Getting late start in life, what are best properties to purchase?
Member since 2020 · 15 posts · 2 votes
Are rental properties still a good option when you are buying after 60? Are short term rentals better or flips? I have more drive and determination than time. Would love to hear from people in the same situation and anyone else who might have thoughts on the subject
@Kenneth Garrett
I started at 61 with a partner 67. That was 3 1/2 years ago. Granted we had some money to start. We buy row homes in a blue collar area. We will close 12/29 on a 10 property package thru a bank bringing us to 50 units. We buy 3 br 1 ba 1100 sq ft properties geared for families. We prefer buying tenant occupied neglected under market rent properties. Most of our tenants are families and turnover is not an issue. Our profit is 200 a month per door. We have a woman who manages the portfolio and my partner still does 70% of repairs and rehabs.
The pandemic has caused some rent collection problems. We now budget 10% vs5% for vacancy. However property values have risen as in most parts of the country. We are in process of rehabbing a property we bought for 50,000 3 years ago at a cost of 40,000 and expect to sell the property for 125,000 net. If this goes well we will be seeking 50-75 monthly rent increases after February 1st and if tenant bulks we hope to rehab and sell the property.
The goal is to maintain a portfolio of 50. Buy 5 and sell 5 a year. With luck we will earn 150,000 a year thru sales and 120,000 -150,000 thru rental income. This is the plan. But plans change constantly due to many factors.
Age is a number. I work 10 hours max a week
Hope thus is helpful
Sure. But what's your need/aim/plan?
I'm in the same boat plus add that I need a place to live. I've been out of RE for 12+ years and ended up living with a friend as her caregiver. She died in July and I'm scrambling for a place to live as her father is getting rid of the house (which I can't afford and don't need the sf). Add that I'm on social security and a small pension, and that defines my needs ...
1) an affordable place to live ASAP
2) passive income to increase my monthly income
So I am looking for both. FSBO to make purchases more affordable; preferably properties with some kind of income - so far looking at SFR with a MH or RV pad on acreage; SFR with an orchard & fruit stand on acreage; SFR with an apartment and 2 greenhouses on acreage; a fixer 3 plex (not livable so on my remote radar; a 4 plex expired listing that's in good condition but 50% vacant (due to remote location???); 4 plex with 5 RV pads (not licensed and not likely to be any time soon; realtor advertised it as 4 units and 5 RV spaces so 9 unit became a 4 unit when I checked state licensing for the RV spaces - just a follow-up - she didn't like my 50% offer for 50% vacancy).
Short term rentals are management intensive - make ready on every move out, immediate fixing of problems, need to be in perfect shape (can a bad Yelp review ruin your business?), etc. That said the rents may be higher, but so are the expenses. I would wonder if insurance might be substantially higher than normal landlord insurance (thinking about the tenants who throw big parties and destroy your property). Plus you probably will have occupancy tax (like hotels).
Vacation rentals are like ST rentals, same types of issues.
Ditto hostels - full time staff though probably some bartering.
Ditto Bed and Breakfasts - I hear complaints re never getting a break.
Sort of ditto on mobile home parks and marinas - but each can have onsite or offsite management and then you'll have to manage the managers.
Apartments should have a property manager to shield you from tenants. (think 2 am clogged sinks) but benefit from more units under single roof; easier to find property managers for more units; higher income and more income opportunities (vending, laundry & parking & storage income).
Corporate housing is interesting - usually higher rents, all inclusive (utilities usually included) and everything paid by a company for longer than normal rental terms. (1 I looked at in NM $1800/mo rent included everything - elec, gas, cable, internet - paid by a hospital for a doctor doing elective surgery for 15 to 18 months at a time plus laundry income. Market rent for the 2b1b 700 sf unit would have been maybe $725.)
Flips - assuming you mean buy, rehab & resell ASAP - gives you ordinary income (highest taxed income) rather than capital gains. And you probably don't get the benefit of depreciation ("phantom income"). Unlike monthly rental income, the profits will come when you sell, so not a way to increase your monthly income. You also don't get equity in the long term.
Buy and hold gives you several returns - if you buy at a discount to market value, you get instant equity; as you pay mortgage; you get equity as the loan goes down; you get monthly income from rents; expenses and depreciation will probably put you at $0 taxes; and eventually you'll get capital gains on sale (assuming CG tax rate remains lower than ordinary income which is no guarantee with a tax happy administration).
Anything you do, you should plan on succession from the outset. Buy in an LLC or at least a trust (living or land trust) to avoid probate issues and to make the property more sellable (is that a word?).
So what is your plan?
