Real Estate funding your cruising?

[Paula Adams]

Real Estate

I say "do it" - but be very judicious on the type of residential rental you choose.
Residential rental properties make up a significant part of our portfolio.
We have acquired 13 rental properties since 2002 and still have them today. We, too, lived frugally and took no income from the rentals until they were paid off which took about 12 years. We semi-retired in 2017 at ages 52 and 54 (live aboard full-time but still have our finger in the pot of the work a day world). We have a friend/manager who watches over our properties - manages repairs; gets new tenants. In buying rental properties, factor in the cost of management if you're unable to manage from afar. Develop a solid list of trustworthy tradesmen/women to call on should you have an issue while you're cruising. Always have enough in reserve for major repairs and replacements - you know...the unknowns. Tenants are hard on properties. We did not buy fancy properties. They are very basic 2 bed/2 bath townhomes that have withstood the test of time. Sometimes we have had to layout more cash than normal for a unit turnover. But over the course of time, these cash outlays are minimal compared to the cash flow we get and the value of the properties themselves. Good luck in making your decision!

 

[AlanT]

MY final comment. Reading Paula's post brought to my attention another advantage of RE over other investments. All those who are thinking about or have sold up their dirt dwelling home and are full time liveaboards should give some thought to the exit plan.

The likelihood is that something unforeseen will at some point dictate a return to living on land.

My oldest liveaboard acquaintances had to give up living aboard in their early 90's due to dementia of one partner.

The sad fact is that our boats are depreciating assets, certainly not investments, and while our boats depreciate Real Estate is steadily appreciating. The cost of an acceptable home in 10, 20 or 30 years is likely to be many multiples of current prices (prices seem to double every 7-10 years).

While it is certainly possible to achieve similar investment gains from other investments, being invested in Real Estate provides you with an investment that is directly linked to the price appreciation of a future land-based home.

~A

 

[Seevee]

I'm not a landlord anymore... I hated toilets,termites and tenants when I had them. Many of my friends have done really well with SFH rentals but I didn't want them. During the covid pandemic, I'm REALLY glad I don't have any rentals. Some poor landlords are feeling real pain in their portfolios.

Sailor,


Your toilets, termites and tenants that you hated are a function of picking the wrong tenant and/or the wrong house that will attract a good tenant. I have zero issues with my tenants and NEVER do toilets.



I LOVE my tenants, they are paying off my debts and paying for my boats.

 

[dannc]

...
I LOVE my tenants, they are paying off my debts and paying for my boats.

I said it earlier, but I don't see us ever owning rental property. Too many horror stories, and when I retire, I don't want to hassle, even if managed by a company.

Having said that, I still find it interesting reading about people who have rental properties. Reading these discussions over the years, two things I picked up that I thought were excellent advice was

1. Find the best tenant possible.
2. Once found, do everything one can to keep that tenant.

Course, either of those are hard to do, and depending on local or state laws/regulations, it might be impossible but I thought it was good advice.

Another landlord who manages his own properties and shared this advice. He pretends he is the hired help for the landlord when dealing with the tenants. He never says he is the landlord. That keeps the angst level down for a variety of reasons.

Later,
Dan

 

[Seevee]

Dan,


Yes, good points. And one needs to also "train" the tenant. Often not hard, but be very FIRM on pay on time and take care of the property. I don't let them slide ONE BIT on that, but if they behave, I will later reward them. I prefer to keep them for about 30 years.

 

[AlanT]

I plan to do some work remotely in retirement, like online teaching, and we recently started investing in real estate. We purchased one rental property approximately 18 months ago and have it managed by a property management company so we are almost totally hands off. I don't intend to become real estate moguls but if we can acquire 4 or 5 properties that cashflow a couple hundred dollars a month, that goes a long ways towards helping pay for gas, or slip fees, etc. Not to mention options that the equity in these homes provide. We're being conservative with this, not overly leveraging, and only looking for properties within our budget and where the numbers make sense.

My goal for real estate and part time work is to help cover cruising expenses so that we aren't strapped. It's not going to be fun if we're stressed about affording it and trying to fix everything ourselves because we can't pay for maintenance.

