Author Topic: Thinking about getting into rental properties and/flipping houses  (Read 6885 times)

Offline theBINKYhunter

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 I'm curious if anyone has experience with rentals or flipping houses. I may have an opportunity in the near future to buy a second home at a great price. This wouldn’t be a BOL in any way, I would be looking at it strictly as an investment. If this property works out it would be a rental, or I’d move into it and turn my current home into a rental, not sure yet.
Also the other day my current boss asked me out of the blue how I felt about potentially flipping houses with him. I realize this is not a get rich quick thing and you do have to be smart about it. Between the two of us we could potentially do most of the needed repairs ourselves. He’s a painter by trade and I’ve developed quite a list of skills through my own home projects.
I’ve had both of these thoughts floating around in the back of my mind for some time now, but have never acted on them. It would be really nice to get some additional income streams coming in and property, if done smartly, seems like a great way to make it happen.
What’s your take on either of these, good or bad or in between?
 

Offline mnotlyon

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Re: Thinking about getting into rental properties and/flipping houses
« Reply #1 on: October 15, 2014, 10:40:56 AM »
I'm curious if anyone has experience with rentals or flipping houses. I may have an opportunity in the near future to buy a second home at a great price. This wouldn’t be a BOL in any way, I would be looking at it strictly as an investment. If this property works out it would be a rental, or I’d move into it and turn my current home into a rental, not sure yet.
Also the other day my current boss asked me out of the blue how I felt about potentially flipping houses with him. I realize this is not a get rich quick thing and you do have to be smart about it. Between the two of us we could potentially do most of the needed repairs ourselves. He’s a painter by trade and I’ve developed quite a list of skills through my own home projects.
I’ve had both of these thoughts floating around in the back of my mind for some time now, but have never acted on them. It would be really nice to get some additional income streams coming in and property, if done smartly, seems like a great way to make it happen.
What’s your take on either of these, good or bad or in between?

I'm pretty handy around the house, but I don't think I'd consider flipping houses. I'm not good at interior design, and I tend to be a little on the cheap side, so I might not spend the money needed to make the place resell well.

If you're borrowing the money to do your flip, time becomes a huge enemy. If you don't have the time to do the work quickly, or if the house sits on the market longer than expected, you could loose your shirt.

I have seriously considered rentals though. I'll probably be doing that in the next few years.
I wouldn't use my existing house for a rental. Instead, I'd buy one with renting in mind. If it's too nice, you won't get a good return on your investment. If it's not nice enough, you'll have trouble keeping quality renters in the house.

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Re: Thinking about getting into rental properties and/flipping houses
« Reply #2 on: October 15, 2014, 11:32:05 AM »
I have a rental and if you get into it you must keep a cold heart. Don't let the renters soften you up and stick to your guns. My sure you get an ironclad rental agreement!

Offline NWPilgrim

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Re: Thinking about getting into rental properties and/flipping houses
« Reply #3 on: October 15, 2014, 11:43:11 AM »
We did a rental and got burned, and I had  some friends that did rentals, got burned but eventually got on track and did well.  We tried to be more upscale but when we sold the place and did not sell to the renter he bailed, renigged on his last rental check and left some damage we were not able to recoup.  Even a good renter can turn ugly, so have the attorney make sure you are totally covered for every possibility.

- Decide on what your market is: cheap, high turnover, lots of damage, little reinvesment, lots of interpersonal "issues" with renters; high deposits
- OR, more upscale, higher rents, stability, background checks, more investment into property

- Get a real estate attorney on retainer to quickly handle evictions and write up a standard rental agreement.  There are lots of deadbeats out there that know the ropes better than you and know that with a newbie landlord they can stay someplace for 90-180 days FREE before you figure out how to evict them.  An attorney can work with the sheriff and have them out in little over 30 days.