Great information Mary. I have purchased and sold many homes over the years. Realize I should have held on to a few but certainly understand the concept of buy and hold. Have even done an Airbnb for a year with a home before moving back in to it so I am well versed on what is involved in ST rentals. I have obtained a real estate license but have not pursued beyond referral because also working as a W2. Looking for the best path to take at this point now that I have more cash to invest. Very interested in flipping but concerned about tax downside and know deals can be hard to find. That is the definitely the question... what path do I take? I think starting here has been a great first step.
Never too late. We met a couple 6 years ago, they were BOTH late 50's & were laid off (after 28 years) from the same (bought out) company. They spent a small fortune chasing the REI dream through Gurus & out-of-state turnkeys & were screwed over by PM's & ALL the deals eventually went bust.
At the time they were about to give up we literally met by chance, we immediately clicked & have been LLC partners since. They now spend 4 months of the year in FL, the odd summer weekend at our Lakehouse & enjoy putting REI deals together. My partner can't swing a hammer & his wife is now a PT real estate agent & hates it, but we all work well together & have a LOT of fun.
So if you can find a like minded mentor/partner that could expand your opportunities & may offer a solution.
Good luck.
Sean you're young!
We didn't start serious investing until I was 61. Currently have several SFRs & 2 duplexes that along with Social Insecurity fuel our retirement. The best time to start is now
Thanks Mike. What method do you think is best from your view point, still buy and hold?
Buy & hold is the most reliable way to get to where you want to be. I never buy anything that I haven't run through the Bigger Pockets calculator with at least three different scenarios. That said it will take serious effort to reach your retirement goal because one or two doors won't get you there. We took eight years & 12 doors to reach our retirement number. The best time to act is December & January if you can.
Best of luck
You can start at any age. Age is irreverent. Being prepared credit wise, financially and educated are the pieces for you to become successful. I started in my 50’s. Have 20 units and completed 10 flips in last 7-8 years. The rental units are my retirement plan and to take care of my children. Be prepared for the ups and downs. Who thought we would have a pandemic and governors would restrict evictions. Let alone who knew what the CDC actually did.
Great advice Kenneth. I am already looking a two properties this weekend. Both are HUD offerings. I hear they can be tricky and there is an art to knowing what to bid. Feel if I keep taking action and moving forward I will get where I want to be. Your comments are much appreciated.
I bought a HUD property a few years ago where my broker was very knowledgeable in the HUD process. Offer was 85% of asking. I always take the approach, the asking price is irrelevant. The only number or numbers that matter are your numbers. If the investment works at 80% or 60% of the asking price, then that's what you should offer. There will always be another opportunity. Stick to your numbers. Don't force it to work.
Thank you Kenneth. I imagine I am going to learn a lot through the process no matter how they go. I'll keep you "posted". Best.
@Sean Mooney I was 58 when I bought my first RE investment. That was 12 years ago. I still enjoy the being a landlord but now I have discovered the easiest way to be a landlord. One bedroom condo"s. Affordable and in demand. Very little maintenance. The only issue is turn over rate. Usually 1-2 years but over time you will get that permanent renter. I have turned a couple of my units into furnished short term for traveling professionals. Travel nurses are a great market. They make good income and are great tenants. For my business plan one bedroom condo's is the sweet spot.
@Kenneth Garrett
I started at 61 with a partner 67. That was 3 1/2 years ago. Granted we had some money to start. We buy row homes in a blue collar area. We will close 12/29 on a 10 property package thru a bank bringing us to 50 units. We buy 3 br 1 ba 1100 sq ft properties geared for families. We prefer buying tenant occupied neglected under market rent properties. Most of our tenants are families and turnover is not an issue. Our profit is 200 a month per door. We have a woman who manages the portfolio and my partner still does 70% of repairs and rehabs.
The pandemic has caused some rent collection problems. We now budget 10% vs5% for vacancy. However property values have risen as in most parts of the country. We are in process of rehabbing a property we bought for 50,000 3 years ago at a cost of 40,000 and expect to sell the property for 125,000 net. If this goes well we will be seeking 50-75 monthly rent increases after February 1st and if tenant bulks we hope to rehab and sell the property.
The goal is to maintain a portfolio of 50. Buy 5 and sell 5 a year. With luck we will earn 150,000 a year thru sales and 120,000 -150,000 thru rental income. This is the plan. But plans change constantly due to many factors.
Age is a number. I work 10 hours max a week
Hope thus is helpful
@Fred Cannon
Hi Fred, your “strategy” seem very interesting. 1 bd condo.
Have few questions.
Do you follow some “rules” when you buy and search for it? You do only short term or long term too? Do you manage the short term or have a management company doing it?
What about some of the famous cons of owning a condo?
Homeowners Association Fees
Potentially Mismanaged Funds
Difficulty Selling
More Rules from condo management
Thanks
Both flips and short term rentals will require more hands on management.
