You might check into the rental laws of your state and see how to handle those who destroy or don't pay. You would need to look into tax law, liability and insurance to help protect you against liability, maintenance costs, and so on.

Continual headache. All the onus of homeownership without getting to live there. You could luck out big time and get the perfect tenants who keep the place clean and nice, pay on time every time, maintain the garden, and don't destroy anything. Rare as hen's teeth, but it could happen. At the very least, you'll be hiring the deep cleaners between tenants, painting about every seven years and changing the carpet every 7-10 years. You should also provide basic yard work (gardener) and monthly pest control. You'll also need enough reserve cash to deal with it when a tenant stiffs you, when you have months with no rent because you have to make major repairs, etc. Have a lawyer before you need one, and post a 3 day notice whenever you aren't paid. Evictions can take months and tenants know all the tricks for living out their time for free before the sheriff puts them out. Those kinds of tenants will also strip a place, including a built-in wall oven.

The least headache real estate investment is an REIT.

If you want to go into rental housing, start with an 8 or 10 unit apartment building, where you'll have a resident manager to worry about the small stuff, and the middle of the night plumber, and unless you live in a very seasonal area ,you shouldn't have more than one unit vacant at one time, keeping the cash flow much better. The same kind of tenant issues happen, though a good nosy on-site manager can often sniff them out before they become extreme.

one of our kids friend, when he got married, bought a home near us...they decided to keep it, as a rental...(holding co does the "work") it was rented right away...but now they've moved out, and it's going on a month + empty... each month (unless it's paid for) is costing 2 mortgage payments...like Lucille said, be very aware of local laws, ect...and remember no matter how good the renters are, upkeep is YOUR responsibility....

I've seen the inside the small home, large lot, so it's NOT for everyone...

Whether successful or not, it is a continual headache. The question is whether the headache is worth it or not.

All depends on location, location, location, meaning the demand for rentals and what you can command for rent.

I've been a landlord and I will never NEVER NEVER (did I say NEVER?) own rental property again. Even the "best" tenants starting out can turn into nightmare renters: bouncing rent checks, refusing to pay rent, demolishing walls/ceilings/ceiling fans/light fixtures, not mowing the yard (it was stated in their lease agreement that they were responsible for yard maintenance), etc.

We have friends whose full-time job (together) is rental property ownership. They're constantly on-call to fix plumbing (even if the renters are the ones who clog the drains), HVAC, appliances, etc.

My father and uncle owned a small apt building when I was growing up. It only lasted as few years because it was a constant headache. I think your $ is better invested elsewhere.

1. Incorporate as LLC or S corp.
2. Choose tenants carefully. Interview them where they live.
3. Get five years financial history and work record.
4. Review a lease, late payment fee schedule and terms of eviction notice and get signature.
5. Collect security deposit which consists of first months rent, an extra months rent and upfront estimated utility bills. You can return the security deposit "if" they faithfully execute all parts of the lease agreement.
6. Cover all appliance operations, filter changes, hot water temp, HVAC, washer/dryer, range, refrigerator, microwave (if built in).
7. Purchase rentals in high wage areas or upcoming yuppy districts like Short North, Columbus, OH.

We have wonderful tenants in our two condominium units.

Net return on two rentals in Powell, OH: $11,500. You won't make that in the investment market and don't let a broker tell you otherwise.

Choose the property and choose the tenant and you'll probably have a profitable, peaceful career in personal property management.

It does depends on the market where you live. Yes there are headaches and I wouldn't advise it for anyone who isn't "jack of all trades" handy. If you don't know how to do most repairs and remodeling etc. yourself, forget about it.

I will never accept section 8 and I screen carefully. The rental agreement I have tenants sign is like a book. I allow dogs but never cats. It's not that I don't like cats but they are far far more destructive than dogs. You cannot get cat urine out of drywall or flooring.

My family and relatives have been in the landlord biz all my life. For my parents it was just a bit of extra income. My uncle grew his investments through real estate and did very well at it. The next two generations are now running the business. They have apartments and condos and are quite well off.

