Anxiety of First Rental

Anxiety of First Rental

Investor · CA · Member since 2010 · 150 posts · 40 votes

I'm new to REI, and have gotten into contract on my first property.

I have ran numbers, and numbers and numbers again, and feel that the deal is solid. I've networked with many processionals (bankers, realtors, investors, wholesalers, landlords) and believe in my abilities to make good investment decisions, but HOLY COW.

This first deal is nearly giving me anxiety. It's part excitement, anxiousness and partly worry.

The property isn't very costly as it's in Cleveland Ohio (good ol' rust belt). It's tenant occupied, and will be managed by property management (as I'm out of state).

Am I the only one that has these crazy anxieties during a new investment venture? I had these same anxieties when I first started purchasing stock when I was 18, when I bought my first investment car note (I've only bought a few, but was crazy). Don't get me started on forex (which I ditched because it wasn't good for my health). Or monitoring my funds that I have in Peer to Peer lending.

Am I going crazy? Please tell me I'm nto the only one.. PLEASE

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J ScottPro Member

Moderator

Investor · Sarasota, FL · Member since 2008 · 18k+ posts · 17k+ votes

Ben -

Something to keep in mind is that real estate investing is much different than stock trading, FOREX, or buying notes in that with those other things, once the investment is made, you just sit around until you're ready to implement an exit strategy (at least for each particular deal).

In real estate investing, after the investment is made, there is a LOT of room to affect the investment and ultimately determine whether it will be successful or not. If you plan to just invest the money and then sit back and wait until your exit strategy kicks in, you'll likely end up losing money, regardless of how good the investment looked on paper.

In your particular case, it sounds like you have an out-of-state (to you) property management company handing your investment. Do you have a plan on how you will work with the PM? How you will ensure that they are correctly managing your property? How you will ensure that they are taking care of things properly and managing expenses appropriately? How you will ensure that they are choosing good tenants? Etc...

Remember, often-times PM companies have conflicting interests -- they actually make *MORE* money when they have tenant turnover and property issues. An disreputable PM company can easily cost you much more than whatever cash flow you otherwise would have coming in.

So, don't trust just any PM company to manage your rental. Find a company that is reputable, communicates well, and that you trust. And then make sure you stay on top of them EVERY STEP OF THE WAY.

Podcast Guest on Show The Truth About Real Estate Investing in 2024 (What Investors NEED to Know)

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Mitch Kronowit
SFR Investor · Orange County, CA · Member since 2009 · 1k+ posts · 1k+ votes
15y
You'll have butterflies at first, but if you chose correctly, you'll be wondering what the big fat hairy deal was about a year from now. :-)
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J ScottPro Member
Moderator
Investor · Sarasota, FL · Member since 2008 · 18k+ posts · 17k+ votes
15y
Ben -

Something to keep in mind is that real estate investing is much different than stock trading, FOREX, or buying notes in that with those other things, once the investment is made, you just sit around until you're ready to implement an exit strategy (at least for each particular deal).

In real estate investing, after the investment is made, there is a LOT of room to affect the investment and ultimately determine whether it will be successful or not. If you plan to just invest the money and then sit back and wait until your exit strategy kicks in, you'll likely end up losing money, regardless of how good the investment looked on paper.

In your particular case, it sounds like you have an out-of-state (to you) property management company handing your investment. Do you have a plan on how you will work with the PM? How you will ensure that they are correctly managing your property? How you will ensure that they are taking care of things properly and managing expenses appropriately? How you will ensure that they are choosing good tenants? Etc...

Remember, often-times PM companies have conflicting interests -- they actually make *MORE* money when they have tenant turnover and property issues. An disreputable PM company can easily cost you much more than whatever cash flow you otherwise would have coming in.

So, don't trust just any PM company to manage your rental. Find a company that is reputable, communicates well, and that you trust. And then make sure you stay on top of them EVERY STEP OF THE WAY.
Podcast Guest on Show The Truth About Real Estate Investing in 2024 (What Investors NEED to Know)
2 Reply
Douglas Peterson
Investor · Cary, NC · Member since 2010 · 74 posts · 9 votes
15y
Congrats! They will get easier. On my first rental, the day after closing a tree fell on it over night. I had two guys on the roof with a chain saw, pushing sections of the tree off the roof.

