I’m considering investing in a house to rent out longterm or put on Air BNB. The housing market here is cooling off some and it’s possible now to get a decent deal. I’m torn about going into debt to buy one because I hate debt. That part of me wants to pour that money into mutual funds. Anyone have rental experience and care to share your thoughts, tips, recommendations?

Thanks

first hand experience.

It's great until the first time you have to deal with a difficult renter.

Then you quickly exit that business, like I did.

On the other hand I know people who do weekend VRBO's and they say it's a thousand times better than having more permanent "tenants" since the VRBO renters don't have all the legal 'rights' that renters have somehow acquired. If your VRBO renter does something you don't like, you tell them to hit the road. Not so with a month to month renter.

Yup. Depends on what state, I think.
We had a wannabe killer in one of our rentals and couldn’t get him out.
His dad had the lease, and he just kept showing up. Assaulted a neighbor, almost killed him, and it still took us months to get them out. Other tenants in the house overuse heat, water, trash the community laundry area, open windows in dead of winter so the heat just flows out, park extra cars on the property to make it look like a trailer trash yard..and now this year we were forced to accept “emotional support animals”. We don’t take pets because the past tenants invariably let the animals trash the house. And that’s just off the top of my head from the last year. We should write a book.
I’m over it.

Back in 08, I had to relocate for a couple years. Rented my house, I used a manager that was recommended by a realtor. If I remember correctly it cost 10% of the rent per month. They did the credit report and references, etc., if something broke they met with the repairman, made sure rent payments were made. I was too far away to deal with that stuff. Best money I ever spent, if I had a rental, I would use a manager even if I had a property nearby.

quote:

Originally posted by irreverent:
We don’t take pets because the past tenants invariably let the animals trash the house.

Animals are sometimes bad, especially if they are forced to pee in the house over and over again for months at a time, but we found children to be the worst in terms of damage. One renter though nothing about their kid destroying an entire tile faced fireplace. smashing all of the tiles doing thousands of $$ in damage. and good luck recovering any of that money. Another renter thought nothing of his kid destroying an entire bedroom hardwood floor.

it just was no longer worth it. you repair everything and try to provide a nice place and it gets destroyed over and over again.

I have had several clients with rental property. The clients that make money buy low rent duplexes & homes. Manage the property yourself but most important be very selective of the renter. Letting a management company take care of the property may create a non-deductable loss for taxes. Check with your CPA! Also some states do not allow capital losses on rental property.

Pain in the ass but you can make money. I've owned rental property for 40 years and made some good money but there have been several headaches. My last 2 houses I've sold owner financed contract for deed and when they pay off I'll do no more. Of course I'm 74 and now I think hard before buying green bananas.

I've made considerable more money in stock market.

We own two rental houses, one inherited and one purchased. A few things to keep in mind:

1) Pets are hard on a house especially the carpet. I would avoid allowing pets.
2) Kids are hard on a house. Hard to not allow kids, check the local ordinances.
3) If a furnace or AC unit goes out or a roof starts leaking you need to replace it/them post haste. Keep some money in reserve!
4) Rentals are a pain in the ass (at least for us). Watch your agreements with property managers on how and who they can hire for repairs. We stopped using property managers and handle it ourselves. It's not like working on your own residence.
5) Seek legal advice on lease / rental agreements.
6) Background checks, background checks, background checks. Did I mention background checks.
7) Read Radioman's posts in this thread! They are 100% accurate.

I'm not saying not to do it but research the hell out of the financial decision you are contemplating. It's very easy to go upside down on a property, especially if it sets vacant for a period of time.

Speaking from bitter experience… it helps to be a masochist!

I take care of ours, thinking about selling off the next few years.
I’ll married to them, it’s something all the time.

Build good relationships with the HVAC, electricians and plumbers techs, it is a must.

quote:

Originally posted by Hammer1967:
Build good relationships with the HVAC, electricians and plumbers techs, it is a must.

I forgot to mention that. Dang, how could I forget that A good handyman is another really thing to have have in your back pocket for small things that go wrong.

quote:

I’m torn about going into debt to buy one because I hate debt. That part of me wants to pour that money into mutual funds.

Are you talking about investing money you have or borrowing money on speculation?
I’m especially concerned if you’re considering borrowing to invest in mutual funds which is almost a guaranteed looser, but doing that with no experience in real estate investing is also very risky.

quote:

Originally posted by 220-9er:

quote:

I’m torn about going into debt to buy one because I hate debt. That part of me wants to pour that money into mutual funds.

Are you talking about investing money you have or borrowing money on speculation?
I’m especially concerned if you’re considering borrowing to invest in mutual funds which is almost a guaranteed looser, but doing that with no experience in real estate investing is also very risky.

Sorry if that’s confusing. I will not borrow money to invest in stocks/mutual funds. This would be upping current monthly contributions. I would borrow some money for the down payment on the rental house.

I’m leaning more towards going the mutual funds route.

Borrowing money for a down payment in addition to a mortgage sounds like a pretty bad idea.

I had experience with a rental that will be posted again:

A resort rented a unit to two Latin males. When the fire department arrived there were eleven people in the unit. They were roasting a pig in the bathtub and the tub being fiberglass got the firemen involved. This Plumber was involved with the remodel.

you make your money buying is an old adage for a reason. I bought 2 houses in 2013 that tripled at COVID peak. sold 1 outright after a few years rent and sold other on contract. now ain't the best buying opportunity but there are always deals. look for a low down payment owner financed property. personally i'd do mkt.

Make the best estimate you can of income cs expenses. Yes you can deduct depreciation, but that’s tricky.
We’ve had few problems with renters but one was disastrous.
Likelihood of problems depends on the neighborhood.
We have three rental properties. They’ve appreciated very well but in hot markets-San Diego, Phoenix.
We got them in 1031 exchanges to defer capital gains taxes.
Sit down with a CPA and have him help you work out an estimate of income and expenses.
Repairs are a huge problem.
In Phoenix finding reliable landscapers is huge problem.
Most expensive thing is having the place sit unrented when you’re paying a mortgage.
Bottom line: we’ve been lucky but mostly due to appreciation in hit market.

Do your research before jumping in, it’s hard to get out if market turns down.

It can be good, or it can be bad...
Hopfully the current admin won't make the same mistakes, ie lockdowns =free rent???
Yes, it was Trumps first term.
Like all real estate, location location location.

Had a rental a very mixed experience. Got sued by one tenant a "disabled lawyer" who faked an injury. Git a lawyer to get the case pitched. Best advice I got on a rental was "Don't own one, own 10 or none." If your rentals are a full time job you end up with all the resources to handle problems. State and local government rules here are a major problem for the landlord.

Never did it myself but heard horror stories of trying to evict people with kids who stopped making rent payments. Good luck.