- Then operate the property based on your chosen clientele.  If upscale then provide a nice clean house, keep everything repaired well, ask a good rental price and do background checks and you can have very stable worry free rental.  One friend of mine only owned very nice rental houses and she was very relaxed and profitable.  Other friends went the cheap route, and they had deadbeats to evict (get good at it!), lots of damage, and basically just put cheap repairs and material into it because it will e destroyed in no time anyway.  Don't mix the two like be cheap ass for a well paying renter, or put in top quality materials and labor for renters that fight and party (and break things) all the time.

I think renting can be a good income stream.  Most of the friends that stuck with it eventually added more houses and one even got into apartment buildings.  It takes a lot of time at first and you have to figure out how to handle repairs, rent agreements, evictions, disputes, making sure you don't gee left holding the bag, etc. while at the same time providing competitive property and rates.  I don't think you can be highly leveraged and make any money with rentals.  You ether have to already own it with a much lower than typical mortgage or own it outright. Or, buy distressed properties and fix them up for rental, which may be much less work than if you were to sell it.

I know some folks that did flipping and it was great in an up real estate market, but they got burned holding several high cost properties when the market collapsed and went underwater and multiple houses. Not pretty.  If you flip you have to do it by buying much lower than market, do limited fix ups and get it back and be willing to wait a little longer than the original seller to get a better price.  If you are borrowing money to lfip you are likely to get burned.  If you are using your own money to flip then you can ride out the mistakes and surprises.

Offline MTUCache

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Re: Thinking about getting into rental properties and/flipping houses
« Reply #4 on: October 15, 2014, 03:28:34 PM »
RE: Rentals

I've been on both sides of this arrangement (currently renting), and I hesitate to recommend it to most people. In order to make money being a landlord you can't be playing with scared money. You can't be dependent on that tenant being there next month, or even for the next few months, because if they have the power in the relationship (especially in a tenant-friendly state), you're going to be in for a rough ride. Late or short rent payments, and a trashed house to fix back up after they stiff you the last month's rent isn't a good long-term investment. You need to have all of those repairs (and all those missed rent payments) already factored into your cash flow. This means you're not going to be cheap. In today's market, when there's a TON of people out there trying to rent out their old house to cover a mortgage while they live paycheck-to-paycheck in their new house... it's pretty competitive (and a lot of them are getting burned). Unless you've got multiple units near the bottom of the market, and you're willing to be the ruthless guy who evicts bad tenants, your nice-guy tendencies are going to significantly cut into any profits you think you may get. Like NW Pilgrim said, if you're leveraged, most of the profit margin is going to end up just servicing those loans.

RE: Flipping houses
This one seems like a Hail Mary sort of play right now, planning on taking a big risk and hoping for a big reward. I doubt there will ever be a time when people will be confident calling a "good" market or "bad" market, since the volatility is now much more apparent than it was 6+ years ago. I can't say I'd ever do it, but that's because I'm very risk averse (and, honestly, that's cost me a lot of money over the years). If you are going to do it, and you've embraced that risk/reward equation, I'd take steps up front to separate the loans you'll be taking on from your personal assets. See if you can create a company that shields your current financial life from that new one. Lastly, I wouldn't count on just being "handy" to get you by in that venture. Yes, fixing up the house and making it look nice is a large part of it, but you're probably not fully up-to-speed on the staging of the house, the marketing, etc. I'd be tempted to have a Realtor involved, but I'd be very hesitant to pay one the commission they'll expect. Any possibility of either of you getting trained up in that area while you're doing the remodels?