Live and learn!
0 Reply
Ben Kevan
OP
Investor · CA · Member since 2010 · 150 posts · 40 votes
15y
Originally posted by J Scott:
Ben -
Something to keep in mind is that real estate investing is much different than stock trading, FOREX, or buying notes in that with those other things, once the investment is made, you just sit around until you're ready to implement an exit strategy (at least for each particular deal).

In real estate investing, after the investment is made, there is a LOT of room to affect the investment and ultimately determine whether it will be successful or not. If you plan to just invest the money and then sit back and wait until your exit strategy kicks in, you'll likely end up losing money, regardless of how good the investment looked on paper.

In your particular case, it sounds like you have an out-of-state (to you) property management company handing your investment. Do you have a plan on how you will work with the PM? How you will ensure that they are correctly managing your property? How you will ensure that they are taking care of things properly and managing expenses appropriately? How you will ensure that they are choosing good tenants? Etc...

Remember, often-times PM companies have conflicting interests -- they actually make *MORE* money when they have tenant turnover and property issues. An disreputable PM company can easily cost you much more than whatever cash flow you otherwise would have coming in.

So, don't trust just any PM company to manage your rental. Find a company that is reputable, communicates well, and that you trust. And then make sure you stay on top of them EVERY STEP OF THE WAY.

Great comments. I talked to 5 property management companies in the area before I even looked at properties. Because unless I found a property management company I trusted, I wasn't going to invest in the area.

I had a list of preliminary questions, which weeded out 1/2 of them. The rest were then inquired more deeply, with practices of approving personnel for rental, and if they'd be willing to allow me the "final say". As for management of monies, I made sure that ALL receipts are to be delivered to the owner.

The property I'm purchasing is tenant occupied, so I used that to find out which property management companies would "charge" for a placement fee. The one I did choose, said they'd sign a new 1 year contract with the tenants (or allow them to stay on their contract). But either way, they would not charge a placement fee, as they are already in place.

The property management I ended up choosing utilizes email greatly (which surprising the number of others that were very slow with it). This particular one was also recommended to me by a landlord. So I'm hoping it all works out.

I'll be much happier after it all executes.
1 Reply
Ben Kevan
OP
Investor · CA · Member since 2010 · 150 posts · 40 votes
15y
Originally posted by Douglas Peterson:
Congrats! They will get easier. On my first rental, the day after closing a tree fell on it over night. I had two guys on the roof with a chain saw, pushing sections of the tree off the roof.
Live and learn!

Holy cow, I couldn't imagine that.. *crosses fingers*.. That's like buying a solid stock (ie BBY) and watching it drop 15% after earnings (yeah.. it just happened, good thing I didn't own).
0 Reply
Aly W.
Investor · Middletown, NJ · Member since 2008 · 2k+ posts · 1k+ votes
15y
There is always some anxiety with rentals, as you can never predict what might happen. What you *expect* to happen is that the tenant pays the rent on time and there aren't major repairs required.

Once the bloom is off that rose, you'll relax a little more. Expect there will be issues with rent payments, vacancies, and repairs. This kind of passive income isn't so passive ;)
1 Reply
Jeffrey K.
Real Estate Investor · Milwaukee, WI · Member since 2008 · 1k+ posts · 671 votes
15y
It is easier if you already have preexisting anxiety (which it sounds like you do). Take a Xanex and man up. You know the risks. If you cant handle loosing the money, dont buy.
0 Reply
Tod R.
Investor · Southlake, TX · Member since 2009 · 950 posts · 338 votes
15y
It's only $. Go do it!
0 Reply
Ben Kevan
OP
Investor · CA · Member since 2010 · 150 posts · 40 votes
15y
Originally posted by Jeffrey K.:
It is easier if you already have preexisting anxiety (which it sounds like you do). Take a Xanex and man up. You know the risks. If you cant handle loosing the money, dont buy.

You know, after reading your comment. I think I'm mis diagnosing myself with anxiety. I think my problem is an adrenaline dump. I think I'm antsy, and not anxious.

It's def money I can lose, but rather not (just like any investment).

I'm not sure if anyone else reading this is an sports person, but it's the same feeling when I did my first Jiu-Jitsu tournament, or had my first Amateur MMA fight.