I just reread your original quote and noticed the two bolded comments. I suspect that you will find that most of us could not afford our boats if we paid others for all maintenance. I would go further and say that some of us would not consider 'going to sea' if we did not have hands on experience in maintaining and repairing our boats in order to have the skills ready at hand when the inevitable problems occur on passage. The trick is to consider the maintenance a learning experience and to pace yourself when possible. It can be therapeutic!

With regard to Real Estate. Labor rates in our region are around $200 - $300 an hour for plumbers/electricians and $100 or so for other trades. Again the ability to use some of that new found post-retirement time in the basic maintenance and repairs that we all learn with our own home ownership on your rental properties can make a big difference in the profit you can take out of that business.

I did my own maintenance work including management. The management is frankly a piece of cake. The maintenance work can be a pain and I am very fortunate to now have an arrangement with a family member whom I pay 7% to maintain/manage half my units, and $50 an hour on the others if they need work while I am indisposed/at sea. If I did not have the family member to help I would not hesitate however to do the work myself. The thought of paying a management company to hire a plumber to clean out a sink drain would drive me nuts.

~Alan

 

[Seevee]

I just reread your original quote and noticed the two bolded comments. I suspect that you will find that most of us could not afford our boats if we paid others for all maintenance. I would go further and say that some of us would not consider 'going to sea' if we did not have hands on experience in maintaining and repairing our boats in order to have the skills ready at hand when the inevitable problems occur on passage. The trick is to consider the maintenance a learning experience and to pace yourself when possible. It can be therapeutic!

With regard to Real Estate. Labor rates in our region are around $200 - $300 an hour for plumbers/electricians and $100 or so for other trades. Again the ability to use some of that new found post-retirement time in the basic maintenance and repairs that we all learn with our own home ownership on your rental properties can make a big difference in the profit you can take out of that business.

I did my own maintenance work including management. The management is frankly a piece of cake. The maintenance work can be a pain and I am very fortunate to now have an arrangement with a family member whom I pay 7% to maintain/manage half my units, and $50 an hour on the others if they need work while I am indisposed/at sea. If I did not have the family member to help I would not hesitate however to do the work myself. The thought of paying a management company to hire a plumber to clean out a sink drain would drive me nuts.

~Alan

Alan,


Your rates are BRUTAL... ours are half that, and on the RE stuff, I hire ALL of it done. I'm not willing to work for those rates. On the boat, it's therapeutic and often time critical to do it myself, however, the "cheaper" chores on the boat, I'll hire out if convenient.

 

[Macrophylla]

The responses here seem very well thought out

I’ll throw out another suggestion that I didn’t see mentioned (thought I’d posted this the other day but must not have clicked the button)

Like you I wasn’t interested in the ongoing maintenance and management by owning directly and I was not attracted to the risk of single family homes (if I take on risk I want more liquidity) did a ton of research and spoke with a lot of folks that know a lot more than me.

What we ended up doing for the real estate portion of our investing is participate as limited and now general partners in real estate syndications. These get us into properties and markets we’d never have a chance at individually and all of our investments are made with cash so there is no debt. We are equity investors so their is risk that the project(s) fail or don’t meet projections but we diversify between types of projects and locations. Returns have varied between 4 and 8 % cash on cash and a 1.25x to 4x total return (the 4x was an anomaly) and money is tied up 3-10 years depending on the investment. Still get the tax advantages as a pass through.

We’ve further started investing in timberland and farmland on our own and with debt. The interest rate environment and something with long term income potential for our kids is the primary motivation here. Just wanting that 1400/MBF to trickle down to us lowly land owners ?

 

[AlanT]

Alan,


Your rates are BRUTAL... ours are half that, and on the RE stuff, I hire ALL of it done. I'm not willing to work for those rates. On the boat, it's therapeutic and often time critical to do it myself, however, the "cheaper" chores on the boat, I'll hire out if convenient.

I hear you! I moved to the PNW from Texas. Labor is approx 2X what I was used to there....

