What is needed before we buy some rental property?

By From page C2 | February 16, 2013

Q: Mr. Jones: I’m retiring this month from the Air Force after 29 years of service. My wife and I would like to invest in some residential homes to help augment our retirement income. Using my wife’s IRA and a small inheritance I have I think we could put down a fair amount of money on a couple of rental homes and probably have a positive cash flow from the start. So with the housing market improving the way it is, we figure now would be a good time to pick up some houses.  My question is a pretty general one; what do we need to know and what should we look out for? Although I have been a tenant many times during my career, I have never been a landlord.
A: It’s nice to see someone who is trying to see the big picture before jumping into property management.  As the previous five years have demonstrated, you most certainly can lose money in real estate, just like in any other business.
Planning ahead is essential.
There are many places to invest your retirement nest egg. But unlike most of them, owning residential real estate requires that you be actively involved with your investments.
If you buy a stock, mutual fund, or CD, you can invest the money and forget about it if you want to. Not so with a rental property.
True, you could get lucky and have some tenants that pay the rent on time and maybe need a few reasonable repairs here and there and act responsibly. Or you could have the other kind that we deal with day in and day out here in the office.
And remember, your stock or CD will never sue you. You have no such assurance from your tenant.
In other words, being a landlord is not a one-size-fits-all proposition, and certainly isn’t for everyone.
So if you still want to venture into the world of real property investing, here’s a few thoughts gleaned from my 20-plus years in the real estate business.
When you are shopping for rental homes, remember that the homes are for tenants who may not have the same appreciation for the architecture and appointments that you do.
I’ve seen many an amateur investor buy a “cute little Victorian” as a rental. Six months later they discover a bad tenant has torn off all the expensive gingerbread, laid waste to the solid wood rope-and-pulley double-hung windows, and broke out the lath-and-plaster walls.
The house you buy should be simple in design, fairly modern in construction, and relatively cheap to repaint and rebuild. Flooring should be resilient. Carpet should be on the dark side to hide stains. Cabinets are best if they are paintable.
Likewise, landscaping should be simple and easy to care for. That translates into playground-tough grass in the lawns, and draught-tolerant plants.
So now you’ve bought a house, completed whatever repairs are necessary, and you’re ready to find a tenant. Unless you really want to jump into this with both feet, my strong advice is that you hire a professional property management company to find a tenant and manage the property. They will take something like 10 percent of the collected rents as their fee, but it’s the bargain of the century.
Their job is to know all of the California landlord/tenant laws and to help you safely avoid running afoul of them.
But at a minimum, pay them to help you find your first couple of tenants. The difference in your personal life between a good tenant and a bad one can be the difference between going on tropical vacations or bankruptcy.
And finally, even if you do use a management company, get yourself a good book on California landlord/tenant law and memorize it. A California company named Nolo Press makes a couple of very good books for landlords.

Tim Jones


Discussion | 1 comment

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  • JeanFebruary 16, 2013 - 11:35 am

    Mr. Jones, Once again, I am impressed with your generosity with your knowledge and in your advice.

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