I would never discourage anyone from following a passion... if it really is a passion. But it seems like most people I know of got into those businesses thinking it was a fail-safe way to make money, or a get-rich-quick thing that they could get in and out of while still keeping their other job. In just about every case they were wrong, it wasn't worth nearly as much money as they had planned on, and it turned out to be a HUGE time suck, distracting them from things that they wish they would have been doing, and (in my opinion) worst of all, it got their entire lives entangled with big financial institutions that made the whole enterprise very risky. Getting fired at work means surviving some leans weeks while finding a new job, and maybe having to move your family. Failing miserably on a flip costs people their marriages. I can't imagine many things worse than a bankruptcy hearing, unless you're going from there right across the hall to divorce court.  :-[ :-\
« Last Edit: October 15, 2014, 03:35:25 PM by MTUCache »

endurance

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Re: Thinking about getting into rental properties and/flipping houses
« Reply #5 on: October 15, 2014, 04:03:52 PM »
I have a coworker who retired about four years ago now. He had a fat 401k and had a friend who was a bit of a thug and a wicked good handiman. The friend convinced him one particular local market was flooded with foreclosures and had a lot of rental potential, IF he had no problem being a slumlord. Over the next three years he acquired nine properties for between $21,000 and $39,000. All of them needed work, none needed more than about $2,000 in work. All of them rent for between $400-850 a month. The friend/thug takes 20% of all the rent, does all the rentals, collects all the money, and does all the repairs and charges for damage out of the deposits. IMHO, the situation is ideal. His 401k is gone, but he's collecting far more than he would have ever earned in interest, especially today, but he also has the perfect guy to work with him. It's a rough town and I suspect he's had to bash a few heads to get rent, but I also figure where else are you going to get close to a 20% ROI on an investment every year with a fairly decent chance you could sell the investment vehicle for more than you paid for it at the end. He bought on the bottom of the market in 2010-2011. It would be a lot bigger risk today and you couldn't make as much on as little initial outlay.

If it's a single home and you're carrying a loan on it, it's a lot harder to say whether it's a good investment or not.

Offline desmond11

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Re: Thinking about getting into rental properties and/flipping houses
« Reply #6 on: October 15, 2014, 06:08:41 PM »
My dad has about 60 rentals now.mostly lower priced housing.he does a lot of h.u.d. housing.because it is guaranteed money.he has had a lot of strife,lawsuits and damages to the properties.squatters.sothere is that.it is hard  work, it can be a pain in the neck,but overall can be very profitable.

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Re: Thinking about getting into rental properties and/flipping houses
« Reply #7 on: October 15, 2014, 11:09:08 PM »
It takes money (or a lot of equity to secure a loan) to make money.  If you've got it to lose I say do it.  If you don't have it and don't want to risk having less of it than you currently do, don't do it. 

Keep in mind that unless what you are doing is unique to what others are doing, without risk there is little left to really gain and make it worth while.  Rental property may be different, but I doubt flipping houses is. 

Expect to fail (most entrepreneurs fail once or twice) and learn from that to make sure you don't continue to fail.

Offline ShannonB

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Re: Thinking about getting into rental properties and/flipping houses
« Reply #8 on: October 15, 2014, 11:33:54 PM »
Jason's papa did rentals for YEARS, even boarding houses. We actually bought our first home at 19 from him. Once we started multiplying and realized the neighborhood wasn't that great and the house wasn't big enough we decided to rent it out.  Biggest mistake we ever made. Even though Jason grew up working on rentals and dealing with tenants, I hadnt. I was heart broken when our first tenant bailed on us, owning two months rent and leaving my lovely little home in shambles.

Offline Ms. Albatross

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Re: Thinking about getting into rental properties and/flipping houses
« Reply #9 on: October 16, 2014, 09:05:40 AM »
My family (my parents, my two brothers and I) owns several rentals.  All in a highly desirable location with well-regarded public schools.  We mostly rent to military personnel or police officers.  Never have to worry about getting the rent and rarely have issues when they move out.  The military tend to cycle through quickly but they have often recommended a new renter to us (from their military comrades) before they move out so there is very little lost time between renters.  We always try to do at least one upgrade between renters.  Ex:  new carpet, new appliance, add crown molding, upgrade the faucets, etc.  So we keep the units fresh and up-to-date and spread the costs over time.

