Let's hear it for Gary Bowman. He's right on. The trouble with talking about landlords in general is that there are many scales of operation, both for- and non-profit, and many motivations for owning income property, hence a wide variance in operations and ultimately, in profitability. I'd be interested to know what the AVERAGE payback period is as well as the return on investment (ROI) percentage for the industry. Maybe some of the larger scale private landlords on the list will enlighten us about industry standards of profitability. I would guess that certain areas of town/types of buildings are more profitable than others, and that will surely make a difference in the decisions a landlord makes -- because that will affect the amount of cash it is practical to invest/ reinvest.
I surely didn't get into the duplex biz (which I didn't think of as a business when I bought it) for the money. I did it because adding the rental income to my own meant I could swing a bigger loan and that meant I could buy more living space for myself and my two children. And, owning was preferable to renting, in my personal situation. It made sense for me because I had to live someplace, and I wanted that extra space for my growing family. When I bought the property, my hope was to break even. I wasn't even thinking of it as an investment anymore than one would when buying a non-income producing home. I think a lot of duplex owners start out that way, and many remain in that operating mode the entire time they live in their duplexes. I know for a fact that in Seward many people buy up the duplexes on their blocks and one of their principle reasons for doing it is to control who those houses are rented to. Of course, they will make a long-term profit on the property, but the year-to-year operation is usually only around break-even level. Some people do own income-producing property as their main income producing business. Mostly, they can't afford to go too far into the red making improvements and repairs because they need to keep the cash flow up to produce current income. >From my own experience and knowledge of others', where MOST of the profit comes in is from appreciation of the property. BUT, to make money I, personally, had to spend myself into a hole with repairs and improvements above and beyond maintenance. And then, I had to hold it for a number of years before the investment paid off. And, yes depending on what you own you can do better than the average stock market over the same period of time. But, not everyone does. (Think of it as owning your own home: If you make a lot of repairs and capital improvements and then sell it in 2 years you are probably going to lose money on it.) Bigger scale landlords have the same cash flow problems as a person with only one unit, it's just on a larger scale. It's a rough business and not for the faint hearted. And the rewards do not entirely depend on the risks of the business itself, a lot of it depends on making smart decisions with imperfect information. It is not the no brainer that some people have portrayed it as. For example: Screening tenants is a major nightmare. A bad tenant hurts both current cash flow and the physical state of your asset, which in turn affects future potential profit (from the sale of the asset). The repairs to the property when it turns over from these nightmare people are massive, and put one deeply into the red with no prospect of payback from the rent -- it's going into the red to merely maintain the status quo in revenue. Keeping a vermin and pest-free property is another nightmare, depending on how clean the tenants are. This can be a bottomless pit of expense. Some landlords try to improve the profitability of the business by cutting corners on upkeep -- and they are gambling with long-term profitability from the sale of the asset when they do that. IMHO, they are usually starting down the slippery slope toward a self-reinforcing cycle of property decline which cuts into the potential future sale, which is where you make money -- if the profits are more than the money you've sunk into the building (capital improvements). As in all things, the decisions one makes represent a set of complex tradeoffs -- the amount of working capital you have to play with, your short- and long-term goals, and who you are as a person (for example, some people have no imagination or creativity, or are extremely risk averse, etc., and their decisions show it). I could go on, but I won't. People who think owning income property is a cushy way to make money surely don't have any experience at it. You can't tell what is happening with the landlord's business with the meager information you have from being a tenant. It's risky business, but yes, if one does it right and has some luck one can make a reasonable profit. Some properties are riskier, some are less risky, just as some businesses are more profitable than others in general. With a lot of luck one can make a great profit with income property, but that is the exception not the rule. That's a lot more likely if one can hold the property for a number of years and the neighborhood appreciates overall. Of course, if you can get someone to sweeten the pot with subsidies, your profitability can go WAY up. But that's not making money the old-fashioned way -- most landlords have to EARN it, and it ain't a sure thing, and it ain't easy either. Barbara Nelson Burnsville Once and future Minneapolitan _______________________________________ Minneapolis Issues Forum - A City-focused Civic Discussion - Mn E-Democracy Post messages to: mailto:[EMAIL PROTECTED] Subscribe, Unsubscribe, Digest, and more: http://e-democracy.org/mpls
