVER said.....NO BS....

What I DID SAY was.........a FRACTION of the BS....

As to Mikes other points...

Dealing with....

Realtors........EASY.......I've COMPLETELY ELIMINATED all my realtor issues with the   "FDJAKE 30 day listing agreement"
You can not BELIEVE how telling a REALTOR they have just 30 days to sell your property MOTIVATES them!!!!!.....It cuts through ALL the BS....I get REAL PRICES, not BS realtor "get the listing/make believe prices"  I get SERVICE too......As ANY rehabber will tell you....You usually won't HEAR from your realtors until 5 days BEFORE the LISTING EXPIRES....THEN LIKE A MIRACLE, they call you EVERYDAY telling you about all the sudden "activity" the property is generating!!!  With the 30 day listing agreement.......THEY CALL ME EVERYDAY FROM DAY ONE!!
I make it ABUNDANTLY CLEAR to them that unless they produce a BUYER in 30 days they will NOT have that listing on day 31.

BUYERS PROBLEMS........All my buyers get their PRE APPROVALS Through 1 of 5 banks that I use.....They can pick anyone they want, and they are under NO OBLIGATION to use them....But....I will NOT accept a pre-qual from ANY BANK other than those 5....If they are REAL BUYERS they have NO PROBLEM with this.....This one tactic has eliminated 99% of my buyers issues.....and I put it right in the listing agreement so there's NO ISSUES.

BUYERS ARE EASY compared to TENANTS.....I see my buyers ONCE at the CLOSING table ....Unlike JOHN who's seeing WAY TOO MUCH OF HIS TENANTS!!!

Contractors.....Even EASIER!!!!   I buy ALL the materials for my rehabs.....I pay them JUST LABOR.....THEY GET NOTHING upfront...NOT A CENT.....and if they DON'T SHOW UP without CALLING????   They can swing by anytime to watch ANOTHER CONTRACTOR finishing THEIR JOB!!!
Works WONDERS......These guys might blow off other people....They don't blow off ME!!!!  I treat my guys great.....I've used the same group for years....They are NOT the cheapest but they are GOOD!!  and THEY pull the permits....THEY deal with the inspectors....I never understood WHY investors do it any other way.....A GOOD contractor should know that building inspector on a first name basis.....They know his pet peeves...I AVOID all the BS by simply letting my contractors DEAL with the building inspector...THEY are doing the work....So they do it the way the inspector wants it done.....SIMPLE.

TAXES.......Again Mike is RIGHT,  but also wrong......That $846,000 you'll have AFTER taxes........can BUY YOU A FEW SELF STORAGE WAREHOUSES!!!!
The other point Mike forgot to mention is he's LIVING on his rental income...HE DOESN'T HAVE A JOB...So he WON'T have all that accumulated return because he uses it to SURVIVE.....YOU aren't in that position....EVERY PENNY you net from your flips can go right into OTHER investments.

Bottom line.....

I don't HOUSE my BUYERS......If they lose their jobs 1 year after BUYING my house.....IT DOESN'T AFFECT ME......It WILL AFFECT MIKE!!!   IT WILL AFFECT JOHN!!!

They don't call me when the countless parts and pieces in a home start to FAIL!!!!

Mike is right.....EVERY BUSINESS has it's BS......I've done BOTH....and FLIPPING HOUSES is INFINITELY LESS BS than RENTING!!!!!

There's is NOTHING out there (other than a properly timed investment in FORD stock!) that has created the VOLUME of INVESTABLE CASH that flipping does....You're making it 5 or sometimes 6 figures at a clip.  Once you get to a certain point EVERYTHING gets easier....You're courted by PRIVATE BANKS, You can buy 2 or 3 properties at a time whenever they become available.....It just picks up speed!
Ask yourself....How many PROPERTIES can I buy on $42,000/year with it coming in at a rate of $3500/month????  BUT......If it's coming in ALL AT ONCE in $42,000 chunks 2 or 3 times a year.....In a few VERY SHORT years you'll be buidling your first COMMERCIAL PROPERTY.....THEN you'll understand why NO ONE STAYS IN RESIDENTIAL RENTALS!

