I’m thinking about buying a rental property

[dennis thompson]

I’m thinking about buying a rental condominium property.
Can anyone recommend a calculator ( preferably using excel) which would help me analyze expected returns.
Any thoughts or comments from those of you who have experience with this would be appreciated.


Thanks

[Rich Engelhardt]

https://www.stessa.com/
To be honest though, I just wing it and use a spreadsheet and rely on my accountant to keep track of the tax value/liabilities.

The best advice I can give you is - location, location, location.
Personally, I'd never invest in a condo. Too much like an apartment.

[Frank Pratt]

I've had a rental property for 15 or 20 years. For the most part, it is revenue neutral. I did have to kick in some cash a couple of years ago for new roof and furnace. The rent covers mortgage, interest and taxes with a little left over. We charge about 15% below market in the interest of keeping good tenants long term. Overall, an excellent investment.

We had one tenant who skipped town, owing 3 months rent. They just left everything behind, including a mountain of expensive kids toys. We actually made back most of the lost rent by holding a garage sale and selling the toys.

I don't understand how some minds work. The family was really poor and the marriage was struggling. We tried to give them every break we could to help out. Then we find a house full of toys, none of which were very old. There had to be over $10,000 worth new.

[Mike Henderson]

I don't have any rental properties right now but have in the past. I agree with what Frank said. Couple of pieces of advice:

1. Get one close to your home. I expect you'll do the repairs and maintenance and you want to be close to your tools. You get there and realize you need some special tool you don't have. If your home is across town, it's very inconvenient. Also, if it's close, you can keep an eye out on it. Mine were on the route I took to work so I could see them every day.

2. If you don't get the rent on time, immediately give them a 3-day notice. You want your renters to know that paying the rent is the most important bill they need to pay. Once you give them some grace period, they will take it every month.

As Frank says, it was worth it to me to take a bit lower rent and get good, long term, tenants. When one set of tenants move out, you almost always miss a month of rent. You have to go in and prepare the rental for the new tenants and tenants mostly move in on the first of the month because that's when their existing rental finishes.

When negotiating the amount of rent, it's worth it to take a bit less the first year and not have the rental go another month unoccupied. At the end of the year, you can raise the rent to make up for it.

Finally, I always did month-to-month rentals. I did not give a year lease. A lease protects the tenant and not the landlord. If you give them a lease and they're a problem, you can't kick them out. If month-to-month you can usually get them out in 30 days.

Mike

[I wouldn't touch a condo. There are too many regulations and the condo board can really make your life miserable, such as changing the rules to prohibit rentals. The other condo owners generally don't like rental owners. Try to buy a house.]

[Keegan Shields]

Wait 6-9 months and it'll be a lot cheaper.

[Tom M King]

I've never had anything but good luck with waterfront real estate, whether rentals, or any other way. The population has doubled in the past 50 years, but they aren't making much more waterfront property.

Here, I just leave handling the rentals up to a rental agency that takes care of everything, including booking, cleaning, and linens. They say all I would have to do is pay property tax, but I do any property upkeep needed since they're right here.

We wouldn't want anything we'd have to do it all for, including collecting rents.

[Stan Calow]

I have heard too many horror stories of bad tenants from friends who own rental property, to pursue it. Vacation properties might be one thing.

Tom M King, who does maintenance on the properties? My BIL is constantly paying for middle of the night plumbing repairs, fixing the HVAC, roof repairs, etc. And long vacancies to repair tenant damage.

[Tom M King]

I do every repair, of any kind. I'm not more than a 1/4 mile from any of them. These are high end clients, and we've never had anyone damage anything that mattered, or on purpose. They're mostly weekly vacation rentals. Most want to come back another year, so they're careful to make us like them so they can. They all know where I live, and that I'm close. Mostly, they don't want to bother me.

[Mike Henderson]

Like Tom, I did every repair. If you want to make money on rentals, you need to do that. I really didn't have any serious problems with my tenants, either in damage or in paying rent on time. Do a good job of selecting your tenants and you won't have any real problems. But be prepared for the one time you might have a problem.

Si vis pacem, para bellum

Mike

[Tom M King]

I keep a lot of spares, like capacitors that fit in all the heat pumps, toilet valves, light switches, and such. Might seem like it costs, but priceless when you need one, and impressive to clients when something is fixed fast.

[Rich Engelhardt]

Here's a couple of other things....

Being a landlord is - a business.
Unless you are 100% committed to being in that business - don't bother.
It's not something you dabble in & it's for damned sure not something you want to learn as you go if you can avoid that.

The first 2nd and third people you need are - accountant, lawyer, Insurance agent- in no particular order.

Everybody has their own methods of how to do things - it's very abstruse.

We do very little of our own maintenance. I never touch gas - electrical - plumbing. Plumbing because I hate it and the other two because they can be lethal & I have no license or doing any of it.
IMHO - doing your own maintenance is iffy as being any sort of $$ savings. YYMV of that though.
One advantage it does offer though is that it's a legitimate excuse to be inside the rental w/out having to give 24 hour notice.

