Feeling discouraged...

5 Replies

Hello BP!

Here's a quick post just to say that I'm feeling discouraged. This is probably very common, which is why I want to hear from you! Let me know if/when you feel discouraged, how do you push through?

This past year, after a ton of research and BP podcast listening, I bought a triplex, and two single family homes. Everything has been going pretty well, but a few realities have started to set it:

1) The calculators aren't always right: The numbers on my places looked great -- should have a net cash flow of about $1800 on all five units. (Used the BP calculators, and I'm pretty sure I didn't leave anything out...)  Well, I don't. I've just about broken even on these properties. I haven't lost any money, but I haven't made any either. Obviously, I'm doing something wrong, but I can't tell where I went wrong.

2) Finding reliable contractors has been ridiculous: I just got through with a rehab on the latest property, and the contractor screwed EVERYTHING up. I had to come back behind him and do all the work myself. Yikes. And now that a tenant is in there, we realized he totally screwed up the wiring. Tenant is without power, and we're scrambling to rework the mistakes.

3) Vacancies are expensive: On one of my units, I had the tenant vacate two months ago. I decided to fix up the place -- new carpet, new kitchen, new paint, and try to raise the rent. Now that I've sunk around $3500 into the unit, I can't seem to attract a tenant at the new rental rate (only $50 more than the old rate, which hasn't been raised in 10 years).

I realize there are so many variables, and that investing is for the long haul. I guess I got started with a lot of excitement, and now I am left wondering how anyone turns a profit in this business.

Rant over. Thanks for listening. And I'd love any advice you want to send my way!

Hey Joshua, Hang in there man! I first would like to congratulate you on getting started and doing some deals, many people never get that first deal under their belt. As far as the numbers go, take what you've learned and your actual property numbers and build that cost or variance into the calculators for the next properties you analyze. It's not a perfect science (at least not at first) and the list of things that can go wrong is very long. For example, I bought a duplex in 2011 and it's been amazing - I have the original tenants, they always pay on time and it cash flowed better than the numbers said. On that same note, I bout another rental last year (SFR) and in the past 12 months I've had more tenant issues than all of my other units combined. Not to mention, 2 months in I had to replace the entire HVAC unit which totally put me in the red right off the bat. You just never know what's going to happen, so take what you've learned, adjust the numbers and stay with it. Even if you aren't making any positive cash flow now, there are still other people paying off your units for you & building your equity... Hope this helps man, keep your head up and keep learning!
Originally posted by @Joshua Feit :

I've just about broken even on these properties. I haven't lost any money, but I haven't made any either. Obviously, I'm doing something wrong, but I can't tell where I went wrong.

Sounds like you're behind on your accounting.  Take a business-to-date income statement for each property and look at a few numbers:

- How much have you lost to vacancy?  If your units were all rented at 100% occupancy, what % of rent revenue is this vacancy loss?  (PS $50 rent increase can be a very big deal depending on the rental)

- How much have you already spent on repairs/capex?  If your units were all rented at 100% occupancy, what % of rent revenue is this maint/capex expense?

- Is one of your properties dragging the others down or are you underperforming with multiple houses?

- How much on the rest (taxes, insurance, mortgage)?

Having a good understanding of these items will tell you whether you are just having a temporary rough start or if there is something fundamentally wrong with your purchases.

@Joshua Feit man I feel your pain but please lets get back on our feet. We all been there. I own rentals in four Florida counties and Puerto Rico. Looking at your scenario and I am confused with your statement "I haven't lost any money, but I haven't made any either"...

Without the details, it will be hard to point the areas of concern but here are my observations:

1. The calculators aren't always right...  Hmmm. My question will be what was entered into the calculator. Because if I am feeding actual figures into it, I should be getting actual (or close to reality) estimates. Remember garbage-in = garbage-out. So from rent levels, to property prices, to repair expenses, to debt service, to what competitors are offering, to tenant underwriting, everything has to be 1. verifiable and 2. from credible sources, tax records, inspections and/or professional opinions. Any slight deviation from this and your calculator will be worthless.

2. Finding reliable contractors has been ridiculous.  Well, this could be a tricky one. I also had my disappointments but this is what I know. I am the inquisitive type so I always ask a ton of questions. Sometimes I know the answers sometimes I don't. But this face-to-face interaction enables me to detect if the individual is full of #$%t!. And from your post it seems that you knew how to do the job yourself. Did you put him on the spot with some keen tough questions specific to each job? Did you show up at the job site to evaluate his progress twice a day? Once a day? If not, oops sorry but this reflects more on you rather than your contractor. Shame, shame...