It's fun.

I got my inspection report, getting a few things taken care of by the seller, then will get another review from an inspector, then we'll wait for the appraisal, and close out from there.
0 Reply
Mike Meyer
Involved In Real Estate · Reynoldsburg, OH · Member since 2010 · 2 posts · 0 votes
15y
My wife and I had our first rehab investment property broken into 2 days before closing. They stole the entire heating and cooling system and appliances. We were fit to be tied before that happened. Wife cried and I was ready to hunt someone down. But my contractor and I went in and had the heating system replaced. broken door fixed and replaced the appliances before closing. It was a scramble but we still made the deadline and made lots of money. Was the anxiety worth it. You bet! We live for the excitement and the drama this business brings. Not all houses are winners just like stocks. Your doing the right thing by investing. I would suggest that your property management company use buildium.com to keep you informed about your rental income and insist that they use fabcogroup.com for credit and background checks. Good luck and enjoy the fact that you have the opportunity to freely invest.
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Ben Kevan
OP
Investor · CA · Member since 2010 · 150 posts · 40 votes
15y
Originally posted by Mike Meyer:
My wife and I had our first rehab investment property broken into 2 days before closing. They stole the entire heating and cooling system and appliances. We were fit to be tied before that happened. Wife cried and I was ready to hunt someone down. But my contractor and I went in and had the heating system replaced. broken door fixed and replaced the appliances before closing. It was a scramble but we still made the deadline and made lots of money. Was the anxiety worth it. You bet! We live for the excitement and the drama this business brings. Not all houses are winners just like stocks. Your doing the right thing by investing. I would suggest that your property management company use buildium.com to keep you informed about your rental income and insist that they use fabcogroup.com for credit and background checks. Good luck and enjoy the fact that you have the opportunity to freely invest.

Man, I bet that was crazy to walk in and see that. Good thing you got it all fixed in time for closing.

Yeah, I can afford to lose some money, but am not going in with that mindset, since that's a mindset to fail.

I'm letting my property management manage how they do, but am using trexglobal's product to track my income etc. As I understand more of what's lacking, and what I'd like to have using the trexglobal free product (free for up to 5 properties, and only $5 (or $7) a month for online payments) then I'll talk to property management about more indepth usages. I'm a single property 2 door investor at this time, and don't want to try to push a property management to do what I want with as little leverage as I have.

I'm really looking forward to it, and am really looking forward to closing and having the property in my name. I'm not sure how much interaction I'm supposed to have with the tenants (since I'm using property management), but I'm a very outgoing person, and would love to interact with the tenants.
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Bryan P.
Member since 2010 · 136 posts · 3 votes
15y
Ben,

My wife and I bought our first rental on Dec 3 and I'm working on it myself. I just spent 500 bucks on heating oil and I'm throwing money out like crazy and the only "hope and security" I have is the fact that I ran the numbers. I know the numbers work out, but yet I still have anxiety about the thing.

But, then I keep telling myself...If I play safe, it's the MOST risky. Maybe not now, but years down the road it's certainly the most risky to not invest anything.

And I keep telling myself, where else is there to turn? The market has made close to 1% over the past 10 years. Ain't no way I view that as safe. If I invest in cash (savings accounts/CD's, etc.) I will lose through inflation. So...hello...I might as well suck up the anxiety and deal with it.

Anyways, I'm with you...and I don't think it'll go away.
0 Reply
Jay Feldman
Real Estate Investor · East Lyme, CT · Member since 2008 · 78 posts · 10 votes
15y
Ben
Hope all goes well and this is the first of many more. I am curious why go out of state on you first rental? Would you mind sharing the numbers? I am always interested in what other feel is a good deal.
Once a gain good luck!
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Ben Kevan
OP
Investor · CA · Member since 2010 · 150 posts · 40 votes
15y
Originally posted by Jay Feldman:
Ben
Hope all goes well and this is the first of many more. I am curious why go out of state on you first rental? Would you mind sharing the numbers? I am always interested in what other feel is a good deal.
Once a gain good luck!

