Is being a landlord a good investment?

[Zhentarim]

...or should I just put $366 a month into my 403b plan over the next 40 years? I make $44070 a year before taxes.

I’m a young public sector employee weighing his retirement plan options. I already have a decent pension plan, but these things I’m looking at are for supplemental retirement.

[Khedrac]

In general this is not a good question to ask here as answers will have to be very vague/generalised to avoid falling foul of the "no legal advice" rule.

That said, I do believe we can offer some advice without bending the forum rules.

Acting as a landlord can be a good investment, so long as your property is the right sort of property in the right location in the correct market, BUT the more work you put in the better it will be.

My father once tried doing holiday home letting - and despite living in a tourist area it wasn't a success, he eventually sold one house and converted the other to short term rental. This was an example of not having the correct property/market/location combination.

In the UK there are a range of letting management services available - and the more they cost the more they do; however even with the ones that provide a comprehensive package you can still get unexpected costs and calls on yor time - such as capital expenditure is needed on one of your properties. Also, should you end up needing legal enforcement I have no idea how much they cover for you (and any more on that would be legal advice).

So, on these forums we can offer some general advice, but the main thing will be to do your homework. Find out what sort of return your traditional financial investment options are likely to return and do the same for your local letting market. Talk to the agencies to find out what the market is really like (numbers will tell you profits, talking to people will tell you what the market is really like).
Only once you have all the facts can you sit down and decide what you want to do.

In short, you should be able to make a good profit out of the letting market, but you will have to work for it.

[snowblizz]

Giving professional advice, including financial advice, is prohibited by the forum rules. Yes they cover more than legal advice.

[Iruka]

Even if we were allowed to answer that question in depth, there are too many factors in play to give a definitive answer.

Do a lot of research, ask professional investment consultants, other landlords, maybe your country also has a kind of landlord association that can give advice.

It definitely requires more work from you than just putting money into your retirement plan.

[Studoku]

It's a lawful neutral investment at best, at least from my experience with landlords.

[snowblizz]

It's a lawful neutral investment at best, at least from my experience with landlords.

I was thinking how we could take this thread even more into dangerous territory. Alignment discussion is a brilliant path to take.

Kudos, sir*, kudos!



* or madam, it's an expression ok

[Algeh]

It's a lawful neutral investment at best, at least from my experience with landlords.

I've avoided renting from a Chaotic Good landlord before. Just not worth the drama.

(I haves lots of vaguely-informed opinions about the actual question, but am avoiding posting them due to the professional advice rule, which I am not sure of the borders of on this one. If a mod weighs in on the side of "everyone pile on with advice" I'll add my two cents.)

[AMFV]

Real estate isn't a bad investment generally speaking, but it does take a really long time to pay off and is very much crappy if you need liquidity. I think that's as far as advice can go here without getting into specifics which are against the rules. Only you can answer the question on if something that's very long term and very hard to disentangle yourself from if things go wrong is the right answer for you.

[Erloas]

If done right, it can be very good. If done poorly it will be a money pit.

Know that starting out it will be a fair amount of work and not just something you can just put money in and mostly forget about.
It will vary a lot from one city to the next so no one can say how it would be for you. But you should be able to get a general feel for the possibility by looking at rents, purchase costs, and availability in your area, and from that decide if it's worth looking into further. Don't think there is much more that can be said within the forum rules.

[halfeye]

...or should I just put $366 a month into my 403b plan over the next 40 years? I make $44070 a year before taxes.

I’m a young public sector employee weighing his retirement plan options. I already have a decent pension plan, but these things I’m looking at are for supplemental retirement.

Not the right country, but I've been a tenant for a long time.

The problem is the tenants. Some are alright, pay their rent on time, okay.

Some are ...

We've seen a right shower through here. Some were okay, some, not so much.

One landlord was waiting until the tenant in another building got housing benefit, was a single mum supposedly worth £1,000 per month, lived without paying for three months until the benefit turned up, tenant skipped out when it did.

Previous, more sensible landlord (his mum), again another building, tenants ripped up the place and left to make a tiny profit.

There's money in it, but don't expect it to be easy. There are agencies, but they do the minimum and presumably take most of the profits.

[snowblizz]

Halfeye is very much spot on. Depends a lot on tenants.


Also I feel like I should point out, being a landlord is not so much an investment as an actual job you'll end up having to do.

[Kyrell1978]

Also I feel like I should point out, being a landlord is not so much an investment as an actual job you'll end up having to do.

This is absolutely true. There is no such thing as this rumored "easy landlord money." It can certainly be worth it though.

[tyckspoon]

This is absolutely true. There is no such thing as this rumored "easy landlord money." It can certainly be worth it though.

Well, there's the tipping point where you are pulling rent from so many properties and having all the actual direct interactions with those properties handled by a management agency, but at that point you aren't so much a 'landlord' as that your investment portfolio happens to include a lot of real estate and rental property; you're just taking a percentage of the rents as your return on investment and the management agency is the actual landlord for most functional purposes.


