Friday, July 15, 2011

To Risk Or Not To Risk? That Is, Indeed, The Question.

So Jonah wants to buy another house and either rent that one out or move into it and rent our current house. Obviously, the goal is to have an investment that hopefully will prove to be a source of income. Jonah says that since we aren't intending to have children and, therefore, will have no one to take care of us when we get old that it might be beneficial to create something that will provide us with a nest egg.

Home prices where we live are amazingly low, and we could get a really nice piece of property for relatively cheap. If we choose to live in the new property, we would be paying a much lower mortgage for a house that is equivalent or better than our current one and then our renters would be paying for our current mortgage, and perhaps we could get a profit.

If the renters live in the new property, we could charge rent that is higher than the mortgage and, therefore, pay for the property and make a profit as well.

I have friends who have bought properties and rented them out, and they agree that, if done right, such a venture could be profitable and beneficial

This sounds all well and good in theory, but I must admit it makes me nervous and anxious. First of all, I feel I'm out of league as far as real estate is concerned. Secondly, if we go about it the wrong way and can't get anybody to rent the property (or can't get them to rent it for as much as we want or need), then we will be stuck paying for two properties when I feel I am barely able to pay for the one we currently have. I do not feel I am a gambler or a risk taker, and there is always a gamble or a risk involved in such a deal.

I will say this: Jonah has very good instincts. When it comes to his gut, Jonah is right about 99% of the time. He feels this is something we should at least try to do (or, at the very least, research), and because experience has taught me so, I am trying to trust his judgment and get on board.

Jonah's parents had the opportunity early in life to buy property, and they didn't, thinking it would not be worth it. That same property they failed to acquire is extremely valuable, and Jonah wonders if some of their present financial difficulties could have been averted had they bought it when they had the chance. Jonah doesn't want to make a similar mistake with us.

Jonah also has some money saved up to do this and also has a wealthy friend who would likely to be willing to help us out if we need it. I, on the other hand, do not feel that my own finances would be adequate for such a venture.

I've been taught my whole life to stay out of debt. I already have car payments and student loan payments I am still making as well as our mortgage, and if this venture were to fail, I would be in serious debt.

I'm also not eager to be a landlord. I don't want to deal with any of the headaches such as late rent or maintenance concerns.

Yet it could be a good investment, and furthermore, it could actually improve my financial situation.

Jonah has started sending me properties to look at. It reminds me of when we were looking for our present home and how overwhelming and stressful it felt to me (plus how long it took to find just the right place). I've been looking through some of these places, and there are, indeed, some really good deals, but it's giving me a bit of anxiety as well.

Jonah says (often) that we have to guide our lives by faith, not fear. And like I said, while I consider myself a practical, pragmatic guy, Jonah's leaps of faith are usually spot on. Where I can only see the present reality, Jonah sees possibility, and even though he doesn't always know how things will work out, he believes they will, and he is usually right.

If we do this the right way, it could be a really good thing. If we go into it the wrong way, it could be disaster. As I've thought and prayed about this, I found it interesting that a friend's Facebook status leaped out at me today. It said simply: "If you do it, you'll regret it. If you don't do it, you'll regret it. So you might as well just do it."

Jonah knows that I carry a bit of trepidation. But he also knows I'm genuinely trying to have an open mind and heart. I know, ultimately, he is looking out for us. But is this the right thing to do? I still don't know. I just know I'm feeling anxious about it.

So, what about any of you? What are your opinions? Do any of you out there have any experience with real estate deals or renting? What advice do you have? I welcome any thoughts on this.


Scott said...

Being a landlord isn't easy. First you have to find good renters, which means checking references, pulling credit reports, and ultimately taking a leap of faith.

Then, once you've found a renter, you need to deal with maintenance. Hopefully, if you've done the first part right (and if the place is in fairly good repair to begin with), this won't be a major issue.

And of course you need to stay on top of collecting rent (which again, hopefully won't be a major issue if you've found a good renter).

And then you do it all over again when the lease is up and they're ready to move on.

Sarah and I weren't very good at finding renters (partly because we were desperate for cash, so we couldn't patiently wait for the right one to come along). This meant that rent collection was a chore, and cleaning and repair in between renters was time consuming and costly.

