School me on rental properties

[pandus13]

Originally Posted By: Win
Depreciation.

Win,
can you please elaborate on that?
(i know you probably been a residential/commercial landlord since i was in diapers, so your experience coupled with LAW practice is more than welcome)

Thank you.

 

[Wolf359]

Originally Posted By: pandus13
Originally Posted By: Win
Depreciation.

Win,
can you please elaborate on that?
(i know you probably been a residential/commercial landlord since i was in diapers, so your experience coupled with LAW practice is more than welcome)

Thank you.


You can depreciate 1/27.5th of the value of the property over 27.5 years. Works out to 3.6% a year if it's a condo. If it's a multi or single family, you can't depreciate the land, just the property. Of course if you sell the property, there's depreciation recapture. So the depreciation lowers your taxes.

 

[pandus13]

OP,
you have these classes of properties:

A- low headache, high price (long term, low gains, could gain a lot of appreciation) = million-arish hold (yep they still rent, california regular prices not included)
B- middle class (long-term, lesser headaches, some/more appreciation)=you could be living there
C- blue collar (still not for beginners; still need specialized support team) + you need to allow for some loses in your business plan
D- War zone (need REALLY specialized landlords with REALLY specialized support teams; not for beginners or faint of heart/stomach/liver; you need cajones/huevos of stainless steel and PROTECTION (legal or not)
F- you're in trouble = you're in deep [self censored trouble attribute]!!!

now if you are handy:
- you need them close to you (no more than 60 minutes, preferably under 30 minutes)
- choose them in good/good-ish school districts
- choose them based on local supply... (retirees/young professionals, etc etc)

i suggest the better is to contact the local REIA (Real Estate professional association) or Landlord Association(already recommended) and find out more from the "been-there-done-that" t-shirt crowd.
(already mentioned in the thread): you are in it for the long term
any quick deals/home-runs = cherry on top.

 

[pandus13]

Originally Posted By: Wolf359
Originally Posted By: pandus13
Originally Posted By: Win
Depreciation.

Win,
can you please elaborate on that?
(i know you probably been a residential/commercial landlord since i was in diapers, so your experience coupled with LAW practice is more than welcome)

Thank you.


You can depreciate 1/27.5th of the value of the property over 27.5 years. Works out to 3.6% a year if it's a condo. If it's a multi or single family, you can't depreciate the land, just the property. Of course if you sell the property, there's depreciation recapture. So the depreciation lowers your taxes.

Thank you, Wolf359

 

[spasm3]

Originally Posted By: Wolf359
Originally Posted By: pandus13
Originally Posted By: Win
Depreciation.

Win,
can you please elaborate on that?
(i know you probably been a residential/commercial landlord since i was in diapers, so your experience coupled with LAW practice is more than welcome)

Thank you.


You can depreciate 1/27.5th of the value of the property over 27.5 years. Works out to 3.6% a year if it's a condo. If it's a multi or single family, you can't depreciate the land, just the property. Of course if you sell the property, there's depreciation recapture. So the depreciation lowers your taxes.


If you depreciate the home, will it cost you a big capital gains tax when/if you sell?

 

[Oldtom]

Almost forgot the most critical landlord skill, memorize this phrase " I am sorry you are not happy here, feel free to move someplace you are happy. Please remember that if you trash my rental, my lawyer and I will pursue you into the bowels of Hades to attach your wages and trash your credit."

Never smile at a tenant, try to look like Gustavo Fring just before he cut the man's throat with a boxcutter. Look it up on Yootube. This is how you want the enemy to perceive you.

 

[pbm]

In New York it's virtually impossible to get rid of deadbeat renters....the courts are 'very sympathetic' to the plight of the poor (even if they are druggies etc...).

Most rental property owners that I know are happy to get Section 8 renters.....which means the government (in reality the TAXPAYERS) pay the rent on the 1st of every month....

What a country...