For top poster: I think the main two things you'll need to decide are if you're ok with the level of risk, and if you're ok with the amount of work. Rental property isn't a passive investment - every so often you're going to need to put the equivalent of a second full-time job into it, whether that's to arrange repairs and maintenance on the property, meeting and selecting potential new renters, or sometimes having to deal with the joys of terminating a rental agreement and evicting your tenants (possibly involving one or both parties suing each other.. and even if the case is completely without merit, if your tenants want to try to sue you for something you still have to make the time to gather all your supporting paperwork and show up in court.)

The second aspect is keeping in mind that rental property will sometimes cost you money. You're going to have to pay for physical maintenance of the property, repairing or replacing expected appliances, and taxes and (if not fully owned) mortgage costs for the property. And those costs are going to happen regardless of whether or not you have tenants in the property, so you need to be able to absorb the ongoing costs of ownership for possibly several months if you have a period where there are no tenants or your current tenants are unwilling/unable to pay you.

Personally, I wouldn't be comfortable exposing myself to that level of expense and risk without already having a much higher and stable level of income than I currently do - an investment like that would come from my 'I can afford to lose this' pool of money, which is not a pool that actually exists for me >.>

[Kyrell1978]

Well, there's the tipping point where you are pulling rent from so many properties and having all the actual direct interactions with those properties handled by a management agency, but at that point you aren't so much a 'landlord' as that your investment portfolio happens to include a lot of real estate and rental property; you're just taking a percentage of the rents as your return on investment and the management agency is the actual landlord for most functional purposes.


For top poster: I think the main two things you'll need to decide are if you're ok with the level of risk, and if you're ok with the amount of work. Rental property isn't a passive investment - every so often you're going to need to put the equivalent of a second full-time job into it, whether that's to arrange repairs and maintenance on the property, meeting and selecting potential new renters, or sometimes having to deal with the joys of terminating a rental agreement and evicting your tenants (possibly involving one or both parties suing each other.. and even if the case is completely without merit, if your tenants want to try to sue you for something you still have to make the time to gather all your supporting paperwork and show up in court.)

The second aspect is keeping in mind that rental property will sometimes cost you money. You're going to have to pay for physical maintenance of the property, repairing or replacing expected appliances, and taxes and (if not fully owned) mortgage costs for the property. And those costs are going to happen regardless of whether or not you have tenants in the property, so you need to be able to absorb the ongoing costs of ownership for possibly several months if you have a period where there are no tenants or your current tenants are unwilling/unable to pay you.

Personally, I wouldn't be comfortable exposing myself to that level of expense and risk without already having a much higher and stable level of income than I currently do - an investment like that would come from my 'I can afford to lose this' pool of money, which is not a pool that actually exists for me >.>

I agree with a lot of this. Those management companies tend to take 25% of the first month's rent, and 10% of every subsequent month. All the capital for repairs and maintenance to the property still comes out of your pocket and those companies don't really do a whole lot to try to save you any of that money (i.e. establish relationships with contractors to get "friends and family" type discounts or look for the best cost/quality ratio when picking out fixtures for the unit) because it doesn't matter to their bottom line, only to yours. We used one for the first year of my current employment because I couldn't manage the property and run the crews to remodel 48 units at the same time. Theoretically that "tipping point" is out there but we have around 80 units and haven't hit it yet. Some of my associates have several hundred and haven't hit it yet. In reality, it takes decades in the business for most people just to get to the point my family is at (We've been pretty steadily growing these businesses since 1988 when my father started with 1 house), which in my opinion has to go into the consideration of whether or not that money could be considered "easy."

Also, you 100% must be able to let the property sit empty and still afford it before you go into this business because that WILL happen sometimes and if you are on too tight of a leash financially, then you will lose the property. No matter what you do, bad tenants will happen from time to time, and that is going to eat into your profit (sometimes a lot). There are ways to mitigate that. We run a credit check and criminal background check on every potential tenant. If they do not meet our requirements then they do not get in. NO EXCEPTIONS (I have told my in laws "no" you don't meet our requirements, I can't help you). Even doing this I get bad tenants from time to time. In the state of Missouri (it differs by state) the only legal way to evict someone is through the court process, so yeah, you're definitely going to spend some time there. This is also your only recourse for back rents, and it is a completely separate process to get a garnishment if the defendant doesn't pay after a judgement is made (all of which require more money and time in front of the judge from the property owner).

[thorgrim29]

I'm actually considering going into real estate myself. I'm a bit tired of burning cash on rent, want a dog and miss having a yard but I don't need more than a big 2 bedroom place so a house or townhouse would be excessive (and seriously, screw condos, if I wanted to keep living according to somebody else's rules I'd keep renting). So what I'm looking for is a 3 or 4 unit building, live in one, rent the others. Then if it turns out I like the landlord thing I'll expand, if not I'll sell in a few years.