You have to be tough. You can't cut slack or tenants will work over you. You need to learn landlord tenant law to protect yourself. There are NOLO books available. Study them carefully. Know your local laws. I will never own rental property in my own city. Never. It's not landlord friendly.

In our case I wouldn't say it has been a continual headache, more like a a sporadic severe migraine that can come on at any time. We bought a duplex in a good location in a nearby town specifically as a rental investment. At the time one half was occupied by an elderly woman and two of her ~50 year old sons. She has been there for about 18 years.and while she is not the very best tenant you could hope for (she and her sons all smoke continuously) they are pretty close to the best you could hope for (knock on wood)

The other half was occupied by a single mother whose daughter had lived there but who went off to college the fall before we bought it. The sellers originally claimed that both tenants were on time with their rent, but then couple of days before closing they "just realized" that she was about $3000 behind on rent and wanted us to pay them that amount at closing and then it would be on us to collect from her. (Yeah I don't think so)

After we closed she was on time the first month, late the next month and when she was late the next month we asked her to move out at the end of that month, one month before the end of her lease (using a "pay rent or quit notice" that followed state law) She decided to move out, and did so, and even cleaned the place well, and paid the rent she owed including the late fee as stipulated in the lease. So even this "headache" was relatively mild. Once we finally convinced the previous management company to send us her original deposit, we sent the entire amount on to her.

We started getting the place ready to rent again, patching, priming and painting and decided to remove the sheet vinyl in the dining room and kitchen since it was in pretty bad shape. Upon doing so we discovered that subfloor was soaking wet, delaminated and rotted.from a hidden leak in a drain pipe in the kitchen. It was similarly rotted in the bathroom. Of course to remove and replace the subfloor, you have to remove everything on the subfloor: tub, toilet, kitchen cabinets, partition walls. As we realized the scope of work it needed we decided that we ought to make the place nicer so that we could get more rent (which of course would cost even more money) We installed a stacked washer/dryer with a new hookup in the hall closet, removed the oil-fired furnace, had a heat pump installed (which would also be an AC), had an upgraded electrical service installed to handle the increased electrical needs, completely redid the bathroom, the dining room and the kitchen, including a "new" full-sized stove, a "new" dishwasher and granite countertops.

If we had contracted for all of this to be done it likely would have been $30K-$50K (as a guess) but since most of it was DIY it was more like $10K-$12K but it took from April to December. Luckily we found a good tenant shortly thereafter at a rate of $925/month whereas it was $685 before, and he has renewed for a second year.

The TL;DR versions is:

• We got the property at a pretty good price (where the monthly rent x 100 was approximately equal to the purchase price)

• We bought the place outright rather than having a mortgage

• We inherited a good tenant so we had income from one half while we were working on the other half

• We live in a state where the laws heavily favor the landlord rather than the tenant.

• The laws also allow DIY work on rental property (some states don't)

• I'm skilled enough that doing such a massive renovation DIY was feasible.

So at this point I'd say it probably has been good investment, especially compared to where the money had been previously parked. (A money market account earning less than 2% interest) Comparing it to other possible ways the money could have been invested is harder. Given the hindsight that during the first year we owned the duplex the stock market did extremely well, we might be behind where we otherwise could have been. The second year was probably better then the imagined other investment would have been.

Other messages that were posted while I was writing my lengthy one are better. Read them, and save mine for a night when you are having trouble falling asleep. :-)

Little different take and not my own experience, but my nephew and his wife bought a foreclosure (single family home) in their town, cleaned it and did some updating, rented it. They use a property management company for a reasonable fee thus avoiding the smaller problems. Renters are required to have referrals and I've never heard of them complain about any major problems, my niece in law tells me rent check is like clockwork, no issues. He also inherited farmland with a newer house when my Sis's ex died. The land is leased to neighboring farmers, the home (with pool, stables) rented and its on the other side of the state from where they live and still manageable. They aren't becoming rich on either property, but its a nice supplemental income when they anticipate 3 children in college at the same time within the next few years.