Pets are another thing.
We don't allow them. YYMV.
Lots of landlords do. They charge extra for having pets. Better them than me.
We had an experience with pets & several thousand dollars of damage later.. we actually had pictures of the dog peeing on the hardwood floor & the magistrate took the single mother's sob story that her dog was always crated when in the house.

That brings me to another thing to find out.
How do the courts lean where you would have to file on a tenant?
You find out when you set foot in the court how the magistrate leans. In one county they may favor the tenant - in another the landlord.
Evictions are a matter of public record & they are held in an open court. Just find out when evictions are being held in any place you want to buy & go there and observe.

Anyhow - I could go on and on - as I mentioned, it's very abstruse & filled with all sorts of misinformation and opinion. Try to find out if there is a landlords association where you live.
We have been a member of one for the last 15 or so years. They have a decent library that cover topics from "how to fix" to "where can I get money to buy".
They also have monthly meeting we try to attend. They also carry a lot of political clout (strength in numbers) & a few of the members are also lawyers that understand and support the landlord's side of the court (as in it isn't what you know, but, who you know & who knows you)

[Perry Hilbert Jr]

Landlord tenant law in some places royally screws landlords. In Washington DC and a few other places, tenants who make complaints to municipal agencies about violations make not be evicted. So scumbags don't pay rent, break a window or clog a drain and skate on rent for another month. It is called a prohibition against retaliatory eviction. I had tenants for several years and for the most part they were great. The last tenants not so much. Worse, in many states, landlords were once able to change locks and keep the tenants property for non-payment. Those days are mostly gone everywhere. Relatives have had tenants that were golden. I have seen both sides and there are tenants that are just scum and some landlords that are the prime example of slum lord. Check your leases very carefully. In PA you need a provision to waive the statutory ten notice for lease violations. My brother has a lease that provided for rent to be $x, but if paid before the due date, there was a 5% discount. (cuts down on constantly 4 day late payments but not legal in some states) Another common provision here is that if it becomes necessary to file a court action for non-payment, the tenant owes filing fess and an administrative fee of $100 just for the landlords time and trouble, plus attorney's fees if any. What happens when the lease is up. Do you ant it to go month to month, to renew automatically for another year, or to end completely. Some leases here, automatically renew on the anniveray of the lease unless 90 days before hand the tenant gives notice that he wants to terminate the lease.

Leases are a peculiar nightmare and there have been major problems with every large complex lease I reviewed. Getting an attorney to come up with a standard lease would be a good thing. I rewrote many leases for landlords and some thing new often came up within a year or two. One client rented a lease without a limit on the number of visitors permitted. Every weekend, the tenants inlaws, cousins, etc come to visit and party. There are only three bedrooms, but some weekends there are over 20 people staying there. at least the municipal occupancy permit limits the number of people on premises to 8. He copied a lease from some where and half of the lease pertains to limits on the use of common areas, swimming pool etc, which he doesn't have.

[Rick Potter]

Depends on what you want. I have a condo 300 miles away and it is the least problematic, but doesn't have much return, BUT it has quintupled in worth since I got it in 2010.

Nice house/cheap house is another question. The nice, 2000 Sq Ft, in a nice neighborhood rents for $3100, while the older 1100 Ft house in a definite rental neighborhood goes for $2200. Nice house keeps renters longer, but costs more in taxes, upkeep, and repairs if it gets trashed.

Cheap house is easier to rent, but you can almost count on doing more repairs, as it ALWAYS has twice the people living in it than the nice one. More wear and tear, and sometimes trashed as tenant retaliation for being evicted for non payment of rent. Up another notch, a 3000 Ft house in a very nice neighborhood goes for $3300. Definite case of diminishing returns.

How about Section 8, where the Guvment pays all or part of the rent. I tried it several times on the cheap house, rents in a day, Section 8 always pays their share, tenants sometimes don't. Most of the tenants have unreported income, that they brag about when you are there unclogging the toilet for the third time. 'Cousins' visit and never leave. One was using false names and getting payments in the mail under 13 names that I found in the mailbox after they moved. One offered to pay extra rent over the S-8 contract amount (illegal), while another one had what the neighbors called 'a six police car party' the day before moving out (no eviction). They sure liked to kick in walls.

You get the idea. I will never again do S-8. Then again, my brother loves it.

I used to do everything, but as I age I do less. I will be 80 in a couple months and have reached the 'point and pay' stage of life, though I sub it out myself. Lots of bad experience with various prop managers and their 'expert' crews.

No answers for you, just considerations. YMMV

[Ronald Blue]

It's been a long time since I was involved in rentals. It's obviously much better if you don't need to finance. If you must finance can you make the payment if you lose a couple months rent? It's far from all profit. If you have the ability to do the repairs and upkeep that's a major benefit. Look closely at the roof and HVAC condition/age. Those are the normal big ticket things that can cut deeply into the balance sheet. What everyone else has said applies so do your homework carefully.