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I think you should go back to LB and look around.

What you once thought was a nice neighborhood without a kid, may change now that you have one and now that you've lived in "The Irvine".

Being a landlord has its pluses... but there are also many minuses... esp if you are going to triple your headache. You may think you know who you are renting to based on interviews and observation, but unless you know your tenants personally, the chances are high you may get one or more nightmare tenants. We had knew someone who bought a 4plex in Long Beach and they only rented out 3 of the 4 units (owner-occupied so they "lived" there on the weekends) but I think they only kept it for two years before they decided it was too much work vs. the hassle of managing tenants. Granted, it would be easier if they actually lived there all the time but they had kids so it wasn't the right fit for them.

Quite honestly, it would be a very big step from apartment renter to 4plex owner/landlord (especially when you tell us how much time your family/church/work takes up).
 
IHO, thanks man for jumping in, I really need you guys now more than ever!  A few things I need to mention; 1) I am extremely idealistic - What I think of a particular situation is often drastically different from reality 2)  I am naive and tend to think the best of people - I want to believe everything anyone says to me, I befriend people easily and often get let down 3)  I internalize everything, and it spins in my head often paralyzing my decisions or most likely jumping to conclusions hasty...

I totally hear you IHO, great comments and this leads really well into the next chapter of what comes next!  You guys thought I was done!  Almost, I'm about half way through...

The wife and I looked at each other the other day while walking; we came to the same conclusion that escaping from Irvine will not be easy.  Now that Sonoma opened up, we have four parks all within a five minute walk!  Now that the kid is walking and going to bed later, we're starting to get our social lives back; it seems that we are just starting to get to know other Irvine families who are also coming out of hiding with their 1-years olds...

We can't expect LB to be Irvine, period! Both are great places to live and we can't expect to find a replacement or substitute for everything we come to rely on, on a day-to-bay basis.  Things will be different; but we again chose community or the people over location.  Sure there are great people here but there are also good people there and we look forward to meeting great families there too.  I do know that the beach culture is a bit more lax; people tend to be more friendly and open but mostly there are less Asian.  I'll go into a cultural study of LB vs Irvine later, but again this ties great to what happens next...

We came to two conclusions... 1) We are not totally closed off to settling in Irvine - we can't go wrong with a good deal anywhere, when it comes  2) If we buy in LB, you can bet we'll be visiting Irvine often, for church and friends, we are planting the seeds now!

I would not take the leap into apartment ownership without the blessed approval/borderline push from the wife...  Buying an apt is par to starting a business, if it wasn't for my mentor and his wife sitting down with the both of us; all of this would not have been possible.  We do have people who have done it that could give us their experience and guidance; we have a good friend who's family owns several residential properties in LB; and I have three good brothers who own four-plexes to also help.

Finding and holding on to good tenants is also tricky; and again this leads really well into the large aspect of finding community and what I plan to do.  We do plan on living in the building so, you'll be sure that I'll keep an close eye on any happenings.

Thanks for sharing your friends experience, if you don't mind I like to ask them some questions, do you think you could PM me?  I wonder which part of LB did they buy?  LB is a very fragmented and one street could mean a world of difference.

I do realize the amount of work involved, and the time commitments; but I also think we won't be alone.  And that is the key I think to all of this; the huge lessons learned these past months, we are not meant to be islands.  We will have help, we will have others, we will have true community, and I can't wait to explain what that all means!
 
Tuesday March 30th will forever be one of those turning points in my life.  It was one of those handful of epiphanic moments where suddenly a lot of thing that were hard to see and connect suddenly all makes sense.  This piece of revelation hits the heart and soul of what I have been writing and advocating for the past couple of years on the IHB and TI.

I was driving home that Tuesday when the radio show Politics of Culture came on.  It is a show that I usually don?t listen to; but before I knew it, I was completely captured by the host and guests.  If you have half an hour; would you do me a huge favor and listen to it or pod-cast it.  I have listened to hundreds of powerful messages from professors, pastors, powerful business communicators and political leaders.  I have been inspired, moved to tears and called into action.  But rare is a time that have I uncovered such a powerful truth from a simple radical house-wife.

Here is the link:http://www.kcrw.com/etc/programs/pc/pc100330alt-econ_a_radical_a

I will summarize the show in bullet points and try to unpack all the aspects of what I have learned and continue to learn on a daily basis since hearing that show in coming posts.  The implications are many; I would of course appreciate feedback and your critical arguments.
 
