Quote:
Originally Posted by Johnhw2
Have many invested their retirement assets in rent houses or apartment complexes? If so how has this panned out? Were you able to use IRA funds to invest as equity in a rental property and borrow against it? Is that allowed? What kinds of returns have you experienced on these type assets and any lessons learned? Do you manage the real estate or have someone do so should be a factor in results you see, including how active you are in doing maintenance for these assets.
I searched but did not find a recent active thread on point.
Thanks in advance for your thoughts and sharing experience.
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From 1980 until 2001, we bought one apartment complex [Tri-plex, Four-plex, Five-plex] at each of my duty stations. We totaled four of them. We used them for rapid equity growth and to shelter my salary income from taxes.
When I retired in 2001 we consolidated our holdings to one property. We refinanced it to extract the equity and we used that capital to buy our homestead. In '08 all of our tenants lost their jobs, we spent all of our remaining savings trying to carry that property. When we ran out of money we were forced into bankruptcy and we lost that property.
My pension is small, we have no debt, we are comfortable. We just received an inheritance, with it we are going right back into apartments.
From 1940 until 2008 my family [meaning both sets of my grandparents, my parents, then myself] owned rentals and they worked great for each of us.
I do not know if you can use IRA money in this manner.
In this area, $200k can buy you a nice four-plex. Rent levels range from $500 to $800 for 1 and 2 bdrm units. Even if you set your rent low at $500 for each unit, you can gross $2,000/month, or $24,000/year.
You can go for $700 or $800, but your units will sit empty longer, and when you do get tenants, they will be more likely to leave when they find a cheaper unit. Going high is much riskier. Many landlords start low to bring tenants in quickly, then every year they bump the rent, until the rent is so high the tenants are forced to leave. Then they drop the rent back down to the original bait-switch level. The only reason for doing that is greed.
When we did it before the most we ever put up-front for down payment and closing costs was $6,000.
The complexes always paid for themselves, plus a good deal as principal-only payments.
This time we will be making the purchases with cash. So $200k upfront should gross a minimum of $24k/year. We hope to net at least $16k from each complex.
Apartments can be great tax-shelters. When I was working most of my salary income was kept fully sheltered from taxes by having the apartments. Right now, my pension is so low [it is a standard 20-year military pension] it is too low to be taxed. So I do not need the tax-sheltering any more.
Consider setting your rent low. Going high makes your tenants leave. Raising rent every year makes your tenants leave. Having an empty unit means you need to refurbish it and find/screen new tenants. When you find good tenants keep them by holding the rent steady.
One time a tenant came to me, it was a week before their anniversary of moving in, he wanted to make an appointment with me, to discuss the next year's lease. At this appointment he brought a lawyer. I told both of them that I was good with the previous year's lease just rolling over. This lawyer had made a career of fighting landlords raising rent, he had never seen a landlord who did not raise the rent. They wanted it in writing, so we signed a brand new copy of the same lease. Suddenly we were getting baskets of fruit every month from his family. They were thrilled to just be left alone and I was happy to keep the unit filled.
Building codes change every year. Codes are the bare minimum standard. While a lot of properties fail to meet code, it is the bare minimum. Ideally you should strive to keep your properties in much better condition than just at code.
If you hire someone else to manage a property, you are no longer actively managing the activity. It has became a 'passive' activity, which means you lose the tax benefits. You should keep your properties as non-passive activities if you want to benefit from them in your taxes.
We have never had a positive experience in using a manager to manage our properties.
We have had a few tenants who were just ugly. After a couple months they became aggressive and angry with us. One time we overheard a tenant seeking advice from their visitors on ways to screw a landlord.
When you are ready to move a tenant out, do not evict them. Bribe them instead, it is much faster. And it is much cheaper.
Say to them: "Look your security deposit was $600 and your rent is $600/month. Total is $1200. I have $1200 cash that I am willing to give you if you leave this unit by Friday. I don't care where you go, get out and I will give you $1200 cash. I will be here Friday and if all your stuff is gone, you can have the cash."
Every time I have done that, the tenant left without a fight.
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(I work hard to keep them happy)