[Algeh]

I'm actually considering going into real estate myself. I'm a bit tired of burning cash on rent, want a dog and miss having a yard but I don't need more than a big 2 bedroom place so a house or townhouse would be excessive (and seriously, screw condos, if I wanted to keep living according to somebody else's rules I'd keep renting). So what I'm looking for is a 3 or 4 unit building, live in one, rent the others. Then if it turns out I like the landlord thing I'll expand, if not I'll sell in a few years.

I'm contemplating doing something similar in a few years, depending on my cash flow and the vagaries of local zoning. I have a house with entirely more yard than I want to maintain, so I'm going to look into putting up an ADU in the overly-large side yard (probably with a new garage for me underneath, since I'd like to turn my existing garage into a rec room/indoor-outdoor entertaining space). Looking at lots within a few blocks of me, I see a lot of that kind of low-density multifamily (duplexes, triplexes, apartmentified older houses, garage conversions, ADUs, small apartment complexes), so I'm optimistic that it'd be allowed but since I don't have the money to finance building it right now, I'm holding off on researching specifics since that kind of thing changes over time anyway (in my area, it's highly likely to change to allow more density over time rather than less).

[lio45]

I'm actually considering going into real estate myself. I'm a bit tired of burning cash on rent, want a dog and miss having a yard but I don't need more than a big 2 bedroom place so a house or townhouse would be excessive (and seriously, screw condos, if I wanted to keep living according to somebody else's rules I'd keep renting). So what I'm looking for is a 3 or 4 unit building, live in one, rent the others. Then if it turns out I like the landlord thing I'll expand, if not I'll sell in a few years.

You know, I'd be willing to meet you someday over a beer or coffee to give you advice. I've been in real estate for ~15 years now, and own a bunch of properties in downtown Sherbrooke (that's my main portfolio).

My gf wanted us to move into "a house", while I wanted to live downtown and in one of my properties in order to pay no rent, so we compromised by buying a triplex with a nice back yard (that thing was a steal) and I'm still a ~7 minute walk to downtown (not going to give my exact address yet, but the intersection of Larocque/McManamy is a good approximation).

[lio45]

...or should I just put $366 a month into my 403b plan over the next 40 years? I make $44070 a year before taxes.

I’m a young public sector employee weighing his retirement plan options. I already have a decent pension plan, but these things I’m looking at are for supplemental retirement.

Wait, you have only $366 a month to play with? The most real estate you could realistically hope to do would be to own the property you live in thanks to a mortgage, even in an affordable/high cap rate market such as [I expect] Shreveport, LA [to be].

Edit: Come to think of it, I guess maybe you could get a cheap duplex or triplex and live in it. Probably not impossible.

[Zhentarim]

Wait, you have only $366 a month to play with? The most real estate you could realistically hope to do would be to own the property you live in thanks to a mortgage, even in an affordable/high cap rate market such as [I expect] Shreveport, LA [to be].

Edit: Come to think of it, I guess maybe you could get a cheap duplex or triplex and live in it. Probably not impossible.

I live in a house I’m paying $661 a month on and I eat out more than I should. I end up with $366 a month after those expenses and other expenses.

I’m looking to up my savings rate to $600 a month, which I could do with a little self-discipline. I know what to do to save that kind of money, but doing it has been another matter.

[lio45]

I live in a house I’m paying $661 a month on and I eat out more than I should. I end up with $366 a month after those expenses and other expenses.

I’m looking to up my savings rate to $600 a month, which I could do with a little self-discipline. I know what to do to save that kind of money, but doing it has been another matter.
That's a decent budget. The next question is, are you at least somewhat handy? And/or do you have relatives who are?

I wasn't wrong with my guess it was a high cap rate (i.e. affordable) area... a couple mouse clicks just to get an idea and I found several examples like this:

https://shreveport.craigslist.org/reb/d/shreveport-investment-or-owner-occupant/6764549306.html

[Liquor Box]

As others have mentioned, the answer to your question will vary significantly based on a number of factors. For example, would there be a capital gains tax that applies to you?

A big factor is to what extent you will have to rely on capital gains (the house gaining value over time) to generate income. Where I am from you would have to rely on this completely - if the house does not gain value then you would make a loss on being a landlord. You can work this out by checking the price for a given type of house in a given area, and then working out how much it will cost you to borrow the money to pay for the house (so if the house costs 500k to buy and interest is 5%, then it will cost you 25k a year to own the house), add expected maintenance costs to that as well as property management services if you intend to use them. Then compare that cost against expected rental income. For example, if you found that it would cost you 30k/annum to fund and maintain a three bedroom house, and your expected rental return was $550 a week ($28,600 per year) then you would be losing a couple of grand (remember to account for the possibility that the house would occasionally be vacant) a year, and you would have to rely on capital gains to offset that and make a profit.