I'll be more than happy to share the numbers. Here's the worksheet I've conjured up as a collection of a few and what I think was important to me. I'm open to suggestions to making the calculations better:
https://spreadsheets.google.com/pub?key=0AnKPMnWAZqGPdHhvY2V2b3RLb0xHQnJVd01EYkY2eUE&hl=en&single=true&gid=9&output=html

I chose out of state first, because I was anxious to get into a property, and living in California meant that I'd have to wait another year or so prior to getting a property. It would been 20% of 150k to purchase a house, and then 5 - 10k in repairs to get it in a nice rent-able condition. I'm sure I could have found cheaper in California, but people here are playing with all cash, and the flippers market has been booming again the last 2 years (I live in Solano County, which consists of the infamous Vallejo).

I did tons of research and met tons of nice investors, realtors in many different states, and finally decided on Cleveland, Ohio. The lower up front capital would also help me understand the process a bit, without having to put in twice the amount of capital up front. There's a bit of a speculative play in there. But there are some big moves coming into the city (medical mart / convention center, aquarium by a private investor, guy from iron chef just opened up a shop) and the house is a few houses down from the house on the movie "A Christmas Story". My next property will probably be in the same area as the first, and then I'll probably look closer to me or another state.

Other reasons I chose outside of my area is because I live in California. The state is a mess, and I have no idea what's going to happen next.
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Jay Feldman
Real Estate Investor · East Lyme, CT · Member since 2008 · 78 posts · 10 votes
15y
Ben
The numbers look good assuming they can stay at projections. How old is the duplex? the roof, floors, boiler, windows, etc. I am sure it is very different in Ohio but if they were mine hear in CT I would have more then $1,200 in maintenance. Just the cost of turning over the units (since you have a vacancy of rate of $2700 you have assumed you will be turning over more then once) cleaning, painting etc, I would think would put a major dent inn the budget. At $1,100 for property management does that include commissions for finding new tenants? Do you need to plow them out during the winter? If you are relying a lot on the PM, have they been around a long time and did they give you numbers (verifiable) on other similar units they manage? Not looking to blow any holes in your numbers just evaluating weather I want to try long distance rentals myself. I have a number of rentals (all with in 30 min drive) that I manage myself (with the help of my rehab contractors) but I am always looking for other investment ideas. Thanks again and good luck.
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Ben Kevan
OP
Investor · CA · Member since 2010 · 150 posts · 40 votes
15y
Jay,

The house is very old (like everything in Cleveland). The roof was redone in 2007, including new wood under the shingles. Furnaces and Water Heaters are all from 2007. These are just basic numbers I've come up with outside of standard things I want to do when I get the unit (there's a checking beam in the basement, that I want to replace even though the inspector said it would be fine for a few more years since there's been support built into it.

Both units are currently rented. With the shorted contract being up in Oct 2011. The other goes into the end of next year. It's obvious that I would love net positive cash flow to fund myself, but my investment strategy is a bit different then most others. These properties (at least to start with) are to diversify my retirement. I'm currently in my 20's and don't want to be over leveraged in a single market.

Jay, you're right. My numbers don't cover placement of tenants which is 1/2 of the first months rent. This is something i'll have to figure into my numbers.

I am accounting for VERY high vacancy because I'm being a optimistic.

I've done my due dillagence in shopping for property managers (which was a tough process, and something I did prior to looking at houses). I've gotten referrals from several people (investors (who use them) and realtors).

Being in CT the cash flow you can get is still good. In California, where I live, I'd have to 45 or so miles out to find something that has even near similar cash flow opportunities, and again I'd be going against people that have quite a bit more leverage than I.

My current team consists of:
Myself
Property Management
Inspector
3 different rehabbers to rely on
1 do it all handy man

The inspector has been key on helping me understand Ohio, issues with snow, ice damming and other things that come along with cold weather living (something I don't have in the Bay Area).

This being my first property, I know I'm going to learn a lot from it, and make my future deals better :o).
1 Reply
Warren Foster
Real Estate Investor · Abu Dhabi, UAE · Member since 2010 · 48 posts · 16 votes
15y
Ben,

Congrats on your first rental ! I just picked up my first property in Cleveland as well and am running through the same hoops finding a decent PM, rehab contractor, etc. Although I have identified a few, I have yet to get any good third party recommendations. It sound like you have had more success. Would you be willing to share your recommended PM's and contractors?

Thanks,

Warren
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