Buying Rental Property

[my-rifle]

OK so I have four year old and five month old daughters. The wife and I were talking last week when it occurred to me that fourteen years from now we're going to need an independent income stream that generates $40,000 yearly. I don't need to tell people here that I sat back and went, "wow!"

What I want to get is a couple four-plexes. I know they cost a bunch, but I figure I have to get eight 2-bedroom units to rent out to generate something close to that kind of income, and like it or not I really don't think I want them fifteen years from now to be in south Louisiana. There really aren't any good colleges here, and I think I want the properties to be in the same place where I want my girls attending college. Austin comes to mind or maybe Nashville. Both have good schools.

So my plan is to acquire a duplex here in New Orleans, then five years from now leverage it into a four-plex. We already have a house that we rent out, and it's almost paid off. In 12 years we should own them outright, and then I can sell them and buy four-plexes in the city where I want the girls to go to school. That way they can live in one unit, and the income from the others can pay a big chunk of their tuition and expenses as well as servicing the debt on the second four-plex. After the girls graduate we can use the income stream to retire with a small income that's separate from Uncle Sam and our investments.

After all we realized that to live comfortably in retirement we'd need over $2,000,000 in investments, and that ain't gonna happen. The nice thing about rental property is that we don't need to keep upgrading our skill sets like we do in our professions. Once we own the property it's just the same old same old. I'm a 49 year-old IT consultant, and my brain can only be re-treaded so many times. Fourteen years from now I'm going to be ready to retire and build all those AK kits I have laying around and shoot up all the ammo I have stockpiled. If I'm lucky and still alive I'll be paying for weddings and playing with grandchildren five years later.

Retirement is nothing to leave to chance. The stock market is nice when you're young, but you can only dodge bullets so many times, and this last economic catastrophe made me realize that one's going eventually to happen which I do not foresee, and it will take out our savings unless I build a hedge against it.

 

[falshooter]

It's good to have a plan for yourself and family, but don't count on the kids to live up to your expectations. They just might want to go to college 1500 miles away, where they want to go, not where you want them to go. Or not go at all. Or with 2 daughters, get knocked up in their teens [that one will really change your plans]

One of my S.I.L. has a few OLDER duplex and 4plex and is constantly working in them. It cost way to much to have to pay some one to answer all the service calls and do the upkeep on them, [24units]
He thought that would be rented out all year long,[This is a collegetown] but in truth less then half stay rented yearly. Then there's the late or no payers and trying to evict them. You have to rent to anybody who applies because of discrimination laws, so you really don't have much control on who gets in. LOT'S of irresponsible, self centered, undisciplined kids and ADULTS, who have no respect for your property. You really have to research the market before you invest in rental property, and have a real good sense of what the future market will bring , not just what you hope it will be.

The vacation "rental home" market is good right now in the mountain states, and along the beaches. Much better cliental .The mountains being a safer investment, no hurricanes= cheaper insurance.. That's where my money would be going, if I had any.. In an area and house that I can move into when I officially retire.

 

[asianpersuasion]

I have a friend that has 3 kids in A&M right now. It's costing him close to $30k a semester. Glad I hoard money like I do ammo

 

[Lokin4AReason]

aint that the truth .... and not to many people think about retirement either and they see it like a long way down the road ..... but it catches up quick ...

 

[king4456]

It's good to have a plan for yourself and family, but don't count on the kids to live up to your expectations. They just might want to go to college 1500 miles away, where they want to go, not where you want them to go. Or not go at all. Or with 2 daughters, get knocked up in their teens [that one will really change your plans]

One of my S.I.L. has a few OLDER duplex and 4plex and is constantly working in them. It cost way to much to have to pay some one to answer all the service calls and do the upkeep on them, [24units]
He thought that would be rented out all year long,[This is a collegetown] but in truth less then half stay rented yearly. Then there's the late or no payers and trying to evict them. You have to rent to anybody who applies because of discrimination laws, so you really don't have much control on who gets in. LOT'S of irresponsible, self centered, undisciplined kids and ADULTS, who have no respect for your property. You really have to research the market before you invest in rental property, and have a real good sense of what the future market will bring , not just what you hope it will be.

The vacation "rental home" market is good right now in the mountain states, and along the beaches. Much better cliental .The mountains being a safer investment, no hurricanes= cheaper insurance.. That's where my money would be going, if I had any.. In an area and house that I can move into when I officially retire.

Thanks I don't have type this now

 

[JadeRaven]

Where you want them to go to school?

"You must pick a college in Austin and live in my fourplex."

