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Old 04-14-2009, 06:07 PM   #1
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Default A Different Kind of Diversification

There have been a number of threads on offering different services in an effort to attract or retain customers. I think diversification can be good, as long as it doesn't get ridiculous--we have to stay within our core competencies.

For several years I have been considering a different kind of diversification--rental real estate. There are a lot of advantages to real estate: passive income, tax benefits, appreciation of the asset, and more. And given that this is a buyer's market, the time seems right.

I personally think contractors are a natural for diversifying into real estate. We are out and about a lot, so we learn neighborhoods, meet a lot of people, and can develop a good understanding of the market. Add to that our general knowledge of homes/ buildings and their maintenance requirements, and it seems like a perfect fit.

I've heard all of the bad things about rental real estate--tenants, toilets, and taxes top the list. But as with contracting, if you have a system in place, these ills can be avoided. And to be sure that we avoid these issues, we are joining a mentoring group. After all, a wise man learns from his mistakes; a really smart one learns from the mistakes of others.

So my question is: has anyone diversified in this direction? And if so, what was your experience?

Brian Phillips
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Old 04-14-2009, 06:23 PM   #2
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I agree with you Brian that it has very good potential and I have thought about it numerous times over the past ten years or so. The biggest problem I have had was getting started most banks aren't willing to lend alot of money for investment property's right now unless you have a lot of capital to put down. The past few years stuff has been so expensive to purchase I always felt like I missed that boat and should of bought stuff in the mid to late 90's. I have friends who have multiple property's and some enjoy doing it others just bought and sold for the profit and never really had to managed the property's...

I think if it is done right it could be a nice thing to have going for you.. I know now is the time as there are people out there who need to rent as they can't purchase homes with the stricter lending rules now.
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Old 04-14-2009, 06:28 PM   #3
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I have repaired/painted rentals for the last 2.5+ yrs and there is good tenants, and REALLY AWEFUL tenants. Leaving 30+ holes in a unit, and almost everything needed to be replaced. Heard of Good tenants with good credit taking a dive and skipping after oweing a couple months worth of rent. SO as long as you have ... $5000.00-$10,000.00 in the bank in wait for the bad.. then you are cool, if not I would say you are taking your chances if something should go wrong.
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Old 04-14-2009, 06:35 PM   #4
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Originally Posted by nEighter View Post
I have repaired/painted rentals for the last 2.5+ yrs and there is good tenants, and REALLY AWEFUL tenants. Leaving 30+ holes in a unit, and almost everything needed to be replaced. Heard of Good tenants with good credit taking a dive and skipping after oweing a couple months worth of rent. SO as long as you have ... $5000.00-$10,000.00 in the bank in wait for the bad.. then you are cool, if not I would say you are taking your chances if something should go wrong.
What if the tenanct had to put up 2 months rent as a security deposit? Do you think he'd put 30 holes in the walls then? And why wait until someone is behind 60 days to boot their butt? In other words, if you have the right policies in place, these problems can be avoided for the most part.

The basic issues involved in rental real estate are no different from those in contracting. Market properly, be careful about who you work with, cover your butt, and heed red flags. That is a simple version, but it covers the basics.

Brian Phillips
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Old 04-14-2009, 06:50 PM   #5
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meh.. I could give you diff examples I have seen. There is a time limit for eviction. It takes 60days in Mo to evict someone, then there is even time after that until the sheriff comes by to serve the papers and all. Something to check into.
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Old 04-14-2009, 06:54 PM   #6
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Quote:
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What if the tenanct had to put up 2 months rent as a security deposit? Do you think he'd put 30 holes in the walls then? And why wait until someone is behind 60 days to boot their butt? In other words, if you have the right policies in place, these problems can be avoided for the most part.

The basic issues involved in rental real estate are no different from those in contracting. Market properly, be careful about who you work with, cover your butt, and heed red flags. That is a simple version, but it covers the basics.

Brian Phillips
Brian, one thing you have to take into consideration is racial profiling and evictions both issues tend to favor a renter and not the property owner. So yes you can have policies in place and market well but if you make one false move and your in deep...

I have heard many horror stories on trying to get non paying renters out, saying the wrong thing to a possible renter and getting a suit against you etc... You can't just tell a non paying renter to leave, its not that easy...

