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Best types of rental properties

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Brownsfan2k5
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Best types of rental properties  Reply with quote  

Me and my father invest in residential investment properties and on average buy older style homes valued around $70,000. We have always bought these type of homes because their cheaper (which in turn means the morgage is alot smaller). We have always been afraid of paying to much for a nicer home because we feel there is more of a need for medium type homes. But this philosophy scares me because I feel once the mortgage is payed off they will be out of date and worthless.

Advise?
Post Sun Mar 24, 2013 5:16 pm
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coaster
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Homes never go "out of date", only their furnishings. If you spend the money to keep the interior attractive and in good repair, and the exterior and landscaping well-tended then it will hold or increase its value over time. There's only one caveat: the neighbors must be treating their own properties the same way.

~Tim~
Post Sun Mar 24, 2013 6:41 pm
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oldguy
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I look in 2 to 8 year-old neighborhoods - the houses are near-new in good repair and the first owner has hung the drapes and planted the grass, all I need is the key & a renter. The newer homes have modern plumbing/septic, new 3-wire 200 amp elec service, good insulation, good windows, near-new HVAC, water heater, appliances, shingles. I've done well with smaller units 1000 to 1200 square feet, 3bd/2ba.
Tenants are seldom looking for 2500 ft $1250/m houses, they prefer 1250 ft $700/m.

quote:
valued around $70,000. We have always bought these type of homes because their cheaper (which in turn means the morgage is alot smaller).


As long as you have a market for bigger houses it doesn't matter whether whether you own one $140k house or 2 $70k houses, the total rent income is the same and the total mortgage is the same.
Post Sun Mar 24, 2013 7:15 pm
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Brownsfan2k5
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Old guy: I sent you a message. Did you get it?
Post Fri Mar 29, 2013 6:15 pm
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oldguy
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No
Post Fri Mar 29, 2013 8:24 pm
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Brownsfan2k5
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I tried to send it to you twice. but it wouldnt leave my outbox.

i said: Hey you seem very wise! So, I would like you to let me know how I'm doing financially. Me and my wife both max out our Roth IRA's every year and we also try to buy as much rental properties as possible. We always choose 15 year morgages as we'd like to pay them off as fast as possible. I love a Roth but my fear is that I cannot touch it until I turn 59 1/2. So what are some other ways of earning income to retire early. Also, how did u get rich?
Post Fri Mar 29, 2013 9:32 pm
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oldguy
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quote:
We always choose 15 year morgages as we'd like to pay them off as fast as possible. I love a Roth but my fear is that I cannot touch it until I turn 59 1/2. So what are some other ways of earning income to retire early.


I do the opposite, I always get 30 year fixed rate loans and pay them off as slow as possible, lol. Whenever one of my houses builds up equity, I refi it, remove the equity, and start another 30 yr cycle. I kept 4 houses for nearly 35 yrs of landlording. One house is on its 4th mortgage since I bought it in 1980.

Eg, take a $50k cash-out and invest it at 11%/yr - in 30 yrs that is $1,100,000. That adds $300/m to my mortgage, ie, it costs $108,000 to for the use of the $50,000.

When we started in the 1970s we used the cash-outs to make down payments on more houses - but after 1980 we continually put the cash-outs in the market. True, the houses made a lot of money over those years, but the 'seed' money taken from the houses and invested in stocks made more. So if I had to advise a young person - I would say don't get short loans and don't prepay loans. You need to borrow 'long & low' capital for seed for the market.

BTW, US mortgage money is among the cheapest capital in the world. Where else can Joe Blow walk into a Bank, ask for $200,000, 4%, fixed rate for 30 yrs, and get it? None of the other 191 nations allows that.
Post Fri Mar 29, 2013 11:54 pm
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Brownsfan2k5
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You know that is actually really smart. If you don't mind me asking, how did you get so wise with money? What did you do for a living? Lol

I just hope to be as wise as you one day.
Post Sat Mar 30, 2013 7:16 am
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Brownsfan2k5
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Sorry I actually have so many questions now.

1. How do you come up with the extra money for the added morgage?
2. Do you not contribute to a Roth? Only a taxable investment account?
3. Do you encourage we buy houses a roth and a taxable investment account?

