How much money do you make off your rental property? (Mesa: real estate, renters)

[JoeJude]

Hi forum,

If anyone would care to share, I am considering in the near future either buying a rental outright with no mortgage or investing in the stock market. I'm looking at condos ranging from 100,000 to 150,000 that would rent between 750 and 1000. My other option would be to continuing investing my returns have been between 7 and 10 percent, I manage my own funds so no investor fees. I do have a 401a, so the real estate money would not be withdrawn from that, this would be more to diversify and because I want to have a regular relatively maintenance free (thus condo over house) income to supplement my medical insurance. I know I could buy more than one with the money if I got mortgages, but I have an extremely low risk tolerance.

So what is your relative profit?

Any mistakes you made that you would have done differently?

How do taxes affect your profit?

Thanks as always to anyone who replies.

[asufan]

Originally Posted by JoeJude

Hi forum,

If anyone would care to share, I am considering in the near future either buying a rental outright with no mortgage or investing in the stock market. I'm looking at condos ranging from 100,000 to 150,000 that would rent between 750 and 1000. My other option would be to continuing investing my returns have been between 7 and 10 percent, I manage my own funds so no investor fees. I do have a 401a, so the real estate money would not be withdrawn from that, this would be more to diversify and because I want to have a regular relatively maintenance free (thus condo over house) income to supplement my medical insurance. I know I could buy more than one with the money if I got mortgages, but I have an extremely low risk tolerance.

So what is your relative profit?

Any mistakes you made that you would have done differently?

How do taxes affect your profit?

Thanks as always to anyone who replies.

If you pay cash your profit will be greatly reduced. Even for a non-primary residence mortgage, the rates are very low and it is MUCH better to leverage to get the most gain. Keep the same price point if that makes you comfortable, but get a mortgage. A mortgage actually gives you less risk.

As far as what is the profit, it depends on each property. You can easily do an operating income statement and figure out what your expenses are including possible vacancy rates, maintenance, etc compared to what the rents are. For instance I have two rentals in Scottsdale that cash flow much better than one in Mesa that I will unload once the longtime tenant wants to move. It all depends on the property you buy and the market you are in.

FYI condo's typically have large monthly HOA fees as well, that would need to be factored in. And condo properties do not appreciate in value nearly as well as single family residences. I have 5 and all of them are single family houses, I would not consider a condo.

[JoeJude]

Thanks ASUFan, appreciated. MY concern with houses is the time for the maintenance, I work 80+ hours a week typically, so I'd have to outsource landscaping at the very least, however I know this is probably cheaper than HOA fees.

[AZ Manager]

Originally Posted by JoeJude

Thanks ASUFan, appreciated. MY concern with houses is the time for the maintenance, I work 80+ hours a week typically, so I'd have to outsource landscaping at the very least, however I know this is probably cheaper than HOA fees.

Tenants maintain landscaping throughout their tenancy and when they don't you hire someone to clean it up and charge them or if the lease has ended deduct it from their deposit. Landscaping is an outdoor issue so that can be done without you even stopping by the property, find a good landscaper who will do the work and be paid later or over the phone via credit card. Most repairs happen between tenants and can be done without your presence with a $30 lock box from Home Depot. The only thing I ever show up for during a tenant's term is annual AC service which most people don't do anyway. The other repairs I will go take a look at first then put the lock box on the property and schedule the appointment; make them repair techs take and submit pictures before every repair and for you to give them permission and again after the repair is finished.

The most common things you will have to do are paint (maybe not based on the comments I get from applicants) and carpet which are done between tenants; carpet never lasts more than 7 years no matter what you buy so get rid of as much of it as you can. The next thing I do more than anything is updates like changing out old door hardware and light fixtures which I can get an entire house done in a few hours.

I got a house back on the 15th, made them move before I evicted them for the damage, and I had the entire inside painted, had it cleaned, had the landscaping cleaned up, and ordered new blinds and light fixtures on a 2 hour visit for the initial walk-through and two 15 minute visits to pay/check on the paint and cleaning. Will take me another 4 hours to hang the blinds and the light fixtures this week; I could have my maintenance guy do it or hire a handyman for around $200-$300 for 10 windows and 4 light fixtures but I like to hang them myself. That was a house that I considered trashed by the last tenants, again I was going to evict them for the excessive damage, that I will have spent less than 8 hours on over two weeks and won't have to touch again for another year at the earliest; I already have a signed lease on it that begins on Dec 1st. None of that time spent would have been lessened if it was a condo instead of a single family home.

[lovely40]

Originally Posted by JoeJude

Thanks ASUFan, appreciated. MY concern with houses is the time for the maintenance, I work 80+ hours a week typically, so I'd have to outsource landscaping at the very least, however I know this is probably cheaper than HOA fees.