In terms of capital gains, whether a house will gain or lose money depends largely on the market (which again will vary between countries and cities). Over time, all things being equal you would usually expect house prices to increase in value. although this is not always the case for a variety of reasons. In the short terms, house prices can go up or down - they famously dropped in value significantly in most parts of the western would during 2009 (GFC), but in most well-performing economies they have generally trended upward since. Trying to outguess the market generally is a mugs game - even professionals do not have a good tracks record. But market generally do trend upward, and if you get a a house for good value and do not do so when a market downturn is imminent, you can usually expect some capital gains over time - although remember that capital gains will not be realised until the house is sold.

[Kyrell1978]

That's a decent budget. The next question is, are you at least somewhat handy? And/or do you have relatives who are?

I wasn't wrong with my guess it was a high cap rate (i.e. affordable) area... a couple mouse clicks just to get an idea and I found several examples like this:

https://shreveport.craigslist.org/reb/d/shreveport-investment-or-owner-occupant/6764549306.html

If you can do the work yourself, you can take on a project like this. If you can't it's better to pass. It's very difficult to find people who will put your bottom line as a priority when tackling this kind of thing. The price tag is good but realistically with the work that I can see that needs done you're going to spend triple that before it's ready. More if there are significant plumbing issues. (The condition of the bathroom and the open "wet wall" pic 14 suggest at least some plumbing problems, but I'd have to actually be there to tell for sure).

[lio45]

It's very difficult to find people who will put your bottom line as a priority when tackling this kind of thing.

It's possible, if you have the experience and the contacts... in which case, you _would_ be able to do it yourself, you just don't have the time or the will anymore so you'll delegate the work.

I agree with you that someone who is new to this and who couldn't do it himself will have a really hard time finding people who'll do quality work at a competitive price.

If he's not handy, he can still get a mortgage and buy a house that doesn't need anything. In that case I wouldn't recommend buying a multi-unit building yet unless he at the very least wants to try to become handy, and is willing to put in some effort.

[dps]

Even if we were allowed to answer that question in depth, there are too many factors in play to give a definitive answer.


Yeah, even if someone here worked in real estate professionally and was both allowed by forum rules to answer and was willing to give free professional advice, they'd still have to be knowledgeable about the specific state of the real estate market in Shreveport to give a meaningful answer.

[lio45]

Yeah, even if someone here worked in real estate professionally and was both allowed by forum rules to answer and was willing to give free professional advice, they'd still have to be knowledgeable about the specific state of the real estate market in Shreveport to give a meaningful answer.

I absolutely don't get how some people can be under the impression that the forum rules don't allow free discussion of this? We've been regularly discussing stuff that's closer to "giving legal advice" for years (for example, someone who's been with their gf for long enough that they're fiscally considered common law partners, who explains that she did X and Y to him, and we opine that that's toxic and he should break up with her and become single) and it's never been a problem.

It is possible to broaden the definition of "legal advice" to such an extent that no conversation can happen anymore, but it's pretty clear that that's not the definition the forum staff uses here (proof: this subforum has existed for years and conversations have been had in it).

[Iruka]

I absolutely don't get how some people can be under the impression that the forum rules don't allow free discussion of this? We've been regularly discussing stuff that's closer to "giving legal advice" for years (for example, someone who's been with their gf for long enough that they're fiscally considered common law partners, who explains that she did X and Y to him, and we opine that that's toxic and he should break up with her and become single) and it's never been a problem.

It is possible to broaden the definition of "legal advice" to such an extent that no conversation can happen anymore, but it's pretty clear that that's not the definition the forum staff uses here (proof: this subforum has existed for years and conversations have been had in it).

In my opinion, anything that goes beyond anecdotes and common place suggestions and thus of actual use to the OP would be stuff that falls under 'professional advice'.

I could not track down the exact quote right now but IIRC it has been stated before explicitly that the absence of mod intervention is not to be taken as something being within the rules.

And as always: "When in doubt, don't."

[lio45]

I could not track down the exact quote right now but IIRC it has been stated before explicitly that the absence of mod intervention is not to be taken as something being within the rules.

I'm of the opposite viewpoint, i.e. I think it's reasonable to consider that long-standing, ongoing pillars of this subforum like the RWA and PWA support threads actually establish a standard for what's acceptable, instead of only being there "because the mods just haven't spotted them yet".




In my opinion, anything that goes beyond anecdotes and common place suggestions and thus of actual use to the OP would be stuff that falls under 'professional advice'.
I think it's pretty clear what's "professional" and what's not. A forum member without any official certification in the field being discussed, giving his honest and sincere opinion to another forum member, voluntarily, and for free, without any expectation of anything being owed or due, is not "professional"; it's pretty much the textbook definition of "amateur" advice.

