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      09-09-2019, 04:17 PM   #1
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Advice for First Time Landlord?

Hey all, my wife and I are in a position to purchase a new home and keep our existing one as a rental to generate some income. We've never been landlords before and I know a few of you have rental properties. Hoping you folks can chime in with some advice, in particular any hard learned "I wish I had known that going in" sort of things.

In particular, I'm interested in ways to protect the rental property and our personal finances. I dont want the house destroyed and I dont want to put us at risk. So what can we do to protect those things?

Examples of what I'm afraid of:

1) The rental house down the street is housing at least 4 adults and about 17,000 kids. There's a recycling bin 8 feet up in a tree that's been there for a year. The blinds in literally every window are torn up and hanging at about 45 degree angles. The front lawn has garbage strewn across it at all times.

2) Freak accidents: Renter slips and falls on the stairs and sues me. The circuit I wired in for my wife's electric car (without a permit) catches fire and the house burns down along with the renter's newborn baby. Renters destroy the inside of the house causing 100s of thousands in damage. etc.

Sheesh, maybe I'm not cut out to be a landlord...
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      09-09-2019, 04:19 PM   #2
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      09-09-2019, 04:25 PM   #3
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1) I hope that the house you are planning on renting out is paid for. If not, I don't typically recommend financing a rental property. If you are financing, then at bare minimum, don’t count on the rent from a tenant to cover the deficit in your budget if you can’t afford a mortgage.

2) The minute you rent out your home, it becomes an investment property. Investment properties come with state-specific insurance and lease agreements. You’ll need to understand the rules and regulations in your state regarding rental properties first.

3) Renters should be aware of your expectations upfront and understand the consequences of not abiding by those rules.

4) Ongoing upkeep and maintenance could be a chore. Renting out a home in theory sounds great—but throw in the cost of unexpected repairs on electrical panels, appliances or hot water heaters, and renting might not sound so appealing after all.

Regarding tips on securing quality tenants:

1) I check the place they used to live before. We pull a credit bureau on them. We get a huge deposit upfront—at least a month but usually two months’ rent in addition to the first month’s rent to be paid. We interview them. We talk to them. We want to see how they converse. They’ve got to be pretty good con artists to get past me now. You just spend more time screening your tenants and digging into what’s going on there.

2) I’ll tell you another trick I learned. Depending on the type of property you are and where the people live that are moving, you can drive by the place they live in now. I’d like to see what it looks like—how they’re maintaining it. If they’ve got a bunch of junk sitting in the front yard and the grass is grown up around the windows where they’re living now, I don’t want them in my house. That’s another indication of how good a care they’re going to take of your property. But more than anything, if you just do a good, strong interview with the tenant, dig in, and be sure you are pulling up the checks for previous rentals. Show me some proof of the actual payments being made on time.

3) The big thing is that people who are landlords are just like people that are employers. They don’t take enough time screening the relationship meaning that most people who do hiring don’t spend enough time doing the hiring. Most people that put tenants in their homes don’t spend enough time interviewing the tenant and digging into what’s going on there.


Overall, I think it is okay if done correctly, but I strongly recommend against having a tenant in a home with a mortgage. The same question reversed would sound like this: if you had your new house built and had the cash to pay for it without a mortgage, would you borrow on it to purchase a rental house in the neighborhood you live in now? The answer should be “no” because you don’t want debt. You should build wealth slowly and take the risk out of it.
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      09-09-2019, 04:33 PM   #4
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I managed an apartment building to pay for part of my college years. Late night calls, drunk and loud tenants, hoarders, arrests. The only thing I never had to deal with was a deceased tenant in a unit. And these were pretty nice units.

Since then, I’ve known many who successfully rented. One friend bought several duplexes and his strategy was to maintain them himself (big stuff) and only rent to retired folks. They stay put, pay on time, and take pride in caring for the units. Like most who play the property game, his goal was to sell them for a capital gain, while having the rent cover ongoing costs (including financing). Being in a good real estate marketplace, his strategy paid off handsomely. Others are more general in their tenants and generally have it work out.

I only invest in REITs if I want more real estate exposure.
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      09-09-2019, 04:35 PM   #5
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Originally Posted by 2000cs View Post
I managed an apartment building to pay for part of my college years. Late night calls, drunk and loud tenants, hoarders, arrests. The only thing I never had to deal with was a deceased tenant in a unit. And these were pretty nice units.

