Guess what? Real estate investing is not always going to be perfect. Not to be all cliché about it, but if it were that easy and perfect, everyone would do it.
Here’s the thing though. Or, here’s some good news at least. Quite often, what investors perceive to be a crucial deal-breaking problem isn’t always that bad. Now, that’s not to say that legitimately bad disasters haven’t happened in real estate — they happen all the time. But at the same time, it’s very easy to make a mountain out of a molehill when you are new at investing.
I was a brand new investor just seven years ago. But it wasn’t until well after I had started investing that I felt like I had learned enough to have a solid handle on things. I still haven’t learned everything, but I’m much better-versed now in the reality of investing than I was back then in the first few years of owning my properties.
Two things I’ve learned over the years with my properties are:
- There is absolutely no need to immediately freak out at the mere hint of a problem — there’s lot that can be done prior to freaking.
- What seems to be a big problem in the moment very often turns out to be irrelevant over the long term.
Because my experience has been primarily with rental properties, everything I say in this article relates to my experience with those. What I say may or may not transfer to things like flipping, syndications, or whatever other form of investing you may be involved with.
I’ll give a quick example that happened with one of my rental properties. It speaks to both of those points. And then from there, I’ll offer you a concise list of tactics I’ve learned over the years in relation to these ideas that have helped me keep my sanity during challenges with my properties.
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A Real-Life Rental Property Experience: Cash Flow & Vacancy
I have bought several turnkey rental properties. This experience is not a reflection of all turnkeys by any means, but it does have to do with a property I bought from a turnkey provider.
I had been on a buying binge for quite some time by the time I bought this property. When I found it, I was nearly beside myself because it was so nice and seemed like such a great deal. I got even more flabbergasted when I got the inspection report back during the due diligence period and there was barely anything on it! That is fairly unheard of for any property. It seemed like I had hit the jackpot. I purchased the property and went about my business.
Not but a few months after I bought it, the tenants had to be evicted for non-payment. This was especially surprising because not only was this the nicest and highest-quality property I owned, but all of the properties through this turnkey provider had been signed on with three-year lease options (rather than leasing it as a standard rental). So in theory, the tenants should have been much more capable and long term than your everyday tenant. No biggie. I knew evictions were possible with any rental property.
What I didn’t have quite as good a handle on was being able to gauge when a property manager was severely underperforming. The property manager that came with the property filled the vacancy fairly quickly, only for those tenants to get evicted shortly after as well. I thought to myself — How in the world is it that my nicest property is getting the worst tenants? But then even worse, after that second set of failed tenants, there was next-to-no movement on new tenants. The house sat vacant for months before we finally found a tenant who has now been living in the property for a few years (yay!). I probably don’t have to say that I secured the current tenant after I fired the initial property manager and went with a new one.
Fortunately, during this time, I had minimal eviction fees because Georgia is a very friendly state for evictions. But I was incurring a heck of a lot of vacancy fees. Every month, I was paying the mortgage on this house with no income coming in to help. Even though my other properties were performing well, a sour taste of skepticism was growing rapidly. I was leery of what I had bought, of the people who sold it to me, and generally of everyone who told me real estate was a great investment.
A few months after it had been rented, I was hanging out with some real estate colleagues. I made some kind of snide comment about how this particular property had become such a loss. One of my colleagues stopped me and said, “Whoa, what do you mean a loss? How do you figure?” Long story short, we sat down in an airport seating area and mapped out the actual profit centers of the property. One thing that had been happening during all this time of vacancy was that Atlanta was booming, so the amount the property had appreciated just in that year alone was more than enough to make up for the cash flow shortage that year. Then we dug into the tax benefits I got from…