In any case, I'll be happy anytime to help a random fellow member if I can. I've been in real estate myself (as an investor) for nearly 15 years now, and I have a side portfolio near his neck of the woods (much closer market to Shreveport than, say, Germany), plus I've been looking at Arkansas real estate for years now because it's the most landlord-friendly jurisdiction on the continent and that's not nothing, so that's going to be quite comparable.

I have nothing to gain at all, I'm just volunteering, so it's not professional advice.

[Iruka]

I'm of the opposite viewpoint, i.e. I think it's reasonable to consider that long-standing, ongoing pillars of this subforum like the RWA and PWA support threads actually establish a standard for what's acceptable, instead of only being there "because the mods just haven't spotted them yet".


I think it's pretty clear what's "professional" and what's not. A forum member without any official certification in the field being discussed, giving his honest and sincere opinion to another forum member, voluntarily, and for free, without any expectation of anything being owed or due, is not "professional"; it's pretty much the textbook definition of "amateur" advice.

In any case, I'll be happy anytime to help a random fellow member if I can. I've been in real estate myself (as an investor) for nearly 15 years now, and I have a side portfolio near his neck of the woods (much closer market to Shreveport than, say, Germany), plus I've been looking at Arkansas real estate for years now because it's the most landlord-friendly jurisdiction on the continent and that's not nothing, so that's going to be quite comparable.

I have nothing to gain at all, I'm just volunteering, so it's not professional advice.

*shrug* As I said, I remember that being a direct statement by a mod, possibly Roland, which would mean it is not really up to discussion. I do not remember enough context to find the post in question.

I do agree that definition of "professional advice" is a bit murky (volunteering it for free and qualifications in the field are explicitely not a criteria) and it is not easy to see what is okay and what is not (both financial planning and psychological advice are both called out), in which case I refer to the basic directive: "When in doubt, don't."

Mind, I am not telling you what to do, just going into why I think it is not a good idea and why I personally did not give more input.

[Zhentarim]

I'm of the opposite viewpoint, i.e. I think it's reasonable to consider that long-standing, ongoing pillars of this subforum like the RWA and PWA support threads actually establish a standard for what's acceptable, instead of only being there "because the mods just haven't spotted them yet".




I think it's pretty clear what's "professional" and what's not. A forum member without any official certification in the field being discussed, giving his honest and sincere opinion to another forum member, voluntarily, and for free, without any expectation of anything being owed or due, is not "professional"; it's pretty much the textbook definition of "amateur" advice.

In any case, I'll be happy anytime to help a random fellow member if I can. I've been in real estate myself (as an investor) for nearly 15 years now, and I have a side portfolio near his neck of the woods (much closer market to Shreveport than, say, Germany), plus I've been looking at Arkansas real estate for years now because it's the most landlord-friendly jurisdiction on the continent and that's not nothing, so that's going to be quite comparable.

I have nothing to gain at all, I'm just volunteering, so it's not professional advice.

I’ll be sure and shoot you a PM.

[Erloas]

The "professional" advice restriction has nothing to do with it being professional or not. It has to do with the fact that this is the internet and anyone can say anything they want and there is no way to verify it. And bad/poor advice, given knowingly or unknowingly, could have major legal or health/safety consequences for anyone that follows said advice. That has potential liability issues for the site as well as simply being bad for people here. So rather than take any chances it is all off-limits.

[darkrose50]

I am not a lawyer.

-----

Renting is a way to go. I asked a guy I played cards with who owned an apartment building, and his answer was that a credit check helps you weed out those who would be likely not to pay. Never rent to friends or family. Use a management company so you are not the bad-guy collecting rent, and you are not that guy who get a call at 2:00 AM about the toilet not working.

-----

Investing [the short version]: Evidently consistent investing is the most important component, then not touching the investment, then comes compound interest, and then comes what you invest in. They are all important, but actually investing consistently is the main indicator of success.

Investing [the long version]: Investing is the way to go. Consistent investing is evidently the #1 indicator of becoming a millionaire (above how well people actually invest). Invest in the S&P 500, and invest if the market is up, down, or sideways. Do not try to time the market. Leave the investments alone. Women do better than men because men try to time the market, and that is a bad idea (something silly like 80% of fund managers underperform the S&P 500 . . . just do not try to time the market). Seriously this stuff is idiot-proof, and I am the idiot letting you know that it is idiot-proof. Businesses make money, that is what they do. If you own the S&P 500 (or other index mutual find, like a top 2000 or whatnot), then you own parts of businesses that make money . . . and that is a valuable thing . . . worth money. I would likely invest a bunch if the stock market tanked . . . or went sideways for a long time . . . I would not sell any stocks or mutual funds . . . I would perhaps max out my 401(k) (we could cut back on spending, and try to only live off of my wife's income).