3. Vacancies are expensive...  Hmmm again. Vacancies are expensive if I allow it.  There will always be vacancies but for no more than one month. Sometimes I can drive this down to just a weekend. This is what I know. When a tenant decides not to extent their lease, this triggers a mandatory inspection. I go in there and in 15 minutes I have a good idea of possible repairs. I keep my tenant engage and talk to them every week until vacate date. For them is clear how they could be impacted if the place is not returned the same way they found it. 3-days before their move out date I show up with my checkbook ready to return their deposit. 9-10 times they leave the place in good shape. I write them a check and return their deposit on the spot! You must stay on top of it. I always show my units before the place is vacant. In regards, to renovations I am not touching a counter unless my competitors dictates it. I open and evaluate all active rentals that are competing with me. They don't renovate. I don't renovate. Why should I? Unless, of course, I can see where increasing my rent will compensate my cash flow position. That's a different story and it must be verifiable.    

So, sometimes things doesn't go our way. For the sake of our pledge to financial freedom please be relentless. Without struggle there is absolutely no progress. Don't ever feel discouraged. Don't do this to me now! 😄 And to your calculator, continue adding your paper losses (depreciation, etc.) and the aggregate equity your tenants are funding with their monthly payments.   

All the best...

Like others have said, it seems as if your estimates were too low before you bought the property.  It's always important to over estimate expenses (to have a buffer for vacancy) to be on the safe side.  I recommend before you buy a property that you see actual expenses from the previous owner as well as the tax return Schedule E (including the depreciation report).  You want to see if the owner is hiding costs from you or if he deferred repairs.  Lots of homework on the properties is extremely important before buying. 

Also, as was already stated, never make improvements on a property if you can't get any benefit from them.  Look at rentals around the neighborhood.  What are they renting for? if  the rents are comparable to your rental, then obviously you shouldn't put much money into the place since no one will pay for the upgrades. 

This is all a learning experience so don't be too hard on yourself.  Know your market and act accordingly.  Real estate investing is very fluid and you have to move and adapt to it to be successful.  

Be happy that you're not having negative cash flow every month (not counting the vacancy).  Remember that as every month goes by, you are still gaining appreciation.  Chin up and learn from your mistakes.  Read tons of books and research.  You will get there!

Originally posted by @Joshua Feit :

Hello BP!

Here's a quick post just to say that I'm feeling discouraged. This is probably very common, which is why I want to hear from you! Let me know if/when you feel discouraged, how do you push through?

This past year, after a ton of research and BP podcast listening, I bought a triplex, and two single family homes. Everything has been going pretty well, but a few realities have started to set it:

1) The calculators aren't always right: The numbers on my places looked great -- should have a net cash flow of about $1800 on all five units. (Used the BP calculators, and I'm pretty sure I didn't leave anything out...)  Well, I don't. I've just about broken even on these properties. I haven't lost any money, but I haven't made any either. Obviously, I'm doing something wrong, but I can't tell where I went wrong.

2) Finding reliable contractors has been ridiculous: I just got through with a rehab on the latest property, and the contractor screwed EVERYTHING up. I had to come back behind him and do all the work myself. Yikes. And now that a tenant is in there, we realized he totally screwed up the wiring. Tenant is without power, and we're scrambling to rework the mistakes.

3) Vacancies are expensive: On one of my units, I had the tenant vacate two months ago. I decided to fix up the place -- new carpet, new kitchen, new paint, and try to raise the rent. Now that I've sunk around $3500 into the unit, I can't seem to attract a tenant at the new rental rate (only $50 more than the old rate, which hasn't been raised in 10 years).

I realize there are so many variables, and that investing is for the long haul. I guess I got started with a lot of excitement, and now I am left wondering how anyone turns a profit in this business.

Rant over. Thanks for listening. And I'd love any advice you want to send my way!

 Real estate is a tough business. It is 10 times harder than you can ever imagine. The right mindset of Applied Faith (persistent action) is required for success. Here is the thing... I appreciate your vulnerability and honesty. Most people on here feel the exact same way you do but won't voice it. If it were easy, then everyone would be doing it and there would be millions to make in this stuff. My advice... find a top flipper/landlord in your area and split deals with them 50/50 to learn the ropes.

If your stuck in DIY (do it yourself) mindset, you'll go no where in real estate investing. You have to know what you don't know. If you think you got it all figured out, you've already lost money.

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