I am still small-beans when it comes to owning real-estate. It’s clearly more of a hobby for me right now than anything else.
Every now and then I will read an article here-or-there on BiggerPockets about an individual who managed to swing a huge property deal and leverage their way right into the poor house.
I read BiggerPockets so I can better understand what not to do than what to do. We have different financial goals though, and I’m not looking to build a multi-million dollar nest egg; I think it’s a waste of time really.
Being that the following in true
- Real estate is a hobby
- I’m not looking to make a killing
I have a different preference for the type of real-estate I own. In particular I prefer places that
- Have next to zero maintenance
- By nature of location limit themselves to well funded tenants
- Are located in areas that I would want to live
- Have reasonable rules and regulations (locally, as well as in city and state)
To match these criteria my real-estate interests usually come down to the following
- Townhome or condominium in a Homeowner’s Association
Next to zero maintenance
Property located in an HOA is, usually maintained in large part by the Association.
Things like lawn care, snow removal, driveway patching, roof replacement, siding replacement, and almost all external properties of the home are covered by them.
This is paid for, by you, in the form of an HOA fee. For my property in Aurora IL, the HOA fee is ~$150 per month.
While their coverage of this maintenance is a plus, some HOA’s can take forever to get anything accomplished that is unplanned for. Lots of times this is due to the company that they contract the work out to being a crap company.
Case in point, when the wind blew a piece of siding off my home, it took the HOA 6 months, and three contracted companies to get it replaced. Why so long? Because the contractors went out of business in the process…yes, all three of them. As this was happening, the HOA people responsible for the work order didn’t track the progress of the work nor did they frequently follow-up with me on the state of it.
I was the one who ended up doing all the leg work to make sure that things were fixed appropriately. My tenants at the time were understanding of the situation and I kept in close, frequent, contact with them during that period to reassure them that I was still working the system and not sitting on my laurels. I hate landlords who don’t communicate.
Aside from that one event, maintenance has usually been acceptable. It is my responsibility to maintain everything from the walls inward and for the HOA to maintain everything from the walls outward.
Location breeds well funded tenants
Tenants that don’t pay suck. Legally it takes forever to evict them and that’s not something I care to deal with. I prefer to buy real-estate in more expensive areas because it implicitly disqualifies a certain breed of tenant from even applying in the first place.
Well capitalized tenants have a greater potential to pay their bills on time, but they also have more expensive taste and less tolerance for shoddy maintenance. That being said, you can often
- command a higher price
- ultimately own less total properties
- therefore have to deal with fewer tenants
if you own in expensive areas. Remember that, for me, this is a hobby. If I have to deal with too many tenants, then it becomes a second job and I’m not that interested in making this a second job yet.
Regardless, the locations that attract wealthy people are also the nicer maintained locations to begin with and fall in line with my next point
Located in areas where I would want to live
When I buy something, I ask myself if I would want to live there. Is there too much traffic in the area? Is it located near grocery shopping? What about the aesthetics of the place? Do they charge fees for everything? What is not allowed by the HOA? What is the quality of the amenities? Is it close to public transportation?
There are a host of things that I want in a property. I look at it like this.
What happens if I want to move into it myself after my tenant leaves?
If I wouldn’t personally move into it, then I will not buy it. It is, after all, my house. If I wouldn’t live there, then why would I expect someone else to?
Reasonable rules and regulations
Ok, I get it that when dealing with a bureaucratic entity the notion of “reasonable” is often a pipe-dream. There is, however, a possibility that the local governing bodies have limited the amount of damage they can do to you in the form of fees and paperwork.
For Aurora IL the legalese is rather tame, all things considered. You need to have designated an “agent” if you live more than 50 miles from the property, and you need to have yearly walk-throughs of the property performed by the local housing authorities. The walkthrough costs ~$40 and can be scheduled any time so I just delegate it to my tenant to schedule it around their own schedule.
The “agent” is just a local proxy for you. They don’t need to have any qualifications to be an agent. The only requirement is that they receive mail for you and attend any sessions related to housing practices that might be required. Typically there is a yearly hour long session that they need to sit through, sign their name that they attended, and collect a piece of paper saying they attended; that’s about it.
So an agent could be your mom, dad, your best friend, your brother, sister, their spouse, your real-estate agent or even maintenance guy, etc. The volume of stuff that the agent needs to deal with for Aurora is pretty low so just about anyone can fill the gap; they just need to be able to make it to any events that they might need to attend.
I’m not interested in buying multi-family dwellings and having to deal with 5, 10, or more tenants. By that point in time, the hobby would have become a second business.
Right now I’m interested in 3 tenants max. That seems like a number that I can personally manage (ie, not having a property manager) while at the same time making enough side income to afford my current lifestyle and banking the remainder.