[Korith]

"a good investment" can be a subjective thing, with some of the most common factors being:

-Your tolerance for risk
-Your desired rate of return
-The frequency of payments you would prefer to receive
-Your need for liquidity

Being a landlord introduces some landlord-specific factors, including

-Your ability to obtain property at a minimal price (do you know what a reasonable price is? do you have access to enough capital to minimize your mortgage costs or even buy for cash?)
-Your ability to fill the property quickly when it becomes vacant (this can depend on a mix of your personal charisma and your marketing sense, as well as the availability of good tenants in the area)
-Your ability to screen tenants when filling the property (can you identify factors and characteristics that will allow you to pick one tenant over another, within the bounds of what's allowed by the law, in such a way that you get more good tenants and fewer bad ones?)
-Your ability to maintain the property at a minimal price (if you're handy and can effect good repairs and maintenance on your own, it's a lot cheaper than hiring someone to do it for you or attempting the job yourself but doing it poorly)
-Your availability to deal with tenants and any issues that they may have (which factors in travel time to access the property, and the amount of time you personally have available to deal with it)

What you're essentially doing is starting a business. Your product is the place to live, your customers are the tenants, your income is their rent money, and your expenses are mortgage interest, the maintenance and taxes on the property, plus some marketing costs when it becomes time to find new tenants, and probably some regular expenses such as insurance and maybe utilities (depending on whether you pay the utilities and collect the rent, or the tenants pay their own utilities).

Some specific risks with a rental property include:
-Vacancy (nobody pays you if nobody's renting the place)
-Damage (you are going to have to fix the place up when things break)
-Liability (if someone gets hurt on your property, they can potentially go after you for remuneration)

When compared to other investment alternatives in your 403b, how does this compare for you?

[Lvl 2 Expert]

I keep wanting to reply to this thread, but every time that happens I remind myself that anyone with enough leftover money to buy a spare house should probably not be taking investment advice from me. Or from random people online at all, probably. Especially since whether this is a good idea depends heavily on local circumstances.

In general being a landlord is a great gig, you get payed rent and your property increases in value at the same time. But you're screwed in case of a disaster of if the local demand for housing shrinks rather than grows. Those risks have to be judged locally. Not to mention the legal angle, which is very local as well. A good financial adviser or property law lawyer or project developer or something in your area might be able to help.

[Zhentarim]

"a good investment" can be a subjective thing, with some of the most common factors being:

-Your tolerance for risk
-Your desired rate of return
-The frequency of payments you would prefer to receive
-Your need for liquidity

Being a landlord introduces some landlord-specific factors, including

-Your ability to obtain property at a minimal price (do you know what a reasonable price is? do you have access to enough capital to minimize your mortgage costs or even buy for cash?)
-Your ability to fill the property quickly when it becomes vacant (this can depend on a mix of your personal charisma and your marketing sense, as well as the availability of good tenants in the area)
-Your ability to screen tenants when filling the property (can you identify factors and characteristics that will allow you to pick one tenant over another, within the bounds of what's allowed by the law, in such a way that you get more good tenants and fewer bad ones?)
-Your ability to maintain the property at a minimal price (if you're handy and can effect good repairs and maintenance on your own, it's a lot cheaper than hiring someone to do it for you or attempting the job yourself but doing it poorly)
-Your availability to deal with tenants and any issues that they may have (which factors in travel time to access the property, and the amount of time you personally have available to deal with it)

What you're essentially doing is starting a business. Your product is the place to live, your customers are the tenants, your income is their rent money, and your expenses are mortgage interest, the maintenance and taxes on the property, plus some marketing costs when it becomes time to find new tenants, and probably some regular expenses such as insurance and maybe utilities (depending on whether you pay the utilities and collect the rent, or the tenants pay their own utilities).

Some specific risks with a rental property include:
-Vacancy (nobody pays you if nobody's renting the place)
-Damage (you are going to have to fix the place up when things break)
-Liability (if someone gets hurt on your property, they can potentially go after you for remuneration)

When compared to other investment alternatives in your 403b, how does this compare for you?
The 403b looks better, given this information. I’m not saying no to renting out property, necessarily, but it seems less appealing the more I look at the details.

[lio45]

A good financial adviser or property law lawyer or project developer or something in your area might be able to help.

"No" to the first two, and the latter will only help you if it's a friend or a relative.

As a rule of thumb... if you're the kind of person who's been considering it for a long time but keeps hesitating, I don't think this line of business is for you. You won't be able to sleep well. (Lots of things can "go wrong"; I remind myself it's just cost of doing business, but then I've been in business since I graduated uni, have a high risk tolerance, and it takes a lot of setbacks to even start to upset me.)

[Kyrell1978]

"No" to the first two, and the latter will only help you if it's a friend or a relative.