I've been a landlord for about a decade.  As a suggestion, I recommend getting a good property manager and not do it yourself.  Try Donna at Aladdin Property Management:
http://www.aladdin.qpg.com/

Just tell her that Jerry from Irvine referred you.  An experienced property manager can smell a problem tenant over the phone.

I've known 3 people who bought 4-plex, lived in one and rented out the other 3.  One was in...  Boston I think (?), another in south Placentia (the water tower side), and the last in Newport/Costa Mesa area.  All 3 of them regretted living next to their tenants, and all the sh*t they had to put up with.  So if you want to buy a 4-plex, don't live there.

 
Here is a question that I have with creating wealth through rental income.  Do people really create wealth with rental income? or from the appreciation of the investment property (asset).  I thought that's the ultimate goal for going into real estate investment.  Now it's a different story if the investor just have the cash and need a place to "park it".  Then buying properties to rent make sense to me.  I am having a hard time seeing how owning multi-unit rentals or several residential homes with rental income can create "wealth".  Maybe I thinking too much along the lines of mortgage obligations (and all these other possible headaches that comes with being a landlord) and not seeing how one can make money from it.
 
thanks again for the advice momo...  A PM is not out of the question, it will sure eats a good chunk of your cash flow though... I would definitely consider it if my investment was out of state or if I just don't want to bother with it; but again, this ties really good into the communal activism activities that I plan on organizing...

And here goes the idealistic side talking...  if my title was simply a landlord and my job is just to collect rent then yes, a PM would suffice, but I really plan on being a community organizer, a partner in the community where I share a greater purpose and goal by living together within our neighborhood and community...  I plan on being a friend, a brother as well as a landlord...  I really plan on sharing more, if you get a change listen to the show above...!  I like your comments...

I need your input as a landlord, to see if the real-world realities and the action items I plan on implementing will work...!
 
fe9000 said:
Here is a question that I have with creating wealth through rental income.  Do people really create wealth with rental income? or from the appreciation of the investment property (asset).  I thought that's the ultimate goal for going into real estate investment.  Now it's a different story if the investor just have the cash and need a place to "park it".  Then buying properties to rent make sense to me.  I am having a hard time seeing how owning multi-unit rentals or several residential homes with rental income can create "wealth".  Maybe I thinking too much along the lines of mortgage obligations (and all these other possible headaches that comes with being a landlord) and not seeing how one can make money from it.
Click to expand...

From real estate investments you can make money in four different methods: 1) Appreciation 2) Cash Flow 3) Amortization of loan 4) Tax Deduction. In my humble opinion, #1 and #2 is going to be very tough in Irvine and nice parts of OC, as I don't see much room for appreciation from current levels ( I could be wrong), therefore I would look outside for better opportunities. I see Irvine as a great place for someone who is already a multi-millionaire looking to preserve their wealth by buying a home in Irvine, but not the best place to expand their real estate investments, that money making opportunity is long gone back in the mid 90s.

From my limited real estate investing experience, SFRs are by far the easiest tenants to manage once you know how to manage them (I know IHO would disagree with me with his prior experience with UCI tenants). This is the reason i will continue to build my real estate investment portfolio with SFRs. I know it is beginner's luck, but my current tenant of four years has never been late once with his $3000 rent and calls me maybe twice a year and from what i hear from my neighborhood spys is that he takes good care of my property. Here is the email I received from my tenant the other day.

Hi Panda,

I wanted to let you know that we had to have most of the exterior trim of the house repainted (all except the roof eaves underside).  Paint was flaking off in many spots and there were whole areas of exterior trim paint (e.g., all front window trim exteriors and the front porch columns, and back door and deck trim) embedded extensively with mildew and/or black mold. We had all of the exterior wood trim on all windows and doors repainted, including the outside window sills and the outside wood trim on the window panes. 

We also did some touch-up paint work inside on stairwell walls and some trim places as needed, and in the master bath.  For example, paint was peeling off in large chunks off the bottom framing on the window above the kitchen sink.  In addition, we had the whole house pressure washed, and the deck pressure washed and sealed with a protective coating.  In all cases, the paint and sealant used matched the original color and texture. 

We hired a professional paint company, Castino Painting, which paints all of our extensive store remodels, who believed that the builder?s painter had not prepped the wood appropriately prior to painting back when the house was built.  I noticed that at least one other house on the street was being repainted so the problem may not have been unique to your home.  We basically did all the painting that we felt needed to be done, and that we would have felt it necessary to do if we owned the home. 

