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Old 06-05-2011, 11:46 AM   #1
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Default Rental Property - Insights?

Hey everyone, I'm looking at buying a multifamily house. i've looked at 30 or so, and most of them have been junk, but I came across a 3 fam with good bones. It's a little outdated on the inside, but the rent income from 2 of the units is good and would pay the mortgage, taxes, and insurance with a little bit left over. I'd essentially live for the cost of utilities.

My longterm goal is to build a single family in 5-10 years, but I dont want to live at home or pay rent until I can afford to build. I could buy a single family "starter home", but then the payments would kill my savings, where as multi unit, I could save a lot more, and could keep it as an income generating property for many years.

It has it's obvious downsides. Have to deal with tenants, tenants who could be potentially deadbeats, and MA hates landlords. There would also be the cost of repairs which would essentially be 3x the cost of a normal house. Finally it ties me down to my area, which isn't necessarily a bad thing, but it will make moving away harder to do.



I know a couple of you guys are homeowners. Just curious what your guys thoughts were on the subject?
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Old 06-05-2011, 01:48 PM   #2
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People don't comprehend the full realm of benefits associated with a rental property.

You aren't "living for just the cost of utilities"

You are being paid a significant sum of money every month to live in that house with two other tenants - they are paying your mortgage. This is money that you WILL get back (less interest paid) if you ever choose to sell the house.

Also consider what happens in 3, 5, 10 years when your rent goes up $75, $125, $200/month/unit, but your mortgage payment stays the same...

I don't know why so many "pro-landlord" information sources leave this out, leaving the unexperienced prospective landlord with the idea that his only income will be the $100 or so per month associated with the cash flow after all of the bills are paid.

It will also make it a ton easier for you if you're living in the same building - your tenants will know that the landlord always has his eyes and ears on them, and they'll take much better care of your property. Get your rental contracts set up with specifics and general rules, and make sure you pursue your tenants if they start ******* up. Find out how to do credit reporting too, and let them know. It will give them incentive to not **** up.
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Old 06-05-2011, 03:12 PM   #3
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Quote:
Originally Posted by redfred18t View Post
Hey everyone, I'm looking at buying a multifamily house. i've looked at 30 or so, and most of them have been junk, but I came across a 3 fam with good bones. It's a little outdated on the inside, but the rent income from 2 of the units is good and would pay the mortgage, taxes, and insurance with a little bit left over. I'd essentially live for the cost of utilities.

My longterm goal is to build a single family in 5-10 years, but I dont want to live at home or pay rent until I can afford to build. I could buy a single family "starter home", but then the payments would kill my savings, where as multi unit, I could save a lot more, and could keep it as an income generating property for many years.

It has it's obvious downsides. Have to deal with tenants, tenants who could be potentially deadbeats, and MA hates landlords. There would also be the cost of repairs which would essentially be 3x the cost of a normal house. Finally it ties me down to my area, which isn't necessarily a bad thing, but it will make moving away harder to do.



I know a couple of you guys are homeowners. Just curious what your guys thoughts were on the subject?
From experience
1) some tenants are complete ***** and will ruin the house while others will be willing to put their own money in to better it.

2) some people pay late, duck you every chance they have. Some people late but will give you notice (ie: they are coming home a day late or didnt get paid on day X but will the following day)

3) some tenants will drill their girl friends like wild beasts in the basement. knowing how small the blonde girl is and how awesome the guy is, you know she was almost split in half (true awesome story). Flip side of that is one tenant had 4 different girl friends and 1 got a lil crazy and sat outside my house waiting for him and or banged on the garage door.

4) if youre agitated by night noise and or love peace and quiet, kiss it goodbye. Some tenants are quiet, some just make alot of noise. We did 2x insulation in the floor of the place we just sold and you could still hear bass through the floors or blonde girl being killed.

5) depending on laws, there are ways to void tenant landlord act. In ontario shared entrance, shared laundry is one way. If no tenant landlord you toss them and their **** out, game over for them.

6) there are tons of ways to create modern living spaces for cheap. paint is certainly one of the best things you can do. Ikea is cheap for finishings / bathroom etc.

7) a good landlord replaces stuff that breaks. If his fridge breaks, you need to be able to replace asap.

8) take first and last though that may limit some clientele but the clientele it may be limiting you might not want anyways.

9) put stuff in writing, no matter how uncomfortable it makes you feel. ie: tenancy is based upon X rules ie: no smokings, no parties after 9pm. You may want to consider adding a policy that states 1 parking spot is with tenancy and if people start staying over ie 2nd occupant rent may change upon next renewal month.
Remember, you cant write a contract that is breaking a law. So you cant say if you dont pay I shut off your heat in winter.
Trust me, PUT STUFF IN WRITING!!!!!!!!
Put expectations of payment.