 

[Mr Nice]

Originally Posted By: Oldtom
I have two rental properties and have done well with them. There are a couple rules to follow if you want to survive: 1) Join a local landlord group 2) Screen tenants like you are hiring for the CIA. 3) Assume that tenants are like normal people who were bitten by a zombie. At some point the scum will go full zombie and attack you. Evict fast when they go sour. My biggest mistake was taking TWO YEARS of extreme insults from a "gone sour" tenant before ending the lease. The reason for the tenant going sour? I was tired of late rent payments and asked for a five dollar late fee if the full rent was not paid on the first. 4) DO NOT become friendly with a tenant, treat them like a rabid wolverine, since they will eventually go for your jugular without warning.

I used to be a liberal and pity poor people. Now, I hate the poor and believe they are poor because they are STUPID and have zero money management skills. Being a landlord may change you in ways you may not like.


Don't get me wrong, money can be made on investment rental property. Just like being self employed, its not for me.

Screening people is tuff as their attitude can change and they have a sorry story. I know a guy that lost his [censored] on Section 8 duplex rentals. I almost vomited when I heard his misfortunes and the guy eventually walked away from his properties. The guy lost about $300K in a couple of years.

I couldn't believe the stories he told me, it was very silly for him to think Section 8 was a cash cow. But the guy learned the hard way.

 

[Wolf359]

Originally Posted By: spasm3
If you depreciate the home, will it cost you a big capital gains tax when/if you sell?


I believe deprecation recapture is 25% whether you took it or not. In theory it's great if you're in a higher tax bracket because you took the depreciation and you don't have to pay it back until it sells. Of course depreciation recapture only applies if you're making a profit. Otherwise besides deprecation recapture, it's just regular long term capital gains which used to be about 10% but now it can be as high as 20%. You could also do a 1031 exchange but for low money properties, the cost of doing a 1031 exchange might not be worth it.

 

[CKN]

I have 4 rental units. I have them professionally managed. I have zero stress when I deposit the income from them when the management company sends me the rent.


I have owned three of them over 25 years.

 

[xfactor9]

I've owned a number of residential rentals before. I will give you this sage advice:

Unless you are a people person and are able to deal with the worst side of people, do not become a landlord. You will eventually encounter the dark side of humanity including dead beats, people who don't respect your property, liars and on and on. Even the sweet innocent little old lady can be a deadbeat and trash your property. Hiring a property manager insulates you from this to some extent, but they eat up 8% monthly plus commission each time there's turnover. It's not economical to hire a manager unless you own an apartment complex (then you get a discount).

Newbies who look into become landlords only look at the financial aspects but don't realize what the business really entails. If you have a 'soft' personality, you will be eaten alive by deadbeat tenants. This business will toughen you up before long.

I'm no longer a landlord. There are far better ways to make money with less aggravation

 

[xfactor9]

Originally Posted By: Oldtom

I used to be a liberal and pity poor people. Now, I hate the poor and believe they are poor because they are STUPID and have zero money management skills. Being a landlord may change you in ways you may not like.


LOL, I had the identical experience after being a landlord. I don't pity chronically poor people anymore because now I know their secrets. They have an excuse for every financial problem.... when the real reason is poor decision making

 

[CKN]

Originally Posted By: xfactor9
Originally Posted By: Oldtom

I used to be a liberal and pity poor people. Now, I hate the poor and believe they are poor because they are STUPID and have zero money management skills. Being a landlord may change you in ways you may not like.


LOL, I had the identical experience after being a landlord. I don't pity chronically poor people anymore because now I know their secrets. They have an excuse for every financial problem.... when the real reason is poor decision making


Unbelievable......

 

[ArrestMeRedZ]

Originally Posted By: motor_oil_madman
Originally Posted By: ArrestMeRedZ
Right now there is an inversion in a lot of locations between rents and house payments. Rents are significantly lower than payments on a 30 year mortgage, and in a lot of cases, even lower than payments on a 15 year mortgage. If you can come up with 20% down, manage it yourself, do the maintenance yourself or have someone who works cheap, you can have a money making machine. You need some money, but the beauty of this is with today's very low rates, you can leverage what you have if you qualify.

If done right, you can be a millionaire in a few years. If done wrong, you can be "land poor", and end up losing all.



