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Question for landlords - How do you pay yourself back?

1,828 Views | 9 Replies | Last: 3 yr ago by Tex_Ag_2017
Mhickerson09
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I recently bought my first rental in mid-2020 and wondered how other landlords handle their equity. My bank required 25% down and so far, other then the occasional tool/supplies purchase I have not started paying myself back. My plan is to buy another rental at some point so my initial thought was to leave the money in.

Another related question; I'm getting into rentals as part of a way to diversify my retirement planning. I currently invest 10% of my income into the stock market. Should I consider splitting that and have some go to an account that will be used for rental investments? I know this is more of an investment board question but wanted to see how others in the real estate market handled it. Thanks.
schwack schwack
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Ahhhhhh....something to get my mind off the possibility of frozen pipe trouble tomorrow during the thaw...

Everyone's situation is different. In fact, vastly so. Hard to give advice but I can give you some things to think about. With one rental & a mortgage on it, there won't be much payback for years. Pretty much any profit after covering your mortgage/tax/insurance should probably be held for maintenance & repairs.

So many variables: your purchase price, renovations, rent amount, etc. go into it & your long term strategy. Once we started buying rentals as our retirement plan, it became apparent to us that we were doing better on those than some stuff in the stock market. Our investment guy agreed & we left our initial investments there and have not put much into the market the last few years. Instead we've paid cash for some undervalued properties that were in great neighborhoods & needed tons of work. We did/do most of it ourselves and our "all-in" per property is relatively low, so we tend to re-coup our total investment pretty fast. Location & ability to do most of the work ourselves is the key to our strategy.

For example: our first property was a 4 plex bought in 2015. $95K cash purchase - needed TONS of work but had some great bones & in a quiet historic district surrounded by beautiful homes, put about $50-60K in. Did not renew leases as they came up & renovated each apartment as they became available. Rents went from like $400 to $775 (we are in a small town with no big employers so rents are & will always be lower than urban areas). That property has paid for itself & now that rent money can be used for whatever. We now have the 4-plex, 2 duplexes & 6 SF.

Sometimes your focus will change as things get going. Prices here have gone up dramatically since then - we are priced out of the market for the time being because rents are fairly stagnant here. We loved our mutli units, but because there have been new apartments built that have given more of our typical renters the choice of having a weight room, spa, pool, etc., we won't be looking at any more of them. We are actually going to turn one of the duplexes back into a single family because the market for 1/1's is just not what it used to be & our larger, single family units keep tenants for longer, too. We have another house that we bought to renovate & rent but we're not even done & have a strong verbal commitment from a buyer at a great price. It's never been our strategy to "flip" but my point is that it's good to continually assess your market & take advantage of the changes.

Good luck! Hope this helped, but, again, everyone's situation is so different.


Three Twenties and A Ten
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schwack schwack said:

Ahhhhhh....something to get my mind off the possibility of frozen pipe trouble tomorrow during the thaw...

Everyone's situation is different. In fact, vastly so. Hard to give advice but I can give you some things to think about. With one rental & a mortgage on it, there won't be much payback for years. Pretty much any profit after covering your mortgage/tax/insurance should probably be held for maintenance & repairs.

So many variables: your purchase price, renovations, rent amount, etc. go into it & your long term strategy. Once we started buying rentals as our retirement plan, it became apparent to us that we were doing better on those than some stuff in the stock market. Our investment guy agreed & we left our initial investments there and have not put much into the market the last few years. Instead we've paid cash for some undervalued properties that were in great neighborhoods & needed tons of work. We did/do most of it ourselves and our "all-in" per property is relatively low, so we tend to re-coup our total investment pretty fast. Location & ability to do most of the work ourselves is the key to our strategy.

For example: our first property was a 4 plex bought in 2015. $95K cash purchase - needed TONS of work but had some great bones & in a quiet historic district surrounded by beautiful homes, put about $50-60K in. Did not renew leases as they came up & renovated each apartment as they became available. Rents went from like $400 to $775 (we are in a small town with no big employers so rents are & will always be lower than urban areas). That property has paid for itself & now that rent money can be used for whatever. We now have the 4-plex, 2 duplexes & 6 SF.

Sometimes your focus will change as things get going. Prices here have gone up dramatically since then - we are priced out of the market for the time being because rents are fairly stagnant here. We loved our mutli units, but because there have been new apartments built that have given more of our typical renters the choice of having a weight room, spa, pool, etc., we won't be looking at any more of them. We are actually going to turn one of the duplexes back into a single family because the market for 1/1's is just not what it used to be & our larger, single family units keep tenants for longer, too. We have another house that we bought to renovate & rent but we're not even done & have a strong verbal commitment from a buyer at a great price. It's never been our strategy to "flip" but my point is that it's good to continually assess your market & take advantage of the changes.

