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I'm not going to totally dismiss the idea, particularly if it's an apartment and not a singe family house which obviously has much more to go wrong. Not for me, I've been a renter and know the mentality (but never thought to raise foxes), but I think this could work out for you provided you hire a property manager. You do not want phone calls at 10:00 at night about a leaky pipe or have to go through the eviction process.
Yea, I think you're looking at the rainbows but it's an idea not totally without merit.
Buying a rental: if you buy a foreclosure (cheap) you will definitely have some fixing to do. How much can you do? And how fast. Every day without a tenant is a financial loss. Every repair you have to pay for is also a loss. Some of this can be written off at tax time but not all.
If you can't do most of the stuff yourself, I'd recommend buying a nicer rental. Maybe do a serious cleaning and some cosmetic up-dates (new carpeting, paint, etc). You'll spend more on the property initially but you'll start getting income sooner.
There will be things that need fixing, even with great tenants. But the longer you have the place, the better you'll know it and can anticipate. I have a 2 unit rental I've had for almost 16 yrs. Someone else manages them (their fee is a tax write off.) I know how old everything is.
And it sounds like you're al over the map of where to buy the rental. If you're not going to live where the rental is, you're going to have to use a property manager.
Also as for using it to fund your retirement, if you can get it paid off before you retire, I'd say go for it. Just make sure you have some money put aside, or another income, to pay for basic upkeep.
The article your quoting is referring to renting out an apartment on a daily basis, much like a hotel. Its definitely not passive income. The fact that its a rental by day means you will have to manage the property on a regular basis. People staying daily also increases the chances of you running into someone who rents and trashes the place.
All that being said it can be a great source of income if your willing to put in the work. But unless you have cash, most banks don't loan out amounts that low. Typical loans start at 50K AND many banks won't even consider giving you a loan on a rental property. Traditional rentals occupied by a regular tenant is a lot less work and can be considered a passive income (for the most part). But you also get a lower return on your money. If you get a 10% annual return on your money that's considered a great return.
As long as you are prompt to evict the bad ones won't you be ok?
If you get a savvy bad renter, it will take you several months to get them out, and the longer they are in the apartment, the more they will trash it. Here in California, it can take 6 months to get a bad tenant out, and friends who own rental property found one place completely uninhabitable. Walls were crashed through, all the fixtures were gone, paint was strewn about, hardwood floor ruined. At some point they decided to barbecue IN THE HOUSE, and the smoke ruined the cabinets, It was a complete gut job, and insurance didn't cover a lot of it.
Now -- these were people who were trying to ruin the place. Landlords should check up on properties, but one or two major life events...sometimes you set things on autopilot and hope for the best.
This bad one didn't ruin them for owning rentals, but owning rentals isn't for the fainthearted. When the toilet clogs, can you fix it? Or do you have to hire someone. There are plenty of costs associated with landlording.
And you also have to think -- one rental isn't going to cut it. Renters move, and you will have to clean and maybe update your unit, and if you can't do these things you have to do it on your worker's schedule... and then show and check the people you rent it to. Pretty much, you can lose one - three months income. And in the example above -- my friends had no income off that property for a YEAR.
So you buy another.... and another.
If you have what it takes to own rentals, it's a great way to make good money. But it ain't passive. It's not set it and forget it, it's not walking to the mailbox and saying Hello Check.
We own a janitorial company and we do the work. We've cleaned out rentals -- it's gross. We don't do that anymore.
I'm thinking it probably doesn't take up that much time. If answering questions takes up 3 hours a month, that's hardly working. I would pass that as passive income.
And therein lies the problem; you think being a landlord is a 3 hours a month gig.
House flipping the quick buck scam that has hurt homebuyers the most
Buying a dump and becoming a slum lord no better
Quid pro quo
The added element that brings profit should be your sweat and desire to give an honest product for the money, not your cleverness
Joe from Dayton has it right
Last edited by Huckleberry3911948; 04-14-2014 at 02:14 PM..
I'm looking at foreclosed homes. At cheapest I see $25k and I see some in the 35k range. Does that mean if you buy a foreclosed condo / house and rent it out, you'll have monthly income of 1k+ ?
That's overly simplified; but if you can get $1000 a month in rent then, yes, you will have a monthly GROSS income of $1000.
But you are going to have to pay property taxes and insurance, plus cover the cost of repair an maintenance. Plus you may have periods between renters where you will have no income. You would have to subtract this from the gross income to determine your NET income. And from that you will have to subtract taxes on the net income to determine how much you will actually make at the end of the day.
I'm looking at foreclosed homes. At cheapest I see $25k and I see some in the 35k range. Does that mean if you buy a foreclosed condo / house and rent it out, you'll have monthly income of 1k+ ?
Where would be the strategically the best place to buy an apartment or something that would enable you to live on almost passive income of 1k + a month? For cheap real estates I see places like Detroit and Tampa. 10 cheapest U.S. cities for buying a home - CBS News
If you do it remotely, you'll need to get property management, even if it's temporary and you'll move there later on.
Also, you won't be able to retire if all you have is a single family home in a LCOL area. After taxes, insurance, vacancies, maintenance, and repairs, you would be lucky to clear $700 a month. And that would be 1) Assuming you pay cash for it and 2) Assuming you rent ALL of it out, leaving you still needing to pay for a place to live yourself.
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