Making the numbers work for nicer homes

[Micah Weiss]

A coworker of mine has ~7 low income houses and duplexes, and I see the issues he has to deal with on a regular basis. Extended families moving in, criminal boyfriends living with the tenant, frequent evictions, etc. I know you'll encounter some of this with any rental, but I don't think it's a stretch to think that a slightly more expensive units will attract less-stressful tenants. The trouble is that I'm having trouble making the numbers work. 

What I'm seeing in my research is that the $130,000 properties aren't renting for that much more than the $70,000 properties. We're talking a $400 spread or so. It's even less when I look at inexpensive duplexes. 

Is it typical for the ROI on the less desireable homes to be so much greater, or is this a situation where the numbers really only work out when you buy distressed properties?

[Michael Haynes]

@Micah Weiss, Hello from Tampa. You asked why the War Zone houses rent for essentially the same thing as the small houses in better neighborhoods in Tampa. I have had Rentals in S. Tampa for 30 years and from the first days here, I have considered everything on the East side of I275 Hwy running North from Malfunction Junction, downtown, to be War Zone.  That means everything all the way out of town to Lutz. Your friend with 7 low income houses, may be on that side of town. Do you know what is available to Rent in Tampa? If you have no Credit and no permanent JOB and don't want a Background Check, you rent a Trailer. You can rent Trailers out in Riverview, from $450 to $1000, no Credit Check, First Month up front, Depost, move in tomorrow. If you have an RV or Trailer, a Trailer lot in a Park, starts at $450 a month and may include water. A Hotel room starts at $30 a day and the better ones at $60 with Weekly Rentals at $260 with hot plate, sink and cable TV. There is a difference between what the Hourly Workers and the ones on Commission or Salary can Rent, but, they all seem to break off at $1000 plus in Monthly Rent. If you have steady Employment and you like the area or have a family and you can afford to Rent at $1000 plus a month you begin to look to Buy a Home. One of the things that Clinton and Bush started to push on the Citizens is the idea that part of the American Dream to own a Home and that led to really bad Lending Rules that caused the 2008 Crash. One other thing that the General Public thinks is that Real Estate is a way to get Rich and that Property Values always go up...Dumb Money believes what the Government tells them and they get all their information from TV. So, your pool of people wanting to rent the basic 2/1, 3/1 or 3/2 house is limited to primarily Hourly Labor Workers. Do you know anyone who works for MacDonalds, or Wal Mart or 7Eleven etc? Do you know any Day Labor guys or Carpenters or Electricians or AC mechanic types? Do you know what it pays by the Hour to hire a Roofer? Managers in the Restaurants usually don't make enough wages to Buy a Home. None of these people has ever made enough to save two months rent and pay the Utilities. My girlfriend is an Account for the County and they predicted that the cost of Utilities would go up 20% a year. In the last few years the Light bill has doubled for most of my Tenants from $150 a month to up to $350 a month in the six month Summer Season. All my Tenants have complained about Light and Water bills this last two years and they do not know the Reality of what is coming in their Future. With Cable, Cellphone, Light and Water the Renter is or will be having to pay as much or more than the Rent. At that point, what do you think they will pay first? The Rent? Not! Wages have not gone up in 18 years. I was a Welder at $10 an hour, 35 years ago. If I wanted a JOB at Tampa Shipyard, they would pay me $13 an hour to start, today. If you raise the Minimum Wage for MacDonalds workers to $15 an hour in Tampa, they will be making more than a Union Electrician here, at $13 an hour. So, you sort of see that it is very difficult to Buy Rental Houses that even support themselves. The majority of Renters don't want anything to do with a House and a yard and mowing a lawn or taking care of any maintenance or taking out the garbage. It is my experience that Renters will rent a house or apartment and not lift a finger to clean anything until the place is so dirty that they can't stand living there any longer and then they move. They are lucky to have saved First and Last months rent with the Deposits on Light, Water and Cable and still have a JOB, in order to move on to the next Apartment or House. The range for Affordable in Tampa is $800 to $1000 a month in Rent. I live on the Hillsborough River, across from the Lowry Park Zoo on the side of the street with three story, $500K plus Homes. Across the street the lots are worth $30K plus and you can buy a 3/1 frame house for around $80K especially if you look on the West side of the River. After fix ups, run the numbers and see if you can really make enough Money from Rentals at $800 a month with the Pool of Renters that is normal in Hillsborough County. You know why Flippers are desperate to find the next run down house to Flip? Because they don't want to deal with Tenants and they don't want a JOB. Same thing with the Agents...Do you really want to try and make Money with Rental Property?