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What are pros & cons of buying rental property?

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POSTED May 16, 2013 5:15 p.m.

Hello Real Estate Boys: My wife Bambie, and yes she is a dear, recently lost her parents to an accident and we are in the middle of closing out the estate with one of Turlock’s wonderful attorneys.  I suppose at this point I should say Bambie was an only child and will inherit her parents’ entire estate.  While the estate is not huge it will give us a very nice sum of cash soon.  The home her mom and dad lived in is paid for and they had no real outstanding bills.  The estate was set up years ago by her dad and he did a great job. 

We respect your opinions and the advice you have offered to readers in the past. The cash we will be inheriting soon is enough to purchase more real estate for a lifetime of rental income. And knowing that Mr. Rumbeck has a property management company, we’d like his opinion on being a landlord today.  Mr. Blackman your opinion is welcome also.  Gentlemen, the good, the bad, the ugly and the forest is yours. 

— Buck and Bambie



Buck and Bambie; Lloyd and I appreciate your bit of animalistic humor.  Humor is dear to our hearts as you know.  Mr. Ranger would be right proud of you and Bambie.  Okay Buck, we have a few different ideas to pull from our pic-i-nic basket and we hope one might fit the two of you.  Take it away Yogi!

Idea #1: In your question you didn’t give us any dollar amounts you may be receiving nor how much the home is worth.  But we guess really well.  The house you are inheriting is a 1500 sq. foot home on the eastside of town and we’ll say it’s worth about $175,000 net to you and Bambie.  The cash, we’ll assume, is about $200,000.  You could certainly sell off the home and pocket the $175k and then maybe payoff your own home.  We like the idea of paying off your home just for your security over the long haul.  With the remaining cash buy a small multi-unit complex.  There’s a 4-plex listed on Marshall for example.  The asking price is around $380,000.  So, putting $100k down and financing $180k.  Your total payment monthly would be about $1,600.  The rent coming in would be about $2,800, making you a nice income of about $1,200 per month as long as you have full occupancy and no repairs to be made that month. 

Idea #2: Sell mom and dad’s home and pay cash for the same 4-plex in the above example.  Now you have income of about $2,800 a month, but with this idea you still have a house payment on your home. And you will have a vacancy once in a while, a stove will have to be replaced or an HVAC unit will stop working on the hottest Sunday of the year.  In other words, you will have expenses every month whether they are hard expenses, like a stove, or fixed expenses like taxes and insurance.  In reality you’ll be lucky to net $1,500 a month or $18,000 a year, after all the expenses are paid.  That’s about a 4.5 percent return on your money. Thumper, (Lloyd) take it the rest of the way please. 

Idea #3: A much more conservative approach is to keep the parents’ home and rent it out for $1,350 a month.  That gets you about $16,000 a year in gross income.  You’ll have taxes and insurance to pay as well as repair costs.  Larry suggests having a landscape service take care of the yards so that way you have a real person on YOUR property each week and they can tell you if something appears strange.  With the cash you can buy a bank CD or go to your CPA to have them invest the cash.  Many CPAs are into capital management these days.  You may be able to get a better return with your CPA than a bank.  You can always sell the rental if you wish to buy a vacation home or just want to sell and play with the money.  The nice part with this idea is that there are no worries.  No phone calls about the HVAC not cooling fast enough on a Saturday evening or having to spend a few weekends cleaning up a trashed unit and getting it ready to rent yet again.  Your only worry here is watching the stock market go up and down daily.  And BooBoo, you need to close this one out, the question was addressed to you.

Ok, Thumper, as usual all of our ideas should be run by your personal tax attorney or CPA.  We can’t stress enough the importance of having people like a CPA in your corner when it comes to financial planning.  Why you ask?  Cause they are smarter than the average bear BooBoo!  Buck and Bambie, good luck with whatever you decide to do. You have a number of options and paths to follow. Now just do one of them.  



— A little about us, Lloyd is a retired farmer of 27 years and a realtor for about 10 years.  Lloyd is an active member of the Central Valley Association of Realtors and sits on the CVAR Board of Directors.  Lloyd is a long time member of CVAR’s Master Club for his sales production.   

Larry has been involved in Turlock real estate for 30 years and has been a broker for almost 27 years.  He is also active in CVAR activities and is a past president of CVAR.  If you have questions please call Lloyd at 531-4853 or Larry at 484-4216.  E-mail questions for future columns to: lrblackman@earthlink.net or lndrumbeck@aol.com.

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