The rental business is an absolute mess right now. No one is paying and no one is being evicted (this is a chicken vs. egg argument here). I have to (as a third party) deal with rental properties every day. There's no way I would ever even think about buying a place to rent, and that was before the business completely changed this year. Put that money into something that makes you money. I could write a 10 paragraph essay......
Buying a rental condo
- Thread starter MoneyJohn
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Again, it really depends on the area, and the type of rental. Blanket statements don't really work here.
I have several short and mid-term furnished rentals, and over the last year my occupancy rate has been almost 100%. It's mostly traveling nurses on per diems and tech bros working remotely who want to get out of downtown SF or Seattle and be closer to the beach or mountains.
If you have a rental near an airport and a major hospital, it's pretty easy to keep it full.
All it takes is this 2 page CDC document to be printed, signed and dated to screw over their landlord.
Even if the person is retired with guaranteed income coming in (pension, social security, IRA and a 401K)...... they are off hook and won‘t pay rent if they say Covid has affected them.
I understand the unemployed folks not paying rent, but there’s many people with a steady income refusing to pay. Nothing a landlord can do..
All it takes is this 2 page CDC document to be printed, signed and dated to screw over their landlord.
Even if the person is retired with guaranteed income coming in (pension, social security, IRA and a 401K)...... they are off hook and won‘t pay rent if they say Covid has affected them.
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You're basically in an area with a bunch of scumbags. Basically all my tenants are paying and even units that we manage have tenants that are paying. No one is really taking advantage of the situation although I have a few rentals that I do for landlords where the units are empty. Those landlords either can't seem to grasp that the market is down and they need to lower the rents or they've reached a point where they're just going to leave it at the current asking price and wait for a few months for the market to get better instead of "giving it away". I know several other landlords where their tenants are also paying which they're surprised at. The basic unwritten premise is that even though you can't really evict them now, landlords can still terminate leases and increase the rent so if you play one game, the landlord can play another. Tenants around here must be smarter to know that they can't play the game if they want to stay.
Probably makes sense to buy in the city, the prices are down. But hard to say if the rentals will come back as many places are allowing people to work from home so they don't need to be in the city. Also depends on the area, certain cities the rents are still going up and other high priced cities the rents are coming down.
Buy a condo or home for yourself. This past pandemic renters could stop payment and you could not evict. Can you handle paying the mortgage on top of your own rent? Risky!
It's why if you have multiple units, it's actually less risky. When you just have one, it's 100% of your portfolio if the tenant doesn't pay, if you have 5, then one not paying is just 20%. Also depends on the type of unit you have. Most laid off people were at the lower end. If you buy low end units, then you might end up with low end tenants that can't pay the rent. One great screening metric for me has been to ask tenants what kind of assets they have. Those that have 10k+ in the bank never end up being late with the rent. That's why when renting them out, if you demand 3 months' rent up front, that gets rid of people who want to pay you over time because they have an inability to save money. Screening tenants is pretty important but it's no guarantee. I've had tenants that later turned into alcoholics, drug addicts etc. They weren't always like that when they first moved in. That's why the banks only expect a 90% occupancy factor. You do enough rentals and you're bound to statistically run into bad ones no matter how hard you try to avoid them.
Thank you, everyone.
There is a lot to think about.
The main goal of getting a rental condo is not to make money. It is just a place where I can make a downpayment and the mortgage is paid by the rent. The area where we would like to get a condo for ourselves is out of reach at the moment, because we are prioritizing building our wiped out retirement nest. But looking at mortgage rates, I thought maybe I can get into it. But clearly, I have to think a lot more before getting into it.
@Wolf359 May I reach out to you via DM if I am looking for any clarification or advice?
There is a lot to think about.
The main goal of getting a rental condo is not to make money. It is just a place where I can make a downpayment and the mortgage is paid by the rent. The area where we would like to get a condo for ourselves is out of reach at the moment, because we are prioritizing building our wiped out retirement nest. But looking at mortgage rates, I thought maybe I can get into it. But clearly, I have to think a lot more before getting into it.
@Wolf359 May I reach out to you via DM if I am looking for any clarification or advice?
Unfortunately some people will take advantage and pocket all the rent they would normally be paying.
It sucks but when they see others not paying..... they feel why do I need to pay if I can sign and date the CDC letter then simply send to their landlord by certified mail. End of story.
California now wants to extend the rent freeze until Dec 31, 2021 which is simply crazy to be a rental property owner.
Its good that the OP will reach out in a DM and you can clarify some of the risks and game plan. I hope ever works out but be aware of ALL the risks. As always you offer quality advice on real estate threads.
If you can get into that situation where the rent pays the mortgage and all other expenses, you are actually making a (very) few dollars as measured by the reduction in equity each month.
However, problems can develop, the biggest being that your tenant stops paying rent and it takes you some number of months to get another paying tenant to take over - can your plan afford this scenario. Also, if a condo, assessments can and do happen, sometimes they are as much as $10K in older condos.
