Even thinking about owning rental property is daunting

#497 in a series of true experiences in real estate
October 2005, Hills Newspapers

Anet and I talk about buying another piece of property. Not something to live in but rather an investment. Prices have gone up and up for years now and judging by the number of people who want to live here, it seems likely that values will stay high.

Also both my kids rent apartments so maybe they could live in something Anet and I buy. We’re out looking at property for sale all the time anyway and since we’ve had this idea we’ve made it a point to go see properties we might be interested in for ourselves.

We’ve run the numbers on quite a few. Figured what cash we’d need to get into something and what the monthly carrying costs would be.

It would cost a lot. We’ve looked at small houses priced as low as $450,000 and at duplexes priced up to about $800,000. Even after renting them, we’d have to contribute a substantial amount of money to cover the expenses. Say, $2,000 a month and up depending on the building.

Of course it is completely possible that in 3 years or 5 years or 10 years, we will see that finding that extra money to support a building would be money very well spent. But in the meantime we realize our cash investment needs to be quite a bit more than what it initially costs to buy.

And we haven’t figured in yet what restoration and repairs for a specific building would cost or where we would get that money. Almost everything we’d be likely to buy would need something – paint, roof, sewer, and maybe more.

I asked Anet the other day what her goal with buying property was. She thought for a minute and said that it had to be appreciation. Isn’t that why anyone buys real estate? Instead of investing in stocks or CD’s, she’d invest in property. Someday it would be worth more and she’d sell and use the cash for something else.

So we added to our considerations how much a building would have to go up in value to make buying worthwhile. And we estimated what it would cost to hold onto the building and how much the expenses of sale would be. The totals were discouraging. Prices would have to rise quite a bit to make our investment good.

Still, not long ago we found a pair of flats that seemed promising. It appeared to need cosmetics but not mechanical or structural work and both units were large, 3 bedrooms with other sleeping areas possible. Kitchens and baths were good, there was a laundry in each unit, fairly adequate off-street parking, and also a pleasant yard.

For my son’s current life situation, one of these apartments would work well. He could share with friends, each renting a room. It’s even located within easy walking distance to his job. Excellent now but probably not forever. At some point, if Anet and I owned this building, we’d need to rent to others.

I started thinking about the difficulty of finding a good tenant for apartments so large, briefly considered what it would be like to rent out rooms individually, and told Anet I didn’t want to buy this one. Too many tenants, too much management, an investment that would be more like owning 6 or 8 units than 2.

Another downside for me is that this building will probably always be owned by investors. It probably cannot be changed into a property that someone who wants a single family house will buy. Which might be fine, but it would be nice to have a building with more flexibility of use.

I already own a rental, a duplex that my husband and I bought years ago before we divorced. It’s a nice building, one I would enjoy living in, and I have very good tenants. But I’ve had my turn with nightmare tenants, people who did not pay rent for months, nor did they leave. Plus they ruined or removed parts of the building. There have been times when I was so frustrated and stressed by being a landlord, I swore I’d never be a landlord again.

Buildings do need maintenance and repair. I am responsible for water heaters other than the one in my own house, plus roofs and refrigerators and fences. Not long ago the tenants in one of my apartments called very upset. They’d been burglarized.

Someone had gone to considerable trouble to get through a locked fence and then break through 2 exterior doors to get inside the apartment while the tenants were out. It seemed so nonsensical and I felt very bad for them because there was nothing I could do except make repairs to the building.

Anet and I did make an offer on one duplex. The day it appeared on multiple listing, we went to look at the outside. We couldn’t go in because the out of area listing agent had not made arrangements with the tenants for showing the apartments and was not going to have any open houses. Nor were there inspection reports available.

We figured that such indifferent marketing was to our advantage, that maybe others would be discouraged and maybe we could buy at asking price or close to it.

No chance. I don’t know how many offers the agent received by fax a few days later but someone paid quite a bit more than list.

We’re probably not going to buy anything. We’re not focused well enough, not truly intent on buying. Which is what it takes. Buyers who are successful devote themselves to the task. They have their money at the ready. They go immediately to see property as it comes on the market.

They’re quick to assess condition and ready to make an offer at the price that makes sense for them to pay. It might take a few tries but these are the people who do buy.

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