As a rule of thumb... if you're the kind of person who's been considering it for a long time but keeps hesitating, I don't think this line of business is for you. You won't be able to sleep well. (Lots of things can "go wrong"; I remind myself it's just cost of doing business, but then I've been in business since I graduated uni, have a high risk tolerance, and it takes a lot of setbacks to even start to upset me.)

I agree with every bit of this.

[lio45]

Kyrell, wow, I had somehow missed your post on the first page, interesting to see another landlord here!


One comment though:

Theoretically that "tipping point" is out there but we have around 80 units and haven't hit it yet. Some of my associates have several hundred and haven't hit it yet.Where this point is totally hinges on how leveraged or unleveraged you are. I'm also around ~80 units and I've hit that tipping point - the point where you can delegate absolutely everything and sit on your ass and even this halfdecently-managed-at-best portfolio will yield positive cash flow while you twiddle your thumbs - long ago, but that's due to being very unleveraged.

For ~80 units to be not enough to be poorly managed and still be in the black, you must be mortgaged to a substantial %. (A smart choice; I'd do that as well, if banks here weren't pretty much the most conservative on the planet.)

[Kyrell1978]

Kyrell, wow, I had somehow missed your post on the first page, interesting to see another landlord here!


One comment though:
Where this point is totally hinges on how leveraged or unleveraged you are. I'm also around ~80 units and I've hit that tipping point - the point where you can delegate absolutely everything and sit on your ass and even this halfdecently-managed-at-best portfolio will yield positive cash flow while you twiddle your thumbs - long ago, but that's due to being very unleveraged.

For ~80 units to be not enough to be poorly managed and still be in the black, you must be mortgaged to a substantial %. (A smart choice; I'd do that as well, if banks here weren't pretty much the most conservative on the planet.)

Our most recent purchases comprise around half of that unit count as we shift from individual homes and duplexes and whatnot to multi unit complexes, so yeah there's a lot of mortgage going on still. I believe that I may have overstated that a bit as well since my parents (the owners of the company) pretty much can lay back as I manage the majority of the units for them, but my father still has about 20 that he takes care of himself (mostly because he wants to).

[thorgrim29]

I just (as in this afternoon) had an offer I made on a duplex refused because they got 2 other offers significantly over the asking price while mine, because I am not a crazy person, was about 10% below with an expectation of ending up somewhere in the middle. I didn't think the market around Montreal was quite that nuts, I'm estimating that the sellers are making a bit over a 5.5% yearly return on their property...

Anyways I'm sharing this slightly to vent but mostly to say that from what I've heard a very important factor that I haven't seen discussed here is that you shouldn't factor in capital gain in your maths when evaluating a property, it should at least break even on it's own, and any capital gains you make are a bonus. Which is why I had a ceiling in mind for the duplex based on how much extra money I am willing to spend on my living expenses (since I plan on living wherever I buy) and not how much I can afford if I put all of what I save per month into a mortgage. I wonder what the pros around here think about that subject.

[snowblizz]

I just (as in this afternoon) had an offer I made on a duplex refused because they got 2 other offers significantly over the asking price while mine, because I am not a crazy person, was about 10% below with an expectation of ending up somewhere in the middle. I didn't think the market around Montreal was quite that nuts, I'm estimating that the sellers are making a bit over a 5.5% yearly return on their property...

Anyways I'm sharing this slightly to vent but mostly to say that from what I've heard a very important factor that I haven't seen discussed here is that you shouldn't factor in capital gain in your maths when evaluating a property, it should at least break even on it's own, and any capital gains you make are a bonus. Which is why I had a ceiling in mind for the duplex based on how much extra money I am willing to spend on my living expenses (since I plan on living wherever I buy) and not how much I can afford if I put all of what I save per month into a mortgage. I wonder what the pros around here think about that subject.

There are plenty of real world examples where buying on speculation (effectively) eventually comes back to bite you in the ass. The US, Ireland, Sweden just 3 places I quickly rattle off the last 10 years alone where the idea was that house prices couldn't posssibly decline. It's impossible to reliably tell. E.g. in the last case experts warned for decades that it was impossible to perpetually sustain increased prices. And the market seem to top out due to various shocks but kinda pottered on and then everyone coudl back to their collective insanity. Ofc it's unlikely to bottom out any time soon, everyone from builders to inhabitants and government have to maintain the emperor does indeed have fine clothes. But people who bought into undeveloped buildings 2 years ago are now finding they cannot actually sell the apartment they are contractually bound to purchase for more than they signed up for, nor can they get a bankloan to cover the full amount of the price they signed up to as it's no longer quite as valuable. And a lot of newly finished space is sold at deep discounts. Nobody saw this coming, everyone kept warning about it.


And of course my biggest bugbear, people never want to discuss real and nominal value increases.


I don't think you should entirely discount capital gains, but I agree counting on it to provide your profit is risky. And basically speculative. The problem ofc is that it can work for a long time for many people.

