Buy cheap little house for rental property?

14 years ago

How do you figure out whether this would be a little extra for retirement?

My scenario, I am living in a place I know I don't want to stay when I retire in 7 years (or maybe move from to a different job even sooner). So I am in an apt.

Down the road a small cheap house is for sale - not somewhere I'd want to live normally but I was thinking I could buy it, put in 10,000, live in it and when I move hire a property mgr and rent it out as a little extra for retirement.

Now I was just told that typically its not rent that's the benefit but tax write offs. I am single and currently don't have any.....I don't have retirement mapped, I may buy a place to live or RV full-time or a little of both - who knows what the future will hold.

My question is this place is 57,900, will tax write offs and/or rent be enough to give my retirement income a little boost? Or at that level, one small house minus property mgr fees, even worth it? How do I figure this?

It is close to an Air Force Base and a small college so theoretically there is a rental market - however there are also tons of rental properties, a new apt complex tgt students just opened with more under construction, and for houses especially now with people leaving and not being able to sell. I'm not sure its a nice enough house or school system for most military families even though its less than a mile from one gate. Maybe a single airman with a pet....

Anyway its the overall rental money picture as a good thing for retirement I'm trying to get a handle on right now.

THanks

Sort by:Oldest

Comments (15)

fandlil
14 years ago
We're retired, and we considered this too. And we live in a college town. But we decided against it.

Being a landlord involves risks. Crumby tenants who don't pay on time or at all, and who are then very hard to evict because the laws protect them. That's one problem. Then there's the risk of lawsuits. I read somewhere that if you're a landlord, you have to expect to get sued sooner or later. So you need to carry a lot of insurance to protect yourself from that risk. Finding a reliable property manager can also be a problem.

If the property you are considering is near a college or military base, you think you can easily get a tenant. Yes, but drawing from that population base is not likely to get you an ideal tenant -- these are people on the move; they are young and party a lot, and are more likely than average to damage your place.

You might go ahead and do it and, if you're lucky, you might find a nice tenant. But if things don't work out, it could cause you a lot of grief and in the end you may lose money.
Nancy in Mich
14 years ago
Hi Mary,
One thing to consider when looking at a house that cheap is the IRS Standard Deduction. The tax benefit of being an homeowner is that you can deduct interest and property taxes from your federal income tax. BUT - if you buy a house too cheap, the deductible interest and taxes will not be high enough to give you more than you get in the Standard Deduction, therefore, no benefit to you taxwise for owning the house. If it is not a place you would choose to live anyhow, there is NO benefit to having the house.