Also I should have mentioned what you did - the time critical nature of boat maintenance - . If I had to wait on labor to maintain my boat with 2-3 month lead times I would never get out on the water.

~A

 

[BandB]

Alan,


Your rates are BRUTAL... ours are half that, and on the RE stuff, I hire ALL of it done. I'm not willing to work for those rates. On the boat, it's therapeutic and often time critical to do it myself, however, the "cheaper" chores on the boat, I'll hire out if convenient.

Plus the job he describes of unclogging a sink drain isn't one for which a plumber is hired but a handyman handles at far less rate.

 

[AlanT]

Plus the job he describes of unclogging a sink drain isn't one for which a plumber is hired but a handyman handles at far less rate.

BandB. When you put the maintenance in the hands of a management company you might be surprised by the billing for their outsourced maintenance. Others are better positioned to comment since I have fired maintenance companies on properties I have purchased, but I think it is fair to say that they do not have a reputation for seeking out the most economic solution to maintenance problems. The good ones may have their own handymen who they charge out at reasonable rates but in my understanding of our locale these do not exist locally.

I did think of starting a maintenance/management company. I figured I could undercut the local firms and provide maintenance (which is a deal changer) and still make a decent profit - but I got distracted.

 

[TheDory]

Tons if great info and ideas here. And for the record, I'm not against working on the boat myself. I just don't want to HAVE to do everything myself in order to afford the dream. If we live in the mountains in the summer, and head to the boat for the winter, I may not want to spend the first 2 weeks getting the boat ready every winter for cruising. Things will obviously be different when I'm retired and have more time but I still think it'll be nice to have the option of paying to have some of the work done.

I'll keep looking for properties that meet my criteria. Not easy to find, and may not be possible, but I think worth the effort.

 

[TheDory]

The good ones may have their own handymen who they charge out at reasonable rates but in my understanding of our locale these do not exist locally.

I did think of starting a maintenance/management company. I figured I could undercut the local firms and provide maintenance (which is a deal changer) and still make a decent profit - but I got distracted.

Ours has their own crew for handyman jobs (I've paid around $50) and even when they sent a plumber for a job, I believe he fixed a toilet and a sink issue, it was less than $200.

 

[BandB]

BandB. When you put the maintenance in the hands of a management company you might be surprised by the billing for their outsourced maintenance. Others are better positioned to comment since I have fired maintenance companies on properties I have purchased, but I think it is fair to say that they do not have a reputation for seeking out the most economic solution to maintenance problems. The good ones may have their own handymen who they charge out at reasonable rates but in my understanding of our locale these do not exist locally.

I did think of starting a maintenance/management company. I figured I could undercut the local firms and provide maintenance (which is a deal changer) and still make a decent profit - but I got distracted.

Well, our sister has set up management businesses in SC and in Fort Lauderdale and she is very attentive to costs. It helps that our brother-in-law is a contractor. It also helps that she manages enough properties to justify a good team.

 

[Seevee]

Well, our sister has set up management businesses in SC and in Fort Lauderdale and she is very attentive to costs. It helps that our brother-in-law is a contractor. It also helps that she manages enough properties to justify a good team.

Band,


There's a HUGE advantage if you really know the property manager, and you've got a great set up.



I'm also lucky, my colleague (whom I mentored into real estate) will manage if I need it, and also my SinL will can help and has experience. And I'll use those resources if need, but so far have not.



My colleague manages about 100 homes with a part time assistant, and has some of his own. It's not a hard job if one is organized AND gets the right tenant.



Overall, property managers in general do a horrible job, and I'd argue STRONGLY that one manage his own properties. And, yes, can be done from anywhere in the world.

 

[BandB]

Band,


There's a HUGE advantage if you really know the property manager, and you've got a great set up.



I'm also lucky, my colleague (whom I mentored into real estate) will manage if I need it, and also my SinL will can help and has experience. And I'll use those resources if need, but so far have not.



My colleague manages about 100 homes with a part time assistant, and has some of his own. It's not a hard job if one is organized AND gets the right tenant.