Hire someone to do it. Maintenance fees are built into my cash flow statement. Depending on the property's age (mines are fairly new), and I factor in 5% per mo.

[mzbk2l]

We have 3 condos and while I've considered a single family home, I think condos make more sense. All of ours have "studs-out" coverage by the association, so we've had roofs replaced, a/c units replaced, under-slab plumbing leaks repaired, etc., all at no cost to us. Landscaping is covered, and water is included in the association fees, so that's a plus to tenants. Pool & trash are included, too. Never a problem with vacancies.

We bought at a pretty good time, so our market values have increased about 50% in the 5 years we've had them.

[Zippyman]

One or two rentals isn't enough to spread the risk out, or to justify the time investment. The wife & I made crazy money on two rentals because we bought at the right time. Even so, if I had to do it over, I wouldn't. Too much dealing with unreasonable, irresponsible people & at today's prices, there isn't anything worth the effort & risk, unless you're looking to make acquisition a full-time job. I'd be very surprised if you could match your 7-10% investment return in the market with a rental that you bought today, without donating a bunch of time you don't have to the endeavor. If you hire a property manager, you're gonna get soaked. If you do it yourself, you just gave yourself a job that you don't want.

[dbrown518]

Hey guys, im new to the forum, but am a real estate investor and have been for several years.

I initially purchased all of my properties with cash until I recently refinanced three of them years later to increase capital for my main business.

My personal opinion is to try and always buy your rental property with cash. When all of my rentals were paid for, I was actually interested in my rentals and the cash flow they brought in. Now that I have a mortgage on 3 of them, the income is chump change & I often think about selling off and being stress free.

For example - I have 9 buildings currently, my primary residence, my commercial property that houses my main business, and 6 rental properties. My best producing income property specs are as follows

Total rent = $29,400
Taxes - $5,500 per year
Insurance - $600 per year
Mortgage (new) - $9,600 per year
--------------------------------------
5% Vacancy - $1,470
5% Misc - $1,396

I went from netting $20,434 a year to pretty much HALF that.

$20,000 is not bad for passive income, $10,000 doesn't sound bad either until it takes 4 months to evict your first tenant, replace your first roof, have a vacant unit for three months while repairing the damage caused by your last tenant, ext. It's honestly rarely hands off unless your willing to invest an additional 10% (going rate) for a property manager. Keep in mind, with a property manager, not only are you coughing up 10%, but for the most part, your also giving giving them the authority to sub out repairs to partnering third party companies who are rarely a bargain to put it in nice terms.


I USED to say im going to finance 1-4 unit properties (residential) with the banks money with only 3.5% down. Im going to MAKE money every month while paying down my debt with my tenants money while increasing my net worth month after month. Well... It doesn't exactly work that way. On a 30 year mortgage, unless your paying substantially MORE then the unit is bringing in, for the most part, all your doing is paying interest... for YEARS. Keep in mind that the unit above, is my BEST performing unit. For a condo/single family dwelling, all it takes is a roof, plumbing, heating, septic ext issue to put you in the red...for the entire year. Not to mention, when a tenant moves out, your almost always reconditioning it for 1-2 months before its rented again. On a single family, you are paying the mortgage on that rental unit during vacancy until its rented again.

In my opinion, the only thing that makes it worth while is the appreciation of the asset itself. Im 28 years old and went from living in an abandoned building to a 1.4 million dollar net worth with much of it as a result of appreciating real estate.

I paid $40,000 for the unit mentioned above, put about $15,000 into it and its currently worth about $160,000. I am a real estate broker however and stalked the mls for months and months to find the deal.

[HX_Guy]

We have several rentals and our return is about 5.5-6.0%, not including appreciation of the properties. If you figure that in as well, say at 3% per year, then its around 8.5%-9.0%.

That is only counting HOA, property taxes and insurance without factoring in maintenance and vacancies. We have had a very good experience so far with our properties and renters and I attribute that to properties that are a bit newer, nicer, and being selective on the renters (price points between $200k - $250k per property). Of our 6 properties, 3 are townhouses, 2 are patio homes and 1 is a small single family home. They are all in the NW Valley and 4 of the 6 are newer than 10 years - the other 2 we did a full rehab of before putting them up for rent.

I agree with the above on the cash vs mortgaging. Is mortgaging potentially more rewarding financially? Sure, but with a lot more stress in my opinion. Having them paid off is nice, if they sit empty for a month or two, sure you're not making income but at least you're not stressed about making the mortgage payment.

[Minntoaz]

It depends on your age. If you're in 20s or 30s then a condo purchase would be wise as by the time you retire it'll be paid off and pure income, not to mention it's always wise to diversify ones portfolio. That's also assuming it's a new condo as an older one will not hold up with a lot of maintenance for 30+ years.

Cash can be better used (invested with higher returns) in other ways, there's no reason to pay cash for property. Mortgage rates are historically low.