The final cost will be approximately $2500, which we will absorb, but in return I would like for you to keep the rent at the current level if we decide to stay another year or two.

Your favorite tenant,
Mr. Green
   

 
 
I would only invest in rentals in areas that I know are in demand... Irvine is a great place because families, professionals and students all want housing there. I'm not too hot on the 3rd category but it depends on the students you get... my 3rd set was much better than my first two and why I didn't mind them having a 2-year lease.

Buying a rental in a family city with a university gives you more prospective tenants, but Long Beach is also a good area because it has a Cal State, it's a beach city, it has a vibrant downtown and a good choice of shopping. The demographics are a bit different from Irvine/OC because it is LA but it's closer to the OC than LA proper.

Maybe I'm pessimistic or I am underestimating RC's community building powers but I think you'll have a difficult time finding tenants who will want to be part of your grand plan. There are some people who prefer to be left alone and there are others who you would prefer to leave you alone... finding the balance between those is tough.
 
Thanks for the input Panda & IHO...

Appreciation - is calculated at 3% historically, it is pegged to inflation... you can "force" appreciation with renovations.. You can't rely on appreciation for speculation; investing in RE is a long-term deal; I'm not here to make a quick buck.

Cash Flow - makes you property an asset versus a liability.  The more the better; the closer you are to rent parity or even positive cash flow the better.  Having a roof over your head in life will always be an expense, whether you are a renter or owner.  But having cash flow means you can hold on no matter what market you're in.  Here is where using a GRM or rent-to-value ratio comes in; Irvine has below average GRM somewhere like a 16, or .3% r-to-v; a $1,000,000 house rents for $3,000.  The Inland Empire is great for investing, 1% r-to-v!

Amortization - to me simply means that you can constantly collect market rent for a fixed debt that inflation is eating away at!  The amount you have to pay back gets cheaper and cheaper every month due to inflation, while the income or rent you are receiving is constantly adjusted to today's dollars.

Tax Deductions - Most people with income property never show income; some have not paid taxes for decades.  All income is serviced with debt.  Whenever they start producing an income when a mortgage is paid-off is they pull equity and buy another property.  They get to spend all their money first then pay taxes.  I have seen refi checks in the hundred of thousands of dollars; all tax free!  The slogan in the industry is "refi till ya die"!

I don't plan on advertising my apt; I hope to find renters all by word of mouth.  Taiwanese Network, baby!  Ok, so maybe not!  But that is the idea, I should know enough people and when we plug into a local church in LB and with the emerging "home grown" movement, there should be enough people with similar mindsets... we'll see...

Has anyone listened to the show!???  (big hint)
 
Totally unprofessional MomoRant:

Generally speaking, SFR's will preserve their values better in down market, but condos will gain more (% wise) in an up market.  If you look at properties along the I-15 in Riverside County, in places where SFR's has fallen 50% from peak, the condos fell 66%.  On the flip side, you can see how the condo might gain in value rapidly in an up market where affordability issues make them attractive to buyers with less cash.

It's difficult to make decent cash flow in south OC due to high home values vs. rent.  But your property will be closer to you (assuming you live in South OC).  Property manager cost $50 to $100 per month, much less than the typical HOA fee here.  If you decide to invest in LA, OC, Riverside, or Las Vegas area, I can recommend 4 different property managers.  For OC/beach cities I'd suggest Donna at Aladdin Property Management in HB, for LA/SB (Chino Hills?) area I'd suggest David Yi at Akita Realty in Cerritos.  For South Riverside, talk to Loren Phipps, his office is in downtown Temecula.  If anyone needs a personal introduction by phone, e-mail, or in person with the agent, talk to me.

Do investment properties (not flipping) make money?  Yes, if you buy cash-flow positive properties, or at least those close to it and has the potential.  If you willingly bought a negative cash flow property, you'll get exactly what you paid for.  This means you need to either buy the property at the right time/price, or spend many weeks or months looking for good deals.  My uncle in the bay area is a slum lord and owns 30-40 units, he has 2-3 Mexican contractors and he's always looking for good deals and fixing up houses.  It's a full time job for him, and he said that you have to look at hundreds of houses before you know what a good deal is.  This comment may seem oxymoron in a down-makret where positive cash flow properties are easy to find, but this segement of the curve will only last for couple of years before prices rebound.

