How Can I Generate Cashflow Without Being A Landlord?
I am interested in REI, but have reservations about babysitting, I mean landlording.
I read an article that was linked to or posted on TCI about making money in real estate without dealing with tenants, but it just seemed slimey(as in promising the world and then excluding it in the fine print).
What options, besides flips/buy-hold-sell are available for an investor who doesn't want to deal with rental tenants? Is there a legitimate method of generating monthly cashflow without becoming a landlord?
Yes Andrew, there are many ways to make money in real estate without becoming a Landlord. They include investing in Notes and other paper transactions, the flips that you mentioned, hiring an management company to do the Landlording for you, and forming a partnership with someone who does the landlording duties.
In addition there are lots of different kinds of landlording. The Lease/Option sales strategy which lots of folks on this site practice is about turning tenants into buyers who think like homeowners not tenants so they don't call the landlord every time the grass needs mowed.
Also there is my speciality-- commercial real estate. It is much easier to be the landlord for a NNN industrial tenant than for a residential unit.
But again, allow me to point out the investor partner option. If you have cash and/or credit and you want to be in the RE game without hassle one way to do that is to find a partner who is either short of cash/credit or who just wants to stay liquid and team up to do joint ventures where he takes care of the managment end of the deal.
or you could do what i do.
hire a good property management firm.
Am I the only one here that goes back into history to find a solution to a present time problem or situation? There is little that is new and usualy a solution is present just a little research and it pops right out and hits you in the face.
A case in point.
It is 1941 I am in England flying Spitfires for a living and spending most of my days being scared to death. But I am still your average California Teenager and when I had time I would get on my bike and ride away from the airfield and check out the local fauna and well to be frank find a good pub and enjoy life.
In one of these I am at the bar having a small beer when an aircraft goes zooming by and damned near takes the roof off. In the corner the only Toff present starts to complain. He hates the war, he hates aircraft. All the people in the village walk by and peer into his window and he wants out.
So I may be only a dumb teenage pilot, but I am from California, so I buy him a Mild and Bitter, introduce myself and sit down.
The short of it, I bought his house in the middle of the Battle of Britain which did have prior claim on my time. I bought a house on the main street of the little town of Saffron Waldon. He hated the house as it had a large bay window right on the street and passerbyers could peer in. I installed a window seat, two lights on either end. Gave it a little American intervention in the plumbing which was truly medieval and it became my refuge from the RAF.
I got a cat and that took care of the mice in the thatch roof. He could not reach him but oh my god did he scare them to death.
After a hard day of trying to stay alive and prevent angry Germans from messing up my airplane, I would get on my bike, ride five miles and there I was in a different world. A world of village life, strange stories over beer and the attentions of a Barmaid that put to shame the tale of the Highway Man a Riding. You know the one about the Barkeeps beautiful daughter. She was buxom and she was pretty, a little problem solving any problem which involved numbers over ten. But we avoided all that intellectual stuff.
Yes the Toff overcharged me but I got to tell you it was the best $3,250 I ever spent.
When time moved on and America came into the war and we began to see a little daylight I had to move on. So I rented it out and believe it or not generation after generation of strange village types have kept it full. They adore the american plumbing, really messy when as prior all you have is an open window and the hope of proper aim. I even went so far as on a visit from France I installed a Bidet. Of course without proper instruction the inhabitants are at a bit of loss but wot the hell the challenge gives them something to talk about in the pub at night.
So you see you can buy and just let the place run itself. They just send money to the bank and I on occasion increase the rent but never up to the area standard, always a little low. This way they think they are taking advantage of an American and that is Browny points in that part of the world.
Is there a lesson to be learned? Yes, proper selection of property and place. Oh yes a nearby pub with a really charming Barmaid.....
Cheers Lucius
You see, all this time I've been doing it wrong.
I thougth the secret to location was access to jobs or transportation or natural resources. And all along it was proximity to a buxom barmaid.
I remain in awe, Lucius of your understanding of the complexities of life in all their simplicity.
Lucius, I am relatively new to this forum so I haven't yet been able to figure out if you've lead the colorful, adventurous life most of us will wish for when our time comes or if you're just full of it. But, either way, your posts make me smile and chuckle. Thank you.
Commercialking,
Do you need tons more money in commercials than in residential properties though? Also if economy is not good, do you have hard time finding tenants? Are the prices skyhigh these days like residential properties?
Here's an example of something that's working for me and countless others on this board. It is summed up by the advice given to me from a guy in a Corvette who picked me up hitchhiking across Texas years ago. I'm only sorry I didn't heed it years earlier, but I had to get world travel and adventure out of my system first. He told me the secret to real estate is "you buy from people who really want to sell, and you sell to people who really want to buy."
