401k and other retirement plans: have you raided yours yet?

[Admiral Yi]

If you have that kind of mortgage on your rental property what you have is a highly leveraged investment.

Would you borrow $100,000 from the bank and invest it in the stock market?  If not, why would you do it with a rental property.

With a $750 mortgage and $1000 rent you're in a very thin edge.  If the water heater goes, there goes your profit for several months.  If you can't find a tenant for a month, there goes your profit for several months.

Eh, I think your analysis might be off.  Part of that mortgage payment is interest (an expense that offsets your revenue) but part of it is also principle, the aquisition of equity.

[Valmy]

Oh Jesus Christ what have I started?  I guess nobody but Yi even cares about my point in bringing up rental property.  I did not mean to bring out the legions of small business haters.

[Admiral Yi]

Yi is totally awesome.

[Barrister]

If you have that kind of mortgage on your rental property what you have is a highly leveraged investment.

Would you borrow $100,000 from the bank and invest it in the stock market?  If not, why would you do it with a rental property.

With a $750 mortgage and $1000 rent you're in a very thin edge.  If the water heater goes, there goes your profit for several months.  If you can't find a tenant for a month, there goes your profit for several months.

Eh, I think your analysis might be off.  Part of that mortgage payment is interest (an expense that offsets your revenue) but part of it is also principle, the aquisition of equity.

I'm well aware of that.  But how does that affect my analysis that getting a mortgage to buy rental property means you are using leverage?

[crazy canuck]

What, pray tell, are the catastrophic risks of rental property ownership?

Another Real Life story regarding a single unit rental. 

landlord rents to person who has good references.  After the initial rent is paid no more rent payments are made.  Normal rent payment demands are made under the leglislation but at this point no action can be taken.  Rent is again missed.  Eviction proceedings start which are successful.  An appeal of the eviction is launched which acts as an automatic stay on the eviction order.  The appeal by the renter is unsuccessful but he launches a judicial review of the appeal decision - another stay on the eviction.  Finally the judicial review is unsuccessful and the landlord gets his property back.  He goes in to look at the place and it is completely trashed to the tune of about 30k to renovate and repair.  Plus all the legal fees to finally get the renter evicted.

Now how good did that rental investment look?

[DGuller]

How much do property management companies charge to handle the landlord stuff?

Depends on where you live. Where I live, it's around 8-10% of the rent collected. So, if you charge $1000/month for rent, you pay them $80-100/month. If your mortgage is $750, that's a good chunk of your income for that property.

If you have that kind of mortgage on your rental property what you have is a highly leveraged investment.

Would you borrow $100,000 from the bank and invest it in the stock market?  If not, why would you do it with a rental property.

With a $750 mortgage and $1000 rent you're in a very thin edge.  If the water heater goes, there goes your profit for several months.  If you can't find a tenant for a month, there goes your profit for several months.

Agreed.  I view individuals renting out their homes as a last resort.  If you have a property that you don't occupy, you better get some revenue out of it rather than just a stream of expenses.  However, buying assets on a margin to rent them for attempted profit is just a lunacy, IMO.  Leverage equals great vulnerability to bad luck.

[Valmy]

However, buying assets on a margin to rent them for attempted profit is just a lunacy, IMO.  Leverage equals great vulnerability to bad luck.

Yeah I think you should only invest in real estate if you can afford to pay cash.  Just my opinion.  Only mortgage if you are going to live there.

[Admiral Yi]

I'm well aware of that.  But how does that affect my analysis that getting a mortgage to buy rental property means you are using leverage?

I take it all back.

[merithyn]

If you have that kind of mortgage on your rental property what you have is a highly leveraged investment.

Would you borrow $100,000 from the bank and invest it in the stock market?  If not, why would you do it with a rental property.

With a $750 mortgage and $1000 rent you're in a very thin edge.  If the water heater goes, there goes your profit for several months.  If you can't find a tenant for a month, there goes your profit for several months.

Which is why the houses that I'm looking at are in the $400-$450 mortgage range for a 4-bedroom house where the bedrooms average a rental price of $250-$300/bedroom.

But what your mortgage is - and how much you intend to get from the houses monthly - will dictate whether or not it's wise to hire a management company. There are a lot of other factors to consider, too, but that's usually the main consideration for people.

Again, I HAVE looked into this quite thoroughly, BB, despite what you seem to think.

[Neil]

What, pray tell, are the catastrophic risks of rental property ownership?

Another Real Life story regarding a single unit rental. 

landlord rents to person who has good references.  After the initial rent is paid no more rent payments are made.  Normal rent payment demands are made under the leglislation but at this point no action can be taken.  Rent is again missed.  Eviction proceedings start which are successful.  An appeal of the eviction is launched which acts as an automatic stay on the eviction order.  The appeal by the renter is unsuccessful but he launches a judicial review of the appeal decision - another stay on the eviction.  Finally the judicial review is unsuccessful and the landlord gets his property back.  He goes in to look at the place and it is completely trashed to the tune of about 30k to renovate and repair.  Plus all the legal fees to finally get the renter evicted.

Now how good did that rental investment look?

And that's why you bought a place without a basement suite.

[Tonitrus]

This discussion shows why I haven't bought into the idea many military folks have of "buy a place, then when I relocate, rent it out...repeat...become rich from several rental properties spread all over".

It -might- work out, if you are successful finding more-likely-to-be-reliable(or, if needed, it is supposedly easy to have Uncle Sam take their money for you if they go deadbeat) fellow military renters...but the headaches in terms of time/money of being an absentee landlord?  No thanks.

And while there is the property management company route...from the experience my brother has with his home back near Seattle (he relocated for work)...shopping for a good/competent property manager can almost be as bad as getting a good renter.

[The Minsky Moment]

I disagree with Valmy and DGuller.  If one is going to invest in RE to rent out, then IMO one should borrow, provided one does so  non-recourse, or one can set up some kind of limited liability entity as a barrier.  That way at least you are limiting the potential loss to the money down.

[DGuller]

I disagree with Valmy and DGuller.  If one is going to invest in RE to rent out, then IMO one should borrow, provided one does so  non-recourse, or one can set up some kind of limited liability entity as a barrier.  That way at least you are limiting the potential loss to the money down.

Yeah, I was going to add that disclaimer, but then figured that limited liability didn't really apply in Meri's case.  Obviously leverage with limited liability company you just started is pretty sweet if you can get it.

[crazy canuck]

I disagree with Valmy and DGuller.  If one is going to invest in RE to rent out, then IMO one should borrow, provided one does so  non-recourse, or one can set up some kind of limited liability entity as a barrier.  That way at least you are limiting the potential loss to the money down.

Yeah, but good luck trying to find a lender who will not make you sign an additional personal covenenant in blood.

[The Brain]

Surely there are health regulations against that?