Since then, Iíve known many who successfully rented. One friend bought several duplexes and his strategy was to maintain them himself (big stuff) and only rent to retired folks. They stay put, pay on time, and take pride in caring for the units. Like most who play the property game, his goal was to sell them for a capital gain, while having the rent cover ongoing costs (including financing). Being in a good real estate marketplace, his strategy paid off handsomely. Others are more general in their tenants and generally have it work out.

I only invest in REITs if I want more real estate exposure.
Boy - I would seriously give you a nervous breakdown. I just recently bought 3 rental properties. In a foreign country. lol.
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      09-09-2019, 04:36 PM   #6
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Boy - I would seriously give you a nervous breakdown. I just recently bought 3 rental properties. In a foreign country. lol.
Form a REIT and maybe Iíll play ball with you
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      09-09-2019, 05:29 PM   #7
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I manage properties for a living. As others have advised screen, screen, and screen. My hardest lesson learned was rushing into placing a tenant so I didn't have to eat a month or two of the mortgage. I started investing in your location (Seattle) many years ago. The eviction process in your area heavily favors the tenant. My point being it's better to wait for the right qualified renters and losing a month or two rather than going through the six month eviction process (trust me).

You can also add an addendum to any lease agreement for some of your pet peeves. For example a limit on how many "guests" can stay in the home and the duration period. I actually got together with a Real Estate attorney to make sure my extra addendum rules were applicable to the state laws. If you're in it for the long haul it's worth it.
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      09-09-2019, 06:06 PM   #8
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Basically all of what Run Silent says....

Since I am not local to the house we are renting, we went with a property management company, for two reasons.
1. They do a good job vetting the tenants, and are on scene and have local contractors if work is needed in emergency.
2. Most bad renters avoid a company that will pay attention to their background, and hold them to all the legal terms of a lease.
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      09-09-2019, 06:13 PM   #9
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Microchip your tenants.
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      09-09-2019, 06:35 PM   #10
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If you can't get to their previous homestead, look at their car. Would you want them to treat your house like that?

Even when financing, my dad always had a plan that he would have the place rented 10 months a year. If that didn't cover mortgage/insurance, he waited for another opportunity.
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      09-09-2019, 07:06 PM   #11
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Oh boy.

I've owned single family and multi-family with the largest acquisition being over 380 units. I'm now out of that business. The 380 unit debacle sealed it for me.

Get a property management company. Pay the 8 or 9 percent fee and collect your check at the end of the month and a nice tidy statement at the end of the year. Anything else is insanity.
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      09-09-2019, 08:56 PM   #12
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Man, stellar feedback, Dudes. THANK YOU ALL!!!!


Quote:
Originally Posted by Run Silent View Post
1) I hope that the house you are planning on renting out is paid for. If not, I don't typically recommend financing a rental property. If you are financing, then at bare minimum, donít count on the rent from a tenant to cover the deficit in your budget if you canít afford a mortgage.

2) The minute you rent out your home, it becomes an investment property. Investment properties come with state-specific insurance and lease agreements. Youíll need to understand the rules and regulations in your state regarding rental properties first.

3) Renters should be aware of your expectations upfront and understand the consequences of not abiding by those rules.

4) Ongoing upkeep and maintenance could be a chore. Renting out a home in theory sounds greatóbut throw in the cost of unexpected repairs on electrical panels, appliances or hot water heaters, and renting might not sound so appealing after all.

Regarding tips on securing quality tenants:

1) I check the place they used to live before. We pull a credit bureau on them. We get a huge deposit upfrontóat least a month but usually two monthsí rent in addition to the first monthís rent to be paid. We interview them. We talk to them. We want to see how they converse. Theyíve got to be pretty good con artists to get past me now. You just spend more time screening your tenants and digging into whatís going on there.

2) Iíll tell you another trick I learned. Depending on the type of property you are and where the people live that are moving, you can drive by the place they live in now. Iíd like to see what it looks likeóhow theyíre maintaining it. If theyíve got a bunch of junk sitting in the front yard and the grass is grown up around the windows where theyíre living now, I donít want them in my house. Thatís another indication of how good a care theyíre going to take of your property. But more than anything, if you just do a good, strong interview with the tenant, dig in, and be sure you are pulling up the checks for previous rentals. Show me some proof of the actual payments being made on time.

