Investing in Rental Properties - Need Your Advice (Dallas, Commerce: sale, real estate)

[investork]

Hi folks,

I'm really hoping that some seasoned property investors on this board can help me out here...

I'm considering purchasing my 1st rental property in the DFW area. At this stage, it looks like it will be a single family home or duplex (aiming for around $150k sale price and $1,500 monthly rental rate). Now, the tricky thing is that I'm out of state and will need to "manage" the property remotely. This is of course impossible without hiring a property management company which charges around 10% of the rental income.

I've done the math, and it seems doable, even if I have to pay the 10% pmc fee. But I do realize that things can go wrong. And it would be especially difficult to deal with issues if I'm not physically there. I'm also completely new at this, so I would be placing a lot of trust in the property management company.

In your opinion, does it even make sense for me to go through with this idea? Or do you think there would be too many potential issues which will make this kind of out-of-state investment a losing proposition? Also, any tips on finding a good property mgmt company in DFW would be much appreciated.

Thanks!

[TurtleCreek80]

Quite honestly, terrible idea. Because it is so cheap to buy in DFW, the rental prices are driven down.

I live in an approx $150k condo in Uptown (very desirable area) and my PITI is approx $1350/mo. Rental prices for comp unts in my building are $1100-1300.

Taking into account upkeep & maintenance (plus any HOA dues, if relevant) AND 10% property management fees, it would be nearly impossible to generate positive cash flow.

[investork]

The properties I'm considering do not have HOA. I do agree that HOA would really kill any profit I have. I know it's relatively cheap to buy in DFW, but don't you think there will always be renter? Not everyone can afford the down payment for a house.

Would love to hear from other investors. What do you think? Should I take the plunge and try investing in DFW even though I'm 1000+ miles away?

[dgz]

I've bought, managed, and sold a few duplexes over the past 15 years, and if you look at the mortgage, taxes and insurance on the property and then look at how much you will have to pay a real estate manager to manage the property (because you're remote) as well as the cost of contractors to make repairs... I don't think you're going to see much profit (if any) from the investment. Also, consider that even with the best screening, you will occasionally get a bad tenant--and then there's another $1200+ to pay to get the place back in shape (repainting walls, replacing carpets, damaged tiles, or hammer-chipped sinks (if they're mad), etc.) for the next renter.

Normally, in a strong rental market, you would be able to request the $1200 as a security deposit, but in this market, cheap rents abound and people will look elsewhere if you try to charge deposits that high. So, where will you make your money? Through the property value increasing over time? The market is mostly flat. Values are even dropping slightly (although nowhere nearly as bad as Vegas, Miami, and other places). I sold my last duplex as the market appeared to begin heading south. I won't buy another one for quite a while (and I live in the DFW metroplex). I would never manage something 1000 miles away unless there was a lot of profit to be had.

[Rakin]

You don't want to be a long distance landlord, find something in your hometown and make it work there as your 1st one. If you were seasoned I might say different but probably not.

[nsumner]

Buying a home at 150K and renting for 1500 is very unlikely going to happen unless it's a foreclosure and you have to fix it up. You could do 175K and rent at 1500. Yes there will always be a rental market especially with people that lost their homes to foreclosures and need to go to a lower monthly payment. It's difficult to go back to apartment life.

If you do pursue this, you want to get a home warranty on the house for about $350 a year. This covers a lot of repairs for a $60 service fee. I have it on all the rentals and it pays for itself year after year.

Of course, if you are able to get this scenario on a home in your market, it would be better.

Naima

[Lakewooder]

I wouldn't buy a property more than 10 minutes from where I live, but that's just me...

[earlyretirement]

Follow the advice of these posters.

Take it from me. I know. I own several rental properties in various places around the world and unless you have a VERY GOOD property manager you are totally lost. Even when you do have a good property manager you can have issues/problems.

You're not going to make much money when all is said and done in the DFW area. I've already looked at the numbers.