My father-in-law has long owned and rented out a house in Connecticut where the laws are more in the favor of renters. A tenant stopped paying rent and it took about a year and a half to get the tenant to move out. So be sure to acquaint yourself with the laws in your state (and locality)
Another thing I haven't seen mentioned that was an unwelcome surprise. Doing your taxes will become much more complicated, certainly as compared to the incremental increase in complexity for other investments.

Re screening tenants, remember that you can't choose a nice older lady against a young family just because you think she'll be an easier tenant. If you can find anything about her credit and work histories, or about their previous bad conduct, so that you can prove an objective reason to prefer the old lady, fine, but by current law, it's illegal to choose tenants for any emotional reason like "they're a better fit" or "I like them better". These are dodges used to cover discrimination so egregiously that they're disallowed.

We are landlords, have 5 small places, yes there can be problems but for us it's a good addition to income....

Re screening tenants, remember that you can't choose a nice older lady
against a young family just because you think she'll be an easier
tenant.

Did someone suggest that?

They're also good for retirement income and for tax implications, re: inheritance for your kids, if you have them. Put the rental in a trust.

They're also good for retirement income and for tax implications, re:
inheritance for your kids, if you have them. Put the rental in a trust.

Good advice. We consider our condo units as nothing but an income producer. It's about the income, not ownership. Some folks around me choose to put their money in BMW's and Land Rover's. No thanks!

I'd much rather drive a BMW than own rental property. We *did* do all of Brushworks' suggestions, and *still* ended up with turds for renters. Stellar credit, strong work histories, etc.

Re screening tenants. I don't think anyone suggested this. Its just something that a novice landlord needs to be aware of to avoid running afoul of the law. I think many new landlords might feel, "Its my place, I own it, I should be able to rent it to whomever I want." Pillog's warning might help to avoid a potentially costly rookie error.

I'm only sure that we didn't do illegal screening because the first potential renter who might have been a not-great candidate (she said that the rent was at the top end of what she she could afford.) decided that the apartment would be too much of a stretch financially. The next potential renter to look at it decided on the spot he wanted it, and a check of his credit, work history and previous rental history contained no red flags so we rented to him.

I could buy two BMW's if I wanted. However, a good financial plan depends on appreciation, not depreciation. Remember, rental properties are a business, not a hobby. If you're not a business person you should avoid it and other businesses. Buy cars instead.

My late DM was a real estate broker. She invested in two SFH's. One was a small ranch on a small lot. One was an old farmhouse on a large lot. The ranch was no problem; the tenant's contract was "rent-to-buy", and she fulfilled it on time.

The farmhouse's value was the land. The house rented cheaply -- barely enough to cover the mortgage and taxes. A tenant had to agree not to expect major repairs. My DM had thought the land would pay off many years before it did. She'd thought the widow who owned the adjacent farmhouse would sell in a few years. In fact, my DM pre-deceased her, leaving the property (in trust) to us.

We tore the house down as a nuisance two years before the adjacent owner died and her heirs were ready to sell. The two parcels were marketed as a package. It took another two years year for a builder to get a zoning change, but there was a decent return to us after he was allowed to build 11 townhomes.

The farmhouse resulted at least one 'story'. My DM had to evict one tenant, an alcoholic woman. Rather than leave, she attempted suicide the night before eviction. She got drunk, turned on the old gas oven without lighting the pilot and laid down to die. The house was so old and drafty that the gas had mostly leaked out when the sheriff's deputies broke in and woke her in the morning.

DH and I are out of the SFH rental biz. We reinvested the farmhouse proceeds in a Maui condo zoned for short term vacation rental. We rent by VRBO and via an agency on Maui. A short term vacation rental is potentially more profitable than long-term rentals -- location is important. In our experience, this has been easier than renting SFH's long term. The current market for second/vacation homes is soaring, and our investment shows good appreciation -- on paper! (It also saves us a bundle when we want to stay Maui.)

