Incidentally, this is also true of renting a condo or house you own. A couple friends have attempted to rent their condo or house and move somewhere else. This has never worked out well. It is possible to hire a company to manage the condo or house, but that is expensive and the profits never quite arrive.
I have seen a couple friends successfully rent places they live near.
> It is possible to hire a company to manage the condo or house, but that is expensive and the profits never quite arrive.
This makes sense if you think about it from a capitalist perspective, though.
Adam owns a condo and rents it out. He makes $500/mo after his expenses. Unless competition for property management is very high (quite the opposite), the "perfect" amount to charge for that service is going to be as close to $500/mo as possible while still getting Adam to pay it.
The most common complaint I've heard about property management firms is that somehow their prices always seem to be somewhere in the 95-105% of net profit for a single well-appointed property.
I've discovered that this is a general rule in any similar industry- time-shares, boat-charters, etc. There are people who are professionals in that industry. They know where the money is, and they get it. We are basically amateurs that they are welcoming to their playing field.
In most real estate markets, it's going to be hard to rent out a single family home purchased in the past 5 years with positive cash flow, factoring in a property manager. The profit comes in when you account for appreciation of the property and the accumulation of principal. However, if you have the cash, this can be a good tax strategy -- trading an annual operating loss in return for long-term appreciation of the property.
There are plenty of people who have owned their homes for 10-20 years who can make a decent profit in renting them out.
I'd add that this is mainly because in most markets the economics of buying a rental property are very different than buying a property to you want to live in. You end up taking on a larger mortgage for the latter, which drives up your minimum rental price, which may or may not be good for your market. If you've never run a property as a rental income property, there's a lot of nuances to that you have to be prepared for, like pricing your property to the market instead of to whether you like your tenants.
I think this depends on where you are. Plenty of people in Australia and New Zealand let their houses through agencies and get along just fine.
To be fair, these markets are pretty bubbly, and everyone is just hanging on for capital gain (it's no biggie if you have to "top it up" a little bit). Plus, losses are more or less tax deductible (e.g: http://www.ird.govt.nz/property/property-rental/deductions-y...). This includes agents fees.
> It is possible to hire a company to manage the condo or house, but that is expensive and the profits never quite arrive.
This totally depends on the purchase prices, interest rates, rental rates and other variables in a given scenario. The generalization that you can't profitably rent out a property while also paying a property manager is obviously not true.
Yep. Generally, as the advice goes, when you're looking for a rental property to purchase, anticipate property management fees and include those fees in your profitability calculations -- regardless of whether you're going to hire a property manager or do it yourself. If the purchase does not make financial/business sense when including those management fees, then it doesn't make business sense at all, and you shouldn't buy it.
This is exactly why I sold my condo instead of doing what a bunch of friend suggested and renting it out. I was moving across country and would not be able to attend to the condo same-day for anything that comes up.
You don't really need to make money on appreciation, you need to make profit. If you have a mortgage and the rent cover the charges - you only need to beat inflation on the cash investment.
For a simple example [x], I know people in London that got a 105% mortgage around year 2004 and the rent has always covered 100% of all the costs. Assuming it continues that way for another 15 years, anything they can sell the property for is going to be pure profit.
[x] I was happy to have something to eat in 2004, but I don't think those 100%+ mortgage were accessible to buy-to-rent property. So I guess that is technically against your mortgage policies and theoretically has a small risk to have the bank suing you for compensation.
If you are not able to hire a property manager, pay them 10% on all rents collected, and make a profit, then I don't recommend holding that property as a rental.
This also overlooks commercial properties, which routinely return at a very decent profit with no management involved and very few issues, because the lessee undertakes to look after the property.
Essentially, if you buy and pray, you generally will get taken to the cleaners by the people with experience. But this is the same as any other industry.
The big benefit of property is the ability to use leverage to multiply returns. Few other asset classes will allow LTV ratios like property. Get the sums right and you can create a profitable asset and accrue significant capital gains, all the while mandated-inflation is eating away at your LTV ratio.
I've never heard of a property manager that charges more than 10%... When you add 1st month's rent plus 10%, the first year is higher than 10%, but that's about it.
I have seen a couple friends successfully rent places they live near.