Any input on my real estate strategy?

[motion]

I haven't actively bought or sold properties for about 10 years, so I am pretty rusty. Haven't even thought about it!

Thought I would run my scenario by you guys for some possible input or ideas. A lot of you are really good at this sort of thing... I most definitely am not

I am down to just 4 rental homes, located in Albuquerque (from a high of 12). My long range plan is solid: They each have 30 year fixed rate mortgages. I put 30% down when I purchased them 13 years ago. They'll be paid off in 12 years or so, when I am 66 years old. In today's dollars, that will provide about $5K per month in retirement income to us.

Values have only increased marginally during the 13 years. I really don't see them going up much going forward, either. I have approximately $350K in equity between the 4 homes.

In reality, however, the Albuquerque market has really changed in the past 13 years. Its rare to find tenants with good qualifications. 45% of the population is on some type of subsistence. Nobody wants to pay rent. I am continually out of pocket paying mortgages and damage to homes when people move out. My typical move out bill is around $5K to put each home back in shape. I never pursue tenants in court, because they either claim they've "moved back to Mexico" and I can't find them, or even if I do get the court judgement, they'll end up paying $50 per month for the next 100 years.

In short, I just don't know if I have the stomach to play in that market for the next 20 years. Its a royal pain dealing with investment properties that far away. Hiring contractors is extremely difficult. Tough to get people to show up for a job, and they only want cash. No receipts.

So, looking at alternatives. The wife says she would like to stay in SoCal for the long term, so buying a condo here seems like a good option. I can manage it myself since I am local, and there's greater upside potential for appreciation. We could eventually convert it into our residence, but then of course, we lose the income, although we would be living in it for essentially "free" (paid off).

There are negatives, though:

CA landlord tenant laws are heavily skewed towards the tenants.

Selling 4 homes and buying 1 means I'm putting all the eggs in one basket. If the condo is vacant, I have zero income coming in and must absorb the mortgage payment entirely.

One option would be to 1031 the 4 properties into something here that can be rented on AirBNB and VRBO for really good money. The downside to this is that those schemes may go away someday, or the community may outlaw them, even if you can do it today. Nothing guaranteed for the future.


So, that's all I got

Any input?

[craigster59]

I have a good friend who started out buying and renting single family homes here in So Cal years ago. He is now semi retired at 52 and is completely vested in multi unit dwellings, no more SFH in his portfolio.

He goes in and buys, say a 4 unit complex. He offers each family $5k to move out (they always jump on it). He goes in with paint, new carpet and cabinetry in kitchens and bath and raises the rent 20-25%. There is a rental housing crunch in So Cal right now and he never has problems with vacancies.

He told me LA County is most likely going to put a cap on Air BNB and VRBO and limit them to 90 rental days per year which could glut the market with people unloading secondary condos and houses since they won't be a reliable source of revenue. This is just a rumor but I have heard it from a few sources.

[jhynesrockmtn]

I'll jump in before this ends up in PARF land. I made a decent amount of money in real estate in the Seattle area from 1985 up to a few years ago. Mostly buying, renting and then selling SF rental properties. The housing market is so high there now that the local govt. is stepping in and mandating a bunch of new landlord/tenant laws and I moved 4 years ago anyway. I was out of the real estate market until I bought a historic 6 unit apt. building in Spokane last year. I have a good friend who swears he'll never do residential real estate again and only commercial. I may go that way as well. Even Spokane which is fairly conservative is making noise about more tenant friendly laws. Now, I'm very progressive when it comes to most social issues but when you start mandating who I rent to I'm out. I wouldn't hold the NM properties long term nor would I ever buy a condo as a rental. There are too many hassles with condos and their boards to deal with. If you want to stay in residential, find a smaller multi tenant property in a place with a decent tenant base and that might appreciate over time where you won't be told who you can rent to. Otherwise if you want to stay in real estate go commercial.

[look 171]

The trick is to buy in at the right time in socal so you stay in the black. Homes are sky high, so many people are lucky to just break even.

There are a lot of homes available for rent suddenly. About a year ago, we were able to ask for market or higher rate without issues. Now, they are sitting as the SFH are just sitting. The real estate market will always be healthy and that goes for rentals too.

[speeder]

Lots of people making $$ on airbnb but you have to manage the property constantly or get someone to do it for you. There is a new tenant every week or less.

That's all I've got on that.

The Albuquerque landlord thing from a remote location sounds awful, have to say.