As for retirement time, I am not informed enough to give an opinion. I do know that renting out our old house - while both of us are still working - is costing us a lot of money in taxes. Even though the rent we receive is only a few hundred more than the mortgage and taxes, we pay a lot in federal taxes for the privelege of earning it. For us, it would just be cheaper to not own the house.
Related Discussions
low maintenance front yard in rental property
Q
Comments (22)
Just to answer a few questions, yes there is a HOA with the original house I posted about, and they have already okay-ed the idea of putting in the gravel - it's not a straight gravel operation by the way, but more along the lines of a Japanese rock garden, with a few plants here and there as highlights. I figured if I lay black plastic underneath, with a bed of gravel above a couple of inches thick, nothing is going to grow through it! A neighbor suggested using Asiatic dwarf jasmine as ground cover instead of the gravel option, while another did suggest perennial peanut. The dwarf Mondo makes me a little leery, as I half imagine the HOA screaming at us that it looks like unkempt grass in need of a mowing! As for the point about using a lawn service and writing it into the lease when we renew it, that is something we've definitely considered for our old home (the one with the pictures above of the rampant lawn) because the problem is that the area is so large that I think it puts the tenants off from keeping it well looked after. As I said, we bought a mower for the property that we wrote into the lease - they just didn't want to use it. The other house that I originally posted about though is a different situation, given that the front yard is relatively small (30' x 35'). The other issue I should have mentioned is that it isn't just case of taking care of the lawn - the present area is really in bad shape, with crab grass, bare patches everywhere, weeds, etc, and really should be replaced. That was our original intention and we had already lined up the replacement sod. But when we realized that the tenants weren't going to look after it, my wife and I looked at each other and wondered what would be the point of throwing all that money down for new sod, only to watch it either go wild through lack of attention, or die because the tenants wouldn't bother giving it the abundant twice-a-day watering needed in the first month - that or we'd have to drive over twice a day to take care of it ourselves. Then I also discovered that the sprinkler system was shot, because what I thought were mere missing sprinkler heads turned out to be crushed pipes from former tenants parking off the concrete constantly and on the lawn (a fact confirmed by neighbors) or what was left of it. So it would all have to be dug up and replaced. Throw all that into the pot, and that's why we started thinking about alternatives that would circumvent these issues, such as a Japanese rock garden with drought resistant plantings and little care required by tenants, or ground cover like dwarf jasmine that needs no watering once established - or so we're told. A last point. Yes, we've had plenty of grounds with both properties to issue evictions, but you know, who wants to do that unless really forced to? Last year the family that rented out our old home went into a divorce, the husband moved out, and the family thus lost their chief source of income because the mother was a stay-at-home parent home schooling her children - AND she had her crippled old mother living with her. Sounds like some kind of cliche, right? They ended up getting three months behind on rent, we even put their security deposit towards the payments (with the tenant's permission) to try and keep them afloat, yet reached a point eventually where we simply couldn't afford to keep making two mortgage payments and were virtually begging this woman to find a job to save us having to evict her. My wife and I just sat there totally stressed and virtually in tears, asking ourselves how we'd ever reached a point where we were going to be forced to toss a financially destitute woman, with her two young children and an elderly grandmother, on the street. To say it was a horrible feeling doesn't even come close, but thankfully her church eventually came to the rescue and she eventually dug her way out of the her precarious financial state. The fact she's letting the house virtually fall apart outside, and all the disingenuous excuses she uses to cover it, have worn down our last reserves of kindness, and we have already told her that three years is more than enough and that she needs to find another place to live in when the current lease runs out. Thanks again for all the response. It's been really enjoyable seeing what everyone has to say on the matter.
...See More
National Grants for Buying Rental Properties, Home Improvement, S
Q
Comments (1)
"They advertise that these "grants" are free!" The people running the "seminar", selling books and pamphlets? If you want the true story, go to the head of the snake. Contact your locla federal agency, site the numerical title and they will give/mail you the information.
...See More
Rental Property Gets Annual Code Inspection
Q
Comments (23)
Again, Brickeye offers irrelevant straw man arguments to support his untenable positions. He said: "I put those examples forward to show exactly how hard it can be to enforce codes." The reality is that once a new construction or remodeling project has passed an existing code inspection, it does not need to be brought up to future code levels. Code compliance that was required at the time of the inspection is all that is required. No one is debating that. No one suggested otherwise. So your reasoning here is baseless. Brickeye further stated: "I do know of jurisdictions that revoke COs at sale of the property and require a new inspection to grant a new CO each time ownership changes." Then Brickeye does not understand the authority under construction and existing building codes that gives the code official just that power. In fact, it happens more often than you would think. It is VERY common for private home inspectors to spot code violations that were missed after the issuance of a CO on, for example, new construction homes, only to have the CO revoked when a code violation has been found that may have been missed in a previous inspection or when the CO was issued based on fradulent information provided by the owner.. In fact, the building codes require rescining a CO in such circumstances. The current owner is made aware of the problem and required to come into compliance. Happens more often that you think. But all this completely irrelevant to the issue. The issue is, that buildings with previously valid COs can fall into a state of disrepair to