Good luck! Hope this helped, but, again, everyone's situation is so different.



Excellent advice to the new investor OP (and I'm sure others who will read this)!!
Mhickerson09
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Thank you schwack! Your advice has helped in previous posts of mine. My market has steadily climbed and I think I got lucky finding the house I bought. Whenever I run numbers on what things are selling for right now I dont see how it ever cash flows.
Sooner Born
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I just got into the rental game about four months ago. My plan for payback is none. I hope to eventually use the cash flow from this property plus some additional monies to buy a second and then a third, etc. I'd love to get my rental property count to somewhere between 5 and 10 over the next fifteen years. If I can do that, I should be in a position to retire and it would give me something to do and a way to generate income until I could draw on all of the tax-advantaged retirement savings I have.
schwack schwack
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That was exactly our plan in 2015 & we retired 2 years ago.

Three Twenties and A Ten
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That's great to hear that your strategy paid off fairly quickly!

I'd be curious (if you're willing to share), how old you were/are @ retirement and if you were able to fully retire off your rental income?

Thanks again!
schwack schwack
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Quote:

I'd be curious (if you're willing to share), how old you were/are @ retirement and if you were able to fully retire off your rental income?
We are 63 & 53 and we retired 2-ish years ago. Ran our own business in Dallas - so our retirement is what we put back over the years, invested in the stock market & now rental income. No pensions.

We have never been super spendy, but never painfully frugal either. Always bought barely used CPO vehicles that came with extended warranties, etc. Everything we have is paid off. Our house is very comfortable, but not the fanciest in the hood.

We've seemed to luck into a lot of things over the years. For instance, when we were just starting out, an old AG sold us our building in Deep Ellum when there was no way we could have gotten a bank loan & he owner financed until we could - ALL BECAUSE I WAS AN AGGIE!!! That property has really appreciated & will be a part of our retirement nest egg when we eventually sell it.

We are hoping that the rental income will continue to be our spending money. However, our long, long term strategy is to sell one a year (capital gains - yikes!) if we ever need money.

That's us in a nut shell.



edit to add: I should mention that we didn't have kids, so we didn't have the expenses that a lot of you have/will have.
Tex_Ag_2017
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My advice would be to get into short term renting. We started approximately a year ago and it has been great. Instead of cash flowing $150-$200 a month, we are looking to cash flow $1000 in the slow months and hoping to get up to $2000 cash flow this summer. My wife does the cleaning and I do the lawn and other maintenance so that helps cash flow some but once we are comfortable, we will hire a cleaning staff to go over after each guests and change the linens and clean. It will only decrease cash flow $300-$400 a month so still doing well. If interested, I learned a lot from watching "Airbnb Automated" on youtube and following his facebook group. Only thing I do differently is I bought my home. He rents from landlords then leases from there through airbnb and vrbo, etc.
AgCPA95
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Tex_Ag_2017 said:

My advice would be to get into short term renting. We started approximately a year ago and it has been great. Instead of cash flowing $150-$200 a month, we are looking to cash flow $1000 in the slow months and hoping to get up to $2000 cash flow this summer. My wife does the cleaning and I do the lawn and other maintenance so that helps cash flow some but once we are comfortable, we will hire a cleaning staff to go over after each guests and change the linens and clean. It will only decrease cash flow $300-$400 a month so still doing well. If interested, I learned a lot from watching "Airbnb Automated" on youtube and following his facebook group. Only thing I do differently is I bought my home. He rents from landlords then leases from there through airbnb and vrbo, etc.

I've have long-term rentals and have considered doing this at some point, but would look to be 100% passive outsourcing cleaning, lawn care and maintenance. I know this could be location dependent, but how many "turns" are you averaging per month? When scratching out numbers before, I had the outsourcing of cleaning x number of times per month, plus and other maintenance being well north of $300-$400 per month. I would think cleaning alone would be more than $400 on its own but maybe my rate per clean or the number of turns is way off. Not discounting what you are saying, just trying to learn.

Thanks for the intel above.
Tex_Ag_2017
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I was able to find someone to clean for $95 per clean. In the winter off months, we typically turn it over 4x per month. Summer is much higher but after learning the airbnb automated pricing structure, I've been able to get more longer stays which ultimately make you profit more. I would advise against a hands off approach to short term renting. It is best to be the one communicating to guests, solving problems, and pricing it based on what you want to make. No one will care as much as you do. I highly doubt my cash flow would be the same if I had a company manage it for me. I hope this helps. Email me if you need to. It's in my bio.
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