Honestly tell me if renting real estate makes you money or is a money trap.?

I am just wondering because I do taxes and many returns have investment property rented out. 90% of them always report a loss on the rental which I am sure is because they take as many deductions as possible. But I really can't tell if owning property for rent is a good idea or if it becomes a huge head ache.

Tell me about your experiences and if you recommend it to someone who makes enough and has no debt.

I own a ski condo in the mountains that I lease out to a property manager. He, in turn, manages the property much like a hotel. Guests come (mostly during ski season) and stay for a few days or a week at a time. He makes the arrangements with the guests, markets the property, handles payments from them, has the condo cleaned after they leave, handles emergency maintenance requests (stopped up toilet, etc.), etc., etc. The annual "rent" that he pays me is 60% of the gross revenue minus maintenance expenses. He keeps the remaining 40% of the gross revenue as his property management fee.

If I had a rental house, the property management fee would probably be about 5 or 10% of rental income. This is because the lease would be longer and there would be no "hotel-like" functions such as checking people in/out, cleaning, etc.

I bought the condo for $300,000 in 2004. I probably owe about $230,000 on the loan. The monthly mortgage payments and HOA dues are about $2000 (or $24,000 annually). My annual income from the property manager is about $11,000. Therefore, it costs me about $13,000 per year to carry this rental property. If I managed the property myself (with all its "hotel" functions), then I MIGHT be able to break even in terms of cash flow.

But here's the good news. The condo that I purchased for $300,000 in 2004 is now worth $475,000 (based on the recent sale price of an identical unit). So although my cash flow since 2004 has been approximately -$52,000, the unrealized gain in value is $175,000 (a net of $123,000 in 3.5 years). I'm not an accountant, but that's how I see it. (Besides all that, it's a blast to own a ski condo for my own pleasure).

I have another rental house. It's a very old house. Very small. I don't owe anything on the property (it's probably worth only about $50,000 at the very most). I have an arrangement with a friend of mine who is staying there. Instead of paying rent, he is re-doing the wood floors, the ceilings, the walls, installing central heat/air, etc. All I ask is that he pay me enough rent during the year to cover the annual taxes and insurance costs (approximately $1500). If he does not pay me at least that much, then I will not be able to deduct property tax and hazard insurance as a business expense (or so my accountant told me).

I recommend investing in real estate (for both the rental income and appreciation in value). My personal preference is to invest in assets that I can see and manage myself. I'm a consultant and have had as clients some of the most prestigious companies in the world (and each one is screwed up in one way or another). That's why I do not prefer investing in company stocks and mutual funds. I would like to buy more rental properties (and I would hire a property manager to handle the problems).

Good luck!

Rental real estate, like any investment, may or may not be profitable. There are many factors that go in to determining whether or not a rental property is profitable. Keep in mind that there are significant risks associated with ownership of a physical asset such as real estate that may largely be beyond your control and which you may not be able to fully avoid. Because many people who invest in real estate are ill prepared to understand and evaluate these risks, they often purchase properties that are not well suited to the investment criteria they should be following for their own personal financial success. And even more people who purchase rental real estate are even less prepared to handle the property management functions that they undertake themselves. Thus, many lose considerable money by making all the wrong decisions. Think of it like playing card games at a casino...an amateur player who wins may just be lucky. To have a sensible chance of winning, one must develop considerable experience and skill. If this is not workable for you to do, I would seriously suggest you make "passive" real estate investments using the guidance of real estate brokers when purchasing and real estate property managers to operate your investments. Professionals will help you avoid most common mistakes and maximize your chances of your tax return having profits instead of losses!

the whole point of having rental property is to offset your ordinary income with losses from real estate. I have 10 houses with over 300k in equity. I cashflow about 2500.00 a month and I never pay taxes. I paid in 10k this year and I will get about 8k of it back. Get a mentor before you start investing. Realtors are not mentors.....they are used car salesmen. Dont waste your time with infomecial books and tapes either. Buy a foreclosure at 50-60 cents on the dollar. Rent it to someone whom you do a credit check on. Read as much as you can about local laws, etc. Put a sign in the yard, and collect your money. GET A MENTOR!!