the point that they become a hazard to the public well being. When that happens, maintenance codes apply, which can a do allow the government to force owners to take actions to correct them. This can be done with or without the permission of the property owner or by getting an adminstrative "search" warrant to enter the property to make inspection when probable casue has been shown to a presiding judge. Properties can be permanently condemned, temporarily condemned until repairs are made, or civil judgements sought against the building's owner. Commercial Builidng and Fire Codes do not require a warrant to search a privately owned commercial building if they are open to use by the public and are inspected during normal business hours, and Codes mandate that commercial building owners must make their buildings accessible for annual maintenance inspections. So maintenance inspections on private structures are not without precedent nor basis in law. Brickeye further commented: "Last time I looked insurance comanies are private enterprises and seem to look out for themselves pretty well." Insurance companies DO look out for themselves when they insure a property or are made aware of existing maintenance problems....but insurers do not routinely make safety inspections of private homes nor are they made aware of hazardous conditions which violate the terms of the insurance agreement by fradulent homeowners, and that is where the problem lies. If the insurer knows that a property is in a state of disrepair, they will insist that repairs be made or one's insurance coverage revoked. If the homeowner doesn't tell the insurance he is violating the terms of the insurance agreement, how does the insurer know? He doesn't, which is why insurance companies FULLY SUPPORT the use of routine maintenance inspections by Code Departments for private rental and other units. It saves them and their majority policy and stockholders money and protects them from paying out on fradulent claims. Deliquent owners who have no mortgages also are likely not to carry insurance on their structures. This becomes a public problem when, for example, there is a fire or building collpase and it is up to the taxpayer to pay for the cleanup. The cry and clamor that government has no business protecting it's citizens from irresponsible property owners is without merit. Government inspections protect the public, protect insurers, and protect other private owners who properties can be devalued by delapidated and dangerous properties. The anarchy that Brickeye suggests is pie-in-the sky and actually the most irresponsible and absurd position, and why Codes were developed in the first place: to protect the public from those who simply just don't care about anyone else but themselves.
...See More
Budget cabinets for rental property (Ikea, Chinese RTA, or ???)
Q
Comments (28)
An alternative strategy, assuming you have the time: craigslist. I own or manage a half dozen rental properties. Mostly I upgrade lighting, etc. , when a place turns over. Over the last decade, I have redone the kitchens in two of the most spacious and desirable rentals, going for good quality used cabinets as opposed to moderately priced but not very nice new cabinets. The first one was a house we were renovating, so I had time to haunt craigslist, ebay, etc. to accumulate the bits of the kitchen while work was being done on other parts of the house. In my prideful frugality, I posted the saga of that kitchen on Gardenweb, at http://ths.gardenweb.com/discussions/2421625/heres-my-recycled-kitchen-show-me-yours The recent one was earlier this year, a pretty large kitchen in a three-unit 1895 building. I did not have so much leisure on this project, but I was able to buy not only cabinets but counters used on craigslist. I cannot say that the results blow me away, but improvement was great, and the worst decision I made was on the floor tile, which is brand new and not cheap but boring. The kitchen put in when the building was renovated in the 1980s had cheap and badly installed tile floors and minimal builders grade cabinets, with uppers only 30" tall in a 9.5 foot high kitchen. The "fancy" bits were a closet depth pantry and an unsealed exposed brick wall where the backsplash would have been been on the non-window side of the kitchen. I do not have photos of the before. For the renovation, I bought good quality maple cabinets with 42" uppers from Baltimore for $2k and a large quantity of used Mont Blanc Silestone from DC, which also ran about $2k with the installation. I used pendant lights instead of cans in the ceiling, because I could not find an affordable cans that work well with such high ceilings. The backsplash tiles -- actually in colors of gold and blue but on such a small scale that they register as textured neutral -- came from Overstock. The several leftover cabinets were adopted via freecycle, along with the original sink and appliances; the leftover Silestone I will use in bathroom of another property. I should say that I am one of those people who likes the idea of designing a kitchen but am a bit too scattered to do it without constraints. The fact of a specific set of cabinets is a context in which other decisions are basically problem solving. This approach would not work for everyone. Some people would say it does not work that well for me either, but I do have fun. Best of luck on your new rental kitchen, whichever strategy you choose.
...See More
iggie
14 years ago
Purchasing such a property for rental could be a nice move or it could be a night mare. First check the local regulations on rental property. Many areas especially those around colleges and military bases have very strict codes governing rental property. Many have very rigid structral standards that must be met before a rental permit can be obtained. Get the place inspected by a comptent home inspector. Next check out the rental regs in your area. If the place checks out and can be brought to code for a reasonable amount, it might be worth the investment. However, a word of warning, renting property is not simpy putting a sign in the yard a chosing a tenat and collecting the rent. The law is structured to protect dead beats and crummy tenants. If you decide to take the plunge make certain you locate a good attorney, because likely you will eventually need him. I have owned rental property and believe me the return is seldom worth the trouble. I was fortunate enough to dump mine, but good luck with whatever course you chose to follow. Iggie
jeff8407
14 years ago
Rental properties can be a very good, but also a very bad investment. $58K sounds cheap for a house, but please consider all the costs to bring it up to rental condition, plus unexpected fees; then, you can calculate your ROI (Return on Investment/Equity).

