{"id":169716,"date":"2024-03-25T15:50:43","date_gmt":"2024-03-25T21:50:43","guid":{"rendered":"https:\/\/www.biggerpockets.com\/blog\/?p=169716"},"modified":"2024-05-05T08:36:58","modified_gmt":"2024-05-05T14:36:58","slug":"what-i-learned-from-my-first-investment-property","status":"publish","type":"post","link":"https:\/\/www.biggerpockets.com\/blog\/what-i-learned-from-my-first-investment-property","title":{"rendered":"What I Learned From My First Investment Property\u2014and How I Changed My Strategy"},"content":{"rendered":"\n\n      <iframe loading=\"lazy\" frameborder=\"0\" height=\"200\" scrolling=\"no\" src=\"https:\/\/playlist.megaphone.fm\/?e=BIGPOC2810655468\" width=\"100%\"><\/iframe>\r\n  \n\n\n\n\n<p class=\"wp-block-paragraph\">My first investment property was a C\/D-class multifamily in Houston. I selected it primarily based on perceived cash flow.&nbsp;<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">According to my calculations, the return on investment (<a href=\"https:\/\/www.biggerpockets.com\/blog\/what-is-roi-in-real-estate\" target=\"_blank\">ROI<\/a>) was between 12% and 14%. And with a multifamily, even if one unit is vacant, I still have cash coming in. How could I lose?<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">And then I got hit in the face (wallet) with reality:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>It was an older building, and maintenance was continual and expensive. Plus, the tenants and others almost continuously vandalized the property.<\/li>\n\n\n\n<li>Rent delinquencies and evictions were frequent, and the process was lengthy and expensive. And I was left with a damaged property that needed hundreds or thousands in repairs before it could be rented again.<\/li>\n\n\n\n<li>I ended up losing thousands of dollars each year despite doing almost all repairs and maintenance myself. This was completely different from the calculated 12% to 14% ROI.<\/li>\n<\/ul>\n\n\n\n<p class=\"wp-block-paragraph\">I could continue, but I will summarize my experience by saying: The second-best day of my early real estate investing career was buying that property. The best day was when I sold it.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">I next purchased two B+ or A- fourplexes in a suburb of Atlanta. The tenants were professionals\u2014no issues, low maintenance, no skips, no evictions.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">What Did I Learn?<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">I learned some (expensive) important lessons.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">The property type does not matter<\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">Properties do not pay the rent; tenants do. If you want reliable income, start the property selection process by selecting a tenant segment with a high concentration of reliable tenants.<br \/><br \/>A reliable tenant stays many years, pays the rent on schedule, and takes good care of the property. Once you identify this segment, buy properties similar to what they currently rent.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">You cannot afford to manage your own property<\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">I didn&#8217;t know how to choose and manage tenants. They also knew I wasn&#8217;t a professional property manager, and they used my ignorance to their advantage. It took a lot of time and money when I had to evict tenants.<br \/><br \/>A property manager could have handled it much faster and cheaper. Plus, a good property manager might have selected better-performing tenants, and I would not have had so many eviction problems.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">A property only attracts a single tenant segment, and you cannot change that segment<\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">I wanted to upgrade the property and charge higher rent. However, if people could pay higher rent, they would not choose to live in the high-crime area where my property was located.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Leases, evictions, and even damage judgments mean nothing to cash-based tenants<\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">There\u2019s also no way to screen out bad actors with cash-based tenants. As one property manager who focuses on C-class properties said about her screening process for cash-based tenants: \u201c\u2026if they have two paycheck stubs and a money order for the first month\u2019s rent, they are in.\u201d<br \/><br \/>I asked about the tenant\u2019s rental history. The property manager said that if they had multiple evictions; they just made up a name and alleged they were in the country illegally. Discrimination based on citizenship status is not allowed.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">What I\u2019ve Been Doing Differently<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">I shifted my focus from purchasing a property based on what I or others believe is a good investment to selecting a tenant segment with a high concentration of reliable people and then buying properties similar to those they are currently renting. I characterize the properties I want to purchase based on the characteristics of the properties my target tenant segment currently rents.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">I call these characteristics a property profile. A property profile has at least four elements:<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">1. <strong>Location: <\/strong>The location(s) where a significant percentage(s) of the target segment rents today.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">2. <strong>Property type: <\/strong>The type of properties they rent today. Condo, high rise, multifamily, single-family\u2014the type does not matter. Only a reliable tenant matters.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">3. <strong>Rent range: <\/strong>What the tenant segment is willing and capable of paying.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">4. <strong>Configuration: <\/strong>This includes things like two bedrooms, three-car garage, large backyard, single-story, two stories, etc.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">With a property profile, any real estate agent can find conforming properties.