My parents live adjacent to the properties.  So they keep a close eye on what's going on and can nip problems in the bud.  Also, when a unit comes up for rental (and we don't already have a new tenant lined up) we usually put a sign out in front of the house before we put an ad in the local newspaper or Craig's List.  Neighbors or relatives/friends of people who live nearby will often recommend someone to us.  That is also helpful.  They are often good tenants because they already have relationships in the neighborhood and want goodwill.

Our experience has been, and continues to be, a good one but we have the advantage of having rentals in a highly desirable location and having a pool of desirable renters.  YMMV.

Good luck. 

Offline strangetanks

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Re: Thinking about getting into rental properties and/flipping houses
« Reply #10 on: October 16, 2014, 09:54:32 AM »
I flipped houses for about  6 or 7 years and sold my last one right before everything went crazy in 2008.  I also have about 15 rental properties.  Been doing it full time for about 14 years now.

First off if you're considering flipping a house be warned that it will cost more than you think it will, and it will probably be one of the most stressful things you will ever do.  But the other side of the coin is that you may make some decent money.  The biggest 2 mistakes I have seen first timers make is that they over estimate what the house is worth and the quality of their workmanship.  The second mistake, this is a biggy, they renovate it into a house THEY want to live in.  There is a reason most flips you look at are fairly neutral in design.

If you decide to rent it out, my biggest piece of advice is to have rentals that are as close as possible to where you live.  Trust me it will make your life hell if you have to drive across town in the middle of the night because of small problems.  Being a landlord isn't for everyone, but I find I have a head for it.  Be a people person and don't be afraid to lay down the law when things turn sour.

Offline JLMissouri

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Re: Thinking about getting into rental properties and/flipping houses
« Reply #11 on: October 16, 2014, 01:47:26 PM »
There is a lot of variables involved depending on what state your in. Some states lean toward the renter and others lean more toward the landlord. If your in one of the liberal states that make it hard to evict a dead beat tenant I wouldn't even consider becoming a landlord. My state is about middle of the road, and evictions can drag out over two months unless there is criminal activity on the part of the tenant.

I had four rentals, but have decided it isn't for me. My last renter is moving out this weekend and I am cashing out. I am not good at being hard and like to help people, which gets me into trouble. I have had some great renters, and you can make a lot of money with the right tenant. Others will just cause massive headaches and cost you money. Overall I have fared very well, but I have ways of making money that is more enjoyable for me.

The ideal landlord will be close enough to the rentals to keep an eye on them. Will be firm and vet the prospective tenant well. Don't even think of renting to someone who has a history of not paying rent, not worth it. If you have to hire a pro for every repair you probably are not going to make much money. When considering a rental property it needs to be able to pay for itself, all repairs and still make money or look elsewhere. There are plenty of ways to make money, so you me-swell do something you enjoy.


Offline NWPilgrim

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Re: Thinking about getting into rental properties and/flipping houses
« Reply #12 on: October 16, 2014, 03:44:39 PM »
Back in the 1980s and 1990s lots of folks got  into rentals and even flipping based on fast rising real estate prices. rents didn't have to cover total expenses because in five years you could sell and double your money. 

Things are different now.  As JLMissouri advises, you have to make sure the retns cover your expenses and return a decent profit to make it worthwhile.  Do not hope for rising property prices to bail you out of a negative cash flow situation.

And when you vet a rental applicant, you can ask them to pay the fees for both a criminal background and rental history check.  I think through landlord associations you can get both done for about $75, at least for your state.

Offline strangetanks

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Re: Thinking about getting into rental properties and/flipping houses
« Reply #13 on: October 16, 2014, 06:00:05 PM »
Vetting tenants is an interesting thing.  When I first started I did the whole background check thing, basically you end up trying to decide between a bunch of prospective tenants with checkered credit history.  If someone has an 800 credit score they are unlikely to be renting.

