Thursday, January 24, 2008

A Landlord Once Again

At the start of last year I had set some goals to buy and flip some houses. I ended up buying 3 houses last year Vs a goal of 4. I had set a goal to sell 3 houses but was unable to even get any offers on the houses I own. I tried FSBO, professional Realtors, and auctions but got no where. So to save myself from bankruptcy, I have rented all of my properties. Right now I have 4 rental properties in my real estate portfolio.

I wrote about my previous experience as a landlord in WV here. It was a miserable experience. Tenants didn't pay their rent, the apartments were usually vacant and difficult to rent, I was awakened in the middle of the night to fight bats or crawl under houses to thaw out frozen water lines and I lost lots of money.

I bought a house 2 years ago and used a lease-purchase method to rent it out. It worked out pretty well. The tenants spent money to upgrade the property, never called me and I didn't have to spend a penny on repairs. They decided not to buy the property after the year and so I got to keep their option money and have re-lease-optioned the property quickly. I should have learned from that lesson, but I had the flipping thing in my head and so spent the greater part of last year losing money trying to sell 2 properties.

In the end I ended up renting out all of my properties using the rent-to-own signs I put on the front lawns. The signs got the tenants, not any other advertising. I got lots of calls and rented each property quickly and higher than market rates with a non-refundable option payment. So far it is working out well. One trash property that I bought is being rehabbed by the tenant. He's put $3K into it so far - re-plumbed the whole house, re-wired it and put in a new bath. I couldn't give this house away when I was trying to sell it and now it's in much better shape and worth a lot more, so if the tenant defaults I'll have house worth much more.

The cash flow on all but one of the properties is positive. I had tried to refinance that property but so far have not had much luck. However, it has an adjustable ARM and maybe with the interest rate cut the ARM will drop from it's current 9.7% interest rate. The only real negative to my current situation is that I have no cash on hand for emergencies or to buy more properties. If the economy tanks and one of my tenants loses a job, it could put a hurt on my finances. Hopefully, someone will exercise their option in the coming year. But for now I remain a landlord not by choice.

2 comments: said...

Why wouldn't the houses sell? Our goal for 2007 was to flip 6, well we came up short as well. First 2 flips flew off the shelf and then we got cocky on the next 2. Still for sale. We blew it on comps and areas... I'd love to blame the market though.

Paul said...

Location and our intitial pricing. Several drive-by shootings occured near the wholesale property in Buffalo and has made it less desireable.

For the property we rehabbed I think we made the mistake of improving a house that was at the high end of the market with outrageous taxes ($8k per year). The price we needed to make a profit would have made it the most expensive house ever sold in the neighborhood.