[MT930]

Motion
Look in to Commercial income properties

Multi year leases
You deal with business people
You can discriminate with out repercussions
They provide financials up front
Less interviewing
Triple net leases - the Tenants pay taxes insurance and maintenance
No calls on plugged up toilets
ACH transfers at the first of every month
You agree on improvements tenants pay for them
Very little Tenant contact
Rate of returns depend on geography

[MRM]

I agree with the post above. My initial question was why aren’t you investing your money in commercial properties. The risk you’re taking Seems way high in proportion to the return on investment you’re receiving. Further, with bad tenants who damage to property, and a declining neighborhood, it seems that your entire investment is at risk. You could sell everything and put the equity in the S&P 500 index fund and probably realize about the same amount of return on investment. I think it would make good sense for you to do a tax exchange into one or two commercial properties That offer a good cap Rate on a triple net lease, that requires minimal property management.

[LakeCleElum]

The Weekend Rental thing has peaked. Part of it is supply and demand. At $425 a night, my neighbors weekend rental is sitting empty some weekends now. My city and county are looking at strict regulations. Interesting article mirrors what has happened here:

https://www.outsideonline.com/2198726/did-airbnb-kill-mountain-town?utm_source=facebook&utm_medium=social&utm_campaign=facebookpost

[McLovin]

I'd get rid of those ABQ properties. Not worth the headache, that's a no brainer. You're lucky to have equity in those and be ABLE to get out. I know plenty of Californian "investors" with rental houses in places like that (Arizona, etc.) that aren't so lucky. Some have ended up in bankruptcy.

As far as putting that money into a condo in California, that's just a numbers game. Run the numbers and see if it makes sense.

My guess is it won't. The property price will be too high vis a vis the "net" rents (net, once you take into account property taxes, association fees, and other true ownership costs). The cash on cash return won't be very good.

[wildthing]

No to hijack but how do you get into commercial real estate? I only invest indirectly via REITs.

[LWJ]

I think Jerry in post #3 hit the nail on the head.

"If you want to stay in residential, find a smaller multi tenant property in a place with a decent tenant base and that might appreciate over time where you won't be told who you can rent to. Otherwise if you want to stay in real estate go commercial."

I believe that you can invest for cash flow or appreciation. When the stars align, you can get both. I don't really think you can plan for both. That is more luck than skill. Of course, I am still trying for both.

I don't like SFH as they get trashed by the tenants. Yards are lots of work as well. I don't like condos because the HOA fees, limited appreciation, really cut into your yield. I do like 4-50 plexes. I have a client that tries to buy between the mom and pops and the institutional investors - as there are far fewer buyers in that niche. He claims a better yield. I have been trying to buy a mobile home park for a while but nothing has stuck yet. I may do another multifamily project instead.

I think many of the more successful people do commercial. I have never crossed this threshold. It seems if you have a vacancy, you could be stuck for a long time, where a multiplex limits some downside risk.

Keep us posted. I have been trying to actively build my portfolio for a while. So far, either the yields are too low or they properties get snapped up.

Good luck,
Larry

[Crowbob]

If you're not sure right now that you can stomach 20 more years as a slumlord you already know you can't stomach it. So sell the rentals. You will also know how big your cash pile is which may or may not be what you expect it to be.

Then figure out your options. Were it me, I'd immediately rule out buying anything in SoCal. Pay cash somewhere else and get twice the value at half the price without having to deal with the California experience I hear so much about. But then again, I'm nuts for living in Michigan.

[MikeSid]

As others have said, if you are going to stay in real estate, go commercial. If you are going to stick with residential, go with multifamily near a large university.

Housing near large universities will have a steady stream of tenants and the university likely isn't going anywhere. In addition, depending on the proximity to campus, by the time you are interested in selling, the university may be a buyer in an expansion plan.

Find a university town, see what direction the university is expanding, plant yourself in the path of expansion. Avoid renting to Delta house.

[McLovin]

Originally Posted by wildthing

No to hijack but how do you get into commercial real estate? I only invest indirectly via REITs.

Same as any other real estate. You look at the listings, or hire a broker, etc.

[nota]

water line blues today

we got hit with a $700 water bill
hurricane leaks from trees on the water line stressing 60+ year old pipes

home ownership is a long term gain
with lots of nightmares and fun expenses along the way

looking at 5k extra to do a ac 3/4 ply multi layer screwed and glued roof 2'' thick one piece
that may just survive a 155 plus hurricane
then have to do some stupid local code multi nail tarpaper and shingles dance
for even more money but when not if the local code multi nail tarpaper and shingles blows away
my screwed and glued no seams to leak 2'' thick plywood roof should remain on the CBS house

invest low sell high
right now we are at a near 2006 record all time high level locally
now who expected a crash except tabs
but who knows if values will keep going up
est if the tax breaks change or ?

