Investment Property Mistakes

Learn from my pain and avoid some first time rental property management mistakes.  Mine was a long and windy journey to success (it took about a decade to make it all work).  Not to mention I rode out the real estate meltdown of 2008-2009 that saw the paper value of the property cut in half, ouch!  The market value took another 7 years to recover.  Fortunately the mortgage note was being paid down all that time, which helped.  I like property investments, but I think it’s a long path to building wealth for most people.  Sure, if you have an extra $500,000 laying around, it will be pretty straightforward to buy a property and turn a profit.  But, even if you have a large amount of capital to invest, you may still make some mistakes.  I have been investing in real estate for 12 years and this is what I wish I had known from the start:

  1. Renting to a “friend.”  My first tenant was a friend and let’s just say that did not work out well.  And I am not casting blame, I just think it set us all up for failure.  The landlord-tenant relationship needs to be handled as a business transaction.  One party has invested their money in providing a quality place to live (the product) and in return the other is sending monthly income to the owner.
  2. Not having the unit in top notch condition.  The place was clean and in a safe neighborhood.  But, it is important to go the extra mile and ensure most details are covered.  Nothing should be broken, everything should be very clean.  I have found that this sends a powerful first signal that says, I care about the product I am providing you, therefore so should you.
  3. Not collecting a large enough deposit.  At the end of the tenancy, the tenant’s only real incentive to leave the unit in great condition is the concept that they may or may not receive their deposit back.  This needs to be enough to float any damages that need to be repaired.
  4. Have reserves.  Their may be times when you are in between occupancy for your unit.  You will be paying for repairs, yard service and a mortgage on an asset that is generating no income.  Have a cushion to float through those times, hopefully no more than a couple months.
  5. Take all costs into account and ensure an adequate profit.  There will be times that this will feel like work and could be a big pain.  There is a lot of work in between occupancy and you will occasionally be managing repairs and issues during the rental period.  Make sure the math pencils out.  Remember that you will have many ancillary costs to account for, i.e. property taxes, maintenance, yard services, mortgage, etc.
  6. Consider a pro.  Do it yourself property management is fine if you have skills and time.  But, it may be worth it to you to hire a professional property management company. Just be sure to interview them as if you are hiring an employee. You want a well organized professional outfit.

I started small and have slowly built up over time.  It’s the only way I could see my way through managing this type of investment.  There are many resources available that go into detail of all the advantages of property investments, not to mention the tax benefits.  I think its ideal for hands on, organized folks who can work with people.  Then again, this is just one possible investment vehicle and not for everyone.

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.