My parents are looking to move closer to us since the are really getting up in age and the wife and I have been helping them look for a home to purchase. WOW!!! Prices are sky high! That got me thinking about folks that buy houses to rent out. How do you determine how much rent to charge? Seems to me, if I buy a home for $260k-$300k, and yes, that’s for smaller, newer homes, I’m going to want to make at least 10% on my money, per year. But, I can’t see who in their right mind would pay that kind of money in rent. How does it work?

Houses I have bought are basically 2 bedrooms and 1 bath brick. Usually 50 thousand will buy a nice one like this. Most of the houses are owned by people who have passed away and kids want to settle the estate and have spending money. Usually we do a quick remodel to get everything in good shape before renting them out. Rent on a home like these runs 500-550 in my area. I would NOT put 250-300 in a rental as folks will simply have no pride in keeping it up. There is a reason renters rent-Most can’t afford a home due to credit. We bought two in the last year for 50 each and they were nice, small homes. Another one in my neighborhood is for sale at 42, but it needs a lot of work.

My plan is to let the renters pay for the homes as they are now. When I leave here my kids will have another source of income to help them out. So far it has worked for me and my wife. Hope this helps.

B

The rule of thumb for rental properties is typically at minimum 1% of the purchase price in rent.
$100,000 property should throw $1,000 in monthly rent.

I've rented houses for a while. Being Military I bought in a couple of places and then got transferred. at one time I owned 3 houses, 2 of them rentals, now I'm down to just 1. Here's the truth, I've rarely "Made money" most of the time I'm lucky to break even when you add in all the property management costs. The best I can hope for is the renters paying to Mortgage while I might make couple hundred a month until the value of the house goes up and I can sell. but one blown water heater and you lost all that in your deductible. I would be hard presses to say people who rent out their house (UNLESS you manage your own property) make very much. if you manage your own property there's more money to be made. I can break down the property management costs and show you, they make a killing.

OH, hey...one more thing...buy here in Selma. Holy crap they're giving away houses...can't figure out why.

Rental rates are driven by demand, not property values so some research and homework are necessary. 10% is the min most folks want, Google search rental rates in the area your looking. Prime real estate with commercial potential, huge demand, or high growth may offset lower cash flow returns.

Would you be happy breaking even for 20-30yrs on 1, 10, or 100 houses? Like any other investment, real estate favors the young investors.

I wouldn’t say everyone who rents does it because they can’t buy. I know a lot of people who have rented while building, or when new to an area before deciding where exactly they want to live. I know people that have rented because they were only going to be in that town for a short time. In Birmingham there are a lot of people that come to graduate school or medical residents and they rent because of the short term time in town.

We are in a rental currently while we build. Moving out at the end of this month. Look around certain areas of Birmingham and you will see crazy rent for houses. Our rent is twice what our mortgage was. But, we had little choice in where we could live due to schools. Also, our insurance picked up the rent until the end of April so I wasn’t really worried about it when we moved in.

Look at Zillow.com and check rental prices in the area you are looking in.

No my smart investment friend...I said--The best I can hope for is the renters paying the Mortgage while I might make couple hundred a month until the value of the house goes up and I can sell. I'm talking less than 7-10 years. Here's what has happened twice: I bought in late 90s, lived in it 4 years, transferred and rented it while I was in another state. The Renters paid the mortgage for 4 years (I actually lost money in the long run), the housing market continued to rise and I sold it for $120k more than I paid. that's how you make money. second example, I bought at the absolute bottom of the housing crash in 2010 in Las Vegas. Lived in it for 3 years, it has been a rental for 6 years, it has tripled in price. I'm about to drop it in the next 3-4 months and will make a lot off it. if you hang on to a rental for 20 years, you're not doing it right, I never said hold a rental for 20-30 years...bad idea.

Ive had tons of rentals. House, duplexes, Apartment buildings and Apartment complexes.

For a rental house we always bought 3 br 2 bath houses in good areas but that needed work. Ive bought some for as low as $56,000 to 68,000 put another $5000 to 8000 into them and rented them for 875 to $950 per month.

Thats over $10,000 a year per house in rental income and our only expense Taxes and Insurance. The renters pay everything else. Those type of houses pay for themselves in 6 to 7 years.

We never use a management company. They have zero skin in the game. Most will put in crappy tenants. We manage all our own buildings.

We just recently started liquidating all our rentals as we are getting old and the property values have gone up substantially. The one we bought for 56,000 we just sold for over $104,900 five years after buying it. I just listed one we bought for $70,000 5 years ago Friday for $132,900.

We did update the kitchen, baths, paint the interior and put in all new floors and put in a new HVAC just before listing it. We did it all for around $20000.

The prices on RE is really going up, thats when I sell.

Rental houses can be a good income producer while you hold them and even better return when you sell them. You just have to buy smart, buy low and stay in a good area. Location is the key to RE.

But look at both the short term and long term game on them and have a plan with both . You can make a lot of money in Real Estate. Ive been doing RE for a living for 30 years and it is the best move Ive ever made.

I'm pretty new to investing but I do know this for sure:

If you pay too much for a rental property as an investor or if your own a house that you bought at market rates and later decide to rent it out...easy to lose money eventually.
If you don't have your rent amounts correct or you have a money pit for a hose with lots of repairs all the time....easy to lose money eventually.
Cash Flow is KING, because you should never count on appreciation within certain markets unless you do a major rehab and can force appreciation. Bad Cash Flow = easy to lose money.


If an investor is getting $1,000 a month in total rent, just assume that 40%-50% will be used for expenses (Property Mgt, Vacancy Allowance holdback, Maintenance, Repairs...then allow for property taxes, insurance or others fees like an HOA, etc). The amoutnt left over is your Net Operating Income (NOI). Then after that you have to cover your debt service (loan, interest, etc) to get your CASH FLOW amount.and if you are smart you will set some back from that for overhead, capital expenses and potential income taxes. One day you are going to have to replace something expensive so if you have a fund designed for that whee a portion of each rent check goes into that fund monthly, you can easily absorb it. Net cash flow is what is left and it needs to be at least $200 per unit to make economic and financial sense. Some California or or Turnkey investors can get away with lower returns because they are just parking money and are ok with lower returns.

So the purchase price point plus rehab costs is the key....plus market and location too. That not only sets your rents but it sets you mortgage which impacts your cash flow.

Commercial rental property is the place to invest. A lot less headaches.

True.

I'd like to hear some details on this. I've got a few residential rentals, but always looking to diversify.

Who pays for renovation? How long are typical leases? Is lease priced per sq/ft? Who is responsible for building code compliance?

Seems to be a lot of turnover on the smaller commercial properties that I'd have to target.

Tripple Net Lease or NNN still have plenty of headaches. Just not as frequent as residential leases.

https://www.calkain.com/properties/