The importance of taking it a little bit slow in the beginning
I thought I'd share this anecdotal story since it seems a theme on the forums and blog is about taking it a little bit slow when you are starting out. (This is probably more geared toward buy and hold people than flippers, where mistakes become apparent very quickly.) I've been at buy and hold for about seven years now, and the very first property I bought just went vacant for the first time. I would call this one a disaster. I paid way too much for the property, used the wrong type of financing, and had it way under market rent for far too long. (Basically, I had a soft spot for the tenants, and they caused me very little trouble.) The bigger thing is that when I bought it and renovated it, I put the money in all the wrong places. I walk the place and I cringe at the rehab I did. Fixtures are dated and don't match, the kitchen was borderline falling apart when I bought it and now needs to be redone, and I used a cheap foundation company whose piers all failed. I had to have the foundation redone, which was not pretty, and tons of sheetrock work. I didn't use good, durable flooring and most it has to be redone. The bottom line is that I will probably sink about $10k into this place (The upside is that I will be renting for about $200-$250 more per month.) Some of the repairs are things I would have probably had to taken care of over time anyway, but a lot was avoidable or should have been budgeted for.
I look at this house, and while I've made money on it, I cringe at the thought if I had replicated this deal over and over very quickly in the beginning. (I bought a similar house nearby with similar, though slightly better, results). The thought of coming up with that much money over a number of properties would be painful to see the least. I thought I knew what I was doing in the beginning, but I really didn't. (I also had a lone ranger mentality and no BP.)
The thing with buy and hold is that often times flaws in your strategy (be it the rehabbing, management, maintenance, neighborhood, or whatever aspects) can take years to show up. By the time they do show up, you have made the same mistake a bunch of times in the interim, compounding the problem. Obviously, there are ways to mitigate this risk. (I should have networked much harder with other investors, used BP, etc.) However, there really is no substitute for experience.
I bought 3 properties in my first 3 years and I'm now glad I did. (At the time I was annoyed because I wanted to keep buying.) This was not due to some brilliant insight or desire to go slow, it was just resource constraint and the dumb way I was buying properties with too much money into the deals. It probably wasn't until my fourth or fifth deal that I really started to hone my investing criteria and get the hang of things. Returns significantly increased and I did much better. I'm obviously not suggesting that everyone should go as slow as I did, but there are definitely some benefits. Just thought I'd share this experience with the group.