3) The big thing is that people who are landlords are just like people that are employers. They donít take enough time screening the relationship meaning that most people who do hiring donít spend enough time doing the hiring. Most people that put tenants in their homes donít spend enough time interviewing the tenant and digging into whatís going on there.


Overall, I think it is okay if done correctly, but I strongly recommend against having a tenant in a home with a mortgage. The same question reversed would sound like this: if you had your new house built and had the cash to pay for it without a mortgage, would you borrow on it to purchase a rental house in the neighborhood you live in now? The answer should be ďnoĒ because you donít want debt. You should build wealth slowly and take the risk out of it.
Hear ya loud and clear on the mortgage. We do have a mortgage on the current house but it's peanuts at this point. We can float it indefinitely if needed. The plan was to pay it off in 7 years then rent the place out and move onto a new home with a mother-in-law unit on the property. Mom's health is declining a bit more rapidly than expected and we are prepping to have her move in with us sooner rather than later. Hence the need to move on this before the current place is paid.

Quote:
Originally Posted by Mardio View Post
I manage properties for a living. As others have advised screen, screen, and screen. My hardest lesson learned was rushing into placing a tenant so I didn't have to eat a month or two of the mortgage. I started investing in your location (Seattle) many years ago. The eviction process in your area heavily favors the tenant. My point being it's better to wait for the right qualified renters and losing a month or two rather than going through the six month eviction process (trust me).

You can also add an addendum to any lease agreement for some of your pet peeves. For example a limit on how many "guests" can stay in the home and the duration period. I actually got together with a Real Estate attorney to make sure my extra addendum rules were applicable to the state laws. If you're in it for the long haul it's worth it.
Solid idea on the real estate attorney. Will do that for sure!

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Originally Posted by UncleWede View Post
If you can't get to their previous homestead, look at their car. Would you want them to treat your house like that?
Sooooo by that measure I need to evict my wife and her rolling dumpster she calls a car.

Quote:
Originally Posted by MKSixer View Post
Get a property management company. Pay the 8 or 9 percent fee and collect your check at the end of the month and a nice tidy statement at the end of the year. Anything else is insanity.
You and I run in different circles, MK. You're in the M6 circle with your property management companies and no time for the fiddly details. I'm in the M2 circle and feel compelled to change that water heater myself to save $200.
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      09-09-2019, 09:19 PM   #13
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its not going to hurt to consult with a local realtor that has a background in rentals and has rentals themselves. if you're super worried about liability and litigation, get an umbrella policy. $1mm coverage is a cheap couple hundred bucks a year. plus, set up an LLC for the rental.

you can't ask about kids, but you can ask about the number of occupants. some of this might be state specific, so get familiar with local law. also familiarize yourself with laws regarding fair housing and therapy animals (therapy animals are getting more popular).
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      09-10-2019, 08:27 AM   #14
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Hear ya loud and clear on the mortgage. We do have a mortgage on the current house but it's peanuts at this point. We can float it indefinitely if needed. The plan was to pay it off in 7 years then rent the place out and move onto a new home with a mother-in-law unit on the property. Mom's health is declining a bit more rapidly than expected and we are prepping to have her move in with us sooner rather than later. Hence the need to move on this before the current place is paid.
What is the remaining balance on the mortgage and what is your expected rental income, net of taxes + R&M?

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Originally Posted by DETRoadster View Post
You and I run in different circles, MK. You're in the M6 circle with your property management companies and no time for the fiddly details. I'm in the M2 circle and feel compelled to change that water heater myself to save $200.
MK is giving sage advice. If I were renting property in the USA, I would certainly have a property management company handle it all. Trust me, in the long run, it is almost a net zero cost as they really make an impact in keep tenants current, minimizing R&M costs, and more. It's worth looking into.

For my current rentals (these are 3 small, but upscale flats), I personally do the tenant interviews and screening myself via WhatsApp, but I have a property management company that handles everything else. They charge me a base fee during the application process for new tenants, hold any security deposits or pre-paid rent in an escrow account, and then charge me an annual fee of 5% of the gross proceeds. They have contracts with many laborers, so any issues that arise typically cost me much less, so it nearly washes out.

