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investment property novice seeks… uh… what should I seek?
September 2, 2014 7:22 PM   Subscribe

This question is for the Askmefi'ers who own or have owned rental properties in the USA, especially if you've used a property manager to manage it for you. Please tell me everything.

So we're going to be exercising some options this year and the money will need to be invested somehow. I'm interested in using it for rental properties in economically reliable areas as I like the idea of a steady, predictable rental income stream and an asset that I can either sell off in later life, or with any luck, leave to my children.

The area where I live is no good for this plan - properties are very expensive, and I am afraid concerned that ongoing drought is going to seriously damage real estate value in California and the southwest. So it's going to need to be somewhere else and I'm going to need a reliable property manager to be in charge of it.

So my question to you, rental property owning MeFites, is how should I proceed and what do I need to know? I looked at this list which analyzes unemployment and rental property returns, and was surprised by its contents. Maybe I'm just ignorant of what companies are located in these cities…

Anyway. Where do you own your property? Has it worked out in the near term; in the long term? If you have a property manager managing it, how does that relationship work? How much does their fee cut into your profit? If you own more than one property, which one has been the most advantageous (least stressful, highest profit?) I'm definitely not interested in being a slumlord - I am hoping to provide nice place to live to people who will take care of it. I was thinking maybe near one of the big tech company's locations. Is this realistic?
posted by fingersandtoes to Work & Money (10 answers total) 12 users marked this as a favorite
 
I live in one of those areas and it is lousy with houses owned by absentee landlords / unintentional slumlords. Please, if you do this, give your contact info to the owner-occupant neighbors so they can rat out your destructive tenants and series of feckless property managers to you. Sorry if I sound bitter, but I have reason to be. Memail me for more details.
posted by Bentobox Humperdinck at 7:59 PM on September 2


No property manager will maintain your property, aside from simple plumbing calls, etc. For serious upkeep, you had better plan on doing it yourself. So first word of advice is to buy a place with minimal upkeep if you can't tend to it yourself. Second, make sure whatever you buy pencils out. You have to factor at least 25% of rental income for maintenance. Third, buy something that stands out in the crowd. Our motto has always been to make a beautiful place, and you will get beautiful tenants. That has pretty much held true.

We own property in Southern Oregon (a small farm with three houses on it) near Ashland and Jacksonville, and an historic home in SoCal in Laurel Canyon. They all pay for themselves, but the one in Cali earns some seriously good cash. We have owned it for 20 years, though. The one in Oregon is sort of a safe haven for us. We figure if everything goes to hell in a hand basket, that's where we'll head. Our places all require a lot of upkeep, but then we don't work, so we are able to travel between one and the other.

Owning property is a job. I don't know anyone who owns rental property who doesn't commit serious time to maintenance at least once every six months or so. A roof has to be replaced, the hedges need to be cut back, etc. So make sure you buy one where you can look in on it and be able to improve it in between tenants from time to time.
posted by zagyzebra at 8:03 PM on September 2 [1 favorite]


Buying a condo has the advantage that you only have to worry about the maintenance on the interior of your unit (in general).
posted by ShooBoo at 8:39 PM on September 2


There are management companies who do a good job, but no one is going to care about your property like you do.

If you do go that route you want a company who will inspect your property monthly, and who has a system in place for repairs for when things go wrong-and they WILL go wrong. Not to mention you want your tenants screened with a fine screen. Bad tenants are a nightmare like you wouldn't believe.


I looked at your list and my county is one of the top five for renting to millennials. If you decide you want to do this and you are interested in my area the company I work for has a fantastic rental department (I don't work in that department but I have worked for rental departments before and I know a good one when I see it.)

But before you get into this-how savvy are you about houses and repairs in general? Is this something you have experience in? If not, that is where you should start. There are easier investments!
posted by St. Alia of the Bunnies at 8:51 PM on September 2


No no no.

Do not do this somewhere you can not eyeball the property and inspect it regularly.
----

That's just Reason #1 To Find Another Investment.

----

I can go on. And on. And on.

Then, I can add some more reasons why being a casual landlord (especially one where you hire a property manager - OOF) is a really bad idea.

I like you. I think it is AWESOME that you want to make a wise investment.

I'm happy to download a loooooong list of pitfalls if you are not convinced, but basically, unless you or reliable and trusted family have experience as a contractor, landlord, property manager, or especially have worked as a real estate lawyer in the jurisdiction you want to buy, I would not follow through on this idea.

Frankly, if you gave me the money to hide under my floor boards for the next 20 years, it would be safer.

I like you. Do something wiser with your windfall.
posted by jbenben at 10:59 PM on September 2


I know and am related to people that have purchased properties both residential and commercial for investment purposes.

They hate their residential properties as they consume a disproportionate amount of time with regard to their yield.
posted by vapidave at 12:31 AM on September 3


I won't speak of it from an investment perspective, but as someone who lives abroad and owns a residential property in the US:

Do not do this. It is a series of Moderately Irritating Mishaps with Shitty Tenants and Apathetic Property Managers who feel no obligation to protect your investment. It sucks, and you may end up wishing silently for someone to attempt to cook meth in your kitchen so that the whole bloody thing burns down...not that I would, ahem, know anything about that.
posted by Emperor SnooKloze at 12:48 AM on September 3


wow :( such unanimity. All right, I'll reconsider.

I don't think I have the money for commercial property, so I guess that's the end of that.
posted by fingersandtoes at 7:21 AM on September 3


If you still want exposure to real estate investments, consider purchasing mutual funds that invest in REITs.
posted by Calloused_Foot at 11:06 AM on September 3


I am a property manager in California. If you are not committed to seeing a good portion of your rental income going toward maintenance and upkeep and if you don't want to/can't be available to your property managers for consultations when sh*t happens, I recommend that you invest your windfall in another manner.
posted by Lynsey at 11:17 AM on September 3 [2 favorites]


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