The benefits of stand alone properties (single family, duplex) is you don't have to pay condo fees or deal with condo boards. If you get a single family, look for places with legal suites.
The benefit of a condo is you don't have to worry about anything on the outside of the building. you pay for this with condo fees. If you go the condo route, make sure you have one that is well managed and doesn't have high condo fees. condos also have lower property taxes.
@Sean Mooney 60 is not old! If you're in good health, 60 is the new 40, lol. Seriously, though, what are your goals? How much are you looking to generate - enough to live on? To quit your W2? To supplement other retirement income? Are you looking to leave a legacy for children? What are your areas of interest or expertise that you bring to real estate? All of these can help you figure out what investing options best suit your needs. Without that info it's a little hard to point you in the right direction. I can share what my husband and I are doing. I'm 51 and he's 55. We wanted to be able to replace our W2 incomes (not there yet), to generate cash to grow our investing capital, and ultimately leave properties and a business for our 3 sons to take over. We both took our 401k loans to start with and bought our first flip. My husband has a lot of building experience so we did much of the work ourselves. Flipping was great and we really enjoy it, but it doesn't make a lot of sense from a tax strategy because we're both still high W2 income earners. Instead, we pivoted to BRRRRs. We like this strategy better because we don't get taxed on the income generated like we would if we sold a flip and we're adding properties we want to keep to our portfolio. The houses we buy are seriously in need of repair. We like that niche and right now it has significant upside where we're investing so we can get most, if not all, of our cash back out but I'd say this strategy isn't for everyone and doesn't work everywhere. Here, acquisition costs and ARV make it work and we have the construction background to be pretty accurate on our repair costs. While we're focused primarily on SFRs with ADU potential right now, we know we need to accelerate soon. We'll be looking to 1031 our properties into small multi-family in the near future. We also need to move out of CA - both our personal property and our investment portfolio because of taxes. My husband is now partially retired from his W2 job so he can devote more time to our REI. This is a good hybrid strategy that is working for us. Unfortunately, it doesn't unlock the bulk of his 401k yet and we'd really like to get that $ out of the stock market and into more properties so converting that to a self directed IRA will be our next move when he (hopefully) "retires" towards the end of 2021. Anyway, that's what we're doing - food for thought.
@Mike Mosee - Hi Mike. I’m curious: what are the pros of acting in December rand January? Thank you!
Thank you Theresa, I am looking at a HUD town home right now. Seems well managed but HOA is $140 a month. Are condo communities usually going to have a high monthly fee because of the additional maintenance they provide or does that seem high?
@Sean Mooney good luck man! With no other information I might suggest something usually done by "just starting out" types. Do an owner occupied house hack, ideally in an area and with a 3 unit or more property amenable to condo conversion. Force appreciation through the repositioning. You kill a bunch of birds with that stone: build portfolio, position yourself for tax benefits, use the w2 income to maximize purchase price. If you pick well, you are looking at selling at least 2 of the units and exchanging or all 3.
Age is irreverent....
@Kenneth Garrett love this...:)
It is not too late as long as you take of your health.
@Sean Mooney It is never too late to start!
This all just depends on your strategy and goals.
Clearly I would not take out a 30 year mortgage and operate at break even Until it’s paid off, LOL
Depending on how cash heavy you are, I would buy some rental properties below market value and sell them off to your tenants and hold them as short term rentals with a nice upside.
You may even consider a self-directed retirement account to buy and sell with because you’re old enough to take distributions and you’re creating a tax free environment for your properties.
Good luck!
Thank you for the advice Rob. Another friend of mine suggested a self directed retirement account. I am going to look in to it. Best.
@Sean Mooney you can buy and rehab a property then rent it out. As long as you hold a property longer than a year you will pay longterm capital gains tax upon a sale as opposed to ordinary income tax. If you have plenty of money but lack time, you might consider investing as an LP in syndications as a passive investor. The VR biz is thriving in the right markets. Great returns are available but it’s a very active biz, much less passive than LTRs. The path you take depends on your goals, resources and skillset. What are your priorities/goals? That is key to knowing the best direction to take.
@Sean Mooney The right bed and breakfast isn’t that bad of an option. You can make some money at it, have a place to live, and meet great people. I’ve owned two for 24 years, just sold the second one and it’s definitely a life style. But with a cell phone you have lots of freedom, you can leave notes sometimes for your guests if you won’t be there at check in time or make prior arrangements with them, there’s usually a down season and now there’s work-share trade sites where you can get a worker to come stay with you for anywhere from 2 weeks to a year in exchange for board or a small stipend and they trade you work such as housekeeping or front desk or gardening or all of the above to stay at your place and experience whatever amenities your location has to offer such as skiing, hiking, city life, etc.
All of this might make a bed and breakfast a great opportunity for you!