Quote:
Originally Posted by roastbeef View Post
its not going to hurt to consult with a local realtor that has a background in rentals and has rentals themselves. if you're super worried about liability and litigation, get an umbrella policy. $1mm coverage is a cheap couple hundred bucks a year. plus, set up an LLC for the rental.

you can't ask about kids, but you can ask about the number of occupants. some of this might be state specific, so get familiar with local law. also familiarize yourself with laws regarding fair housing and therapy animals (therapy animals are getting more popular).
Roast gives sound advice, with the exception of his comment regarding an umbrella policy. This needs to be absolutely mandatory, not something to do if you are super worried. You would be an absolute fool not to have this.

Speak to an attorney regarding any LLC setup, etc. Sometimes this is advantageous, sometimes not so much. There are other options that have different tax implications, but still provide the veil being offered through the incorporation.
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      09-10-2019, 08:50 AM   #15
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Quote:
Originally Posted by DETRoadster View Post
Man, stellar feedback, Dudes. THANK YOU ALL!!!!

You and I run in different circles, MK. You're in the M6 circle with your property management companies and no time for the fiddly details. I'm in the M2 circle and feel compelled to change that water heater myself to save $200.
You've gotten some amazing advice here as well as mine.

Seriously, I understand the temptation to do-it-yourself because it's your first baby. I understand because I did the same thing and I regret it to this day. I made every first time mistake possible. Let me list them for you:

No LLC. I put this first because NEVER run this through yourself. NEVER. The potential liability is too high.

No PMC. I would have put this one first but no LLC is even more ridiculous.

Off the shelf leasing contract. No other words are necessary.

Loose background check. Again, no other wards are necessary.

Keep it strictly business. No personal relationship with the tenant but always be cordial.

NO PETS. I cannot tell you how important this is. NO PETS.

If there is carpet, pull it and put hard surfaces everywhere.

Don't rent to lawyers. Sorry to impugn the profession but no lawyers.

I can't think of anything else but my first go at this was a horror story and I have to tell you that doing the first two will eliminate all possibilities of the latter points. Good luck, my friend.

Cheers-mk
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      09-10-2019, 09:17 AM   #16
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Housing laws are very much in favor of tenant, as public policy wants to make it very difficult to evict. Not saying it is right, so you need to do the following:

1.) Make sure the lease is drafted IN YOUR FAVOR. Be fair, but eliminate any ambiguity that could be used against you. Know what the housing laws are in your state as you prepare the lease.

2.) Carefully vet any prospective tenants - credit as well as personal reference.

3.) Be responsive to any requests as tenants can, and will, use any excuse to withhold rent.

4.) Document any issues or complaints (written and pictures).

5.) Better safe than sorry. Remember, it is not easy to evict a tenant or to recover withheld rent. (Evicting and enforcement actions are also costly.) Trust your gut in deciding who to rent to.
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      09-10-2019, 10:49 AM   #17
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put everything in writing..part of lease agreement as others have already suggested!!!

also document the conditions of your house either by pictures or recording in case of damages by tenant.
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      09-10-2019, 11:09 AM   #18
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I rented out my townhouse in Renton for a couple years after moving in with my SO. I went with a professional property manager right off the bat since I knew I just did not have the experience with doing it myself. I have since sold the property and will be using the proceeds to buy something again soon. If you do thinking about a property manager I would highly recommend Full Service Property Management. They were absolutely stellar in service to both me as well as the tenants. Having lived both sides of renting it was important to me that the PM was good to the tenants as well as me and they really were!
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      09-10-2019, 02:29 PM   #19
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but seriously, ex gf had several rental properties. she always had better luck with college students believe it or not. don't know if you live in a college/university town
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      09-10-2019, 05:07 PM   #20
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Quote:
Originally Posted by Run Silent View Post
1) I hope that the house you are planning on renting out is paid for. If not, I don't typically recommend financing a rental property. If you are financing, then at bare minimum, don’t count on the rent from a tenant to cover the deficit in your budget if you can’t afford a mortgage.

2) The minute you rent out your home, it becomes an investment property. Investment properties come with state-specific insurance and lease agreements. You’ll need to understand the rules and regulations in your state regarding rental properties first.

3) Renters should be aware of your expectations upfront and understand the consequences of not abiding by those rules.

4) Ongoing upkeep and maintenance could be a chore. Renting out a home in theory sounds great—but throw in the cost of unexpected repairs on electrical panels, appliances or hot water heaters, and renting might not sound so appealing after all.

Regarding tips on securing quality tenants:

1) I check the place they used to live before. We pull a credit bureau on them. We get a huge deposit upfront—at least a month but usually two months’ rent in addition to the first month’s rent to be paid. We interview them. We talk to them. We want to see how they converse. They’ve got to be pretty good con artists to get past me now. You just spend more time screening your tenants and digging into what’s going on there.

