We have a huge decision to make soon. (I think I may have touched on this a few weeks ago here, but "the future" is opening up rapidly so I'd like your thoughts.) Basically we were about to buy another house in D.C. like the one we're renting out now. Good area, relatively high rent, great property manager. But now there's a nice neighborhood a bit closer to here with great home prices and sale signs going up. It's a quiet neighborhood, good neighbors from what I can tell, and the homes are ranch style selling for $80k or $90k instead of $400k. Would you WANT to own like three homes on the same street? I won't for this question consider the property taxes we talked about in the other thread. And these would have a manager like the other house, so for this question, just simply would you choose this over one home if actual purchase price for 3 or 4 is the same as 1 home in a much larger/sought out area?
First of all, I've never invested into real estate other than throught REITs. But the law of diversifying still applies. More houses to rent -> less impact if one of them has a problem, such as not finding a tenant or him not paying his rent etc. With this also comes geographical diversification, having all of those 4 houses on the same street could be a bit risky since if something bad happens. (could be anything, criminal activity in the neighbourhood, natural disasters, a large road/factory being built close by that would generate noise/pollution) then the income potential of all those 4 houses goes down. Also seeing a you have a manager for them, they will charge the same fee for 4 houses if they are on the same street or on the complete opposite sides of the city. So you don't really profit from the convenience of having all your rentals close together.
Excellent thoughts, crimsonghost! Ya know, I hadn't even thought of it as diversifying, but you're right. Something happens to the current investment property and that's it... no rent until it's taken care of. But yes, with 3 or 4 houses, something happens to one, there are still the rest... you have been very helpful! As far as the manager fee goes, I assume it would be like it is now times 4. BUT that's not really as bad as it sounds. Number one, they can and often do, try to rent for 10% higher to cover their fee and it's worked so far. But number two, the rents will be much lower because the ranch houses aren't in a high-rent area like the other house. So while a home in those areas rents for $2200 to $2800, the houses in a small community wouldn't get more than $600 each... so if it's a manager cutting 10% of the rent from the top, it's really not that much different. Once again I guess it comes down to property taxes. Higher for the other rental, sure, but not 3 or 4 times higher like the rent would be.
My only thought would be to work smarter instead of harder. If the rent is so much less in the 4 houses I would stay with buying only 1 house for the same price and amount of rent of all 4 combined. No reason to pay 4 property taxes, 4 insurance payments, 4 mortgages (if need be) have a manager for 4 additional houses when you have 1 of all of the above and it profit the same or more income. Not only price/savings as well as profit in mind but also the type of client with that amount of price difference really comes into play. With the higher end rent also comes the ones that can normally afford their bills and the ones that do not vanish is thin air! For this reason alone I would choose the 1 house. Even though you have a manager and don't have to deal with the hassle you still have to deal with the months of no payment or not rented or even damage to the property. So it still hurts your bottom line. Just something to consider!
I agree about the taxes and insurance (although it's not as large of a difference as you may think considering where our current rental is located and its size, etc.) There wouldn't be 4 mortgages, though... it wouldn't have even come up as a possibility if that were the case. It's one rental in a high cost area with good rent vs. 3 or 4 in small neighborhood with lower rent, taxes, and insurances. Zero mortgages, so that's not part of the equation.
There's always something simple to help decide: how much would you be paying for all the expenses of owning those houses vs how much you would receive from renting them. If the rent covers the expenses, I say go for it.
Learning something very vital here as well...thank you crimsonghost747 for that insightful piece of information
I don't think it's very fair that a property manager charges the same for four properties in the same street or in distant locations, I'm sure that could be negotiated with him? Good arguments though I agree.
I agree with that Peninha, but if there is a standard that property managers receive per property there's not much margin for negotiation I think. I still believe that owning many properties in a neighborhood can be something good, considering we have luck, for everything in life luck is necessary.
Right... I can't see that happening either. If their fee is 10% of the rent, I really don't think they'll offer a discount if someone has several rental properties. I know I wouldn't offer it if I'd be a manager!