I bought a little place a month ago from a seller who needed to sell for health reasons. Next week I'm selling it to my buyer. I paid $28,000 with 10% down, the rest on a CD at 6%. I put a few hours into sprucing it up, and put in a new water heater ($150, on sale). Now I'm selling--a bargain at $49,000--to a buyer who'll pay me 10% down and I'll carry the rest at 12%. I put in a balloon that he must cash me out with bank money at two years. There are no Realtor commissions, no endless bank paperwork, inspections, appraisals, etc. now; all of these will be his responsibility in two years.
Do the math with the trusty TCI mortgage calculator. Each month my buyer will pay me $525, two hundred of which I'll pay to my seller. So my cash flow is $325 per month, and I have no landlord responsibilities, no taxes, no maintenance. Of course, my cash flow from that deal will end in two years, when--hopefully--he refinances and cashes me out. Then I get a check for about $20,000 after I pay off the guy I bought it from. If he doesn't pay, I have the inconvenience of foreclosing and selling it again at an appreciated price, which I actually wouldn't mind since it's such a nice little property.
I have a couple more like that in the hopper, and hope to keep a steady flow of them coming, at least a few each year. Not as sophisticated as some of the deals discussed here, but I'm happy. And my "Need to sell fast? I buy houses!" ad in the local paper keeps enough decent prospects coming.
You know, I keep hearing these comments here on TCI "commercial real estate requires more money down than residential." "Commercial real estate is not as creative" or "commercial real estate is much harder to do" I think thats a load of horse excrement. I've never used any of my own money to do any deal I've ever done-- oops I take that back I did use my money once..
I have had partners, I have done creative financing with seller take backs, I have formed limited partnerships. I've put money in my pocket at almost every single buy.
I have fronted money to deals for earnest moneys, for enviornmental reports, for legal fees but every time I have walked away from the closing table on the buy all of those expenses were re-imbursed.
Now the reason I did it that way when I started was that I had no cash. Fresh out of grad school from the University of Chicago with no money and a pile of student loans. Now I do it that way because I actually think the passive investors perfom an important function. Selling them makes me "sharpen my pencil", do the research to be sure that the project would work. Using their money leaves my money free to do the things you cannot raise investor money for, everything that comes before the signing of the contract to purchase and between the contract to purchase and the closing. Plus they fund deals that lenders wouldn't do because they are too unconventional. You should have seen me trying to explain the rehearsal space business to bankers. Yes the private money is more expensive. But the rewards are worth it.
So, no ahmedmu, you do not need tons more money in Commercial real estate than you do in Residential. In fact, quite the contrary. I think that if you have a real plan, with tenants or users in place it is actually easier to do commercial real estate no money down than residential.
Now that is not to say that Commercial real estate is easier. It is not. It is much more complicated, for starters. I've spent the week bogged down in environmental reports and conflicting remediation plans. That doesn't happen very often in residential development but if you are willing to tackle the complications it is much easier to be creative relative to financing than in the residential business.
Which brings us to one way to make money in real estate without landlord hassles. Find yourself a guy who knows the business and invest with him, let him take the landlording hassles. More is accomplished as a team than as individuals. If there are parts of the business you wish to avoid there are other people out there who are willing to take up those parts of the deal. Look around, find them. Together you make a great team.
[ Edited by commercialking on Date 07/02/2004 ]
It is not clear if you want one-off income from a deal (lump sum would be another label) or if you are thinking more regular (like monthly income from rental property).
A lot of RE deals that have high leverage have little to no income. With more equity there is room for income.
Commercial (residential - 5 units or more, industrial, commercial, retail) are more geared for income as income is one of the better ways for setting the value of commercial property.
You can invest in notes or you can invest through a partner. In both cases you can put up cash and receive some sort of income (stream or lump sum).
It might be the reservations about being a landlord are not well grounded. If you want to hire a property manager then the hassle factor is greatly reduced.
So, it is possible to generate income without being a landlord. You need to define what sort of income you are looking for and what you will trade off to get it (partner, property manager, sticking to only certain types of deals, etc).
John
[addsig]
Quote:I've never used any of my own money to do any deal I've ever done-- oops I take that back I did use my money once.
Enjoy the fireworks this weekend. Wish I were there.
Mark,
I thought we were talking real estate here, not horses.
Robert
I have the exact opposite problem. I am structuring a deal where I need cash from silent partners who want hands off the management duties.
They provide the capital, I manage the property and ensure its stays full. Both the investors and myself cash in on the rental income and equity.
I am trying to find partners for an LLC and wondering how many individuals want to be silent partners....I guess there are more than I thought
What are the average costs of a property management company?
thanks
Nick
In my area they run about 8-10% of the monthly rent depending on how many units they need to manage and how much business you bring them. The more business, the less the percentage.