Overall, property managers in general do a horrible job, and I'd argue STRONGLY that one manage his own properties. And, yes, can be done from anywhere in the world.

You do realize how you preach careful selection of tenants to all those who are negative on single family home rentals but then because some property managers are bad you preach against them. I'd go with your part one, of careful selection. You can find excellent property managers, just have to be very diligent in selecting. Just like long term tenants, you can find long term property managers who do very well for you. Exact same principle.

 

[tiltrider1]

This is a four year old thread. I would be very curious to hear an update from the OP.

 

[AlanT]

I am not the OP but I did post several responses along the way. My update follows. At the time of the original thread I owned 17 apartment units in 4 buildings. I managed roughly half of them myself and my son managed the others. During the last 3 years my net return on invested capital has been pretty constant at around 11%. One and a half years ago I sold one building. I had purchased it for $640k in 2016. During my ownership I upgraded each apartment from cashflow. I sold it in 2022 for $1,546k, took the CGT hit and bought a place in Italy. Now I spend half my time in Italy, my son manages all the remaining properties while I am away. So far rental property has been an amazing investment.

 

[mgreen]

Old thread but I feel I should comment on an aspect I have not seen discussed much here that caused me to get out of my Duplex which had been a very good investment. Briefly mentioned was government regulations. Where I live near Seattle, all the regs have move so far in favor of tenants that I don't see how the math will work in the future. You are essentially required to take the first applicant, and can't require a full first last and deposit before they move in. And during Covid, you could not evict for not paying rent. Many renters used that time period as a time to save up money to purchase while not paying rent. I got out as did many small timers. I do however have one friend who found a way to get up to over 800 units, most of them SFHs. The averages work for him, but most of my friends are getting out or have already gotten out of rentals around here. So watch the direction that the government regs are moving in any place you purchase. It is a risk factor out of your control.

 

[dannc]

Old thread but I feel I should comment on an aspect I have not seen discussed much here that caused me to get out of my Duplex which had been a very good investment. Briefly mentioned was government regulations. Where I live near Seattle, all the regs have move so far in favor of tenants that I don't see how the math will work in the future. You are essentially required to take the first applicant, and can't require a full first last and deposit before they move in. And during Covid, you could not evict for not paying rent. Many renters used that time period as a time to save up money to purchase while not paying rent. I got out as did many small timers. I do however have one friend who found a way to get up to over 800 units, most of them SFHs. The averages work for him, but most of my friends are getting out or have already gotten out of rentals around here. So watch the direction that the government regs are moving in any place you purchase. It is a risk factor out of your control.

I have "known" a guy on the Internet for close to 25 years. He owns a bunch of single family homes in California and the stories he, and others, have told over the years regarding tenants has kept me out of residential investments. What has really made being a landlord even more difficult, is as you say, government regulations. In his area, he does not control his property. The government does.

He is selling his residential properties and buying commercial. I think he is buying out of California if I remember correctly. Government rent/housing regulations, and nightmare tenants, are not something I want to deal with, or have impacting, my investments.

 

[Action]

Rental property in AZ has been very good for me.
I do not know for sure and I suspect the regulation is less in AZ than California.

And my rentals are in the higher end of the market. Which means the tennents have more to lose than being a bad actor. A bad reputation is a shadow that does not go away swiftly. Good screening helps as well.

 

[Mambo42]

We owned a house in one country, now sold it and just bought a house in Greece. Since we live on the boat during the summer months we will rent out the house during that period. The same real estate agent that found us the house will also manage the house during the summer season.
In the winter months we either will live in the house ourselves or move around Europe with our camper.

The rental income will be added to a fixed (tax free) ROI of 6.5 % we get on other investments. All of that combined is more than enough to cover all the cost of the boat and for us to live off. We are not big spenders, don't feel the need to eat in high end restaurants, no need to walk around in designer clothes, so we have a comfortable life. We did invest quite a bit in preparing the boat for how we want to use it, but those investments both save money as keep us happy (eg the stabilizers).

 

[MYTraveler]

I do not know for sure and I suspect the regulation is less in AZ than California.

