Can It Really Be This Easy?

Question

I'm new to this, but I'm seeing the pot of gold in real estate.

I only have one rental, my former residence (I'm active military) which currently isn't cash flowing (losing $15/month). I'm in the process of fixing that with a re-fi and will definitely fix it when I renew the rental contract. It's being managed for the standard 10%.

I am now in a different state, bought a house to live in, and looking to buy more properties. Using my current rental property as a model, I want to put up the capital, hand it over to a property manager, and collect. It's super easy with my current property. I haven't lifted a finger regarding that property since I moved out of it.

The question is, how scaleable is that? How many properties can I expect to be able to own and have a third party manage? Right now, it seems like a win-win. I do virtually no work and someone else pays my mortgage every month. Is it really that easy?

I'm 28 now. Is a goal of being essentially retired by 40 crazy, assuming I just own the properties and I pay 10% to have someone else manage them all?

Lynn McGeein · Answer

Just wanted to add, especially with out-of-state properties being managed by a property manager, that completely hands-off is a bad idea.  We try to inspect them at least once a year as property managers and tenants will not see the home the same way you do as the owner and usually won't report things until they interfere with their own lives.  One tenant diverted the rain spout causing run off under our heat pump until the concrete slab underneath was falling in.  We caught it in time on a yearly inspection.  We keep up with minor water damage on exterior doors and porch railings before they become headaches, cut out trees growing through decks, basic maintenance items that tenants don't care about or report but will save you plenty if you do it yourself versus wait until it gets bad enough for them to report it.

Levi F. · Answer

I think about it like this...." every loser I buy costs me at least to winners, Every winner I buy gets me two more winners"

If you can avoid the losers, ESPECIALLY in the first 5 then your home free. At least that's how it has seemed for us. Learning the ability to truely evaluate properties is the single most important step. Practice practice practice! then post your numbers on BP and get some opinions.

The sky is truely the limit.

Liam Goble · Answer

I started by purchasing my properties in an LLC, so I was always subject to commercial financing.  I'm planning to add a few non-LLC purchased to take advantage of some low rates for 30 years.

The model is scale-able, it does work, it just takes time and persistence to find the right properties.

The last point I would have is that you need to have repair reserves, I estimate 10% of gross, saved per month in case of problems.  Don't think your units will be immune to problems.  As a newbie, I was beginning to have dreams of non-problem units until this past month, when my units reverted to the mean (and I was glad to have the pot of repair reserve cash sitting around).

Ben Bakhshi · Answer

It is easy pretty easy to lose $15 a month :)

Yes, you are paying down your mortgage, but perhaps you haven't had any serious repairs yet, that will cause you to be be even more negative.

The consensus around the BP Nation is that you should be seeking out properties that have a good profit every month, some like $100 per door, others want to earn 10, or 20% per year on the properties value.

Not all property managers are made the same, not all tenants are made the same.

You can have hundreds, or thousands of properties owned and managed, there are no limits.

Oh, one limit you will face is your ability to qualify for mortgages. You will breeze through your first 4, then 5-10 becomes more difficult. In some cases you will be able to reach 20 (sorry for the half info, I tried to look up the max number of mortgages that FNMA is allowing but couldn't find a definite answer). Eventually you will need commercial financing, which will be more expensive than residential mortgages. Of course, if you are buying all cash, then nobody gives a damn!

Paul Timmins · Answer

@Colin Reid

Thanks for your service.

Take a look at lowering expenses that is something you could do right away.

The only limit is you ability to obtain cash.

When researching a new area  go to IREM.org search for ARM certified property managers. Call 5 ask them what sides of the city they like/dislike and why. Ask what they see them selling for and what expenses are by category. Ask if they know anything coming up for sale.

Good luck

Paul

Elizabeth Colegrove · Answer

@Colin Reid

My husband is also active duty. I manage the houses myself, even transcontinental. 85% it is nothing more than checking to see if the direct deposit is there. The other 15% that I work, is worth it too me to save the 10% in management fees.

That being said, we have pick up rentals through personal properties and investments. The current guidelines allow you to have 10 mortgages. So every time we move we scope out what houses would be the best rentals. We than buy it as our personal. Our first two were with the va loan, allowing us to put no money down. We were able to split our va loan so it covered both properties. The next ones are conventional with 5% down. Although we are paying pmi, the rent is still higher than the mortgage.

Our model is the "southwest airlines". We keep a control on everything so we don't need huge margins. We have houses in great areas, that are either newer, or have great bones. We gutted one of our houses, and the others have needed little to no work. Therefore as long as the rent is at least $200 higher than the mortgage we are happy.

Our goal is for retirement cash flow in 15 years so we are long term investors. Best of Luck!!

Liam Goble · Answer

I concur with @Levi F. .  The first few winners are key.  Even at 5 units, it still seems like a slog at times, but each month is getting better.  The REI skids are getting greased as the months roll by.

Be aware of your own personal limits, the human mind is feeble - track everything on spread sheets, trust the numbers and don't try to get 'creative' with the numbers.

Rolanda Eldridge · Answer

@Colin Reid ...It does take Action!  There are days I'm "crazy busy" taking care of issues and resolving problems,but I enjoy it!  I receive a lot of personal satisfaction in providing nice affordable homes!  I also try to help those interested in home ownership reach that goal!  My last move in was a young couple. The wife was so excited to get the "keys"! They were transitioning from apartment living...No amount of $$$ could replace her gratitude..

Colin Reid · Answer

The negative cashflow is a beginner's mistake, and a pretty cheap one. That will be corrected in short order.

The commercial financing is the kind of answer I was expecting. I figured the easy money would dry up at some point.

Thanks for the information!

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