I thought renting was more than a payment if you mortgaged the house. They want to cover the insurance, the mortgage payment and a little bit more for wear and tear.


That's what I get for not proofing what I wrote. I said it backwards. You got it right, payments are crazy low now, rents are high.

 

[Mr Nice]

Money can be made, some don't realize the mess and aggravation it can lead to.

I also know a guy with some condos on the beach here in Florida, even the older retired clientele he's had to evict.... waste time and money in court costs. It's his business and money so I don't give him any advice.

 

[Wolf359]

Originally Posted By: Mr Nice
Money can be made, some don't realize the mess and aggravation it can lead to.

I also know a guy with some condos on the beach here in Florida, even the older retired clientele he's had to evict.... waste time and money in court costs. It's his business and money so I don't give him any advice.



Yeah, I've been doing it for a while, some people can deal with it, others can't. Most of the time you just hear the horror stories so that scares most people away, but if you've done it for a while and get good advice from other landlords, it's not too bad. Big key seems to be to make sure you screen your tenants and to have a backbone and not let them walk over you or if you don't to have the resolve to just hand it over to an attorney and let them deal with it. The horror stories are from the ones who just let things go and don't deal with problems in a timely fashion so that they end up snowballing.

 

[Jarlaxle]

Originally Posted By: Oldtom
Almost forgot the most critical landlord skill, memorize this phrase " I am sorry you are not happy here, feel free to move someplace you are happy. Please remember that if you trash my rental, my lawyer and I will pursue you into the bowels of Hades to attach your wages and trash your credit."

Never smile at a tenant, try to look like Gustavo Fring just before he cut the man's throat with a boxcutter. Look it up on Yootube. This is how you want the enemy to perceive you.


I recommend you sell your rental proerties and put the proceeds toward professional psychiatric help, a long vacation, or a long bender.

 

[Wolf359]

Originally Posted By: Jarlaxle
Originally Posted By: Oldtom
Almost forgot the most critical landlord skill, memorize this phrase " I am sorry you are not happy here, feel free to move someplace you are happy. Please remember that if you trash my rental, my lawyer and I will pursue you into the bowels of Hades to attach your wages and trash your credit."

Never smile at a tenant, try to look like Gustavo Fring just before he cut the man's throat with a boxcutter. Look it up on Yootube. This is how you want the enemy to perceive you.


I recommend you sell your rental proerties and put the proceeds toward professional psychiatric help, a long vacation, or a long bender.


Psychiatric help is usually included in any health plan.

Also that phase is pointless to a deadbeat, they don't care about their credit and they work under the table or their income is too low for you to garnish their wages. I think in this state if you make less than $400 a week, they won't garnish your wages.

I do have one story about a deadbeat like that. Had to take him to court, my case was like 10-15 after a bunch of others. There's no real defense for non-payment of rent. Anyway a bunch of other cases come up and the judge just mows through them, most only take 2-5 minutes. You'd hear some sob story from the tenant about how they'll have the money next week so the judge would tell them to bring the money to the court next week or the eviction would be granted. Or they'd claim there were things broken in the apartment which is why they didn't pay, but the same thing, she'd tell them to bring the money to the court and she'd send someone out to look at the tenants complaints. So by the time my case comes up, the tenant knew they were screwed. First he started off by saying how he couldn't pay because the state took away his kids so he didn't get the money from the state anymore and how there were all these problems with the apartment that he made up. It was kinda funny the judge did say that it sounds like a horrible apartment, why do you want to stay? She asked me about the problems and I just said it was the first time I heard of it. Anyway he didn't end up paying and I got the eviction. But yeah, it's a business and I have a bunch of units so one vacancy or a few months lost rent doesn't kill me. It's built into the business model, you shoot for 90% occupancy, sometimes you do better, sometimes worse.

 

[Jarlaxle]

My cousin owned an apartment building...after two nightmare tenants in less than ten years, he was ready to torch the place and dumped it. Not worth the stress.

 

[Mr Nice]

Wolf knows what he is doing... good for him that he is in the business.

Tons of other people think rental properties are a cash cow with zero worries and it turns into a bad mess and lawsuits.