All tho I see similarities to contracting I still think its in a different category.. To buy property and flip it would be more in line with contracting.. IMO
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Old 04-14-2009, 07:10 PM   #7
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I looked into it about 5 years ago and decided against it. I dont need the headaches of dealing with late payers, damaged property, and calls in the middle of the night when something breaks. ( Wait a minute! Sounds just like my painting business at times.) I can see the allure that some people would have with it because of potential income generation. It just wasnt worth it to me.
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Old 04-14-2009, 07:42 PM   #8
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Originally Posted by MAK-Deco View Post
I have heard many horror stories on trying to get non paying renters out, saying the wrong thing to a possible renter and getting a suit against you etc... You can't just tell a non paying renter to leave, its not that easy...

Iíve heard those horror stories too. I have also heard horror stories from painting contractors who say you canít make any many in this business. So who do you want to believeóthose who say it canít be done, or those who have done it? If you want to go to Disneyland, do you listen to those who say you canít go there, or those who have been there?

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I looked into it about 5 years ago and decided against it. I dont need the headaches of dealing with late payers, damaged property, and calls in the middle of the night when something breaks. ( Wait a minute! Sounds just like my painting business at times.) I can see the allure that some people would have with it because of potential income generation. It just wasnt worth it to me.

What if the tenant is responsible for any repair less than $250? Do you think he will call because the flapper is bad on the toilet if he is responsible for it?

I donít mean to point fingers, but what I am hearing is no different from those who say: you canít make money in the painting business; customers are cheap; nobody appreciates quality; etc, etc, etc.

Look around you. In most communities, half of the housing is rental. Almost all commercial property is rental. If nobody is making money, why are so many people in real estate? The fact is, if you have the right systems in place you can make money doing almost anything, including painting and real estate.

Brian Phillips
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Old 04-14-2009, 08:14 PM   #9
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I am not saying it can not be done Brian... Your answer for everything is about having the systems in place.. So you obviously don't want to hear that it can't be done... So I am sure you will come up with the system and be successful at it.. I wish you well..

I would not want that on my plate right now.. most people don't care if they walk out on a mortgage let alone walk out even quicker on a rental... I would flip houses if I had the chance but in this market it would not be a good thing to do..

From my exp. with renters ( I manged 5 property's in the early 90's for a place to stay while I was starting out in biz and the owner moved to TX for work and didn't wish to sell his houses) they didn't care bottom line it was not there property. And for the most part you don't make much money on the actual rents you make money when you hold on to the property and sell after an amount of time. Maybe in commercial that's different but not in the housing market. My exp. was with houses that were divided up into usually 3 or 4 units.
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Old 04-14-2009, 10:32 PM   #10
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Yeah we have talent, and sometimes extra time. It would be nice to take advantage of our skills and extra time no doubt. I am putting my extra time and effort into wind generation and solar energy, along with all things that are efficient for the home. Sky is the limit. Good luck Brian
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Old 04-15-2009, 08:14 PM   #11
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I'll bet on you Brian
Good luck

(But MAK has some VERY valid points. Heed his warnings.)
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Old 04-15-2009, 08:35 PM   #12
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Rent and watch the movie Pacific Heights, twice.

[YOUTUBE]http://www.youtube.com/watch?v=PpbX3rrYD4s[/YOUTUBE]
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Old 04-16-2009, 06:32 AM   #13
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Brian, I didnt say you cant make money at it. All I said was that I looked into it and decided against it. At this point in my life I just dont want to take something like that on.

Are you thinking residential or commercial? I dont see how you can hold a residential renter responsible for anything under $250 if it is something that is obviously not their fault. I think if you go over to CT you'll find a couple of threads on investment properties and read both the pro's and cons.

I have a house in the FLA Keys, that has been rented out to basically the same groups of families for vacation purposes since 1989. The house was paid for in less than 5 years and that included all furnishings. I have a mgt company that handles all maintenance issues, cleaning, etc.. Every 5-6 years all new furnishings are replaced, and twice yearly, all linens. Yes it does generate a healthy income, but other than a couple phone calls a month, and a monthly statement, I am totally hands off.
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