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Friday, November 13, 2009

Rental Properties

I will eventually be a landlord. That is my next financial goal (other than paying off my student loans). It has been said that 90% of the world's millionaires got started through real estate. I have been renting out parts of my house since it was purchased and will continue to do so with a second property eventually.

The reason for this post was a discussion in the staff room during my prep yesterday. At least two or three teachers have rental properties, and one of them was complaining about a tenant that he had and said to me, "Don't ever get started in a rental property!". I countered that with on paper it looks really good and the numbers work out and he said "It's not worth it!".

He was getting ready to file the paperwork to get a tenant evicted from one of his properties (he has five that he rents out) who didn't pay the rent. He said that after he filed the paperwork, it would take a minimum of 44 days for them to get out (by law). Plus this would have to be done at his expense (the legal paperwork and the hiring of a "sheriff" as he called it to remove the person from the house if necessary).

He also said that he was selling all of his properties because of this bad experience (we'll see in a few days when he cools down if he still feels the same way...I'll chat with him on Monday). I asked him if he could ask for financial references and be more picky with his tenants but he said that he did ask for financial bank statements, but that he had difficulties with his properties staying vacant for two reasons: the lost income in a month and the fact that insurance companies don't like insuring vacant properties (because there is more chance for vandalism and theft).

Another teacher also chimed in and said that also wouldn't recommend rentals. They have had two really great tenants, and one horrible one, and the horrible tenant has pushed them away from it. I asked the first teacher about renting to students and he said that it was probably a better idea because you know what to expect with students, and that they have more cash and their parents will also sign the lease agreement so you shouldn't get stiffed for money. I would imagine that the maintenance would be much higher on a place like that.

For my own foray into real estate, there is a college in my town, so either I will begin with a house that I will rent to college students, or I will get a duplex or whatever and only post for them at places where me or my friends work at, ensuring that I get people in there with a real salary. The teacher said to me, "Remember, people who are good tenants eventually buy their own houses...the ones that rent forever are poor tenants". A few things for me to keep in mind.

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