I agree, I am only making the point that the service is available. 25% GOOD GOLLY MISS MOLLY. If you have a few decent properties around here the rate is 8-10% there is a lot of competition. As we speak I am using a PMC to handle the rentals that I have remaining because I was taking my eye off the ball trying to manage a bunch of deadbeats. The next time I go buying I am going to buy low end homes in the upscale school districts, the real good gains are to be coming from there or at least in this area. The city is dead.

Exactly my point... the management company makes such a huge profit in order to cover their risk of not having a renter that the invester barely sees any profit themselves.

But if the renter is paying an insurance company, and you collect from them when the apartment/house is empty, then there's no management company taking your profit and you collect your mortgage payment regardless.

__________________
--
Steven Harrison

1993 300E2.8 - 196K
2001 E320 4MATIC - 86K

I'm getting more out of this thread than any of the zillion property forums I'm reading. It's good to get real world opinion from do-ers. One ideal tactic to residential RE wealth--as I rather simplistically interpret it--goes like this:

1. Buy distressed (buildings and/or owners) residential property under market value - 10-15% or lower.

2. Improve to obtain a rent increase to just below market for secure tenancies, and capital gain for greater borrowing power.

3. Grow 100 or more rentals, each a mini-profit-center returning $75-100/mth net.

4. Contract out tax-deductible expenses...management and maintenance.

5. Increase holdings initially by taking those major tax deductions and depreciation to plough back into more properties.

6. At some point down the track, start paying off mortgages from accumulating rent.


So assuming you were $100/mth cash-positive to start with, a mortgage-free property might now return you $800. I could see after 15 years paying down, gross income could rise by 8 times. 100 properties returning $100/mth = $10,000/mth. After 15 years of full mortgage payback, not allowing for inflation, costs etc, it could be = $80,000/mth.

So what stops you experienced guys growing these numbers?

My first thought is the number of deposits needed. In our country banks prefer a prudent 20%, as this avoids repayment insurance and other nasties including a downturn or rise in interest rates. But coming up with $20-$40k deposit each time to build a 100 property portfolio in a rush is a hard call. It would take some clever buying and substantial rent increases to wring that out of many low-cost properties today, even in a growth period.

However I guess the snowball effect would gradually make it easier after the first 10-20 or so.

Hmm.

Ken Silver
--------------
~1993 SL500, glistening triple black, xenons, AMG facelift to 2002 style.
~1999 SLK 230 Kompressor, silver/black leather, CD, immaculate
~1999 Lexus LX470 SUV, sand/ivory leather.
~1999 Suzuki Grand Vitara. black & silver.
~ex 350SL, 230E, 280E, MX5, Jaguar Daimler and a lot of other makes not nearly as nice.

__________________
http://www.kensilver.com/newSLsig.jpg

This is a really good thread. I have a question. There was a comment that single family dwellings don’t make the return that multiple family dwellings do. Is this a factor of the cost of the property? IOW, if someone rents out a million dollar single family dwelling, will the property owner return the same through rent and appreciation as they would if the rental property were a 2 or 5 family dwelling of the same value?

__________________
...Tracy

'00 ML320 "Casper"
'92 400E "Stella"

The law of dimishing returns.

Ahh.......the benefits of sitting behind a desk with pencil in hand........the numbers always look fantastic.

Depending on area, it's almost impossible to purchase a SFH and break even with it, unless you put 35-40% down. If you do that, you defeat the entire benefit of leverage. So, you must purchase a dwelling that is in "bad shape". This necessitates the investment of a chunk of capital to get it back to a satisfactory rental condition. Many times, such properties yield all kinds of problems that you wish to correct and you spend considerably more than you originally planned. If you contract out the work, the cost typically skyrockets. Nobody wants to work on some POS old house except the "handymen". Most of them can't determine which end of the hammer goes on the nail and you have to do their work over again in a few years. This is especially true with electrical and plumbing. It's almost mandatory that you do this work yourself.

Naturally, if you are MedMech, you have a bunch of qualified tradesmen available at "reasonable" cost and you can potentially make the investment to fix the property with some hope of coming out ahead when it's done.

I've always been amused when a homeowner does a capital expenditure to improve the house. They have a $120K house, put $90K of improvements into it, and come out with a house worth $165K. All the statements how "home improvement will return 95% of what you put in" are just BS. You really need to control the labor in order to come out ahead. Naturally, time is on your side. If you keep the property long enough, you'll always come out ahead.......but.......it's not a good comparison.

So, in answer to your question, you are limited by how many properties you can manage and maintain on your own. You can try to do it via the "management" route, but, the potential for success is severely limited by cash flow.

Just a short comment on management companies. I have worked for and with management companies. I will never use one on my properties. In fact, one of my properties, when I purchased it, was under long term contract to a management company. My purchase offer required that the seller buy out the management company's contract so that I would not have to be saddled with them. I have seen too much incompetence in management companies. On the property in question, a 2'x3' pane of glass had been missing for more than a year. This was in Denver, where we have winters, and the owner was paying the utility bill. The tenant had the heat set on 90 degrees to overcome the arctic blast. This kind of situation is not atypical with management companies in my experience.
I have an arrangement with one of my tenants who looks after the properties when we are out of town. I far prefer to pay him a goodly sum than give it to a management company. Our relationship is solidified and I trust his judgment. Cell phones have greatly diminished the need for management companies. I can take care of problems from another continent if necessary.