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Does this approach work? <a href=\"https:\/\/www.biggerpockets.com\/blog\/the-secret-to-reliable-rental-income-is-good-tenants\" target=\"_blank\">I have turned this process into a successful business<\/a>. To date, we&#8217;ve delivered more than 516 properties. Over the last 16 years, we&#8217;ve only had six evictions, with an average tenant stay of over five years.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Final Thoughts<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">If you want reliable income, choose a tenant segment with a high concentration of reliable people. Then, buy properties similar to what they rent today. This process requires no guesswork, luck, or gurus, and it will work anywhere.<\/p>\n\n\n\n    \n  <div id=\"visibility-group-block_64dd51292c9f9\" class=\"visibility-group  hidden\">\n        \n\n<div id=\"hero-block_62df1a82bfc88\" class=\"first:mt-0 hero-block py-4    has-background has-slate-200-background-color has-text-color has-theme-gold-color\">\n    <div\n        class=\" flex flex-wrap lg:flex-nowrap max-w-screen-xl mx-auto px-4 relative lg:items-center \">\n\n        <div class=\"relative z-30 w-full \">\n            <main class=\"py-4\">\n                \n\n<p class=\"has-slate-800-color has-text-color has-large-font-size wp-block-paragraph\" style=\"font-style:normal;font-weight:800\">Ready to get your first property in 90 days?<\/p>\n\n\n\n<p class=\"my-3 md:my-5 lg:my-8 has-slate-900-color has-text-color wp-block-paragraph\" style=\"font-size:16px\">When you&#8217;re a rookie, real estate investing can seem overwhelming. This comprehensive guide gives you everything you need to buy your first property within 90 days!&nbsp;<\/p>\n\n\n\n<div id=button-custom-event-block_64134fe56b103 class='button-custom-event'>\n      <a\n    href=\"https:\/\/store.biggerpockets.com\/products\/real-estate-rookieutm_source=blog&#038;utm_medium=marketing_block\"\n        x-on:click=\"window.analytics.track('Blog Block | Publishing: Rookie Book', {\n      referrer: 'https:\/\/www.biggerpockets.com\/blog\/what-i-learned-from-my-first-investment-property',\n    });\"\n    class=\" btn-shape inline-block no-underline has-background has-theme-gold-background-color has-text-color has-white-color\" target=\"_blank\">Get Your Copy<\/a>\n  <\/div>\n\n            <\/main>\n        <\/div>\n\n                <div class=\" first:mt-0 relative h-full lg:flex lg:items-center\">\n            <img decoding=\"async\" class=\"object-cover w-full relative z-20 my-0  rounded-md hidden lg:block\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2023\/01\/rookiecover1-e1673044874197.png\" alt=\"\" title=\"\">\n        <\/div>\n            <\/div>\n<\/div>\n\n  <\/div>\n  \n\n\n    \n  <div id=\"visibility-group-block_64dd516d2c9fa\" class=\"visibility-group  \">\n        \n\n<div class=\"wp-block-group\"><div class=\"wp-block-group__inner-container is-layout-constrained wp-block-group-is-layout-constrained\">\n    \n  <div id=\"visibility-group-block_64dd31c79f00f\" class=\"visibility-group  \">\n        \n\n<div style=\"height:10px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<div id=\"hero-block_64dd2875dba9d\" class=\"first:mt-0 hero-block py-4    has-background has-slate-100-background-color has-text-color has-theme-slate-color\">\n    <div\n        class=\" flex flex-wrap lg:flex-nowrap max-w-screen-xl mx-auto px-4 relative lg:items-center \">\n\n        <div class=\"relative z-30 w-full \">\n            <main class=\"py-4\">\n                \n\n<h3 class=\"wp-block-heading my-0 tracking-tight font-extrabold has-theme-slate-dark-color has-text-color has-large-font-size\">Join the community<\/h3>\n\n\n\n<p class=\"my-3 md:my-5 lg:my-8 has-theme-slate-color has-text-color wp-block-paragraph\" style=\"font-size:16px;font-style:normal;font-weight:400\">Ready to succeed in real estate investing? Create a free BiggerPockets account to learn about investment strategies; ask questions and get answers from our community of +2 million members; connect with investor-friendly agents; and so much more. <\/p>\n\n\n\n<div id=button-custom-event-block_64dd2888dba9e class='button-custom-event'>\n      <a\n    href=\"https:\/\/www.biggerpockets.com\/signup\"\n        x-on:click=\"window.analytics.track('Blog Block | Acquisition | Free Membership Signup', {\n      referrer: 'https:\/\/www.biggerpockets.com\/blog\/what-i-learned-from-my-first-investment-property',\n    });\"\n    class=\" btn-shape inline-block no-underline has-background has-theme-blue-background-color has-text-color has-white-color\" target=\"_blank\">Sign Up<\/a>\n  <\/div>\n\n            <\/main>\n        <\/div>\n\n            <\/div>\n<\/div>\n\n\n<div style=\"height:10px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n  <\/div>\n  <\/div><\/div>\n\n\n  <\/div>\n  ","protected":false},"excerpt":{"rendered":"<p>My first investment property was a C\/D-class multifamily in Houston. I selected it primarily based on perceived cash flow.\u00a0According to my calculations, the return on investment (ROI) was between 12% and 14%. And with a multifamily, even if one unit is vacant, I still have cash coming in. How could I lose?<\/p>\n","protected":false},"author":613715,"featured_media":169717,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[7357,7119,5183],"tags":[],"class_list":["post-169716","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-multifamily-real-estate-investing","category-biggerpockets-daily","category-landlording"],"acf":[],"comment_count":0,"_links":{"self":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/169716","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/users\/613715"}],"replies":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/comments?post=169716"}],"version-history":[{"count":0,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/169716\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media\/169717"}],"wp:attachment":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media?parent=169716"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/categories?post=169716"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/tags?post=169716"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}