So I'm assuming from this thread: message_topic.aspx?topic=545891 that you can get a 4BD condo for around $100,000

With 20% down (assuming that's required for investment property), the mortgage on a $80,000 loan (5%, with taxes and homeowners) is only ~$550.

And assuming you can charge $300/month/bedroom (seems reasonable for non-lake park neighborhoods) that's $1200/month in rent.

Sure you won't always have 4 rooms filled, sure college people will ride the place hard and you'll have to put paint and carpet in there pretty often, sure you'll have to deal with the pain in the ass of being a landlord....but you're still talking about $400-$500/month in income on top of the mortgage being paid right?


So after you point out all the holes in the assumptions above, what else is there to consider? What taxes do you pay on the rent you collect? I assume it's not taxed like normal income is it (25% etc)? Anything else come out of this rent money?

What else is involved?

1/22/2009 5:16:57 PM

One thing to keep in mind if you're renting a property like that is that you probably want to buy insurance for all the big stuff each year. It's like $400-600/yr (I think, we have it on my place) and they will cover shit that breaks in your place no questions asked. We got one as a part of buying our 22 year old apartment and in the first year the heat pump died and the water heater died. We spent $75 to bring the heat pump pad up to code and ~$400 to bring the water heater up to code. Given what they put in here with labor, we probably saved four or five thousand dollars with it.

The things you need to be aware of is that, with a four bedroom condo with cheapish rent and four roommates, the carpet will need to get replaced fairly regularly and the place will get torn to hell unless you get really good tenants. You'll still come out ahead, for sure, but that $550 might go down to $200-400 in the long run, if that. Hell, even if you break even with your expenses you're still building equity, so if you can afford the credit you're doing pretty good.

Oh, if you use a management company you'll lose 10-30% of your rent to them, and HOA fees can be $50-200/mo depending on where the place is and how inflated the place's fees are. Just look all that extra shit up before you do something like that and make sure you have a savings fund for your rental(s) for regular maintenance like the carpets, paint, wall repairs, etc.

1/22/2009 9:05:21 PM

and there are laws that require you to keep like the rent in a separate account and stuff. and other landlord/tenant laws you might want to investigate, also. esp in a college-y type area.

1/22/2009 9:08:05 PM

my parents did this and bought a 4br/4ba condo - i lived there for a few years and then my little bro did - we were able to give decent deals to our friends as well - another benefit was they were able to write off trips to visit raleigh as well as a few other things

they sold it after finding out we were both moving away from raleigh

the only real catch in my opinion is that i didn't want to live there more than a few years - living with 3 other people in pretty closed quarters can get old after a while

1/22/2009 10:40:14 PM

Another catch is that these things don't appreciate in value, and may actually depreciate depending on which particular complex it is.

I've seen 'em on MLS for around $80,000, and this was before the housing downturn.

1/23/2009 9:24:15 AM

probably don't get anything for the loan interest (like your home mortgage) do you?

1/23/2009 10:09:48 AM

if you set it up as an LLC, then the loan interest as well as your principal, property taxes, and all related expenses would count against your revenues for income tax purposes.

1/23/2009 12:53:34 PM

Quote :

"Another catch is that these things don't appreciate in value, and may actually depreciate depending on which particular complex it is."

For something like this you should really be looking for the rent income, and not the appreciation you'd expect to see in a single family home.

Occupancy and rent should be providing the bulk of your investment return, not appreciation.

1/25/2009 4:48:07 PM

I think you're right, it is possible to make money at it, but there are just lots of places to get nickled and dimed

- property taxes
- insurance
- HOA dues
- property management expense (unless you want to be on call 24/7 as landlord and maintenance)
- commission expense (unless you are going to be hitting the streets & posting flyers to find tenants)
- occupancy rate
- highly competitive market
- maintenance & repair
- deadbeat tenants to deal with
- more time on your part in keeping track of revenue and expenses
- more cost to a CPA in preparing your tax returns
- limited appreciation due to the sheer volume of 4bd/4ba condos

1/26/2009 8:04:23 PM

You get a higher mortgage if it is a rental property.

Also your appraisal is devalued if they find out you rent it. My parents bought a house in Raleigh for me and my brothers to live in. They appraised the house and dinged it about 10% automatically even though we technically were not renting.

From my husband and my experience renting, college students don't give a damn since its not their place. It is also a hassle to try to collect money with some of the excuses. No matter who lives inthe house you must repaint it.

I am pretty sure if it wasn't your primary residence when you sell it, you have to pay capital gains tax.

You can collect rent; however, it is your ass they are calling when you are on your honeymoon and something breaks. (Yep 7 hours in my honeymoon they were on the phone)

There were a few single family home around the Sierra/Cavelier/Mariner Cir area that were around 110k. This is better because homes tend to appreciate more.

This being said, we rent a home in Cary. We about break even so we only really make the principal payment every month and whatever the appreciation is when we decide to sell.

Remember to look at all the expenses!