My guess is that your ROE/ROI numbers will not justify the risk, the time, and the hassle of being a landlord when compared to a balanced investment approach (Stocks, bonds, REITs, emerging markets, overseas markets...)
stargazzer
14 years ago
I was a landlady for 25+ years and I don't think it would be worth it. My husband never sold anything and that included homes that he bought. When we married he had a home and duplex and my home. That was a very good deal for us, because we had low mortgage payments, around $79. each. When I took over, I raised the rent, did all of the inside work myself and my husband did the outside labor, then helped me inside. It was very good income for us but we would never have had that kind of income if we went out today and bought "property to rent" and paid a management company to take care of it. You should have been buying a home instead of renting an apartment and you would have an equity. There is no easy way if you are near retirement unless you get a part time job and work.
hendricus
14 years ago
the deductible interest and taxes will not be high enough to give you more than you get in the Standard Deduction, therefore, no benefit to you taxwise for owning the house.

Interest and taxes and any other expenses are deductible as a business expense against the income. It is possible to have more expenses than income and the loss can be taken against your regular income.
C Marlin
14 years ago
Interest and taxes and any other expenses are deductible as a business expense against the income. It is possible to have more expenses than income and the loss can be taken against your regular income.
I don't believe you can take investment loses against earned income. However, you may be able to carry them forward.
Billl
14 years ago
It isn't easy to generate a net revenue stream from a rental property under the best of circumstances and is nearly impossible if you are using a property management company. If you want to be a landlord, you really need to be the landlord. If you have to pay someone else to manage the place, that often eats up whatever cash flow was available.

As a general rule, you cannot expect for someone to pay significantly more in rent than it costs to cover the mortgage, insurance, upkeep etc at first. The key to making money is to hold the place over time. If you have a fixed mortgage rate, you lock in most of your expenses at today's costs. Over time, rent rates tend to increase, so eventually you should have a positive cash flow. Sometime in the future, you will have the place paid off and then you can just continue to collect rent or sell it and cash out the equity.

Of course, all sorts of things can go wrong in the meantime. You can have major repairs. You can have deadbeat tenants. Your town can overbuild apartments and drive your rent down. Who knows what the future holds? If you are looking for a safe, no work way to make money, rental property isn't the way to go. If you are willing to manage the place and have enough other assets to weather the tough patches, then you may want to look into it further.
devorah
14 years ago
Maybe I'm confused, but my understanding is that (1) the standard deduction has nothing to do with business expenses. That only becomes an issue when you are deducting the interest and taxes on your primary residence. Taxes and insurance on rental property is directly deducted from rental income and (2) business losses are deductible from earned income - they are earned income. Renting property isn't a passive sport. If I am wrong, could someone quote me chapter and verse from the IRS code.
Pipersville_Carol
14 years ago
Sigh. I dream about owning rental property, too.

Ideally, a small house with 1-bedroom apartments in Philly, to provide some income when I retire. Or a condo in Wildwood NJ that could be rented seasonally.

But nobody ever has anything good to say about owning rental property, financially or otherwise.

Are there really NO success stories out there??
jane__ny
14 years ago
I have two friends who have a small cottage on their property, which they rent. They live in the main house and the cottages are about 1/4 acre away. They both own 2 acres of land. These cottages are not legal but people in my area do this all the time. They collect good rent on these places and have been very lucky with their tenants. Both find single adults who are working nearby but live in another state. They generally stay a year or two.

One friend has been doing this for over 20 yrs and never had a problem. The other just started last year and loves her tenant.

So I guess there are happy stories.

Jane
Nancy in Mich
14 years ago
Since Mary intends to live in the home until retirement, the tax code for a primary residence does enter into this scenario.
stargazzer
14 years ago
Ours was a success story, but we didn't buy property for rental. We just kept what we lived in. When we bought a better home we paid the minimum down and kept the old one. The rental is one of the reasons I can travel, own a new home and new car with no payments. The other reason is that I am very good with money management. I just wouldn't do it like OP wants to do it.
Meghane
14 years ago
The office manager where I work is getting rid of her rental home. The previous tenants (military BTW), ripped the toilet off the floor and smashed it causing major flood damage, took a sledgehammer to the kitchen and pretty much destroyed the whole thing, among other things. And this was a "good" tenant who paid the rent on time. She is glad to be getting rid of the house. It cost her $6000 to make repairs; could have been a lot worse.
C Marlin
14 years ago
I am a happy landlord, I've never had damage from my tenants as described here.
But, you need to know your rental market, I make sure to buy in areas with high rental demand. The ones I manage myself are mostly young professionals, good income, but not ready for home ownership, the market is tight so they take care of the property and pay their rent on time and usually stay for several years.
My apartment buildings are managed professionally, with tight guidelines, there are more hassles but I don't deal with them personally.
Personally I don't buy single family homes for rentals, for me the numbers don't work. I buy at least two units at a time.

Buy cheap little house for rental property?

Comments (15)

fandlil

Nancy in Mich

Related Discussions

iggie

jeff8407

stargazzer

hendricus

C Marlin

Billl

devorah

Pipersville_Carol

jane__ny

Nancy in Mich

stargazzer

Meghane

C Marlin

COMPANY

BUSINESS SERVICES

GET HELP

CONNECT WITH US