A rental property has tons of potential problems. I sold off many of the properties I rent out where I don't live unless I have family that I can trust 100% to manage.

I wouldn't trust anyone except family or life long friends.

Also, if you have no experience in rental properties make sure you make a detailed spreadsheet with all possible expenses including insurance, property taxes, rental taxes, income tax, utilities, maintenance and upkeep of the house, factor in things like possible vandalism or break ins.

You can do well with rental properties if you really really know what you are doing. But you can also have tons of nightmares and problems if you live 1,500 miles away.

Even when you live in the same city it can be a nightmare. I own 10 properties in the city where I live and typically there is sometimes issues that come up whether with plumbing, electrical, gas, water, etc.

I wouldn't recommend it unless you have someone totally dependable in that city. What happens if you have some dispute with your property manager and then have to go back and forth spending money on plane tickets, lost time from work, etc.

Really think it through before you decide to go for it.

[Rakin]

Early retirement sounds like a wise person. There will times you will get calls that require you to immediately go to they house for an emergency. There will be issues that require immediate attention and no matter how good the management company is, it will still require you to take care of quickly.

[earlyretirement]

Rakin,

You make an excellent point about the emergencies in the middle of the night. Even if you have someone dependable, you will find that many times they will have other priorities maybe before your house.

Personal problems, medical emergencies, their kids school recital that they won't miss, etc. I've seen it all in my years owning rental properties.

What I've done, even in the city where I live is had to hire someone and pay them a salary only to deal with emergencies 24/7 per day. I pay them to handle problems no matter what time it is day or night. You will find that if a problem isn't taken care of immediately the tenant could have grounds to move/leave as they could say a situation was unsafe and it could get costly with legal bills dealing with them.

The rental market for being 1,500 miles away isn't for the faint of heart. I don't want to give you the wrong idea. I'm not saying it's impossible because it's not. It can be done if you have a totally 100% trustworthy property manager. But it sounds like you don't personally know anyone in the DFW area.

If you decide to ignore our advice, I'd recommend that you really plan things out well and have back up plans. I'd also recommend that you actually spend a lot of time going to Dallas and interviewing the property management companies in detail. Go see their office, meet them, shake their hands and see some of their properties they manage and see what condition they are in.

Ask to talk to some of their current clients and get references. See how long they have been in business. I've found that many people can make a flashy website that looks professional and polished but it's another to see if they actually have an office and running legally. See if they are incorporated and operating legally, etc.

Check if they have any complaints lodged with the Better Business Bureau or local Chamber of Commerce. See how long they have been in business. Ask to see copies of a monthly expense sheet. Go meet their employees.

Your most important person will be your property manager. So spend the most time finding at least 2 good companies so you have a back up company if things go wrong with the 1st company.

But I can't emphasize enough that you put all your expenses in a spreadsheet because many people are surprised at just how many expenses come up in rental properties. And it's impossible to calculate your potential rate of return without inputting ALL expenses and potential expenses. Make sure you include applicable city, state and federal taxes that maybe associated with the rental income and also property taxes.

Another good idea when it's not being rented if you have high speed internet is you can buy a Panasonic camera that is easy to hook up and you can monitor when people come in and out of the house. I did this in one of my rental properties in another country and I was surprised to see the property manager using my apartment and sleeping in it! Remember, when you are 1,500 miles away you don't know what they could be doing. Parties, etc.

http://www.amazon.com/Panasonic-Remo...7797033&sr=8-3


Also, another really cool thing you can get is a Schlage electronic keypad for your door. There is one where you can monitor whenever people enter the house. You will find things like this really convenient and help keep your manager "honest".

http://www.amazon.com/Schlage-Wirele...bxgy_hi_text_c

Again, I'm not saying you can't make money in rental properties. You certainly can. I've made quite a bit of money on rental properties I own over the years but it's not as easy as you would think.

Good luck.