Q: Thirty-one years ago, I started in the residential rental business in northern Alabama. I have always stuck with strictly single family residential homes on the lower side of middle income areas. Business has been great as I was totally involved in all aspects of the business from buying, interviewing tenants and backgrounds, repairs, advertising, book keeping and taxes. At one point we had upwards of 45 homes.
But over the years I have sold some homes and taken back a mortgage which has been another profitable business venture. My wife is originally from northern Wisconsin and she convinced me to move so that our children can remain close to grandparents, aunts, uncles and cousins. Now that we are settled in Wisconsin I have that itch to expand my rental business in this area. Being older I feel overwhelmed with all the considerations i.e.: tremendously higher property taxes, different landlord / tenant laws, colder weather, different economy. When I first started in this business I did not take many considerations so seriously and just honed my skills over the years. What is your take on digging into and expanding my business in northern Wisconsin? Also how do you feel about the apartment rental business? Some friends of ours in Texas (Corpus Christi and Houston areas) own and manage only apartments and claim to be doing great. — Bob, Peshtigo, Wisc.
We have no expertise in the apartment rental business, but our take is that it’s kind of like asking “how do you feel about buying a used car”? Some people fall victim to unscrupulous dealers; others save a lot of money buying used and come out ahead.
Same with real estate. Some people (like you) make a bundle on rental real estate; others lose their shirts. But people will always need rental apartments. And there will always be good deals and bad: the question you're really asking is whether you’ll able to enjoy the same success in finding them in your new neighborhood as you did in your old one.
The fact that you’ve already identified your shortcomings in the new market is a good sign. Part of your success in Alabama came from your knowledge of the local real estate market: a feel for the economy, figuring out where to advertise, relationships with plumbers and electricians, etc. There’s no way to replace that quickly in your new location. In that sense you’re “starting over.”
But 31 years of experience, in our opinion, is much harder to come by. For starters, it means you know exactly what you need to learn to get started again, making that knowledge much easier to replace. Beyond that, though, many skills and instincts are very transferable: how to size up the financial details of a rental property in a flash, what to look for in a good tenant, how to handle the various crises that best all landlords at some point, etc.
And that gives you a competitive edge in whatever market you land. (The competition, in this case, is between you and other investors for the best properties and the best tenants.)
There may be reasons why the new market you’re in has much less potential than the one you left. If that’s the case, you’ll have to work harder or wait longer to find good properties. You’ll also have to be patient in getting up to speed on the knowledge than doesn’t transfer (local laws, local economy — all the issues you cited.) But if you’re willing to put the effort in, we can’t see why it wouldn’t work out for you.