1/26/2009 10:19:08 PM

You rent? I thought Eddie was going to keep buying houses so you guys could retire in 10 years?

1/29/2009 2:04:45 PM

its worth it more than it is not worth it.

we have had quite a few of these in Raleigh and this is the last of them. trying to get back towards the area down east I grew up.

the management helps out here and we dont pay them. all we pay is the HOA fees which arent much, cant remember exactly what the price is.

all in all, its not that bad of a deal, no real "catch" involved.

1/29/2009 2:16:41 PM

Here is why I won't touch them:

- You're talking about putting down $20k cash. That's a lot of money. Let's say you consider the value of that $20k being added to the mortgage. Now your $550 mortgage is $750 or whatever. Still not bad. Add $125 a month for maintenance fees. Add $50 a month for property insurance. Add $50 a month for a home warranty or budget at least that much for repairs. Consider that a property management company is going to take some money each month or you're going to be the one who gets calls 24/7. Can you really afford to leave work on a moments notice to get an emergency plumber on site at $100 an hour? Suddenly you're not making too much money.

...at least you're making a little cash and someone else is paying the mortgage for you, right?
Then you get a tenant who stops paying rent and trashes the place. It takes you two months to realize you're not going to get paid and get the eviction orders through the court system. They still have a third month to get out and they leave the place trashed. You spend another month and a half fixing it up and finding another tenant. Guess what, you just lost thousands of dollars on your investment.

- Those places haven't appreciated over the last few years...They have built so many of them that a lot of them have actually gone down in value as the demand for inexpensive housing hasn't kept up with the supply. Most condos/Townhomes will lose value relative to the rest of the market over the life of your loan. That's why those places over on Schaub Dr. are in the $65k range. 30 years from now all these current 4BR places will be the equivalent to the $65k ones today. At that point your mortgage will be paid off and you'll either start to turn a profit on the rental (which will now be a measly $600 a month in today's money since it is old and rundown) or you're going to sell it for whatever $65k places are going for in that point in time.

Do you really think you'll be thrilled to put $65k or $600 a month in the bank when you're 50 years old and have spent 30 years dealing with property b.s.?

Not a worthwhile investment IMO.

[Edited on January 29, 2009 at 6:02 PM. Reason : l]

1/29/2009 5:59:17 PM

Well SOMEONE is a negative nancy!

They aren't total money holes, you just gotta look for the right deals. Lower cost apartments in higher-rent neighborhoods.

For example:

The ivy commons apartments on Avent Ferry Rd rent for ~$615/mo for 960 sq ft and cost ~$95-110k for a 2br apartment. That doesn't seem very profitable, does it?

The Avery Close apartments on Avent Ferry Rd, about 200 feet away from the Ivy Commons apartments, rent for ~$700/mo for 1200 sq ft and cost ~$80-90k for a 2br apartment (some with 2.5 ba, some with 2ba). That's much more realistic as far as an investment goes.

Concerned about damage to your apartment? Put down cheap stain resistant carpet and linoleum with basic white paint on the walls and don't replace the appliances until they totally shit the bed. Don't rent through a rental agency unless you own a number of properties and can't manage them all yourself.

I mean, it really depends on the neighborhood and the complex. Some places are complete shitholes that aren't worth buying, some aren't profitable, some are OK and you'll make a little money each month as long as nothing major goes wrong (keep good insurance and you'll probably make it out OK).

1/29/2009 10:14:14 PM

Depreciation... Renters can be a nightmare but you can avoid that if you can always maintain the position that you don't HAVE to rent out the place and can pick and choose renters... my family had properties and it only takes 1 bad experience to really really really leave a bad taste in your mouth

Buy farmland

1/29/2009 10:56:43 PM

^^^^^Well, I meant to say we rent the other house. He own both.

1/30/2009 7:49:03 AM

Ah, gotcha.

1/30/2009 10:51:53 AM

Quote :

"sure you'll have to deal with the pain in the ass of being a landlord"

This is about the only real downside to the whole thing. You assume you'll want $400-$500 extra per month, but, if one of your tenants decides to skip the rent, YOU are the on $400-$500 in the hole. The risk of this can be mitigated by carefully screening your applicants and forming a good relationship with them. I had excellent relationships with the private landlords I had, moreso than any "public" apartment complex.

Knowing somebody who WAS a private landlord and didn't screen their applicants well enough ... tenant eviction is a real bummer of a process to have to go through. Or, if you want somebody to deal with the hassle of collecting rent / evicting tenants / screening applicants / etc., go through a rental company, who will probably charge you 10%, but, that much less on your mind if things go south.

1/31/2009 7:35:05 AM

the catch is: student tenants

unless you are extremely careful they will generally tear up a place to the point of needing new carpet every year or at the best every other year, repainting every year or every other year etc.

getting all 4 rooms filled all the time with consistent income.

etc, all stuff Mindstorm covered

2/26/2009 2:20:31 PM