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HeadSet
2009 Sep 17, 3:32am
I was a landlord with 5 single family homes. I currently have only one rental property.
None of the properties had a positive cash flow, when rents are considered agaist the purchase price with 30 year amortized loans, plus insurance, taxes and maintenance. My objective was that even though I may be losing $100/mo cash per house, I would in effect be buying each house for $100/mo. The plan was that by the time I retired, the rents from paid off homes would fund retirement. In the mean time, I would obviously have to work elsewhere to earn pay to cover the monthly losses.
If you think a yearly raise in rent will cut out the losses, not so. The taxes, insurance, and maintenance increased faster than the rents. I bought the homes 1995-1998 and sold 4 of them 2003-2005.
When the bubble hit, I could no longer find good tenants since every qualified person wanted to buy, so I put the homes on the market as each tenant decided to move out. I was certain that house prices in 2003 were at the peak, even more certain in 2004 and 2005, but never sold that last one because the tenant family wanted to remain.
Too bad FAB is not still around. He could give you a perspective on apartment profits.
Headset, your cash flow is negative because you're paying interest on the money you borrowed to buy the properties. You'll be in the black every month, easily, once they're paid off, won't you? The question is how that profit will compare to other investments.
I'm hoping to rent out the condo I own some day. It'll be paid off completely, and the rent I receive should be able to fund my new home.
HeadSet
2009 Sep 17, 11:51am
Headset, your cash flow is negative because you’re paying interest on the money you borrowed to buy the properties.
Don't forget the principle. Even if the interest was zero you would still need to collect total rents more than the cost of the house. Once paid off, yes, I would be in the black. In fact, the one I have left is paid off. It is worth about $220k post bubble, rents for $995/mo, with about $250/mo for taxes, insurance,and maintenance. Some would call that a 4% return.
Your paid off condo will not fully fund your new home with rent proceeds unless you are scaling down. If your new home was equal in value to the condo, you would find the condo would rent would for less than the new mortgage, plus you will have maitenance.
zzyzzx
2009 Sep 18, 2:42am
I would think that if you looked at the financials of apartment REITS, you might get an idea as to how profitable it is.
I know that renting is better than buying for the lessee, but I look at the many apartment complexes where I live, some having hundreds of units and many built 10 or 20 years ago.
I think: gee, that's a lot of revenue. And it's paid off probably.
So, what kind of profit are these places taking in?
I assume of course there's taxes and upkeep, but still.
The typical building here is 3 stories, with two landings and two apartments at each landing. That's 12 per building...and they can range from studios to 3 bedrooms, renting from $700 to $1000. So that's about $10,000 per month when no vacancies, or $120,000 per year, per building.