If you can find a high quality management company, they would be worth their weight in gold.

__________________
1977 300d 70k--sold 08
1985 300TD 185k+
1984 307d 126k--sold 8/03
1985 409d 65k--sold 06
1984 300SD 315k--daughter's car
1979 300SD 122k--sold 2/11
1999 Fuso FG Expedition Camper
1993 GMC Sierra 6.5 TD 4x4
1982 Bluebird Wanderlodge CAT 3208--Sold 2/13

Management companies perform to the level of the landlord if they think that they can get away with something they almost always will give it a try. In my case a company has asked ME to release them from the contract because I stuck them with their own greed. They often list promises and try to skiddle out in the fine print but they have found that out foxing the fox can be daunting to say the least. In short be savvy and keep their eye on the prize while you pen in your own fine print.

This is an interesting question and I'll answer it via anecdote:

I recently sold a two family house. It was in a fairly good neighborhood of single family homes. From the outside, it looked like any of the other homes on the block, with a single door in the front. But, sometime in the past, the owner received permission to make it a legal two family house. Very rare to get such an approval. Impossible to get today. So, he makes two very small apartments in the house. Each apartment is about 350 square feet and it rents for about $800. per month.

All the single family houses in the area sell for between $250K and $300k depending on the size. This one, if single family, would sell for $250K.

But, the person buying his house is an investor. So, he should not pay more than what would get him a reasonable return on his investment. At the very least, he must breakeven after PITI, and utilities. The taxes on the house are $4K per year. The utilities are $1.5K per year. So, what's it worth?

If he pays $220 for the house and puts 20% down, he obtains a mortgage for 176K. The mtg expense is $1100. per month. Taxes, insurance, and utilities add another $500. per month. Total of $1600. per month. Exactly the amount of the rental income. Personally, I would not buy this house for this price. It leaves no margin for vacancies and no margin for repairs.

I sold the house for $222. I was damn lucky to get it.

If the house was a proper single family house, it would rent for about $1300. and it would sell for $250K. This could never be utilized as a rental house.

My Uncle uses management companies for his rentals and condos. If you play hard ball it works out.

Also the best book I have read on the subject plainy stated that finding the right deal is extremly hard. You have to live and breath property to find the deals. This guy looks at 100 properties and will make an offer on 3-4 and buy 1.

If you work at it it can be done but like starting a business most people fail. Also like anything the more you do it the better and easyer it becomes for you.

Going back to Ken's comment nothing is stopping me I am going to do it. I am just on part 1 of my plan the actual buying phase hasn't begun yet. Talk to me in 10 years.

Nothing is "easy" but at least to me working for $20 an hour for the next 30 years is a lot harder then trying my hand at real estate.

__________________
1999 SL500
1969 280SE
2023 Ram 1500
2007 Tiara 3200

Looks like it's commercial then.

Pluses and minus's:

- Large deposit (banks want 30% min).
- Single tenant risk.
- Complex leases and high legal outgoings.
- Slow growth if business market flat (unlike residential)
+ Capital gain linked to rent.
+ Tenants pays building outgoings.

Ken Silver
--------------
~1993 SL500, glistening triple black, xenons, AMG facelift to 2002 style.
~1999 SLK 230 Kompressor, silver/black leather, CD, immaculate
~1999 Lexus LX470 SUV, sand/ivory leather.
~1999 Suzuki Grand Vitara. black & silver.
~ex 350SL, 230E, 280E, MX5, Jaguar Daimler and a lot of other makes not nearly as nice.

__________________
http://www.kensilver.com/newSLsig.jpg

This guy gets deals to come to him. He deals with distressed properties only: http://www.property-course.com/success.htm

Seems to be a better idea.

Ken Silver
--------------
~1993 SL500, glistening triple black, xenons, AMG facelift to 2002 style.
~1999 SLK 230 Kompressor, silver/black leather, CD, immaculate
~1999 Lexus LX470 SUV, sand/ivory leather.
~1999 Suzuki Grand Vitara. black & silver.
~ex 350SL, 230E, 280E, MX5, Jaguar Daimler and a lot of other makes not nearly as nice.

__________________
http://www.kensilver.com/newSLsig.jpg

Also remember with commercial remember the value in the building comes from a tenant. Since a lot of commercial leases are say 10+ years. So you can buy a building without a tenant for $1m, add $500k in upgrades and it may be worth $2.5M rented for 15 years. (numbers off the top of my head of course) The sticking point is you have got to rent it.

Another plus is the tenant usually pays for upgrades, for example they may pave the parking lot so their business looks better to new clients ect.

The major downside is you have to know what you are doing because losing a lot of money can be done pretty fast. How long can you afford to have a $10m office building sitting empty?

Also if the markets really tank the first thing people won't pay is their commercial lease, they will pay on their house until they have to give up food usually.

__________________
1999 SL500
1969 280SE
2023 Ram 1500
2007 Tiara 3200

Commerical and Residential real estate investment should never be mentioned together since they are completly different.

Just more of the same BS. The properties that he describes are available once out of 2,000. There is massive amount of legwork required to find such a property before anyone else. If the deal was so fantastic, one of the real estate brokers would be there ahead of you if he knew about it.

Many times, you can't get inside the "distressed property" and can't perform proper due diligence. It's like buying a M/B on e-bay. Sometimes you eat the bear......sometimes the bear eats you. But, in the case of houses, the money on the line is significantly higher. You can't afford to operate like the glowing statements posted from some of his "students".