Sorry for so many questions. But I'm hungry for answers and knowledge.
Post Sat Mar 30, 2013 9:37 am
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oldguy
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quote:
1. How do you come up with the extra money for the added morgage?
2. Do you not contribute to a Roth? Only a taxable investment account?
3. Do you encourage we buy houses a roth and a taxable investment account?


1. Let the real estate market give it to you. Eg, buy a $60k house w/ a $55k mortgage. Wait 8 or 10 yrs for the house value to go to ~$120k, then refi the $50k remaining loan to $100k - that gives you $50k cash.

2. The key point is what you invest in, 11%/yr - the tax status of your accounts that you keep it in isn't as important. Since Tax Code continually changes, you cannot know what the code will be in 30 yrs. So use all 3 - ie, taxable, pretax, posttax, you don't want to find yourself 100% in the wrong tax category at age 65.

3. Yes - houses and all 3 account-types.
Post Sat Mar 30, 2013 3:34 pm
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Brownsfan2k5
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Old guy: how do you feel about me investing in out of state real estate while I'm located overseas in the military?
Post Sun Mar 31, 2013 2:32 pm
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Wino
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Brownsfan, I have to tell you that oldguy's method is tantamount to playing with financial fire. If you follow his advice and the market takes a 20% decline, you're going to be bankrupt, plain and simple.

He managed to get over the hurdles, so now his method makes sense, for him because he now has enough investment buffer that he can withstand any market downturns. I don't follow his advice. I suggest you go a more conservative route and buy your real estate, especially your primary residence, with as much cash as you can, then get the mortgage paid off as soon as you can.

Once you have income you do not need for housing, food, utilities, clothing, transportation, medical, and other living expenses, you can follow his advice to invest in real estate. Probably by that time, you'll see that diversification is more important than "historical returns." And if you lose your investment properties, it's the bank's loss, as your private residence is still paid for. If you PERSONALLY sign for debt, then your primary residence may or may not be protected. In Texas, for instance, it is protected.

If you had followed his advice in 2007, you'd be bankrupt. If you had followed his advice in 1978, you'd be bankrupt. If you had followed his advice in 1987, you'd be bankrupt. If you had followed his advice in 1992, you'd be bankrupt.

Ask him if he'll give you a 100% guarantee that you'll not be bankrupt by his method if you invest this year. You want to gamble? Go to Las Vegas. You want to become wealthy, invest your investment income in mutual funds (like oldguy suggests), but do NOT leverage your investments by going in to debt. That's a recipe for disaster.

There's a reason they write "past performance is not a guarantee of future results" on every prospectus.
Post Sun Mar 31, 2013 3:27 pm
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Brownsfan2k5
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Wino-
You live in Dubai? Are you a contractor for the military?
Post Sun Mar 31, 2013 5:49 pm
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oldguy
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quote:
If you had followed his advice in 2007, you'd be bankrupt. If you had followed his advice in 1978, you'd be bankrupt. If you had followed his advice in 1987, you'd be bankrupt. If you had followed his advice in 1992, you'd be bankrupt.


But keep in mind that I was in the real estate rental market in all those years - 78, 87, 92, and 07. And I'm still here. And not bk Very Happy And I sure didn't have a big "buffer" in 1978, quite the opposite.

When the market drops 20% and some of your rentals go underwater, it actually isn't a problem - as always, keep them rented and keep paying the mortgage. Homeowners go bk when they are forced to sell while underwater - normally due to a job loss, job move, etc. But landlords don't have that issue, renters pay your mortgage (whether you have a job or not). And if you move, you keep the houses and get a manager. The point is - you keep the houses thru market fluctuations you there is no loss.

BTW, the 4 houses that I bought in the 70's are now worth 5X to 7X, you just have to be patient.
Post Sun Mar 31, 2013 6:04 pm
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oldguy
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quote:
Ask him if he'll give you a 100% guarantee that you'll not be bankrupt by his method if you invest this year.


Wino - I used to say that the only investment with a 100% guarantee is a savings account - but now with Cypress I can't even say that. Very Happy

But in general, the rule of investing - "risk and return are directly proportional" - no free lunches. If you use 'no risk' items they pay about the same as inflation, safe but no return. If you use high risk items, you will probably lose your principle on a gamble and have to start over. So I avoid those two extremes and use 'moderate' risk - enough risk to easily outpace inflation while naviagating the fluctuations of the markets.
Post Sun Mar 31, 2013 6:19 pm
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