After a couple of renters, we decided to hire a property manager. This took most of the stress away, but it also meant that we were barely breaking even.

I don't say any of this to dissuade you, though. Our property was on the lower end of the market, which meant that we got people who couldn't afford better, which unfortunately often means people who aren't quite as responsible or careful with other peoples' property. If you can justify positioning yourself a little higher (because it's a nice place and/or it's in a nice location) you can probably attract better renters.

I do know some people who have been *very* successful in buying and renting houses/apartments. I'm pretty sure that some combination of instinct, know-how and temperament makes some people more suited to it than others. Perhaps you and/or Jonah are among those who could really make it work.

Best of luck, whatever you choose to do! :-)

Joe Conflict said...

It is generally much easier to get financing on an owner occupied house.20% down is the rule for a rwntal. Buy one and move. Expect 20% of rent to to towards maintainence. Roofs wear out, and plumbers are needed.

Gay LDS Actor said...

Thanks, guys, for the input and advice. It is greatly appreciated.

Clive Durham said...

"Jonah says (often) that we have to guide our lives by faith, not fear." You have a wise and wonderful partner. Hang on to him.

Willow said...

What Scott said.
What Joe Conflict said.

And additionally: my husband & I had two "investment" houses and ended up selling both of them. The hassle was unbelievable. Part of our problem was that my husband is not mechanical at all, so all repairs & maintenance had to be hired out or done by me after my day job was finished. As well, DH has problems with confrontation of any kind, so I had to handle late payment of rent, non-payment of rent, inappropriate care of the property, etc. I remember one tenant screaming obscenities at me over the phone so loudly that I held the phone a foot away so my eardrum wouldn't be injured. I remember the tenants whose head of household went to jail for molesting his children. The remaining family members acted out some of their anger by knocking off the top of the sewer pipe before they left the state, flooding the basement with sewage. I remember the couple who agreed to live there subsequently for low rent plus cleaning the basement. One of the men was very abusive, and I remember his partner weeping on my shoulder as he showed me bruises over far more of his body than I cared to see. I remember the woman who moved into the apartment in the top of the house that we also lived in. She brought roaches and had the gall to bring me squashed roaches on napkins to prove that I had roaches in my house. Yup, I did. But never before she got there, and never after she left. The roach removal bill, BTW, was around $400. I remember hours spent in court over non-payment of rent and evictions. In my state, it can take up to three months to legally evict tenants, and meanwhile, you lose rental income.

Our stress level zoomed WAY up and remained there until we sold the houses.

Were there good tenants? Absolutely. But renting property is a balance of good and bad, and you won't need to consider the good stuff. It's the bad stuff that you need to think about before investing.

We made a huge profit on the first house (we'd bought it dirt cheap & done some fixing). As we signed the papers relinquishing our ownership, a major storm hit the city. With the deal done, we drove by the no-longer-ours house to say goodby (it was the first house we lived in after we married, so we also had good memories of it). An enormous tree had collapsed over the back end of the house. We couldn't believe our good luck -- and the new owner's bad luck. The second house sold for a small profit, primarily because it is located next to us, and the woman we sold it to was a friend. She and her husband were good neighbors for many years, which we felt was better than monetary compensation.

A former VT companion shared with me, once, that her MIL gave her and her new husband an apartment building as a wedding gift (MIL is wealthy with her own real estate agency). Over a period of years, they lost the building, for many of the same reasons listed above --maintenance and hassles did them in. She said neither of them had the temperament needed for that type of business.

So be sure, before you invest, that you have the time and money needed to be successful at this, a teflon shield for your emotions, and the ability to strongly set and maintain boundaries. You and Jonah should discuss these types of issues before you invest, and decide if property ownership and management is a good fit for both of you.

My husband & I invested our profits in the stock market. We found that our rate of return was approximately the same as that of investing in property. While this type of investment can also be worrisome, our stress level dropped to near zero.

Good luck to you both as you work toward financial success.

On another topic, do you have a private e-mail where I could contact you? I have a gay acquaintance and a problem, and I'd appreciate some counsel. My e-mail is