Timing Is Everything: What I Wish I’d Known About Seasonality Before Buying a Rental

Timing Is Everything: What I Wish I’d Known About Seasonality Before Buying a Rental

4 min read
Tamar Hermes

Tamar Hermes is a full-time real estate investor and educator. After building successful businesses in the retail and entertainment industries, she turned her attention to real estate with a mission to get more women to become investors and continue to build her portfolio. Tamar has been investing for over 20 years with a focus on appreciation with buy and hold single-family homes and duplexes in Los Angeles. In the past few years, she has expanded her portfolio to include passive multi-family investments across multiple states, private lending, and Airbnb properties. She bought her first duplex when she was 28.

Experience
As an educator and advocate for women to become educated and invest in real estate to grow wealth, Tamar focuses her time empowering and educating women across the country through her masterclass, The Real Deal Formula. She also coaches and consults women and couples privately about the opportunities to build their assets through real estate and supports them to connect with reliable partnerships through her Wealth Warrior Woman Alliance.

Tamar always had a knack for saving money, but it took her years to discover there were other ways to earn income besides working a 9-5 job. She now firmly believes financial freedom is possible through real estate and understands the importance of knowing how to allocate and invest your money and protect assets is a critical piece of sustaining financial independence and creating a legacy.

Tamar currently lives in Los Angeles with her husband of 18 years and her two children. They plan to relocate to Austin at the end of 2020. When she isn’t teaching, reading, or learning more about real estate investing and self-development, you can find her on a hiking trail with her rescue terrier Teena, listening to the BiggerPockets Podcast.

She also loves traveling, yoga, hosting dinner parties with friends, supporting her favorite non-profits, hanging out with her Gobundance Women’s’ Tribe, and binge-watching Curb Your Enthusiasm. She currently serves as the co-director of the Los Angeles Chapter of The Mona Foundation, which has worked for 20 years to alleviate poverty through gender equality and education around the world.

Tamar’s first book on real estate investing for women will be published this year.

Education
Before Tamar discovered real estate investing, she attended Pitzer College and the American Academy of Rome. She majored in communications and fine arts.

Accreditations
In addition to growing her portfolio in real estate, Tamar became a certified life coach, holds a real estate license in California, and studied finance so that she could master the knowledge she needed to own her financial destiny.

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Last November 15, I closed on a new single-family investment property in Greenville, Texas.

I checked all the boxes to ensure the home met my criteria for a solid return. Here are the variables I considered:

  • The property was in a strong job market with a thriving economy at a still-affordable price point in Texas.
  • The property’s projected monthly rent was $1,375, which meant it would cash flow at about 12%.
  • The property was brand new construction, so repairs would be minimal, if any, and would be under warranty.
  • Greenville is about one hour from Dallas, so it would seem that as people could no longer afford to live in the city, the suburbs would continue to become more popular. There were also many jobs available in Greenville itself.
  • I had property management in place that could effectively find tenants and manage the property.

Unfortunately, I missed one crucial variable that kept the home from renting until mid-February.

Consult the Calendar

The fact that the property closed on November 15 meant it was the worst time to find tenants. People were focused on the holidays, not moving. The oversight cost me a bit of money and frustration. Additionally, because of the time of year, I chose to lower the rent to $1,200 to get it rented sooner than later.

You always want to do a cost analysis on whether or not it makes sense to wait for a higher rent or get it rented sooner. Generally, even reducing it as much as I did would have paid off over staying vacant for another month.

It turns out, based on an ATTOM Data Solutions’ recent analysis, which looked at sales of single-family homes and condos between 2011 and 2019, November is one of the slowest months of sales. You might think that since sales were down in November, fewer buyers were shopping, and I got a better deal. That wasn’t true in this case, although that strategy may be one to look at if you find yourself shopping around the holidays for properties.

In fact, the month you choose to buy can actually add up to big savings. ATTOM found the top five best dates to sell a home with the highest seller premiums above market value. Those days were:

  • June 22 (10.5% seller premium)
  • June 21 (10.5% seller premium)
  • June 29 (10.5% seller premium)
  • June 20 (10.3% seller premium)
  • June 15 (10.2% seller premium)

A 10% seller premium is huge!

What’s Wrong With November?

dark-haired bearded man getting hit in the face with a large snowball outside during winter

I purchased from a developer who was turning over a ton of these properties at a set price. There wasn’t much of a discount offered.

Also, remember that November 2019 was still part of the buying frenzy at the height of the seller’s market. Investors were plentiful, and prices were at their peak. When the demand is up, the buyer has little negotiating power.

While it took a while for the property to rent and I didn’t get a November discount, some positive benefits resulted from the purchase.

Because my income for the year was high, I was able to get a substantial write-off in depreciation for the property. Depreciation is one of many tax benefits investors enjoy. Also, interest rates were low at the time, so I ended up not having to pay through the nose on financing.

With any real estate purchase, there is a learning opportunity.

Related: How to Make Money in Real Estate—Whether You’re in an Up OR Down Market

Other Buying Criteria to Consider

I may not have chosen to purchase an investment property without an existing tenant during November. You can often get a buy and hold property with a tenant and lease in place at the time of the purchase.

I also would have looked for a better deal, given the fact that fewer buyers are out at that time of year. I even would not have gotten so attached to having “new construction” because it would have opened many options for me.

Again, the reason I wanted new is that there are no potentially costly repairs, but the three months without a tenant still cost me $3,600.A rehabbed property would likely be just as updated, so the significant repairs I wanted to avoid may not have been a factor.

Last, I would do more data analysis and brainstorm even more unexpected scenarios that could arise.

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Overall, I know that not every investment will be a home run.

If I had sat on the money for a while longer thinking about what deal to do, I could still be sitting here for years doing nothing. The investment offered some great benefits and now is occupied. While the reduction in rent lowered my return and it is now at 9% instead of 12%, it still isn’t costing me anything.

I paid $140,000 and financed, so I still have cash on hand for future deals. If this were the only purchase I had in my budget, it likely would have stung a lot more. And if I did not have the funds to cover the unexpected vacancy, it could have gotten ugly.

Related: Protect Your Real Estate Investments & Finances with Strategic Reserves

With the current state of the economy, many opportunities to buy at a discount will be on the horizon, but I will not sell the Texas property at a loss in an attempt to chase the market downturn. I bought this property with a strategy in place.

The purchase is a five-year investment that I will ultimately 1031 exchange. Because I have a plan and some time, the property will likely appreciate and rent will undoubtedly increase.

The biggest lesson I learned from this situation was that while we crunch numbers and look at job growth, location, and comps, it is also essential to consider big picture data. No one has a crystal ball, but the more educated you are, the better you can navigate your investment purchases.

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How has timing impacted your investments? 

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