2) I’ll tell you another trick I learned. Depending on the type of property you are and where the people live that are moving, you can drive by the place they live in now. I’d like to see what it looks like—how they’re maintaining it. If they’ve got a bunch of junk sitting in the front yard and the grass is grown up around the windows where they’re living now, I don’t want them in my house. That’s another indication of how good a care they’re going to take of your property. But more than anything, if you just do a good, strong interview with the tenant, dig in, and be sure you are pulling up the checks for previous rentals. Show me some proof of the actual payments being made on time.

3) The big thing is that people who are landlords are just like people that are employers. They don’t take enough time screening the relationship meaning that most people who do hiring don’t spend enough time doing the hiring. Most people that put tenants in their homes don’t spend enough time interviewing the tenant and digging into what’s going on there.


Overall, I think it is okay if done correctly, but I strongly recommend against having a tenant in a home with a mortgage. The same question reversed would sound like this: if you had your new house built and had the cash to pay for it without a mortgage, would you borrow on it to purchase a rental house in the neighborhood you live in now? The answer should be “no” because you don’t want debt. You should build wealth slowly and take the risk out of it.
I rented my Townhome which was 3000 miles away when it was not worth selling when we moved across the county, we did not want to take the loss and pay the bank to get out.

I had a friend who did property management and managed the property for me. As Run Silent point out, my friend would do exactly this, go see where the person is currently living. My friend would have perspective renters fill out an application which listed their current place. She would then drove by where they lived and check out how they keep the current property. She would also talk to the neighbors about the perspective renter. She would do this as quietly as possible, since in some states you're not allow to do this kind of checking on people since it is seen as discrimination. Because of this I never had a renter issue, hell one I had use to include the 10% late fee if they paid one day late, never had to chase them for it.

Here is another tip and this varies by state so check the laws. A friend of mine who had a number of rental properties use to put in the lease that all appliances in the property are there as a courtesy and if they break the renter needs to replace them. He also would list items which are general maintenance items which the renter is responsible to handle and pay for on their own like lights burning out, toilets getting stuffed up. He would make sure a renter understood this before he would rent. He always said this part of the lease usually got rid of the flaky ones which you do not want to deal with.

This one applies in Calf when I lived out there, I was told never rent to a single women or one which was pregnant. The reason being, it is next to impossible to evict a single mom, even if they hadn't paid rent in a while. The Courts do not take kindly to someone trying to evict a single mom and most cases will find in her favor.

The way to avoid all of this is to tell any perspective renter there are others who have already looked at the property and you waiting to hear back if they do not want it you will get back to the person. Tell everyone this so if you find out something bad about them they can not claim you agree to rent to them and then discriminated against them.

This is basically saying do whatever you need to ensure you do not rent to someone who is going to cause you problems.
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      09-10-2019, 11:12 PM   #21
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OK, OK, you guys have sufficiently freaked me out. I'm not made for being a landlord. I cant take the pressure!

Seriously though, after a series of very long discussions which took into account all of your guys' awesome advice, we decided not to rent. Instead we will sell the current house and buy a new one that fits our changing needs. The bottom line is that we put our hearts into the existing house. Lovingly and tirelessly resorting it to mid-century-modern glory. Wet tile sawing in sub zero weather, hand sanding and finishing every cabinet door and piece of trim, obsessing over every inch of the place. Handing it over to some schmuck to rent who will NEVER live up to our standards would kill us. The rental contract to protect our baby would be obscene. We realized we are too emotionally attached to the house to stay involved after moving out. Best to sell it to new owners who will in turn love it as much as we have and move on...

New plan is to buy a house that fits our evolving needs and give the economy some time to cool. Wait for the next recession to hit, then pounce and scoop up and small, easily rentable, property that we have no emotional investment in. Oh, and hire a property management company to take care of the dirty details we don't want to be bothered with!
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      09-10-2019, 11:21 PM   #22
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it can be hectic. my wife stresses. i've learned not to stress about much over the years- in my personal and professional life. there is just no sense in worrying about things that might happen that probably won't happen.
being a landlord has been the most lucrative thing i've ever done with the least amount of work. i've essentially invested about $32k seven years ago and would net $250k if i liquidated today. i work full time and this is my side gig. not terrible for a C student high school grad.
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