"1. Incorporate as LLC or S corp."

You can't own just rental property as the activity in an S corp, it produces prohibited passive income.

I've known plenty of "business people" who've lost money with real estate investments, and other truly oblivious people who have done well. Even experienced and knowledgeable people find they make big mistakes from time to time and get stuck with losing investments. Often with great regularity.

I agree it's important to conduct it and think of it like a business, but there are many intangibles and uncontrollable factors in real estate that are beyond the ability of most to assess or control.

An honest person who's done well in real estate will usually say "I was lucky".

"1. Incorporate as LLC or S corp."

You can't own just rental property as the activity in an S corp, it produces prohibited passive income.

That may be correct but it doesn't affect me. My S corp is the property management service, not the rental property. The S corp management service pays me, the investor, to manage the property. We're all good here.

To add more advice about S corp, you can pay your SS wages, bonuses, tax free health care benefits and other retirement funds like a 401(K) etc. This is a great country!

brushworks, your post was a list of suggestions for others. Your first suggestion was incorrect. For that reason I pointed out the mistake lest anyone decide to pursue that or other suggestions. Nothing more, nothing less.

Property management and owning rental units are two different things, I think you know that but your use of the terms is a bit mix and match.

My husband can't keep up with the one family home we live in. God forbid having a second home or condo. Forget about it!! LOL

Thanks, Bob, you represented my intentions very well. There had been mention of screening, in general, so I thought it was important to mention the total lack of ability to screen personalities even if it seems to make good economic sense. You must have documentary proof of desirability, or undesirability.

You may not discriminate against people because of age, race, ethnicity, religion, gender, sexual orientation (in my state, and probably soon to be all if it's not already federal), family makeup (except if you're running a legally designated seniors facility), mental illness, marital status, or just about any other reason which has to do with who the people are, rather than their work/credit/tenancy histories.

You might be able to get away with renting one unit to someone from your church, for instance, but you can't fill your building, or a bunch of houses, that way without it being seen as discrimination by religion.

We have a rental property at a ski resort in Colorado (townhome 1/2 duplex with a nice yard) that our DD manages for us. We bought it because we sold some timber land here and did a tax free exchange. It made sense for us because DD has experience in property management and her DH can fix anything. It's 2 blocks from our ski house where DD and her husband live full time and is in a relatively high end area and that commands pretty high rent. Although the neighborhood zoning allows short term vacation rentals, we prefer long-term, and DD checks out prospective tenants thoroughly. Our last tenants were just for 10 months while they were building a home, but we knew that coming in and we were immediately able to re-lease. We are not planning on selling anytime soon, but a recent sale of a slightly smaller place across the street, indicates that it's worth about $100,000 more than we bought it for 3 years ago and the rent account has a healty balance, despite having done some significant updates (new kitchen appliances and granite last year and new deck this year). We hire out lawn work and snow plowing. No HOA dues or mortgag, so those only ongoing costs other than property taxes and insurance. So far so good.

For the first eight years we owned the ski house, we also rented out its basement apartment, but when we lost the 'best tenant ever' who stayed for six years, we decided to take over basement ourselves rather than risk a bad tenant in our own house. We just redid it completly and use it for extra guests. We will probably sell this house in the next year or so, so the new owner can decide whether to rent it out or not, but it will be a bonus because at current rentals even this 600 sq. ft. apt, would rent very quickly at about $1,000 - 1,200 per month.

We did have a bad experience with a tenant in a rental condo we once had and grew frustrated for a while. Luckily prices skyrocketed by 50% in the year we owned it, so it turned out to be a really nice investment nonetheless.

Thank you all for your comments. My DH suggested it, but I didn't like the idea. I showed him your comments and he has decided against this type of investment. I really appreciate the feedback from each of you.

This is an interesting thread. I just found it.

I own rentals and plan on buying more. Where you live and the repair skills you bring to the table are as important as your bank account when entering this market.