[id10t]

If you are going to be a remote owner, buy where it is cheap and there is a constant rental market. Find property in a university town and rent to older students (masters/doctorate) and just getting started in real jobs local workforce.

Here's a local to me listing -

https://www.zillow.com/homes/for_sale/Gainesville-FL/pmf,pf_pt/condo_type/58880034_zpid/24821_rid/globalrelevanceex_sort/29.644134,-82.368075,29.62927,-82.387301_rect/15_zm/

If you can't rent that for $1200/mo to someone working on a masters or doctorate (avoid the underclassmen, although a senior may be OK) or to a young local worker then something is seriously wrong.

The rental market is weird here in Gainesville - either it is "students living on mommy and daddy's dime" and OK to live and expensive and near UF, or it is a total craphole apartment for $500/mo but mixed with section 8 rentals, etc.

Here's a cluster of 5 on zillow - all under $100k. https://www.zillow.com/homes/NW-39th-Rd,-Gainesville,-FL-32607_rb/

Should have no problem getting $900-1100/mo rent from any of them.

[Skillet83]

Just a fyi, going 30 years on a residential investment property is insane. For that fact, going 30 years on any property is insane. The difference in monthly nut from a 30 to a 15 is negligible. If you cannot swing the difference, do not buy. You are over leveraged. Investment residential, 15 is too much. Need to be 10 or less.

[john70t]

Probably not going to be considered a 'high growth area' in the future for wealthy yuppy tech family clientele. Are you thinking Section8/tribal? If you are traveling all over the world and keep it as distance investment you are going to need a good tough on-site manager honest enough not to bill you through the roof ever time it gets trashed with turnover. Doesn't sound like the best appreciation in value.

A few blips from wiki:
"The aquifer of the Rio Puerco is too saline to be cost-effectively used for drinking purposes. Much of the rainwater that Albuquerque receives does not recharge its aquifer. It is diverted through a network of paved channels and arroyos, and emptied into the Rio Grande.

Because of less-costly land and lower taxes, much of the growth in the metropolitan area is taking place outside of the city of Albuquerque itself. In Rio Rancho to the northwest, the communities east of the mountains, and the incorporated parts of Valencia County, population growth rates approach twice that of Albuquerque. The primary cities in Valencia County are Los Lunas and Belen, both of which are home to growing industrial complexes and new residential subdivisions.

Limited water supply and rugged terrain are the main limiting factors for development in these towns"

[Adrian Thompson]

This is a fascinating topic to me. We (wife and I) got our first rental in SE Michigan 4 years ago and another this year. The property market is growing so fact that the second one cost 15% more than the first even though it's a 2 bed (well, 1 1/2 bed really) Vs a solid 3 bed of the first one. In both cases 25% down with a 15 year note and we are positive cash-flow (Excluding upgrades) from the start. Our plan is both to be paid off prior to retirement (we are around 50) and expect the equiv in 2017 $'s of around $2K income post fixed costs in retirement from the pair. The advantage of where we bought is that it's a popular city with young professionals. Rental rules are tougher than some surrounding communities, but the upside is that it protects the area and it survived the down turn better, and is improving faster than other communities as a result. We chose our area carefully looking for young collage educated professionals but without kids in a popular, growing community. Check your costs carefully, even though we deem the city we are invested in as far batter than surrounding ones, and they may be more picky on codes and code enforcement the bi-annual inspection is only $75 Vs $300 for several of the surrounding (less desirable for other reasons to us) cities. Property insurance is also lower due to the professional image of the area.

We're not planning on any more units yet, but in a few years the decision would be multi family unit or commercial, we are concerned over occupancy with commercial though.

[whiterabbit]

I have worked with a good few very successful professional investors as a tax advisor and would generally not invest in US property to rent with the possible exception of 1 bed condos in NYC. Why have a million dollar portfolio of say 5 or 10 homes with all the tenant and maintenance issues when you can make a higher and safer yield with less hassle, no empty periods and great capital appreciation on a 1 bed in Manhattan.

Personally if I didn't have the money to go the route above I would put money into REIT's and if you do your research you can make way more money, keep your hands clean and sleep well at night as opposed to the multi family nightmare.