I want to get into real estate investment rentals, is it as scarey has I've made it in my mind, management?

Question

Live in California, not lots of available cash, busy with young children and scare of too many details and not being able to rent or covering all the costs of the property.

Answer 1

its scarey if you don't have a plan

here is what the plan must include: Positive Cash Flow!

people will tell you that you can't have positive cash flow in california, well then don't do it (and yes you can if you try harder). Now by positive cash flow I do not mean that your mortgage is $1300 and you can rent it for $1350. This will not be positive cash flow! There are things to consider such as maintenance and vacancy.

let me show you my very first real estate deal to point out what cash flow means. This was three years ago not in california, so hot markets might have to add a 0 to everything to make it sound plausible.

bought house for 25% down to get have no pmi and a great interest rate, monthly payment was $460 which includes taxes and insurance. The house had been a fix it and flip it for someone else and had actually been vacant for nearly a year. I took a couple weeks to make a few minor improvements and then put it on the market for $850. It was rented the next week for that amount. Two weeks later the sewer backed up and a tub full of water emptied from upsairs flooded the basement because of the tree roots that grew into the line from non-use for a year. Which of course is not covered by the insurance.

We had to use the "last months" rent and a couple hundred more dollars to bring in an emergency-dry-it-out-quick company and then replace the carpets and finally a plumber to use a "water jet" to fix the problem.

Now three years into the rental I can tell you that we found the flippers had taken a few shortcuts and didn't really repair things like I would have myself. So we have spent maybe $2500 over the 3 years fixing things (mostly leaking water and frozen pipes). This amounts to about $70 a month but it comes in bursts as you can see and imagine. We have also raised the rent by $20 each year. So we now get $890 and pay about $475 (taxes went up). The same people are renting, guess we are lucky there, no vacancy.

So every month averages $360 of income now and the house has gone up in value from $86k to $130k. Notice that we did not require that it go up to make money, we put down about $25k in down payment and closing costs, and started get about 15% of it back each year (now 17%). We also had an emergency account if the furnace broke or the roof leaked or whatever.

I am not going to do all the calculations here but we owe something like $60k and would make after selling it another $60k in appreciation and mortgage paydown by those wonderful tenants. The best part of it would be that we didn't buy it at a great deal or anything like that we offere $1k less than they asked for and they took it. We could have bought any house that sold that same month and done almost exactly the same thing with it if we just have a bunch of cash lying around.

So I suggest the following analysis:

1) pick a type of house that will be easy to rent out. Watch the paper if you aren't sure see what rents fast and for how much. You kind of need to have a good idea of what things will rent for so you might have to act like a renter for a month or two and go see some places.

2) once you have a type picked see what they sell for. again you should watch the paper and get a feeling. Call some agents and look at their houses for sale. In the process you might find one you get along with and hire them, make sure you meet a bunch before you hire one though and don't tell them you are going to, just look at their house and see how good they are.

3) now you can get some numbers. go to a mortgage broker, bank, or other lender and get prequalified for an investment property. Even if you don't use them they will let you know what you can afford and be a safe bet, something nice to know.

4) find a house, do the math, assume 5% vacancy and up to $100 a month in repairs unless you have a good reason to believe it will be less (it would have to be a newer home or something).

5) if you cannot rent it for say $1200 per year over and above all expenses ($100 a month) then you do not have a winner. The reason for the $100 is so you can drop the price to get it rented fast if you ever need to and still be ok.

6) Now you know what you can pay, make an offer. Keep doing this until it gets accepted.

7) Make darn sure you have an emergency account, you want to have carrying costs for two months (mortgage plus minimal utilities so you can be showing the place plus advertising costs). Once it is rented you want to either know people that will fix it for you cheap if you get in a bind (think of good friends and a case of beer) plus the costs of fixing something that might break. There are a lot of inspection comanies out there that will do an inspection and then guarentee things for a time. You may want to budget for this type of insurance if you don't have the emergency fund to repair a furnace or A/C or whatever. Credit card or a HELOC can subsitute for the emergency fund if you don't touch it except for emergencies and then have enough room left to pay the monthly bill should you need it.

the most important number is to know what it can rent for, if you put too high a number in there you are srcewed. If you pay too much for a house that brings in a monthly income who cares? It will right itself over time.

Sorry for being so long winded, but I hope it helps you understand the plunge you are thinking of taking. It will be the best thing you ever did should you decide to go ahead with it. Listen to some podcasts from this guy if you want more good info.

http://www.success.org/re/

he has a free podcast of his free program on real estate I burned it on cd and listen to it in my car for motivation if I feel like I need some. I need to pass out the love he gave since it didn't cost me anything.

Answer 2

When taking up tremendous debt ensure any one else is procuring it. Rental homes comply with this rule very good seeing that while you're taking on a loan, "tremendous debt", on a estate and you place it up for hire and the folks who're renting the estate pay for the loan.. But do not base your numbers round tax cuts. Do your study and ensure while you're taking on a loan that you'll pop out optimistic sales at the condominium estate each and every month and seem at taxes cuts as an advantage. This is a golden rule for veteran buyers in truly property seeing that the tax reform act of 1987 brought on a despair seeing that folks had been depending on tax breaks and while the federal government transformed the tax legislation and removed the ones tax breaks the ones folks who used them as a component while creating a deal now were not getting that cash. Therefore the constitution in their deal and agreements fell aside. There is 1000s of pages of tax code and extra is further and brought away each and every yr so without problems simply do not component in tax cuts while placing the numbers in to determine sales each and every month or if an funding is wise or no longer. Also while on account that a deal if you don't pop out optimistic each and every month go at the deal. And base your know-how on details no longer opinion while creating a deal for instance if any one says the estate will probably be valued at x quantity of bucks in x quantity of years your going off that individuals opinion and no longer details. Learn to inform the change among the 2 early on. Some extra recommendation while making an investment in truly property is to position the cash down and get matters into movement. I say this seeing that while you ultimately placed the cash down you gain knowledge of greater than can gain knowledge of in a guide, but in addition do not forget with studying come errors and do not be afraid to lead them to and do not allow them to give up you for attaining your pursuits. One final factor while making an investment in truly property simply comply with the sport of monopoly and get four pink residences and switch them right into a lodge!

Answer 3

Do you have cash and equity in a home to buy a rental? A property management firm may be the answer if you do. I know of a great firm if you are interested.

Answer 4

I don't know your situation but.If you are to busy now the maintence costs will destroy you.You have to be able to fix everything yourself,you won't be able to have a vacation (or the tennants might burn you out) and you will spend a lot of time on evictions(court house) not to mention you will probable get sued about every 4 years..other than that go for it..

Answer 5

I want to get into real estate also
it alot of work and alot of homework prepared