9a) if you take a first and last, have a check list of things that come with the apartment and what doesnt and the condition with digi pictures attached they sign off on. While most people will likely mess up some stuff, say a few holes in the wall, stolen fire detectors and maybe soiled carpets etc you need to also consider a tenant who wont leave without a sheriff escort who has virtually gutted your house and did excessive damage. Happened to my grandparents who rented a house. tenants wouldnt leave without a court order to do so and they stole everything, even the hot water tank.

10) consider your house insurance. if theres a flood you will likely be liable for his stuff unless you have some sort of tenant insurance with your co. It will cost more. Of course, more agencies you involve the more paperwork you will need to provide them ie: fire exit strategies, permits etc etc.

11) you will be liable for all utilities. Even if by chance their name is on it, you are the owner of the property, you own the utilities. It is best you control them.

12) put cameras on your house.


My experience from renting. I have had 3 tenants in this property, A B & C.
A had a government job, traveled alot and was never home, paid on time had shitloads of hot babe gfs coming and going. A was an amazing tenant who I would let live in ANY house I owned. While I always kept my distance from him to avoid liking the guy and then being easy on him, he truly was a super great guy. A's work relocated him, he moved out though he asked to return but we had already sold the property. Amazing tenant. He paid late, often due to traveling. Always paid cash, NEVER EVER asked for receipt and to my knowledge never claimed 1 dollar. When the neighbors asked **** about us or him he told them to **** off. Guy was legend.

B was a friend of mine. Lazy **** who stayed home all day with every possible light on, laptops, computers on, stereo on, tv on, all at the exact same time. Would wash 1 pair of pants in the washer and dry 2 socks in the dryer but have a huge pile of dirty close everywhere. Because he was a friend he was able to get into our upstairs. He often snuck up and ate all the chips and pop. Took a shitload of liberties and in the end was told to leave. He owed us money, he is gone and I will never get it, ever. Friends for 10+ years. Nice guy just never gave a **** about anything except himself. His car leaked oil everywhere.

C was a guy who had lived in the house before I owned it as a tenant. He lived locally and I had met him. Nice guy but again not motivated. Never worked but carpenter by trade. Gave him some work in exchange for labor but every month he always had to pay SOME sort of cash. Did some amazing work for us, we often paid him when it wasnt part of the deal just to help him out.
ie:
Rent was $850
so we would charge him $300 rent , rest free.
Then he would have done labor to make up for previous months and future months, example $1000 owed / paid via labor. I would always throw him $100 or give him canned goods and food.
Guy was unmotivated.
C had 1 rule when he moved in. No smoking. C smoked often in the basement or the furnace room, caught him 3x times. 3rd time the following morning I called him out side and told him I started packing the bed of his truck with his tools and he had a few hours to leave. C left tons of **** in the basement, beds, tables, tools, tvs etc. I contacted him 4x and documented it then donated it all after 1.5 months.


So there you have it.

note: grandparents had a house gutted
my parents had tenants who squatted for 7 months and then skipped town.
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Old 06-05-2011, 03:46 PM   #4
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Wow Rick, thanks for all the info. I cant recall if the current tenants are on leases, but I would like to get them on there. I'd take a lease template to an attorney before anyone signs anything to help make it more "bulletproof" in case the tenant wants to **** me. Also, I would probably only take first, last, and security deposit. Right now the tenants seem decent, I was told they are professors at local colleges, and when I toured through their rooms, they were clean and well kept.

And fooger, that is also something I took into account. Although taxes and utilities will go up over the years, I hope the rental income is on pace with that, or maybe even more. And when I do decide to move on and get into a single family house, I should be making a decent profit on the place.

Also a big thing that I like about it is that any money I sink into it for repairs, maintenance, etc will go against my rental income.
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Old 06-05-2011, 04:23 PM   #5
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Old 06-05-2011, 11:51 PM   #6
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Being a landlord is a business I do not wish to be in. Too many possibilities for people (and the law) to **** you over. My parents owned a duplex in WV. It was in a slum part of town (well, older part of town) and I spent a summer there gutting the place to get it ready for tenants. I remember my dad telling me about 15 years later that he finally made his first dollar on the building. Yeah, good investment....

There is a house across the street from us that I have had my eyes on for quite a while. If it were to go to market (I think it will in the near future) I might make an offer. They have dogs that have ripped the place up and pissed/**** everywhere. I think I could do a little work on the place and stick my mother in law in it. Get rent from her and keep her close enough that we can take care of her (which will probably turn into a full time job) instead of driving half way across town to do it. This is about as close to landlord as I want to get.
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Old 06-05-2011, 11:58 PM   #7
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Quote:
Originally Posted by redfred18t View Post
My longterm goal is to build a single family in 5-10 years, but I dont want to live at home or pay rent until I can afford to build. I could buy a single family "starter home", but then the payments would kill my savings, where as multi unit, I could save a lot more, and could keep it as an income generating property for many years.
One more point/story - We bought the cheapest house we could get when I was 24 years old. It was a $40K HUD home but it was clean and not many repairs were needed. The house was only 900sq/ft with a single car garage. We made extra payments and had it paid off in 8 years. So, at 32 I found myself with a paid off house and no debt. We sold it and bought a larger house which we still live in. I thought (and still think) it was a good way to do it. Scrimp on the house now and get what you really want later. If you keep the first house you can rent it out (only get 1/2 as much money but 1/3 as much headaches as doing the 3 unit house). I would consider being a landlord like playing Russian Roulette. I'd rather have 1 bullet in the gun than 3.
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Old 06-06-2011, 08:36 AM   #8
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Rick's story holds true.