What I found works for me is to do a public record search in the court records.  Where I am, it's all online and you can search criminal and civil dockets.  Basically, I'm checking to make sure you haven't been involved in a prior tenant landlord dispute, the tenant doesn't seem to be litigious, and no history of certain criminal behavior.

Mostly I make my decisions on a short interview.

The other thing that I have found to be beneficial is that I only rent out single family homes, and allow pets.  Give people the feeling that they are renting a home and not just some place to stay.  It's not all that hard to be a landlord, but it's easy to allow things to get out of control.  I could definitely tell some horror stories.

Offline theBINKYhunter

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Re: Thinking about getting into rental properties and/flipping houses
« Reply #14 on: October 17, 2014, 08:29:13 AM »
Thanks for the feedback. A lot of what has been said is good info.

It sounds like everyone who has been a landlord has not used a company to manage the property? My boss uses one for his rental in TX and it's been great for him. The guy running the property rented it out for about $300 more  per month than my boss was shooting for, and he's got a network or people to come in and fix things up when that needs to be done. I haven't looked into companies here, and I know they take a cut, but it seems like the benefits of having a property manager might outweigh the fee they take.

Offline strangetanks

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Re: Thinking about getting into rental properties and/flipping houses
« Reply #15 on: October 18, 2014, 06:37:48 AM »
Property manager might be a good idea, if your margin can stand then taking a cut.  It's an especially good idea if the house is far from where you live.

I've heard some horror stories about bad management companies though.  One thing to keep in mind is that they often have clients with A LOT of properties who they will take care of first.  Friend of mine had this happen to a triplex he owns.  They signed up with a management company that never bothered to get them any tenants.

Offline AZDuffman

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Re: Thinking about getting into rental properties and/flipping houses
« Reply #16 on: October 18, 2014, 10:17:10 AM »

You can make money renting out places, but it is not a get-rich thing for most people.  My brother has been doing it small scale and has 2 tenants in 2 places, one a townhouse and one a condo  The rental market is hot right now, when he bought the condo at the closing the selling agent asked to rep it for a rental if he was renting it out.  Both have paid well, in a nutshell they are the college fund for each of his two kids.

I am this weekend listing the duplex unit above my house.  I am not kidding that I have been approached and even stopped on the street to be asked if I am renting it out.  None went far but it was always far from ready.  I will see how it goes.

In most cases you will get $100-300 in cash flow per month.  The key is over the years you can raise this and eventually someone buys you a house.

The last few years I have been simply amazed how many people rent by choice or not.  Sometimes for a decade or more at one place.  If you get that you have it made.  Vet, vet, vet.

As to flipping I will say this, unless you are a skilled tradesman, and by that I do not mean you "know how to do the work" but that you are at a level where you have been paid to do it, unless this is the case, FUGHEDDABABBIT!  Flipping is tricky, flipping is not at all what you see on television, and you have to really not care much about quality if you are going to flip.  If you get into it, double what you think it will cost and reduce what you think you can sell for by 30%.  If the numbers still work then try it, but stay away.  Very hard business.

Offline NWPilgrim

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Re: Thinking about getting into rental properties and/flipping houses
« Reply #17 on: October 18, 2014, 02:16:13 PM »
One market that might be a good opportunity is renting to military, especially senior NCO and officer.  My son-in-law is an officer and they move every 4 years or so.  The military holds at least the officers (not sure about enlisted) feet to the fire on financial responsibilities as well as domestic violence, DUI, etc.  From what I understand they also make sure the end of rental contract is closed out completely, no running out on rent or damages. Te landlord has to register with the local base and be approved which probably means you can't charge top dollar, but certainly a profitable rent.  The military gets a housing allowance so you have pretty good assurance they have the funds to make the rent every month.  I think they generally rent around the $1,200 - $1,500/month range for single family house in quiet neighborhood (usually newer developments).

It seems a lot of local businesses will fleece the military personnel knowing they will be moving on and have little time to try to recover on bad deals.  If you provide clean, comfortable modern housing for young families and develop a reputation for treating military fairly I bet you would have a waiting list and very good renters every 2-4 years.  Word gets around a base as to who is fair and who tries to rip you off.