[Tyndmyr]

It....can be. Purchasing real estate can be expensive, and there are many pitfalls. Getting tenants who do not pay rent can be costly. You'll be responsible for upkeep.

If you get those things knocked out solidly, with reliable tenants, reliable contractors, and good management, it can be great. But if it goes south, it can be very expensive. Say you get a tenant who is a pet hoarder. Nobody is going to tell you that they intend to keep twelve cats, soak the entire house with cat pee, and then bail without paying the last month's rent, but it's a thing that happens.

If you intend to do it, do a lot of research first. Look up your state's rules for being a landlord. Do the math on what things cost, and how much risk you can afford. Not knowing your situation, I can't really give you specifics one way or another, just suggest some stuff to check out first. Being a landlord is starting a business, and in *any* business, you should do a good bit of research first, and make a solid business plan.

[Jay R]

In general, you can make good money in a business if you have a competitive advantage.

A landlord who can do professional-level plumbing and electrical repair himself has a competitive advantage. A landlord who owns a piece of property with a beautiful view has a competitive advantage.

You need to ask yourself why people will rent from you instead of somebody else.

[lio45]

I just (as in this afternoon) had an offer I made on a duplex refused because they got 2 other offers significantly over the asking price while mine, because I am not a crazy person, was about 10% below with an expectation of ending up somewhere in the middle. I didn't think the market around Montreal was quite that nuts, I'm estimating that the sellers are making a bit over a 5.5% yearly return on their property...

Anyways I'm sharing this slightly to vent but mostly to say that from what I've heard a very important factor that I haven't seen discussed here is that you shouldn't factor in capital gain in your maths when evaluating a property, it should at least break even on it's own, and any capital gains you make are a bonus. Which is why I had a ceiling in mind for the duplex based on how much extra money I am willing to spend on my living expenses (since I plan on living wherever I buy) and not how much I can afford if I put all of what I save per month into a mortgage. I wonder what the pros around here think about that subject.
Cap rates are so low in Montreal (even off-island) that it makes little sense to buy, IMO.

A good friend of mine who shares my ability to do simple math and lives on the island actually rents an apt in the Mile End, while owning a portfolio of income properties in downtown Sherbrooke.

My sis wanted to buy something, I recommended a small condo (and she found one in Verdun that made sense). Worst case, if you really insist on owning for some reason, I say get a condo. If you want to try your hand at landlording eventually, you should probably do that in your hometown, assuming you have various reasons to show up (friends/family), and even worst case, 1h30 of driving isn't the end of the world in exchange for decent cap rates.

[Cedar]

Ethically speaking.. I would say that investing money in housing to make a profit from renters is often a decision that turns out to be south from neutral.

First, housing isn't a normal consumer good, it is an absolute necessity for life. You might be faced with new ethical decisions which you might not want to make.

Second, some people would prefer renting, because they do not like the hassle of having to do big repairs, or know that they'll move soon. And for them you would provide a real service.

But for many people in the world, and especially disadvantaged groups, renting is not a choice, but a necessity caused by them getting access to bank funding less easily than "investors". Causing them to be unable to compete with housing investors/speculators with different expenses caused by credit. (Historical examples in the USA include banks and insurers actually banning black people from their services or with significantly higher rates). Influx of capital by investors and speculators also can increase housing prices, increasing this problem.

Basically landlords do not only profit from these disadvantaged groups by forcing a service upon them. Like the repairs etc. Many people would in fact prefer to hire people for repairs themselves instead of being dependent on a (negligent) landlord. And landlords are also able to make additional profits from the artificially cheaper credits available to them.

This also has some ramifications for the landlords themselves. If they buy up property in areas with a working democratic government, they will face additional risks if popular opinion goes against housing speculation. If public opinion goes too bad from housing shortages or other disturbances in the 'market', you might face both new laws which increase your work-load or even additional costs.

Edit: I am serious here. Even the most immoral (competent) investor will look at the ethical concerns with an investment, especially on the long term, since unethical investment tend to carry more hidden risks if you forget about this aspect.

[woodwalker]

I own a two family home, and rent out the bottom half. The extra income is nice, and allowed us to get a house in an area that we otherwise could not have afforded. I'm not doing any more maintenance than I otherwise would if I just owned a single family home and don't need to worry about travelling to make sure the driveway is plowed and the grass cut.

I'll say the worst part is finding new renters. I've been very lucky that our most recent tenants just signed thier third lease, which takes a lot of pressure off.

We've discussed that when kids come into the picture we'll probably have to move for more room and better schools, and maybe keeping this house as a pure income property, but I think if I did that I'd consider a management company. They take 10% of the rent, but they deal with finding tenants and most of your standard landlord duties. I'd also get a lawn service and a plow guy, because I wouldn't want to be driving over all the time to deal with that stuff. So we'll see if its worth it at that point.