I have a "c" living in my basement as well. I don't understand how ppl don't understand "no smoking"

WTF do they expect.

Regardless of the extra costs, i would highly suggest buying a multi family dwelling. Location location location matters though, you don't want to be struggling to find tenants.
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Old 06-06-2011, 09:40 AM   #9
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Rick's post says just about everything.

Don't have friends or family as tenants, and don't be friends with your tenants (unless they prove themselves capable of distinguishing between business and friendship).

Get everything in writing!

Don't let them think you're soft. You wrote $25 late fee if 5 days late in the contract? Enforce it!

My first tenants were bad. Staff Sergeant and her contractor husband. You'd think they'd be responsible/professional enough to pay on time...

Good thing about renting to military is that you can get their command involved if it gets bad enough. I only had to pull that card once, but it fixed the issue.
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Old 06-06-2011, 09:54 AM   #10
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Quote:
Originally Posted by rmcelwee View Post
I would consider being a landlord like playing Russian Roulette.
+1

Can you afford to pay the entire mortgage for all three units for six months including utilities on what you make or have in savings? If yes, then you might be ok. Be prepared for worse case scenario and you will be successful. Just because a prof has lived there for five years doesn't mean he isn't grooming his resume' for a department chair position at some other school in three or four months. Or that his mother might fall ill and he might move two states away to work at a school within driving distance of her. These things happen and you may be stuck with an income drain very quickly.

Additionally, it will be a second full time job if you are doing it correctly. It will involve you becoming a reasonably proficient plumber, trim carpenter, sheetrocker, painter, electrician, and heating & A/C technician or it will eat you up financially. You can't afford to have it all done for you to do it right. You will also need to find good sources of used appliances, lighting fixtures, plumbing fixtures, and other supplies very, very cheap. It will require intensive labor that you will often not feel like doing it after a long day at work.

There is gain to be had, but at risk that many aren't able or willing to take. It will benefit you if it doesn't ruin you.
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Old 06-06-2011, 10:37 AM   #11
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It would be very tight, but I shouldnt run into my savings if none of the units are being rented for 6 months, including utilities. Fortunately, the nice thing about the place is that there are 2 sources of rent. I've pretty much only looked at 2 families as that is what is what is more dominant around here. Now if that tenant bounces, that would be difficult.
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Old 06-06-2011, 11:59 AM   #12
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Thanks again for all your insight guys, made an offer this morning. They got an offer last night so hopefully I beat out the other guy. Ended up going in at 175k.
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Old 06-07-2011, 03:15 AM   #13
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Good luck!
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Old 06-07-2011, 06:46 PM   #14
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so they countered at 186 (list was 196 so it's smack dab in the middle)

My realtor wants to do 178, but I dont want to lose it, so I'm considering doing either 181 or 186 and they pay 100% of my closing costs (bank thinks its around 5-6k)
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Old 06-18-2011, 01:01 AM   #15
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update of sorts, I countered back at 181 and they accepted.. signed the P&S this morning, hopefully inspections will happen friday, and closing is set for august 15th. aww yeah
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Old 06-18-2011, 05:17 PM   #16
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Cool!

Ive been a landlord now for a year and a half... My first home was a townhome in a nice neighborhood, my wife and I moved out for something bigger and rented out the townhome. We did our homework, found a great tennant, and so far its been excellent. I fix stuff when it breaks, they pay the rent on time, they keep the place nicer than I ever did! After taxes, insurance, morgatge, and about $800 in repairs I made around $4k profit in the first year, not too bad. Just save up a chunk for repairs, you never know when the water heater or AC will give up the ghost.
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Old 06-18-2011, 10:45 PM   #17
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What the **** is a multifamily home?

I am a landlord and will be buying a second property this year. Maybe.
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Old 06-19-2011, 12:52 AM   #18
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Is that a serious question?

good to hear stealth, hopefully in a few years the property will net me a nice positive cash flow but for the time being I will essentially live in a house that pays for itself w/ some left over.
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Old 06-19-2011, 01:18 AM   #19
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Quote:
Originally Posted by Faeflora View Post

What the **** is a multifamily home?

I am a landlord and will be buying a second property this year. Maybe.
It is a home/property where more than one family lives.... you commie-landlord-dick.

Wait... wait a minute...

Faefloralearnsanewwordthatstartswithg.com
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