There are many so called RE investors that pretend to cash flow, and they are not calculating any of the soft expenses. Management, Vacancy and Maintenance are the big three. Maintenance being a thing you can put off, and see profit, but it is in actuality deferred maintenance. I allocate 10% of rents towards maintenance in my budgets, 5% for vacancy, and 7% for management. And I expect ~15% ROI if I make the purchase.
Most of my time in regards to the rentals is spent on turning apartments. Bringing them back to as close to 100% as possible. Sometimes it takes only a couple of hours, sometimes a bit more. I turn many in a day, and often have zero vacancy between tenants. But it is a bit hectic with a full time job. If it is much more than a few hours, I have a damage deposit. I can paint with the best of them, and can fix most anything any handyman can.
When a renter is in, I would guess it averages well less than one hour per month, per tenant. A property manager who charges $80 on a $1,000 a month rental would not put in any more time. I have seen contracts with some of the big property managers that say monthly fee includes 4 hours per year of on premise time, other than the initial move-in/move-out standard items – which are also additional charges.
With better tenants, property management is easy. The tenants know what to do, and what to expect. It is easy to get good tenants, you have to know how to price right, market effectively, and know what a good tenant looks like on paper. You can always increase demand by lowering price.
I also manage the premise for a condominium complex which I own most of my properties. It is a paid position, and I screen all of the tenants, and approve or reject, so I see a lot. Landlords that have horror stories are landlords that hire inexperienced property managers, or went into a business they knew nothing about. I have had horror stories too, but I am a fast learner.
In the past few years, my NW has gone up considerably. I have purchased a property each year since 2008, six in total. The one in 2013 was a flip that cost ~80 hours, and came in with a $53K profit after three months, split with a partner. Each building that I kept for a rental required at least ~$100K in down payment and initial set up. Each time I bought a new building, my cash position was about the same as the year before. Over the year it had built up to where it was. With the flip, and no additional cash outlay for new purchases (yet), I have seen a dramatic increase in my capital available. I like the art of the deal, it’s in my blood.
This major increase in capital has happened over the past several months, especially after the sale in January 2014, so that I can finally see that FI and Retirement is in my grasp. But because it is fairly recent, it’s still a bit hard to believe it is there. Having a real job and doing a deal on the side is easier, especially if I need another mortgage. Even a retirement house needs lots of cash, or solid proof of income to get a mortgage. A W2 is an easy proof.
This post was probably more about rental property strategy, than retirement, but it does expand on some of my hesitation about pulling the plug for a one way trip into financial independence and retirement.
What is your strategy for Financial Independence or retirement? Do you plan on any rental income to help out your plan?
Kim’s Comments: Wow, Eric is much better at house flipping and finding partners than me! We fully expect rental income to pay for many of our expenses at least until age 59.5.
Eric is a landlord that owns 24 rentals. He also manages a property for another investor, so he has 25 renters to track. In addition to the renters, which many people would already consider to be a full-time job, he also has a real full-time job, as a data architect at a major bank. In his spare time, he also runs a small mowing business and plows snow with his Ford F350 Diesel.
Other than that, he just loafs around the house and blogs…
Eric says the secret to minimizing the work in his rentals is attracting and recognizing great tenants. Read his blog to find out more athttp://nononsenselandlord.com/
He has a lot of tips about managing property and financial independence.