HellBill » Hell Bill Area: » Bill Of Sales » Would this idea work, or would it be destined to lose money?

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  #1 (permalink)
: Imagine you had enough money to buy a house - outright, no mortgage. You paid $150,000 for it; its 2 bedrooms, 1 bathroom, 1 kitchen, 1 living room, small yard, driveway, nice location, good neighborhood It needs either no repair work at all, or maybe just one type of repair work (like new flooring or maybe fitting a new bathroom etc. Your budget maximum for repairs is $40,000). You get that fixed, repaint the walls a good color theme, then go out to places like Pottery Barn/IKEA and buy nice furniture and dťcor. Spend some time on yard work - mow the lawn, clean the pathways, plant some flowers etc.

By the time you finished working on it, itís a cute house; fully furnished and with no faults or problems. You then rent it out consistently for 3 years at $1200 per month, and then put it on the market to be sold at $200,000 ($15,000 more or $15,000 less, depending the current housing market figures at the time of sale).

Is that a viable idea? Like what are the things that could go wrong? Is there a good chance you make a profit if you ran with a specific plan/budget, or is it doomed from the beginning?
Wow, thanks for answering =) I just finished working/interning a property job and yet you brought up points and ideas I didnít even think of

Re: furniture Ė what if you bought simple neutral items, didnít spend too much, and also gave the option of taking it out/partially taking it out? Also, what if the target market was young, like if the neighborhood was mainly inhabited by people under 35? My housemate and I fit that demographic and we rented furnished since we had no furniture of our own
"When they finally leave they take the furniture and appliances and bust holes in the walls" -

Canít background checks/character references take out that possibility? Like criminal record checks, proof of last address, letter from employer etc?

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  #2 (permalink)
: Skip all of the furniture if you are renting. People not only have their own, they are unlikely to have your same taste. You are unlikely to get 1200 a month for a 2/1, but of course that depends on location. You will be paying income taxes, property taxes, insurance and maintenance out of that.

You are also unlikely to see a 30% return after 3 years. Maybe 18%. And remember, it will need to be painted again, with new flooring (well, carpeting) and of course the yard will be dead. I swear 90% of renters kill landscaping.
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  #3 (permalink)
: Research is everything. Get yourself 2 or 3 good (and current) 'how to' books about the benefits and risks of buying real estate with what you have planned in mind.

I got involved with rental real estatein 2004, in an odd way. We'd been transferred from CA to PA, rented a condo at first so we could take the time to decide which town and neighborhood we wanted to live in--but then once we decided which townand neighborhood, 6 months passed without anything coming on the market any more--houses were changing hands without going up for sale to the public. So I bought a lot of books on 'how to buy real estate,' wrote to all the homeowners in the neighborhood asking if anyone was interested in selling--and that's how went) 'how to' books on the ins and outsgot our house. HOWEVER, I had learned so much from these books that I decided to invest in rental real estate.

But even that won't rule out unexpected events, like the housing market crash. I paid $215,000 cash for my condo in 2004 (3 or 4 years pre-crash), paid $6,000 in closing fees (no mortgage so no bank fees included); I rent it out for $1,450/month, pay a $245/month HOA fee, over $2,000/year in taxes, $42/month sewage and water (tenants pay their own electric), plus owner's insurance (not sure how much, it's mixed in with our own home's insurance plus auto). What have I left out? OH, MAINTENANCE. A Biggy. Paid $6000 for a new heat pump, about $5,000 on painting and new carpeting, $1,000 on deck work and landscaping close to house (although tax deductible, saved me about 33% of maintenance costs It would probably sell for $230,000 now, in 2014. WAS IT WORTH IT? Was it worth buying as an investment?
It was okay for us because we already owned the house we wanted to live in.

REMEMBER THIS: That purchasing a rental ties up money so that you can't afford as large a house as you might want for yourself to live in--in the past, most RE rental investors made their big money because property values were rising so fast, so they made big money reselling their unit.

But remember, too, that the stock market (although also with risks) is doing very well right now. It's an easier way to go.

The answerer "G" speaks about bad tenants and that certainly is a risk. But if you (or your real estate agent) do a thorough background check of the tenant--credit rating and all--you can usually avoid a bad tenant. Then again, sometimes even good tenants get laid off and can't pay their bills.

The answerer GLENN must live in Los Angeles because in the east a refrigerator is expected as part of the rental unit. Two of my adult children lived in LA--I never could understand LA's "BYORATIWYWYG" philosophy--ie., 'Bring Your Own Refrigerator And Take It With You When You Go.' What a nuisance! Refrigerators come in different sizes, don't always fit the spot where you plan to put it--and moving them is costly because they contain FREON so you have to hire experts to remove them and dispose of them. Re: washer and dryer? Your unit will rent more quickly and easily if you have a washer and dryer--and those things last a LONG time.
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  #4 (permalink)
: When you rent a house you expect the stove, range, dishwasher and such to be included but not the furniture, clothes washer and dryer and fridge. The expense on the furniture would be money down the tube and not help you get more for rent or for sale.
The amount you can rent it for is determined by the rental market, so it may be higher or lower.
I own rental property and I never intend to sell it- I like the income each month. I mean -if you put that $150000 in the bank you would much less than 1%. Even 1% would only be $1500 a year or about $115 a month. So the income from rental property is much better.
But I would attempt to learn a lot about owning and managing property before I ever bought my first one. If you are young then take a part time job for a property management company and watch what they do (reading a book is not much help)
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  #5 (permalink)
: It's possible. It's also possible that your flooring contractor finds dry rot in grade beams and your repairs go to $80k. Your tenant looses their job and quits paying rent. You have to hire a lawyer and spend 6 months and $10k evicting them. When they finally leave they take the furniture and appliances and bust holes in the walls. You fix it up again and the property goes on the market, but nobody's going to pay $200k for a $150k house in that neighborhood, even a nice house, so on the advise of your agent, you take the one offer at $170k. Broker and escrow fees take $10k out of that, so after 3 years of property taxes and insurance, you're left with half of the $36k in rent you collected. Oh, and the IRS wants 28% of that.
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  #6 (permalink)
: Think about it- if it was that easy everyone would do it. and yes background checks help but you can never 100% protect yourself from a tenant screwing you over. There is very little market for furnished places. Also anyone looking for a furnished place is going to be a short term renter. You do not want to promote or attract a bunch of 6 mo tenants.

I have had a few tenants passed background check with flying colors. They were great tenants for several years. They started doing drugs, stopped paying rent, trashed the place & we got completely screwed. There is no predicting that!

You also have to keep in mind once you rent it for a few years you will have to make more repairs to sell. No matter if they are the perfect tenants there WILL be some wear & tear after renting it out.
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  #7 (permalink)
: Don't bother with furniture, and assuming it will appreciate $50K in 3 years is not sane.

You can never eliminate the possibility someone will screw you over.
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  #8 (permalink)
: It depends on the laws in your country to be making money this way, and you should know a lot of information about the market at that moment, like here if the house is old built whether its so beautiful or not you make more profit by destroying it and build a new one, and furnitures and flooring are not so much of a factor on the price here and it depends on the house like the people who buy an expensive house will usually come with their own furnitures, i dont suggest you enterring this bussiness unless you know a friend who is already making money this way or has enough experience about it,
look if there are people who are making money with your idea at prrsent or have done it before
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