Are rental properties worth it?

Ask Nick Saban.

Do it. I have 4 rentals now and love em.

I own an apartment in Iowa. During the real estate boom it was tough. Even then, the losses helped my taxes out. Now it is profitable. I'll likely sell, as real estate is somewhat of a stone tied to your neck, and I'm at the point I'd rather concentrate on my real business.

I do believe tangible assets, including real estate are more important now then ever. We are printing a lot of paper. Printing paper. Issuing bonds. taking the paper we print to buy the bonds we issue. Get where I'm going? Land is always there. There is only so much. While it can be borrowed against, unlike Uncle Sug, you need to pay what you borrow back. And unlike Uncle Sug, you cannot legally print paper. Farmland. Land next to the ocean (within reason).

I just talked myself out of selling.

It all depends on 5 things:
1. your breakeven period
2. your maintenance costs
3. your tenants
4. your tenants
5. and your tenants

If you have shitty tenants that routinely don't pay their rent and break shite, you will lose money. If you manage to only rent to good tenants and charge around market rate, you will make money.

First, you have to look at purchase price, anticipated revenue, filling expenses (how much are you going to have to spend on advertising to keep the units filled), and maintenance costs. Based on this, you can compute your payback period. If that period is acceptable, move on to the next round of determinations.

The next key issue is to look into whether you want to manage the properties yourself or hire someone to do that for you. Managing them yourself can be time consuming, but hiring someone to manage them for you costs money. Also, hiring bad building managers will end up costing you lots of money in both the long and short run. You also need to decide how you are going to maintain your building. Are you personally going to come over there and fix stuff when things inevitably break? Are you going to have a guy for that? Those things cost time and money.

Last is tenant selection. You have to screen your tenants and screen them well. A-hole tenants will cost you tens of thousands of dollars in property damage and lost rent. You can't sue them because they have no money to pay you and will just skip town, leaving you with a destroyed property unit filled with worthless crap that you have to dispose of on your own dime. Running credit checks on potential renters can help, but it doesn't reduce your risks entirely.

There are two pricing techniques to reduce your chances of renting to trash. One is to price your rent higher than the trash can afford. Generally, you do this by adding valuable amenities to attract a higher class renter that will be willing to pay the premium cost to rent for the added comfort. With charging a higher rate, you run the risk of reducing demand after spending a lot of money on upgrades. Empty units can't make you money.

The second strategy is to charge below market value so that you always have a high demand for renters and then pick and choose from them the ones that you think have the best odds not to be trashy people. Credit checks are important in this strategy as well as being able to read people. One thing you must do when using this strategy is create a lease that gives you the ability to easily and quickly evict tenants for any reason and to monitor them regularly to check for damaging behavior. Also, make sure the contract encourages them to call you or the building manager at the first sign of maintenance issues. If they follow that policy, it could save you thousands in maintenance costs by fixing problems before they get worse.

Hey, I hope this helps you with your decision. Owning rental units can be a great source of income or a financial money-pit. It's all in how you manage risk and expenses.

Never had the stomach for it. Several times I've taken tours of potential rentals and after seeing how people treat others property I just couldn't do it;

I know many that are really successful in it and will likely end up with a much higher net worth than I will but day to day I just can't deal with it.

I guess I just hate people and how dirty and disrespectful they are. It takes a special kind of person. and that's just not me.

My next door neighbor is a slum lord. He's been doing it for 40 years. He's got 50 units...all cheap properties he bought for a song.

He said the key is to be handy with repairs and have a good assistant who can do repairs. You also need patience and to expect idiocy with some people. I asked him who the worst tenant he ever had. He said a guy decided to move out of town. The day before he left he chainsawed down a 100 year old hickory tree in the back yard for firewood at his new residence.

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I have never seen any evidence that land is a low risk investment especially over the long term. Also land carries holding costs not encountered in equities, property taxes must be paid just for owning land, insurance against personal liability is required. Then there are things like insect damage to timber, unknown environmental issues, or possible losing the land to eminent domain long before your total return is realized. As far as land next to the ocean, anybody that bought ocean property along the Florida coast 10 years ago would disagree.

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I'm not sure I agree. My Florida real estate has been doing fine in terms of both property value, and income.

Also, not just any rental property is worth it. It has to be the right one.