All Forum Posts by: Michael B.

Maintenance is always an issue.

What types of things constitute charged maintenance (as opposed to that covered under management fee)?

Do they have preferred maintenance vendors (plumbers, electricians)? Negotiated rates?

Here's my policy:

The tenant has to pay for repairs if they are unquestionably their fault. But if it's questionable, or partially his fault, or can even be argued it's my fault I do it at my expense.

Here's the reason. I want the tenant to come to me when things are wrong. I don't want them trying to fix something he's unsure of and I sure don't want them not telling me maintenance is needed because they're afraid I'll charge them.

If you think doing maintenance when you find it is expensive, try fixing it after it's been hidden for a couple of years.

Actually it's not that unrealistic. There are lots of houses in most markets that meet the 2% rule.

The problem is the size, condition, age, and location of those houses. To get a house that meets the 2% rule you have to buy old, small, high maintenance houses in bad neighborhoods. Not for the faint of heart.

Some landlords do well on these houses, but it takes a special kind of person to thrive in this market. The maintenance will be higher than you expect, the non payment rate will be higher than most areas, and the turnover will be high. But money can be made for the right landlord.

But that's why real estate attracts all kinds of investors. For any given investment some run from it, some run toward it. These places are no exception.

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@Joshua Dorkin , Maybe, but it's no fun having to defend yourself after making an offhand statement that's mostly or even entirely true. Figuring out what's true and what's not can be a real pain when it comes to financial matters.

Maybe the items mentioned here are very clear cut. But frequently in business disputes the participants aren't black and white, but both parties are shaded with some hue of gray. A statement that xxx is a deadbeat who didn't pay per our agreement can cause lots of trouble if the person making the statement has even a little of gray on their white suit.

Virtually no large company today will give job references because of the potential for lawsuits from stemming from disputed facts. Just too risky. As is publicly accusing folks of financial shenanigans.

But it's your house and rules.

I won't speak for Curt but here are my thoughts:

Investing is a very long term proposition. It involves generating a surplus over living expenses and investing it wisely. Most people don't get rich on real estate because they found a great deal and grabbed it. Good investors are grinders. They find a few things the do well and keep with it for decades. Always looking, always thinking, always ready to move if the deal's right.

You think you know now is the best time to invest, any you MAY be right. Interest rates ARE down. However things don't always work as we hope. Interest rates were down in 2006 but most people who bought in the 2006/2007 time frame were wishing they didn't by 2009. Surviving downturns means building a good financial base and using that position to react when bad things happen. And real estate has a way of bringing unexpected problems to owners. If you don't have reserves to survive the unexpected then you will eventually lose big.

The best piece of financial advice I ever got was this: Don't get into a business where you're picking up nickels in front of a steamroller. The idea is that sometimes making small profits are easy if you're taking big risks to make those profits. Steamrollers are slow, and getting out of its way is easy. Anybody can do it. But there may come a time when the exact set of circumstances come along that you're unprepared for and you find yourself under the steamroller. And one trip under the steamroller can wipe out many years worth of found nickels.

In other words, always be thinking how to minimize the risk of investing, as well as the rest of your life. And one way to minimize financial risk is to get rid of debt that hinders your ability to react to events, both good and bad.

So I've given a long-winded to say this -- consumer debt impedes your ability to react when bad things happen to your investments. They make it hard to build sufficient reserves and they make it hard to borrow funds when you need them. Student debt is particularly bad since if things go REALLY bad they survive a trip through bankruptcy. So spend some time getting ready to invest before taking too much risk. It may save you a trip under the steamroller.

Pay the loans first.

You have the next 40 years to invest in real estate.Spend the next few getting ready. Go after consumer debt with a vengeance, including the student debt. Build a good financial platform to invest. That includes lots of education, getting rid of debt, and getting some savings in place.

But the biggest advice right now is learn your job as a pharmacist. That will have a bigger influence on your financial future than whether you invest in real estate.

Oh, the Florida condo ... revisit this issue after you've doubled your current age. I promise Florida will still be here, it will still have condos, and we Floridians will still be looking for Michigan Pharmacists to sell them to.

I would disagree with Adam's numbers.

The 50% rule is about expenses. But the HOA is just another piece of the maintenance expense. Ditto taxes. Virtually all of the HOA fee deals with landscaping and building maintenance and reserves -- things you'll have to do anyway if you're not in an HOA. So if you pull it out separately you're counting it twice. Taxes fall in the same category. Here's the way I'd look at it.

43,200 (rent) * .5 = 21,600 --> These are the expected expenses, maintenance, and vacancy.

The debt service would be $10,620. Actually it would be slightly less than that as you could pull out the principal portion of the payment. Only the interest portion should be here, but in the early years it's too small to think about.

So I'm seeing a $43,200 - $21,600 - $10,620 --> $10,980 cash flow. A quick return on investment would be (10980 / 75000 ) = 14.6%. Not a bad deal.

One other thought:

Don't underestimate the difficulty of making money at flipping houses. Contrary to what you see on TV it's a very hard, relatively low profit business that is fraught with risk. Not saying that you can't do well at it, but it doesn't happen automatically.

I've bought 2 places in the last 3 years that were flips gone bad. One was an investor that paid too much and set out to do lots of renovations. He ended up in bankruptcy and I bought the townhouse from the bank. Another flip was from an investor that did a good job of fixing up the place, but ended up with too much money in it. When I bought it from him it had been on the market for 13 months. He ended up losing about $30k and about 2 years on the flip gone bad.

But flipping is a good place to start. The economics of flipping houses forces you to be very careful and to be a fast learner. Otherwise bad things happen to your pile of cash.

I like rentals.com.

It costs a little, but it seems to give a little higher quality candidate.