Another market I had a friend do well with was renting to graduate students at a university, mostly doctors, dentists students/interns.  He had a beautiful four bedroom house and basement apartment on Magnolia Hill (very nice part of Seattle) and rented it to 4-5 guys in various years of medical school.  They get massive student loans so can easily afford the rent, and they tend not to be the type to trash a house and like to have lots of quiet time for study or occasional sleep when possible.  This was back in the late 1970s and even then he was clearing almost $500/mo (rented the basement for $800/mo and each bedroom for $300/mo for a total of $2,000/mo and his mortgage was $1,500/mo and I never heard of major repairs or damage or rental disputes going on.
« Last Edit: October 18, 2014, 02:23:15 PM by NWPilgrim »

Offline AZDuffman

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Re: Thinking about getting into rental properties and/flipping houses
« Reply #18 on: October 18, 2014, 02:42:36 PM »
One market that might be a good opportunity is renting to military, especially senior NCO and officer.  My son-in-law is an officer and they move every 4 years or so.  The military holds at least the officers (not sure about enlisted) feet to the fire on financial responsibilities as well as domestic violence, DUI, etc.  From what I understand they also make sure the end of rental contract is closed out completely, no running out on rent or damages. Te landlord has to register with the local base and be approved which probably means you can't charge top dollar, but certainly a profitable rent.  The military gets a housing allowance so you have pretty good assurance they have the funds to make the rent every month.  I think they generally rent around the $1,200 - $1,500/month range for single family house in quiet neighborhood (usually newer developments).


I used to work at a a bank that dealt with the military (you have seen their commercials) and I will say if a person goes this way do try to keep it to officers.  In the early-2000s some law was passed that gave more privacy and made the military back out of their lives.  Try to get someone who is at least an E-5 as that means they got promoted based on more than putting in time. 

I salute the members of our military, but I had Generals who when filling out a loan application and their income was needed they had to go and ask someone.  Guys could put Patriot Missiles together blindfolded but the concept of balancing a checkbook was beyond them.  It was weird.

One other thing, do treat them well.  Military towns are full of people looking to make a nickel of a corner of every soldier, don't be that person and they should be grateful.

Offline AvenueQ

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Re: Thinking about getting into rental properties and/flipping houses
« Reply #19 on: October 18, 2014, 02:54:30 PM »
Another market I had a friend do well with was renting to graduate students at a university, mostly doctors, dentists students/interns.  He had a beautiful four bedroom house and basement apartment on Magnolia Hill (very nice part of Seattle) and rented it to 4-5 guys in various years of medical school.  They get massive student loans so can easily afford the rent, and they tend not to be the type to trash a house and like to have lots of quiet time for study or occasional sleep when possible.  This was back in the late 1970s and even then he was clearing almost $500/mo (rented the basement for $800/mo and each bedroom for $300/mo for a total of $2,000/mo and his mortgage was $1,500/mo and I never heard of major repairs or damage or rental disputes going on.

I was just going to suggest targeting towards grad students/visiting professors/researchers if there's a market in your area. When I lived in Los Alamos, NM and Oak Ridge, TN there were plenty of rental options since lots of folks come in for a few months at a time for research projects/internships at the labs there. Since they are mostly scientists, they like more upscale rental options with good property management, and generally don't destroy the place. Even though Los Alamos is in bum-f*** nowhere, rent was still about the same as what I can get here in Denver.

Offline theBINKYhunter

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Re: Thinking about getting into rental properties and/flipping houses
« Reply #20 on: October 18, 2014, 08:21:09 PM »
I was thinking about the military angle, as Davis Mothan AFB is local. I know several people that work on that base as well as the National Guard base and the reserve base so it'd probably wouldn't be too difficult to get the word out and have some prospective military tenants.