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.