If you're not sure if a property will make positive cash flow, bring the numbers to your accountant and ask.  I mean if you're going to sink 6 figures into a property, paying your accountant $100 for her time to review the numbers is a fraction of the cost.  Make a list of questions before you go and do proper record keeping -- most expenses are tax deductible so don't toss the paperwork.  Get a good property manager and trust him/her on necessary repairs.  Don't be cheap, good quality flooring and appliances will last longer.  Don't squeeze your tenants -- it'd cost you more if the tenant moves and you have to clean the place and get a new tenant.  If you got a good tenant who always pay on time and doesn't cause you any trouble, I'd not raise the rent and try to keep him/her for as long as possible.  They all move eventually and you get to "reset" the rent to market prices.

Let me put it another way, you're trusting your $XXX,000 house to a tenant.  Don't piss off your tenant and he will pay your mortgage.
 
Woohoo... I got so used to momo talking about food... I forgot he was a "land baron" too. :P

Great post... and while we're making plugs I would like to mention that I think IrvineRealtor may be in the property management business too.

But momo is right, if we do convert our current house back into a rental, we will probably use a propmgr just so I don't have to replace toilet valves anymore (a feat which I was rather proud of but never want to do again).

Edit: Typo. And I meant IrvineRealtor (Scott)... not IrvineRenter (I keep mixing those up).
 
There is a lot of information that I?m processing on a daily basis.  The floodgates of information have been opened; and what came along are long lost kindred spirits that finally emerged.  I can see God was preparing me all along for this moment.  Reminding me the past upbringings, the values I hold dear and the purpose beyond making a living and raising my family.  The purpose of buying an apartment is not simply to create wealth or even find a suitable place to live.  Believe me one of the last things I want is to be a landlord.  But I can see now, how sharing housing can be a potent way to further the cause God is showing me.

Again there are a lot of books I?m currently reading; a lot of videos I?m watching and articles I?m digesting; all of which I plan on unpacking.  Some of it are idealistic macro-economical/societal theories that are far beyond my understanding, ability to directly control and comprehend.  Never the less these theories strike a resounding cord that explains so much of my daily internal and external conflicts.  The best word to describe these categories of ideas is ?air?; we can breathe it, feel it; and although we can?t see it we know that it exists.

Some theories hit closer to home; they are ideas I can grasp in possibly incorporating.  They are causes I can believe in and plans I can make to take some sort of action.  They are the people I have talked to that can hold my hand through some practical action items.  These are principles I can feel and see; we can call this ?water?.  These are theories I can conduct real world experiments; try out ideas to expect lessons from failure.

Finally, the tangible ?rocks? are the things I can hold firm to.  These are the tired and true methods/beliefs and core values that I can hold any theory up to.  I can see that God was reinforcing the ?rocks? in my life in preparation for the on- slot of ?water? & ?air?.

As you read some of my following post; please keep in mind these categories.  I almost need to remind myself what is practically possible and what is not given my time/energy/money constraints.  Again, I tend to be idealistic and na?ve.  I appreciate the feedback so far from all of you.  Please keep the comments flowing as you check these ideas against your own belief system and world-view.
 
One of the first concepts introduced in the radio show is this notion of the house being a unit of consumption versus a unit of production.

Some of you know that I?ve been asking these tough questions about ourselves for some time now:

-Why is it so hard to know my Irvine neighbors?
-Why do I feel this sense of disconnection from my ?community? & neighborhood?
-Why am I not more generous with my time to help others?
-Why am I always in such a rush?
-Why does it take three weeks to find 30 minutes somewhere in our schedules to meet up with a friend?
-Why do I see so many DINKS who are afraid to get married or have kids?
-Why are day-cares, child care and nannies so prevalent?
-Why do I seem to always turn to fast food?
-Why do I catch myself always so focused on working and making money than focused on family and community?

It was interesting to hear Shannon Hayes explain the origins of the word - husband.  Husband was derived from the words ? house bond (one who is bonded to the house).  In pre-industrial revolution times the husband and house wife stayed and worked at home. 

An image of Pride and Prejudice comes to mind, where the man would get up in the morning, milk the cows, butcher the chicken, picked tomatoes and cut some firewood for dinner.  Can you imagine touring one of the HK Collection models and saying, yes, that would be a great place for the chickens to lay their eggs!

In the industrial revolution the husbands were the first to leave the home, they lost their domestic skills as factories replaced their workplace.  As factories grew in scale and industry; the household is ever more dependant on the company not only for work and a pay-check but the goods and services that it produced.  We come to the point now where, both man and woman are virtually forced out into the workplace; leaving the home an unit of consumption versus an unit of production like it once was.

