All Forum Posts by: Dave G.

This is not a new trend either. I personally experienced this decades ago in the '80s as a high school senior being discouraged from going into the trades. My grades were good enough to go to a state university but I wanted to go to trade school to be an auto mechanic. I was told to go to college instead. As an 18 year kid, which often means you're an idiot, I was like "ok, I'll just go to college". I mostly drank beer and chased girls. I did graduate, barely, ironically with a BS in economics. Two years later I went to trade school anyway and became an airplane mechanic as no one got in my way as a 25 year old making his own decisions. 

The public has been brainwashed for a long time that if your kid doesn't get a 4 year degree, they're going to be losers and degenerates. What a crock of BS. And these are the same people that let their kid accumulate $100k+ of student loans, often getting a degree that is not highly marketable or valuable. Dumb, dumb, dumb. 

Go to trade school for 6months to 2 years for a fraction of the cost of college and start earning a good salary years earlier. And provide a critical service to society that we all need. How hard is this anyway?

@Patrick Gallagher

This is a scary example of what appears to me new investors rushing into things unprepared. However, you are not the first person to ask this type of question on BP. And the good news is you're trying to do it right now and learn the process. Doing it wrong can land you in a lot of expensive hot-water as you are now the evil rich landlord in the legal process & society's view.

So...

What are the residential rental housing laws in OH? I am in Arizona and we have the AZ Landlord and Tenant Act which outlines landlord and tenant rights. Regarding your specific question, in AZ we must provide notice to the departed tenant of any decrement to the security deposit refund. 

Next you need to scrutinize the terms in the lease. What does your lease agreement with this tenant define with the security deposit and non-performance by the tenant?

This may be enough for you to figure out exactly what to do. Or, you could run into some ambiguities that require seeking help/counsel.

Good luck to you,

Dave

@Lin Perez I would say based on the numbers you've provided ($350 best case cashflow with no maintenance considered), you will have negative cash flow. I think it will be a loser as a rental and I would sell it. 

But let's just say you actually get a couple hundred in positive cash flow (unicorns and rainbows I think). That would be a $2400 annualized return on $100k in equity. Not an impressive return IMO.

Lastly, a good exercise to me with something like this, is ask yourself if would you buy this property as an outright investment if you found it for sale in the market versus had inheriting it. Usually the answer is a resounding no. This same exercise often applies to someone relocating to another state and they are considering keeping their primary residence instead of selling it. 

My recommendation is to sell and redeploy the $$ to something where the numbers work.

Good luck to you.
Dave

Agree with @Joe Splitrock that the real estate market is very slow moving. That's why we all love it after all, it's very inefficient unlike the equities market which can actually seriously crash in one trading session/day. The inefficiency of RE is largely how many of us make good money.

So are we going to have a "crash"? We'll it seems to me that there is a "crash" every so many years when you look back. None of them are organic, they are all pretty much due to government and institutional meddling and skewing the market. Reckoning day always comes. 

TRA 1986 did it in the '80s. Stupid relaxed lending standards and devious investment bankers did it in 2008+. And now we have all the nonsense (Fed Reserve stupidity, hedge funds & institutional investors buying SFH) going on this time around. Sure does not seem to me to be sustainable when you fundamentally have valuations that soar at a rate multiple that of wage growth. At the very least, this market needs to level off to even begin to approach what might resemble a healthy state. But my personal opinion is we will see at least a moderate correction transpire in the next several years, and buying opportunities will be quite abundant compared to the market today.

My recent actions in this regard - I took some money off the table selling a couple of my properties recently and am on hold buying.

Buyer beware - "The trend is your friend except at the end where it bends." Ed Seykota

@Will Clark books on how to invest with OPM or little/no down pmt are not new. I learned how to lose a bunch of money quickly (and lose my 1st 3 rental properties) after reading the 1980s best-seller Nothing Down by Robert G Allen. I read the book, got pumped, and bought 3 properties in quick succession at age 23. One of them the seller owned free & clear and I convinced them to do a full carry-back. I even hand wrote the note with loan rate and terms, and they accepted. It can be done. But I don't know how you do that, especially these days, and not have incredible risk exposure from high leverage and likely big negative cashflows. I would work hard to save more $$ before getting serious, but that's me. And recommendations for alternative investments? Well, to me they aren't really the same thing as outright investment property ownership. I have REITs and have done Peerstreet investing (which I am concluding, not recommended) and they are more like buying equities to me. Good luck to you. 

@Anthony Parsons I would look at it from the perspective of would your current home fit the criteria of a rental acquisition that you'd want to buy. I just went thru a similar scenario. My wife and I just retired and were ready to move from Phoenix to Northern AZ. We could have kept our primary in Phoenix - 3100 sf semi-custom in an upscale neighborhood - and rented it out for a lot more than our mtg payment. However, the house would never be the kind of rental we'd ever separately pursue to add to our portfolio. Too big, too nice and a smaller market of potential renters. Expensive travertine and granite throughout, and renters in that price range would probably expect everything to always be maintained perfectly. I would if I was them paying ~$5000/month or more for the rental. So we opted to sell. Based on your info, you have a lot less margin of rent less mtg pmt at ~$500 or $600 dollars to cover expenses on the property. I would wager (on the limited info provided) that you would have negative cashflow property after you realize a year of actuals. So I would choose Option A for a variety of reasons. But that is just me and only based on info you provided and my personal experience and opinion. There are probably several ways that you could make it work if you wanted (STR?).

Good luck to you Sir, Dave

@Paul Sweetman good question. I feel the same way. Bought my first rental back in the 1900s (1991 to be exact) and just don't see opportunity, at least in my state, right now. The last rental I bought was in 2017. In fact, I just sold one of my rentals, took some cash off the table in this crazy market. 

We have some strange dynamics in our country right now. Economically, politically and culturally. To me, they are all feeding into the country's inability to realize the efficiency and effectiveness of capitalism in the way that we saw even only 20 years ago. 

 @Misti DelMar Sorry, just noticed this. My AZ recommendations below:

Northern AZ: Lynne Ordean, Sedona Rentals & Property Managment https://www.sedonarentals.com/

Phoenix AZ: Randy Fitch, https://www.realtor.com/reales...

@Kyle Curtin my pleasure. It was a rough experience for me. I actually went to a bankruptcy lawyer but couldn't pull the trigger on that....just did not seem right. I worked 2 jobs for 4 years to get out of debt. I like Dave Ramsey, but unlike his teachings I still use credit cards (paid off monthly for 25 years now) and when I started buying rentals again in 2010, I utilized a HELOC and 401k loans to structure cash deals (that typically were paid back within 12 months).

You are right, leverage is a powerful tool. Like a chainsaw, it can make short work of cutting up a tree if used correctly. Or you can seriously injure yourself if improperly used. 

If you're worried about it, then I agree with @Joe Martella to wait for renewal. The name will change to the LLC then and the tenant will likely not care at all. Most tenants are not sophisticated enough to know what the LLC is/does. AZ evictions do not require an attorney, but I use one anyway since the slightest misstep turns back the precious clock on the process.