Let me hear from you if you have ever bought or considered buying an investment property to rent out. I tend to invest in the market frankly bc it’s easier and over time (hopefully) you will get appreciation. I know property can be a lot more hit or miss depending on where it is, and in most of the country real estate isn’t appreciating like it used to – though I realize places like NYC, SF, Boston, etc. are exceptional. Yet there’s something about having an income stream (even a small one) followed by a paid off property seems attractive – even though I know taxes, a property manager etc. eat up a lot of the income stream.
The only people I know who have rental properties are those who had a starter home/townhome, moved someplace bigger and rented out the first one.
I’m a young professional who could be in a position to buy a place – but I’m not career-wise – i.e. I want/need geographic flexibility right now and I know buying a place will tie me down a bit professionally. So part of me is thinking is it a dumb idea to consider an investment property somewhere? I honestly wouldn’t want a house as I feel like renting a house can be more complicated – rather an apartment someplace that caters to young professionals who can pay the rent – think young lawyers, accountants, residents etc. I don’t even want to jump into NYC real estate even though I know the market, so DC/Northern Va. leap to mind though frankly I don’t know that market nearly as well. I also have odd notions of random markets that are “hot” for young professionals and the cost of buying is comparatively cheap like Austin – though I wonder if there are as many renters in those kinds of places bc professionals can save up down payments pretty quickly (and I’ve never spent more than 2 days in Austin).
Will take any thoughts you all have – how to educate myself; your experiences with buying, renting, property management fees etc. (I tend to think a property management co will be a necessity bc while I’d like to be involved in the rental process, I can’t be on call every time there’s a leaky faucet – esp since I don’t have the skills and could also easily be located a distance from any property).
If you use a significant portion of your assets to buy real estate, by definition, you are tying them up and they are less liquid and available to you, considering it takes time to market and resell real estate. Property values go up and down and can stay stagnant as well. Bad tenants and vacancies can greatly affect profitability and cash flow. Not all rental agents are equally good and they take a portion of the gross rentals.
Those things said, you really need to do your research to know if it’s right for you.
I have investment rentals, as do many people in my family. They are not high end, are very, very frustrating, yet in spite of all the frustrations, and keeping in mind recaptured depreciation, capital gains taxes, etc (which make one more inclined to do a “1031 exchange” than sell), it’s oddly comforting to know that there may be an income stream that can supplement retirement… The market collapse a few years ago definitely hurts overall equity but if you don’t plan on selling then it’s not an issue - as long as rent is still coming in…I could tell you countless stories about managing your own, and even more about not…it’s not for the faint of heart. I’ve got a decade+ of experience with this - if you are buying your own place to live in and potentially rent out, then you have to balance the location (future potential tenants) with “real numbers” if you rent (your net income) - buy low, fix up the property with integrity, and yes, not having to take care of exteriors is a huge plus (even though you have to pay HO’s fees…)
Any thoughts on where to do that research? I think it’s “easy” to figure out what is on sale in any particular area right now, comps, etc. It’s also not that challenging to figure out what you pre-qualify for mortgages, current interest rates etc. My challenge is – how do you identify areas where you want to be renting? It’s not like I was writing this down over the yrs, but I know there were times where I’d be somewhere and think – it would be so great to own an apartment in that building across the street from Vanderbilt/Georgetown/Duke’s health system as I bet a decent number of young residents and fellows rent right there so as not to have any commute. And yet I have no way of verifying whether that’s true or whether it’s hard to find renters – in which case you end up with the untenable position of buying a place and having it sitting empty for months/yrs at a time as you scramble to make the mortgage and taxes on an “investment” while taking care of your own primary living arrangements.
You seem to be thinking about buying a single apartment in a building. Many buildings are owned by one individual or investment group and are not separately owned units. If you buy a condo (individually owned unit) there may be condo association rules regarding renting it out.
H and BIL currently own apartments in a variety of types - duplexes, student duplexes, multi-unit buildings. There are a lot of possibilities, depending on how much $$ you can spend and how involved you wish to be.
I moved from my old house to a different state. I was a landlord for six years, and rented only to good friends…who were terrific tenants. Still, being a landlord was not something I wanted to continue long distance. There always seemed to be some small repair or issue I had to address. My tenants were friends so we would work out a deal for them to do small,things like fox a broken light switch or faucet…and I would adjust their rent.
Honestly, unless you will be in the same town, I would not suggest being a long distance landlord.
I had few mutual funds with 40+% annual returns in the last few years without the hassle of people calling me about the toilet, oven…is broken. My sister has lost money in every single real estate transaction. I buy real estate to live in.
How are you doing in the market? If you feel you’re getting a decent return, it may not be worth it to invest. In many of the hot markets, prices are way up, and it would be tough to get a positive cash flow if you have much of a mortgage. If you are going to do it (I’m assuming you probably mean buying a condo, not an apartment, as those are not often sold individually), I would only do it in the area where you live. It’s a pain, and expensive to do it long distance. You have to pay a rental manager, which could really suck up your cash flow. We have four condos right now, all with a good cash flow, and they’re pretty much on automatic right now. Good tenants, few problems, checks keep coming in on time. But every now and then, we have to scramble—it’s always a dang water leak, now there could be a lot of damage to one of our condos. Not our tenants fault, the guy above him, but we get to deal with it.
There is no way I would buy a condo in my area now, at these prices. Negative cash flow, too much work, and so much easier to invest in the market. But when we bought them during the real estate crash, they were great deals. Just don’t have the heart to get rid of them now. I would consider buying a condo where you are at, to live in, and consider keeping it as a rental when you move. At least for the first time. It doesn’t make sense to rent an apartment to live in, yet buy a condo and rent it to someone else. I think it’s a better deal to own where you live, first.
Returns on the market have been good (though volatile this yr but I think that’s true for many), which is always what keeps me from actively pursuing any kind of investment property. When I look at my funds/other potential funds out there and think – I can transfer some money in with a few clicks and make 10% or 20% (or whatever the return may be in that type of fund/sector), I do think twice about – do I really want to take a chance with owning a place and then finding that the place I bought that was perfect on inspection now has leaky pipes or tenants turn over year after year or I have to chase them for rent or the area that was hot for yuppies suddenly isn’t and it’s harder to find tenants.
But then I look at people for whom it is an automatic, no brainer kind of investment and I wonder if I’m giving up some profitability? I mean I definitely know people who own townhomes in the DC area or apartments in the Philadelphia area that have been rented to the same tenant for 7 or 10 yrs and rent just flows right in and there’s nothing much to do with the places. Is that just their luck?
Yet when I invest money in the market, I sort of just put it in and “forget” about it – so it’s in for at least the medium, if not long term. There’s something about having an investment that generates an extra check for you that you get every month that is appealing (yes - I realize the check you get is much much smaller than the rent check after mortgage, taxes etc. are paid; and yes I realize you can probably structure financial investments in a way where you are pulling money out.)