I know first hand (as a landlord in both states) that Arizona's regulations are significantly less complex, less subjective, and less intrusive. Moreover, Arizona's landlord remedies are much more landlord favorable.

California's excessive regulations (which are not limited to residential real estate but really about any field you can imagine), create three different problems, each of which is a huge burden on business, discourages competition, and ultimately does more harm to the consumer than the good that was intended, at least typically.
Those three problems are:
1) the prohibition of the choices a "consumer" (and I use that term very broadly to include those on the employee side of an employment relationship) would gladly make, in a free market. One of the best examples is Uber. Taxi cabs are highly regulated, and correspondingly expensive and limited in supply. You can't drive a cab without a license, and unless you own your cab (and medians are out of the reach of most potential drives), you are burdened with all sorts of employment laws. Conversely, anyone could be a Uber driver and thereby enjoy the freedom of setting their own hours, working as much or as little as they like. Regulators like to believe that the Uber drivers need protection against unfair wages, bad working conditions, etc., completely ignoring that the vast majority of Uber drivers were better off with the advent of Uber. Similarly, consumers started taking far more Uber rides than taxis ever provided. Drunk driving and drunk driving deaths reduced measurably. (Proponents of regulation claim the reduction was due to Covid, but economic studies have controlled for that variable and ruled that out. Besides, it is common sense.) But, California couldn't leave well enough alone, so Uber as we knew it is gone, and if California gets its way it will be gone for good.

2) unnecessary complexity, which results in huge compliance costs -- costs that struggling, new, and small businesses are particularly unable to afford; and

3) vagueness and lack of clarity that creates liability for innocent non-compliance.

Personally, I can't take California any longer. I am on my way to becoming a former resident, but even that isn't easy. In most states, the rule is that the state in which you spend the most time is your state of residence. Not California. The rule is highly subjective, essentially being that you are a California resident if the Franchise Tax Board thinks your heard is in California. There are no objective rules. You can be gone for a year and still a resident. The factors include things like whether you changed your cell phone number to an out of state area code. Owning a secondary residence in California is a killer, even if rarely used and even if converted to rental to avoid the "mansion" tax. Even keeping a boat in California, especially if moored at a yacht club in which you are a member, is likely fatal. So, I will have to move or sell my boat. The real kicker is that you don't know whether you have escaped until you survive an audit, and that could be more than 3 years after your move. If you lose, you owe not just the taxes you didn't pay (and potentially double tax, if your new state of residence has an income tax, though that tax will often be more than 50% less than your California tax), but you also owe interest and penalties.

 

[AlanT]

Old thread but I feel I should comment on an aspect I have not seen discussed much here that caused me to get out of my Duplex which had been a very good investment. Briefly mentioned was government regulations. Where I live near Seattle, all the regs have move so far in favor of tenants that I don't see how the math will work in the future. You are essentially required to take the first applicant, and can't require a full first last and deposit before they move in. And during Covid, you could not evict for not paying rent. Many renters used that time period as a time to save up money to purchase while not paying rent. I got out as did many small timers. I do however have one friend who found a way to get up to over 800 units, most of them SFHs. The averages work for him, but most of my friends are getting out or have already gotten out of rentals around here. So watch the direction that the government regs are moving in any place you purchase. It is a risk factor out of your control.

All very good points and one of my properties is in an area that has recently imposed a number of these tenant centric laws. It will be sold as soon as I line up a 1031 exchange elsewhere.

 

[Seevee]

Overall, real estate is clearly the way to wealth. But it take education and experience to do it successfully.
I do only single family homes and can argue for most of us that's the best way to invest in RE. Multi family and commercial is MUCH harder to deal with, and you have sophisticated buyers and idiots, and lousy tenants.
With SFHs, you have great tenants, and you're buying and selling to users that buy and sell on emotion, not numbers, and do not bring lawyers to the table.
Get some good training and it will pay dividends. My RE provides for everything I need, and continues to grow.