I can see that going over very well when your 16-17 year old girls start thinking about college

 

[my-rifle]

It's good to have a plan for yourself and family, but don't count on the kids to live up to your expectations. They just might want to go to college 1500 miles away, where they want to go, not where you want them to go. Or not go at all. Or with 2 daughters, get knocked up in their teens [that one will really change your plans]

One of my S.I.L. has a few OLDER duplex and 4plex and is constantly working in them. It cost way to much to have to pay some one to answer all the service calls and do the upkeep on them, [24units]
He thought that would be rented out all year long,[This is a collegetown] but in truth less then half stay rented yearly. Then there's the late or no payers and trying to evict them. You have to rent to anybody who applies because of discrimination laws, so you really don't have much control on who gets in. LOT'S of irresponsible, self centered, undisciplined kids and ADULTS, who have no respect for your property. You really have to research the market before you invest in rental property, and have a real good sense of what the future market will bring , not just what you hope it will be.

The vacation "rental home" market is good right now in the mountain states, and along the beaches. Much better cliental .The mountains being a safer investment, no hurricanes= cheaper insurance.. That's where my money would be going, if I had any.. In an area and house that I can move into when I officially retire.

Actually you can choose your tenants. There's no law that requires you to accept any trash that comes along. We discriminate strongly when it comes to tenants, and we turn away the majority of them. We make them pay a $40 non-refundable credit check fee, and if they're not sterling they can hit the bricks. We accept professionals with good incomes - nothing less.

 

[Lokin4AReason]

i have see tenants trash a place without any regards and they had great incomes.

also seen low income tenants treated it with the greatest care for someone elses property.

it all comes down to the individuals .... their personality or character as you say ...

i would do a background cheq ue along with a credit cheq ue ... IMO

 

[LACamper]

A few thoughts from an insurance agent:

multi-family homes tend to attract or be located in areas that contain lower quality residents. Rent tends to be cheaper also. Lower quality clients tend to tear up your properties. There are exceptions but that's what I've seen. I'd encourage you to buy several single family homes instead. I'd also spread their locations so that if there is a disaster (ie Hurricane Isaac devastating LaPlace, flooding in Ormond years ago, etc) it only impacts a portion of your properties.
If you are determined to go with multifamily properties then properties such as condos near LSU seem to be a good investment. The association maintains the exterior (roof replacements, major plumbing problems) and building insurance, reducing your exposure.

I have seen some unbelievable amounts of damage done to a rental unit by an unhappy tenant. I've seen them pull down car ports, saw through 3/4 of the way through studs, soak carpets in urine, and hammer tile floors for a few quick examples.

Add to your lease that the tenants carry renters insurance with enough liability to replace the home, and make them add you as additional insured and provide you with copies. If they damage the property unintentionally (kitchen or dryer fire, etc) then you're filing a claim on their renters insurance instead of your building insurance, which keeps your rates from increasing or you getting cancelled. I'd probably find a way to have you escrow it for them in with the rent rather than have them pay it monthly to the ins company.

 

[SIBBSLSU]

I am a Realtor that owns and manage 15 rental properties and if you are simply accepting any tenant that puts in an application, you are bound to have problems. As the OP stated, if you do thorough credit screening, background checks, verify employment, and verify references, you will greatly increase your odds. Another key is to have a hefty late fee to keep folks paying on time. We get 90% of our rent on time, and the ones that pay late must pay a nice late fee that I can put towards ammo. Experience has also shown that it is a bad idea to let a tenant get more than 15 days behind with rent. Most of the time once they are behind, they never catch up and you end up eating multiple months worth of rent when they finally move out.

All of that said, there is a risk of any tenant doing damage to your property. You must simply manage the risk by thoroughly screening your tenants and always remaining professional in dealing with tenants.

Regarding vacancies, we have found that in the local market, if you keep the unit well maintained, clean, and competitively priced you will not have vacancies. In the long run, you end up better by dropping the price 10%-15% to get a good tenant now, rather than letting it sit vacant 3-6 months while trying to get top dollar. While it sits vacant you are still loosing out on thousands of lost rental income and at higher risk for being vandalized.

 

[LACamper]

One other thought: One of my clients changes the air filters in the apartments every month to 6 weeks himself. He makes sure it gets done and he gets a chance to look around and check on the place.

 

[my-rifle]

One other thought: One of my clients changes the air filters in the apartments every month to 6 weeks himself. He makes sure it gets done and he gets a chance to look around and check on the place.

This is what we do as well.