I recently moved from an apartment building into an old house between Plaza Midwood and NoDa that’s been converted into a duplex. It’s got two bedrooms, one bathroom, hardwood floors and, most importantly, a yard.
And I’m not responsible for any of it. Not really.
Taking care of the house’s physical condition beyond things like changing light bulbs and cleaning the bathroom falls on my landlord, who’s been in the rental business for years. He’s become quite the handyman, doing everything for the house from fixing the roof to planting rose bushes in the front yard.
In total, he owns three rental units between two houses in the area and, in his late 70s, fills his time with taking care of them. He seems to enjoy it and if he’s ever had a rough go of it, he hasn’t so much as hinted at it to me other than dropping jokes about how being handy gets a bit harder with age.
Often, investing in, flipping and keeping up with a second, third or even fourth property looks easy and fun on channels like HGTV.
That’s causing an “upswing” in real estate sales and a number of people jumping before looking, says Tony Jarrett, regional vice president of Allen Tate.
It’s happening most with properties that are along corridors and in desirable school districts in neighborhoods that are still mostly owner occupied, Phyllis Brookshire, president of Allen Tate, told the Agenda.
When I spoke to one family that has just recently started to dip their toes into the real estate investment and rental world, they admitted to being surprised about just how involved it was.
“We did the research, but there are still things that are surprising us in terms of how involved it is,” they said. They’re hoping to rent out their first property by the end of the year.
“Reality TV shows are making this look too easy,” Jarrett explained. Elements like identifying a property that will provide a good return and rent easily, rehabbing the property and finding a tenant catapults buyers into three different worlds of buying and selling, renovation and renting.
All of a sudden, they’re property managers.
It’s crucial to start with one house at a time, Jarrett says. Doing so will help buyers figure out if they’re cut out for the responsibility or if it’s too much momentum to sustain.
On top of it, a property might not even be profitable.
“Upfront costs will differ, based on price points and taxes,” Jarrett said.
He broke it down like this: If an investor purchases a $150,000 house, they could be looking at $4,000 in total closing costs, a 25% down payment – which will be higher than for a principal residence loan – of $37,500 and mortgage rates that are half a point higher than they would be on a principal residence loan.
And that’s just the beginning.
Other expenses that need to be thought about include property repairs, especially the major, unexpected kind like a water leak or a pipe bursting, utilities, tax rates, HOA payments and, if worst comes to worst, the drawn out and complicated eviction process.
But that doesn’t mean that it can’t be done and done successfully.
Take it from this 28-year-old Cash Confessional participant, who brings in an extra $68,000 a year thanks to four rental properties across town.
Because of the profit he makes, his cost of living is entirely free and he’s even planning to purchase another property to rent out by the end of the year.
But even he says that there’s an “extremely heavy” outpouring of money in order to cover the cost three mortgages and one rental each month.
The key is to understand what you’re after when it comes to investment properties.
“Many people who get into investment have no goals, but want to make a quick buck,” Jarrett said.
That’s not how it works, and if one looks at it that way, they’ll likely lose money or get intimidated by how time- and labor-intensive creating a business like this can be.
And it is a business, he stressed.
That means bringing on a team of legal and financial advisors and, in some cases, a property management firm.
“You must look at these properties as a business, not as a home, which is emotional,” he went on. “You will fail if you let personal emotions lead your property decisions.”