I know probably 200 landlords. None of them have situations like this. Some of them have resorted to paying the tenant just so they'd leave. May be a regional thing or you just have worked yourself into a stable situation like this one. Good job!
Sure, but usually the main point of any investment is to make money and you can do it either by cash flow or by appreciation.
While these threads are always fun, just keep in mind that most people like to post horror stories just like the news likes to talk about car crashes. But that doesn't stop us from driving and while there are potential problems out there and pitfalls, it's not the norm.
That is a problem whenever you get into a business. Every time I had to evict a tenant it always cost me at least 5-7k if it went to housing court. If I got lucky and they just moved out, only a couple thousand. But I only needed 2 out of 3 units to be paying to cover expenses. And I never did condos, but yeah, special assessments are just another maintenance expense. I've replaced roofs and heating systems that cost anywhere from 5-15k.
Must be your area or the landlords that you know. I never paid them to leave, always took them to court if they didn't leave. Didn't want them spreading the word that they could just not pay and I'd pay them to leave. I always use to do one or two evictions a year, but the last couple of years haven't had to do any, guess the economy was doing better or I finally evicted all my bad tenants and got lucky with the new ones.
You can screen out a lot of bad tenants, but there is no way you can eliminate all of them. When I get a good tenants, I bend over backwards to keep them.
If a good tenant that normally pays the rent on time notifies me they will be late, I don't charge a late fee. If an air conditioner, hot water heater, or refrigerator goes out, it's taken care of immediately. Other repairs are timely.
A new tenant usually moves into a unit with new carpeting and fresh paint, and he/she pays market rate. With an proven tenant that is happy with the place, I rarely increase the rent, even if the market goes up (within reason). As a result my savings on repairs, vacancy, loss of rent, and eviction costs are minimized. So far, none of the tenants in my 4 units have missed paying rent due to Covid.
You could make the case that continuing to charge market rates is a better business practice, but both my experience and my heart argues otherwise. Of course, bad tenants get regular rent increases, to include increases above market. No need to evict if they voluntarily move to avoid rent that is too high.
If a good tenant that normally pays the rent on time notifies me they will be late, I don't charge a late fee. If an air conditioner, hot water heater, or refrigerator goes out, it's taken care of immediately. Other repairs are timely.
A new tenant usually moves into a unit with new carpeting and fresh paint, and he/she pays market rate. With an proven tenant that is happy with the place, I rarely increase the rent, even if the market goes up (within reason). As a result my savings on repairs, vacancy, loss of rent, and eviction costs are minimized. So far, none of the tenants in my 4 units have missed paying rent due to Covid.
You could make the case that continuing to charge market rates is a better business practice, but both my experience and my heart argues otherwise. Of course, bad tenants get regular rent increases, to include increases above market. No need to evict if they voluntarily move to avoid rent that is too high.
Fine and dandy but the OP is not in a position to take on risk of a single tenant in condo. Known a few people crawl out of bankruptcy from multi tenant places and others who made fat coin. There is risk.
There's always risk in any investment. Same as buying stocks or starting a business. But it's important to distinguish the risks and the odds.
The problem is that the very knowledgeable folks make it look very easy.
I recommend people wanting to buy their first rental property to proceed with caution.... !!!
People don't typically mortgage their home to buy stocks. So that element of risk is not there. Businesses vary on borrowing.
Have two rental properties. My daughter and her husband are in a house. Previous tenants weren't awful but not the best. Have a cop in a rental condo who's been great for the last seven years or so. I've never met or communicated with him going through a management company. Paying subdivision fees, condo fees, the $100 monthly to the management company. Doesn't make me rich but I've paid off both properties and would have to back out a lot of depreciation if I sold. I do pay my son in law to handle repairs on both properties including a credit on their home. He gets a 1099 annually. Then there's insurance and being harassed by property flippers rooked into get rich quick workshops. NO, I DON'T WANT TO SELL, STOP CONTACTING ME!
Well you could get a line of credit and use that to buy stocks and if you have stocks, you can get a margin account to buy more or use it to buy a house. That's where cash sales come from, either a credit line on another house or a short term margin loan until you can refinance or you just do a cash offer without a finance contingency so you can back it up in case the loan falls through.
Basically just pointing out there's risk in everything. Yeah, if you want to be conservative, then don't buy a rental property. I know a few people where it's probably not the thing for them. It's kind of a part time job that doesn't require any qualifications aside from a down payment. Depending on how well you select your tenants or the location you buy in or the market you're in, that determines your return. Home prices on average just track inflation, but if you can buy with just 5% down, that 2% annual rate of return can into 40% based on what you put down. Most people do 20% to live in it so more like a 10% return and if you're doing investment with 25%, more like 8%. Some people I know are not good with people and some are not well organized so maybe for certain people, this isn't going to work for them.
4WD
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Yep … sold ours in August … HOA was a pain and don’t know what they did for monthly fee because there was always extra money needed to do things … Adios
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