The bottom line is this........Mike does VERY WELL renting his properties.  It WORKS for him and he is building REAL WEALTH...I just didn't like being a landlord.....The LAWS all favor TENANTS RIGHTS and I HATED IT...Buying and selling houses is a blast.

Been there, done that, bought the T-shirt!

[allagash]

But i will be sure to check out the willard. Where is it?

about a block or so from the White House....old money though....

The Tombs is pretty cool....low key....a Georgetown hangout:

http://www.tombs.com/main/index.cfm

hail a Diamond cab...

-Mike

[rookieNYC]

Not to change course on this thread but there are many ways to derive income by using the capital tied up in these rentals besides playing landlord..Why not hire a management company if you hate the job of being landlord so much..Money doesnt seem to be an issue for you so why not give up a portion to add that cushion between you and the rent roll if you arent ready to sell yet..Just an idea...

[HoldAndBuy]

Try to rent my rental is driving me crazy.

I had someone call today. I waited for her at the property while she got lost twice on the way, calling meon the phone for directions enroute.

At the end of her visit she asked if I was flexible on the rent of $950. I said I could rent it for $925. Then she said she was looking for more like $850 or $875.  Couldn't she have just told me that on the phone in the first place before making me drive down and dick around at that empty house waiting for her while she got lost multiple times? Or did she really think I was going to drop the rent $100 for her.

[John_in_NC]

HoldandBuy

If that is the extent of your rental problems I'll trade with you! I'm getting sued!

Rookie, I am selling two properties next week. So I guess that is how I will stop playing landlord. Try to sell them off. These two were very easy to sell, I had some guys that have been bothering me about buying them. Emailed them and a week later they are under contract. I don't want to complicate things by being creative, just sell my problems.

I'll have six figures from this sale to to reinvest. I'm really thinking I'll try to flip a starter home in a decent area. Sorta like FDJake does. It's funny, a year ago I would have thought flipping was nuts. Somehow I've convinced myself I can do it now, if I can find a no brainer. Wish me luck. I'll report back.

[justin0419]

H&B,
If you're asking a rent amount that's in line with other units in your area, be careful about being flexible with the rent amount.  As you can see, you offer an inch and the applicant wants miles. 

John,
That sounds like some pretty good equity off a couple of your properties.  Good luck with your transition.

[HoldAndBuy]

Yeah, I know my problem isn't that big of a deal. I think my rent is in line with the market now, I was asking $1000 before and that was probably too much.

JohnNC, good luck, I hope the lawsuit gets settled or just goes away.

[fdjake]

Alright John......I got you into this so now I feel it's my job to help you out on your first flip...

SO....................DO NOT........Let me REPEAT THAT........DO NOT....Buy a flip house off the MLS or through a REALTOR!!

I see new guys screw this up ALL THE TIME.

Here's WHY you don't do this....

I spent YEARS in the car business....BUYING and SELLING......Flipping Real Estate is the SAME as buying and selling cars....except you add an extra ZERO onto the end of every number...Most of my competition purchased their cars from NEW CAR DEALERS.....these were the HIGH MILEAGE cars they didn't want on their lots....The ONLY PROBLEM???   You're trying to buy a used car from a guy that was so good at SELLING USED CARS that he purchased a NEW CAR FRANCHISE!!!   IT WAS A COMPLETE WASTE OF TIME...These guys knew to the PENNY what that 100,000 mile Honda Accord was worth...So I developed my OWN system for buying used cars directly from the OWNERS....I had a HUGE advantage....I purchased cars in EXPENSIVE NEIGHBORHOODS where people didn't want STRANGERS coming to their homes.....I'd buy one car on a street and 6 other people their would call me to unload their OLD Hondas and Toyotas...I always dressed nicely, spoke well, was very polite and would handle the transaction ANY WAY they were comfortable.....These people all thought a Honda Accord with 100,000 mile on it was WORTHLESS.  I'd leave 10 business cards with ever person I purchased a car from and would send them $200 for every referral they sent me...THEY LOVED THAT!!!