 

[tiltrider1]

Before I got into multi family real estate I feared bad tenants. This fear almost kept me out of the market place. Fortunately, I over came my fear and got in. Then came bad legislation. This scared me and then I learned that there is always a way around bad legislation. I am in Seattle, I am forced to deal with all the stupid rules and I have found a way around each rule that allows me to do what I want. I think fear kills more success than failure.

While I always find the nay sayers to have no experience with real estate there is always the fact that some fail. The biggest reason for failure is getting into a property that doesn’t cash flow. You can’t jump in with the minimum down Hoping that rates go down and rents go up so that you can break Even. This is just stupid decision making and I see it all the time.

Every property I have ever bought cash flowed from day one and I have never looked back. Sadly, timing can be everything. You could do everything right and close the day before COVID and get crushed or do everything wrong and closed in Jan 2009 were everything went right for mult family housing.

 

[AlanT]

Before I got into multi family real estate I feared bad tenants. This fear almost kept me out of the market place. Fortunately, I over came my fear and got in. Then came bad legislation. This scared me and then I learned that there is always a way around bad legislation. I am in Seattle, I am forced to deal with all the stupid rules and I have found a way around each rule that allows me to do what I want. I think fear kills more success than failure.

While I always find the nay sayers to have no experience with real estate there is always the fact that some fail. The biggest reason for failure is getting into a property that doesn’t cash flow. You can’t jump in with the minimum down Hoping that rates go down and rents go up so that you can break Even. This is just stupid decision making and I see it all the time.

Every property I have ever bought cash flowed from day one and I have never looked back. Sadly, timing can be everything. You could do everything right and close the day before COVID and get crushed or do everything wrong and closed in Jan 2009 were everything went right for mult family housing.

I am also very happy with my Multi Fam props which I have been doing since 2013. Just looked at one today as a matter of fact. Prior to that I did two SFHs which were just not for me. To each their own.

 

[Seevee]

I don't mean to say that multi (or commercial, for that matter) can't work. It's just harder, by a significant amount. I can buy some apartments so I have 50 or 100 or more doors. Now I need a management team and have a LOT of tenants.
Or I can buy 20 or 30 AFHs, manage them my self and spend way less time managing them. Have better tenants and they stay for 5, 10 years of more. I don't get quite the better cash flow, but way better profile and long term profits and increased value. No brainer.
Been doing this for over 45 years, and it works.

 

[tiltrider1]

I don't mean to say that multi (or commercial, for that matter) can't work. It's just harder, by a significant amount. I can buy some apartments so I have 50 or 100 or more doors. Now I need a management team and have a LOT of tenants.
Or I can buy 20 or 30 AFHs, manage them my self and spend way less time managing them. Have better tenants and they stay for 5, 10 years of more. I don't get quite the better cash flow, but way better profile and long term profits and increased value. No brainer.
Been doing this for over 45 years, and it works.

We could argue for ever over profits and effort but we all agree. It works.

 

[magna 6882]

The challenge i see for folks is how to get started. I started a business at 20 years old and immediately started acquiring real estate. That was back in teh early 70s.Everything i earned from the business went into investments. First with single family then multi and commercial. Since i was so young i couldn't borrow so had to do it without banks. I then took it personalty then refused to use any bank the rest of my career. I then went into storage. I have three property managers and since covid the business income has dropped 75 percent so close to break even.
My concern is how someone new can get to where i am. I am not sure its possible in this new world. I would like to be able to give advice but i am not sure. The residential rentals have been very profitable but with new government rules i do find some tenants able run up balances of 40 to 50 k before i can get them out. I dont have any dept on anything so it dosnt hurt me but a normal investor would likely loose the property.
The commercial properties seem to remain leased at a triple net with no problem.
The storage sites bring in good income since i am just renting square footage but i have employ managers to get it together since there are so many individuates and personality's.
I think the commercial warehouse is the most reliable. 20 to 60 thousand square ft at a couple bucks a foot at triple net with an escalator.
I wish i had some secret answer so everyone could be successful.
My wife believes my success comes from not ever paying any interest on a loan or credit card. Not sure that's true but that's her advise.