This leads Shannon to bring up her next point of the extractive economy versus the life serving economy.  An extractive economy as economist David Korten defines it is our current mainstream consumer culture.  It is based on creating wealth from the extraction of resources around the globe.  It assumes for the sake of maintaining the wellbeing of a global economy; businesses must continually cut down trees, burn fossil fuel, take advantage of cheap labor, pollute ground water and the air.  Instead of growing their own foods and cultivating a sustainable living in their own villages, indigenous cultures grow crops such as coffee that are subjected to global price fluctuations and competition.

The life serving economy on the other hand is a belief that everyone deserves to live reasonable well.  It is based on a premise that everyone is entitled to well-being and a basic quality of life; the goal being that everyone can generate a living; rather than a killing for just a few.  Therefore, we may not all be able to have super exorbitant high salaries but everyone is entitled to a clean environment, nourishing foods, a connective community and time with family.

I love how David distinguishes the difference between phantom wealth and real wealth in his book Agenda For A New Economy.  Phantom wealth being the creative financial instruments that Wall Street used to bring down the global economy while making billions for themselves.  It is money banks create from thin air by simply typing in a few numbers into a computer; in other words it is money created from nothing without any direct contribution from anything of real value.  Real wealth on the other hand is anything created from real resources to meet real needs.  It is being able to hold a healthy, happy child; clean water to drink; living in a connective community; having a satisfying sense of accomplishment from meaningful work.  Deep down we all know what real-wealth is; yet we have prioritize our personal agendas based on the monetized value of each activity, relationship and object.  Our bank accounts may have gotten bigger, but we are left depleted of time for one another, energies for our love ones, meaningful relationships, authentic community and a greater purpose outside of making money, accumulating and consuming material possessions.

[youtube]http://www.youtube.com/watch?v=zdsZ_lLz07Q[/youtube]
 
The wife and I were talking in bed the other night; I turned to her with a straight face and said; I want to grow tomatoes!  I can only count on one hand the number of times I made her laugh so hard; ?you want to do what?? she chuckled as she tries hard not to wake up the baby.  She knows that I?ve been really excited about all the transition movement research I?ve discovered but she quickly brought the realities of our situation.  1) We have an IAC 4x10 balcony with hardly any sunlight.  2) We have a 15 month old that requires ALL of us.  3) Every plant and flower that I have ever tended to eventually dies (including the kitty grass!).

These late night talks in bed don?t usually go well.  First, it was that I wanted to quit sales and go back to a desk job with a big company; then there were a series of opportunities to work for my friends in their family owned businesses; then a whole other series of business ideas, partnerships and opportunities to work from home along with my current position; and now finally, of all things, I want to stay home and grow tomatoes!

If Step and No Vas are still around, I hope you guys are proud of me.  I purchased my first tomato plant over mothers day weekend.  Yes, I skip the roses and bought a plant from Costco.  It?s sitting in the balcony right now, I?m looking at it.  I wonder what my class-mates and professors would think if I tell them that I?m foregoing the career thing, keep my 25 hour work week to stay home, compose some leaves and grow my own food!  Yes, every MBA fiber in my body is screaming bloody murder right now.  It is some comfort and inspiration to see that many in the Laguna Transition Team are so qualified with such a passion for the cause. http://transitionlaguna.org/team.html

That brings me to another point; I am not against large corporations; and Shannon isn?t either.  Yes, we studied the many benefits of globalization; and no one is here to argue that; the one premise is that we have overly depended on world trade, imported goods, cheap oil, to the determent of our local economies and communities.  In her book, Radical Homemakers Shannon gives examples of people who work at life serving companies; that adhere to four basic tenants: 1) Have social justice principles  2) Be ecologically sustainable  3) Value community  4) Family oriented.  Most people in the book live beautiful lives on one income or less.

She does emphasize that there is no one right way to live a value driven lifestyle, because it does encompasses a wide range of the housing spectrum.  From agrarian, rural, suburban to urban settings these people have returned production back into the home.  And that would be a goal for us as well.  I do intended on working hard, the ambition is still there; like I said, I do expect to have headaches with an apartment but I will also expect to diversify my skill-sets, learn new tasks such as gardening and being a general handyman.

The focus of reclaiming domesticity again is that we are trying to bring unit of production back into the household with a modern twist.  Much like that old small town in Taiwan where I grew up; by focusing on the local economy, taking relationships very seriously and depending on your neighbors for basic necessities is the only way to reclaim true community; that is where I will find life and find it abundantly.
 
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