It is LITERALLY the same business......Believe me on this.....With that in mind I'd like to present you with my REALTOR/CAR DEALER analogy.

Scenario number 1...

A young man drives by an open garage door and sees a familiar set of headlights.....They belong to a 1973 Porsche 911S.....He pulls into the driveway and knocks on the door....And older gentleman appears and the young man introduces himself....They strike up a conversation about the Porsche....The old man hasn't driven the car in a while because it needs some minor work but still runs good...The young man offers to buy it....They agree on a price of $10,000 which the old man is very happy with...The young man takes the car home, cleans it up, fixes the brakes, gives it a tune up and fluid change, puts a new set of tires on it and it runs and drives like all Porsches do....The young man now has a $50,000 car!!

Scenario number 2

The old man decides to drive his old Porsche down to his local Porsche dealer to see what it's worth....The new car DEALER (the same as a REALTOR in real estate) KNOWS to the PENNY what that car is worth....He offers to BUY IT from the gentleman for $30,000 because this is a RARE CAR and he WANTS IT....The gentleman agrees to this.....The NEXT DAY....That "CLASSIC" is sitting on the showroom floor with a $60,000 price tag on it and the words ONE OWNER, ALL ORIGINAL written on the windshield...Now imagaine that same YOUNG MAN (in scenario 1) walking into that dealership and TRYING to buy that Porsche from a Porsche dealer so he can RESELL IT and make a PROFIT......NOT HAPPENING!!!  Buying flip properties off the MLS is like WALKING into a PORSCHE dealership and attempting to buy a car and PROFIT from the exchange.

Buying a FLIP property from a Realtor is EXACTLY the same thing.......Even if it's a DUMP they know what similiar houses have sold for in similiar condition. 

AND.....YOU'RE COMPETING WITH THE ENTIRE MARKET!!!!

Your ADVANTAGE dealing with an INDIVIDUAL is that they DO NOT have this level of knowledge...AND.....In most cases YOU and the OWNER are the ONLY 2 people that know the house is even for sale.....That is a HUGE advantge for you.

I buy ALL my properties directly from the owners....I RARELY rehab these homes....I simple roll them into that PORSCHE DEALERS showroom (the MLS SYSTEM) and then let THE MARKET fight over the property...

I give the listing realtor 5% on a 30 day listing......I also make it clear in the lsiting that the home is NOT bank owned....NO BANKS INVOLVED...Offers will be presented to owner on 4/4/2010

I hire a clean out crew to empty the crap out of the home and I take care of any BIG issues...I'll throw a new roof on a home...2 days for a crew, it's quick, the dumpsters are already there for the clean out crews and within 1 week the property is listed on the MLS then the FEEDING FRENZY starts...

I LOW BALL ALL MY HOMES.....I want to come on market at the LOWEST price for that type of home by at LEAST 10%.....This gets EVERYONES attention and it gets the houses SOLD...

DON"T waste your time flipping homes like these idiots on TV...Fixing every little detail, landscaping, painting.....DON'T BOTHER....This market wants CHEAP and it's SWARMING with investor looking for deals....A lot of them are CLUELESS....

I SELL HOMES to them.......VERY PROFITABLY I might add!!!

NO REHAB

NO DISCLOSURES

AS IS SALES

30 day LISTINGS

VERY LITTLE BS!!!!!!

I have sold 7 of these so far THIS YEAR.

The KEY is creating a NETWORK of people that are out there LOOKING FOR YOU...OIL DElIVERY DRIVERS....MAILMEN.....FIREMEN...ANYONE that comes into DAILY contact with PEOPLE.....I pay them BIG finders fees...I've paid out as much as $10,000 on a single deal.....But I made $100,000 on that home.....That guy is one of my best DIGGERS...he doesn't want to take any risks so this is PERFECT for him....I TRAINED HIM.....Told him WORD FOR WORD what to SAY to these people.....It took YEARS to build this.....BUT it's a MACHINE now....It goes to work EVERYDAY for me wehter I do anything or NOTHING....."IT" still is out there WORKING!!! 

 I just DISPOSE of the items it PRODUCES!!!