multifamily ownership/leasing?

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One thing that I love about this site, in addition to how much traffic it gets, is how many professional disciplines come through here. Seems like almost everyone has a piece of knowledge that they can add on a matter.

I've had a curiosity on this particular topic off and on for the past several years and I caught a reminder last week. A coworker of mine mentioned leasing out his old townhome and indicated that he has a property management company in charge of it who finds the potential renters, does the credit screening, has a handy man on staff, and only charges 10% off the top of the monthly rent plus whatever charges are incurred with minor repairs and maintenance.

I've heard for years now from people that if you can get your hands on a tri-plex or quad you can make a considerable amount of money on rent. The challenges are of course finding one that's in decent enough shape to where repairs/renovations needed are within reason and in an area where respectable renters will rent. The interesting thing about the Cleveland area, a lot of the inner-ring suburbs are being revitalized, many of them do have good police presence and are safe places to stay.

Since I'm sure there are a few people here who've tried their hand at this; as a first time prospective buyer, what do I need to be the most careful of? I figure tenant safety is paramount, anything as far as loose stairs or gaps in the sidewalk can be a potential lawsuit. Anything else I want to watch out for regarding the market or the sellers themselves?

Peoples' experiences with purchasing rental properties varies widely, so remember there is absolutely no guarantee in anything. First, choose your property carefully and consider what kind of tenant you want. Do you want singles, a family in a starter home looking for a decent school district, college students, retirees, or...? Also, choose your property management company VERY carefully. Do some research online and, if possible, talk to other landlords in town and see who they recommend. A good property management company can make things go very smoothly...a bad one is worse than doing it yourself, since you have to ride them every month to get your rent.

You also may consider buying a duplex/triplex that would be open to Section 8 tenants, which means the government will pay the vast majority of the rent every month. However, some Section 8 tenants can be problematic, and if you're living right next to them, you may find your quality of life diminished somewhat. Know what your policy is on animals, particularly dogs, and don't be afraid to ban pitbulls or pitbull mixed breeds.

If you decide to go for it and live in one of the units, I would HIGHLY recommend that you use a property management company and put them under strict instructions not to divulge that you are the owner of the property. That knowledge can create tension and problems like you've never seen, and you DON'T want that crap in your life. I speak from experience here...we had to rent out our house when we moved across country suddenly, and the management company gave the tenant our name and phone number. Calls at three a.m., tirades, b.s. excuses as to why the rent was late, etc. came flying in thick and fast. No good!

I would also suggest that you do the numbers, of course, and have at least three months of covering costs in the bank plus an emergency repair fund ready to go the minute you start renting out the property. This will allow for the property being unlet between tenants or after an eviction that demands property repairs and cleanup, and will cover your mortgage, insurance, and utility bills while you are waiting for your next tenant. You will have to keep the electricity on even while the property is vacant, to avoid freezing pipes and/or to keep it a comfortable temperature with working appliances so the agent can show the property or the cleaning crew can do their work.

Oh, and install tile or linoleum in as much of the property as is reasonable...carpets get trashed FAST, no matter who lives there!

All this can be done, but do it carefully and don't quit your dayjob while you're getting started. Good luck!

Thank you for your response, all of that sounds about right and I agree that I would not want to be disclosed as the owner.

One of the things that held me back on this decision was hearing from people both how negligent property management companies can be if you're a small customer with only one house to service or pretty much anything less than an apartment complex of some sort. I then heard that, at least in my area, rent discrimination laws apply if you don't live on the property (which obviously my biggest concern would be trying to weed out the people who'd quickly decide that they don't feel like paying and then try to muscle me with threats of property damage if I removed them). Since finding out that a property management company, at least one worth their salt, will run credit checks at minimum I feel considerably more comfortable letting them use their process to find the right renters. That much already takes care of my primary concern regarding renter discrimination laws, plus eviction is something that they would handle if need be.

I agree, quitting the day job would be a bad idea. I realize though that with my job and with my current living conditions (live at home, income something like 40-45k per year pretax), especially with a decent amount of money saved up, I'm in an ideal position to do this. My hope is to get a good starting block property, keep working, and reinvest all rent profits into both a major repair fund as well as a set-aside for future acquisitions. I just checked with my coworker again by phone and he verified that they're great about getting the rent checks promptly and servicing the property, no complaints at all. I'll be shooting them an email in the next few minutes I think just to see what areas they cover (they're not based slightly outside of Cleveland rather than in) and I'll be checking with them on their coverage area, if they have any multi-families currently for sale, etc.. Should be interesting!

Take this with a grain of salt, since I work in social services, specifically in disability services and housing. But, if you are planning to buy a distressed property and renovate it or are just looking for good, quiet and reliable renters, you may want to look into government funding sources intended for home modifications (ie. renovations that make a home handicap accessible). A number of the programs I work with in PA are federal and Ohio should have equivalent programs there.

Some programs will fund things like barrier-free showers, wall-hung sinks, etc. to enable a tenent with a disability to live on the property safely and independently. Most of these types of fixtures on the market now do not have an institutional look to them, are designed well and add value to the property. So, basically, you get a free apartment remodel and then can attract a tenent on a steady, fixed income or Section 8, who will most likely be elderly, clean and quiet (no meth labs or wild parties!) and you'll get your rent check on time. Plus, you're doing a good thing by enabling someone to live independently in a home of their own, rather than a nursing facility. Sorry, I couldn't live with myself if I didn't at least throw this option out there, lol.

Other than that, I'd just say to make sure this is something you want to be involved with for the long-haul before committing, since it's not a great climate for selling real estate in many areas of the country right now. (ie. This might work right now while you are living with your parents and have steady employment, but what if you decide you want to move out on your own or something changes with your job situation? Yes, I know you are a CPA and a fiscal conservative and won't stretch yourself too thin, but it was a thought that crossed my mind, since you've mentioned job-hunting and grad school before.)