Aldeer.com Forums Alabama Deer Talk Aldeer General Forum Rental Property

Have owned office buildings, houses, and apartments.
There has to be a certain economy of scale to make it worthwhile, unless you intend to do the management/maintenance/contracting as a part time job. No matter what what the IRS says, real estate is not a passive investment. Until you have 6 or so tenants, a single vacancy can make you feed the investment for the month out of your pocket.

30 or 40 years ago, a very successful local developer told me two points to keep in mind.
First, when you buy a property, you should have 3 possible ways for it to be profitable. You should be able to rent it for a positive rate of return on your investment; you should be in an area that you expect it to appreciate so you can sell it at a profit; and you should have a plan to redevelop it for a profit. That way, you should have at least one way to survive if things go sideways. In truth, 3 is hard, but at least be able to hold it and make money if the market drops

Second, if you can't afford it by yourself, you can't afford a partner. Differing expectations, differing appetite for risk, and differing abilities to absorb expenses will often sour a relationship.

I'd point out that the management companies at resort/beach areas tend to charge multiples of typical management companies. Tenants are daily or weekly at best, and you generally supply linens, cookware, etc. In my view beach property rental is a reasonable way to counterbalance the cost of ownership, but is not generally profitable.


Long term, we seem to be headed into an inflationary period, and buying rental property with appreciating rents may be a good plan. The only question to my mind is whether we are going to see a pullback in the short term, before long term inflationary appreciation kicks in. Right now, houses on the market, properly priced and professionally marketed, are selling in a matter of a few days, often at above asking price. I'm hearing about homeowners buying the new house, and holding the old one "for just a few more months" because they are making so much money on the appreciation of both of them. That kind of leverage can turn on a dime.

I asked a friend of mine how his group had weathered the '08-'09 downturn, and he replied " We did OK. We were never smart enough to borrow 90%, so when values dropped by 20%, we were still above water." Good thing to keep in mind.
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Lastly, you make your money by buying low, not selling high. If you buy below the market, you can always get out at market.