All Forum Posts by: Sherri O'Neal

@Sherri O'Neal, too late to get started? No.  Can it be rewarding financially?  Yes.  Do you need to go in with eyes wide open? Of course.

The thing with having a real estate portfolio that sustains you long term requires knowing the risks, structuring things for more surety, and knowing how much work will continue to be involved.

Personally, I think out of state investing is very risky, so I like to invest close to home.  I don't like third party managers, as the best I have ever heard from someone is "they are fine" but most stories are much worse than that.  And whether you have a manager or self-manage, you will be WORKING on the property; either overseeing the manager or dealing with tenant calls, contractors, etc.  

The biggest risks to me are: 
Capex costs: these can often be understood before you buy a property, but anything missed tends to be a major factor. I.e. roofs cost $6k+ for me, HVAC going out can cost $8k+.

Tenant Risk: this is the most realistic one, in my experience.  I self lease, and have had some success by meeting all my tenants, shaking their hands, and getting a general "read" on people as they are considering my properties.  Tenants typically run with areas, so Class C areas get Class C tenants.  Class C tenants, in my experience, are slower to pay, heavier wear and tear on properties, and tend to turn over more frequently.  And with each turn over, not only is it higher costs to get rent ready again, but also longer between tenants until I can find another qualified tenant.  All this equates to more work for the same overall cash flow as my nicer area properties.

At the end of the day, it really comes down to your needs and desires.  If you are looking for a couple thousand dollars per month to supplement your social security and any other retirement savings you have, that is totally doable.  But in many markets today, the returns available on single family rentals are pretty anemic.  Values have shot up and rents have not kept pace, and if you have to finance your properties, after all is said and done, you are likely barely cash flowing at all, in the long term.  Back to capex, remember, even a new roof needs replaced eventually, as does EVERYTHING ELSE, for the most part.  And given age and desire to "retire" with the help of these rentals, I would budget much more in reserves than what most people on these forums do.  Typically, at today's prices, to keep a house in good condition long term, you probably need to reserve about $400-500 per month for things like roof, HVAC, water heaters, new flooring every 10-15 years, new kitchens and baths every 10-15 yrs, etc.

And remember, if you are looking at "high cash flow" areas (also known as lower end areas) with lower end rents, a refrigerator that goes out does not care whether you are getting $500/mo in rent or $5,000/mo, so using a percentage of rent, as commonly practiced, is not a good strategy.  Put another way, a $1,000 fridge is 2 months rent for the $500/mo rent and only 20% of one month's rent for the high end place.  Yes, you can get nicer and lower end fridges, but proportionately, low rent properties need to have a much higher percentage of reserves held back.

 Look at an amortization calculator.  You will have paid off some of the principal as well, but yes that ratio of how much of your payment is interest vs principal changes over the term of the mortgage.  After 7 years, you'd also hope the price of the home has gone up a bit.  Depending on the interest rate and loan amount (eg $330K at 6.5% after 7 years you'd have paid about $40K off the principal and $120K in interest).

It is never too late, you just have to think about strategy.

The younger you are, the more you can bank on higher loan to value due to appreciation. As you get older, it is the opposite. 

If anything, you could argue you are in a better position because you have more leverage options (retirements and as you get older, reverse mortgage and house hack). 

8 years actually could be enough time. I will say you need to really hone in on your budget to better understand what retirement means from a financial perspective. This also includes future medical because that is becoming one of the biggest expenses. 

I wonder as a strategy you could buy properties and each property is a designated expense. For example because medical can be expensive, you have one property with low LTV, like a single family home bought for under $100K but then you have another property that is more about appreciation and that one goes towards travel, etc. Or you find properties where the math works that you can get it paid off in 8 years. Long shot but interesting things to consider.

It is never too late.  Yes you may retire in 8-9 years and the rental would still have a mortgage on it, but think longer term.  Once the mortgage is paid off (by the tenant through rent), your cash flow will increase or as they pay down the mortgage, if you sell it you have a nice chunk of change.

You need to get educated and fast....I know it's overwhelming, but you need to be spending a couple hours a day on sites like this Forum, reading books and watching YT videos. You have many options with that property you have, do not ever assume anything (like not doing the kitchen/bath and going STR).

You need to figure out what you are comfortable with and what will make you $$.

Absolutely not. It depends on the area and property of course, but you just need to get a positive attitude and go do it. It helps to have a great Forum like this, you can literally ask any question.....

What is your passion in RE? You have to have a passion for some segment of the game first.....Just buying and holding a Long Term Rental will take you longer, consider adding in Flipping and BRRRs....