Over Thanksgiving holidays we met up with a family friend who is a very successful real estate investor. She has millions of dollars of property both here in the U.S. and internationally. We started talking about investing and here are some of the points that I recall:
Get started as soon as possible. When she found out that we were without kids, making a decent income, and still renting, she looked at me like I had three eyes. I think most successful real estate investors are like that. When I explained that we’d be moving in 6 months, she still said that we need to start as soon as possible. Think long-term, but get on that property ladder!
Learn more about taxes. If you want to have rentals, you need to keep great records and take advantage of all the numerous tax breaks. She said she once took H&R Block’s income tax course and it was the best money she ever spent. That way, it forces you to examine all the byzantine forms step-by-step.
Manage a property yourself at least once. Even though she uses property managers now, she believes that it is very important to know what property management entails. That way, you know what to look for in a property manager yourself, and what they should be expected to do and how much things should cost.
It’s good money, but not easy money. We then turned to tenant horror stories. Besides just not paying rent, she had tales of finding someone to fix bullet holes, and tenants covering up blood stains with area rugs. If you don’t have thick skin or work well with others, you will hate being a landlord. It’s definitely not for everyone.
There was more about financing ideas, but overall, the talk really got me buzzed about owning a rental property. I just spent some time looking at 4-plexes, as she says that’s the sweet spot for good rental income and reasonably simple management. It’s also unlikely that all 4 units will be unoccupied at one time. I confirmed this by seeing that the mortgage-to-rent ratios on most 4-plexes were significantly better than that of single family houses. Try searching Craigslist in your area, it’s fun Usually the existing rental income would cover the mortgage payment, even before taking into account tax deductions. Adding in insurance, repairs, property taxes, and such would probably tip it into the cashflow-negative column slightly.
I also looked into H&R Block tax classes, but for some reason I only got classes in Kansas City. Tomorrow I’ll try to find a few good books instead.
By Jonathan Ping | Real Estate | 11/28/06, 3:16am