The importance of taking it a little bit slow in the beginning

10 Replies

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.

@John Chapman , thanks for sharing. I enjoy your posts and reading your feedback on the threads.

@John Chapman  

I know where you are coming from...did a flip and paid way too much and it was a 3br 1 1/2ba with 1 cg, limited the market and learned a lot, but made a $22k profit and learned!  Next was bought at half the price and shifted with the market, a buy and hold, now 4 years plus later and it has paid for itself!  Just learn from the past and do not repeat in the future, best of luck!

Great points!  i agree 100%

Thanks for sharing! I am still only a couple years into my buy and hold investing, but am already learning lessons in what to look for and how to tighten up my criteria. The first property I bought had extensive deferred maintenance, which I knew going in and budgeted for, but did not budget for the extent of what could not be seen (poor drainage causing water intrusion during heavy storms, termite infestation after I bought the property that cost $2k to treat, ongoing A/C maintenance due to older systems, etc.)

Knowing what I know now, I would factor up my repair budget and expect things to come up over the first few years after purchasing a house that was vacant or poorly maintained before.

Thank you for posting this @John Chapman  

I am looking to do buy and hold and this information will be very useful to me.  I am only about a month in so I know I still need to learn more before doing anything.  I sat there last night saying, I'm just going to go and buy something to say I am moving forward, but I know it will be a mistake at this point.  I really don't want to make any mistakes, but understand sometimes its inevitable and just a part of growth.  Thanks to post like this and all of the other great post on BP, I will be ready to do my first deal soon.

Thanks again,

James

@John Chapman, I am sure the BP community really enjoys your recent uptick in postings.  I know I do!  What would you consider some of the biggest mistakes buy and hold landlords make in addition to some of the things you mentioned above?

Thanks for the kind words.  @Pete T.  , @James Williams  @Mark S.  

In terms of other mistakes, just off the cuff, and this is probably a separate forum post,  I would say the biggest mistakes are buying in the wrong neighborhoods (declining) and buying houses that are just never going to be good rentals (e.g. buying too big of a house).  I perceive buy and hold as sort of a long bet on an area and a property.  The only caveat is people who buy D properties solely for income.  That strikes me as a different model than what most buy and holder are doing.

I have a similar type story and I would completely agree with you.  I was a builder and so I thought I'd just build myself a duplex that I'd keep and rent.  Well, I tend to make things too nice and I did that on my duplex.  I put in a decent quality cabinet but I put in tons of them.  I seriously think there are more cabinets in one side of my duplex than are in my own home...not smart and they aren't cheap.  Because of mistakes like these for the first four years I had to feed the things money each year.  I'm now about 7 years out from when I bought it and for the most part the maintenance has been pretty minimal but still have some.  Maintenance is definitely something I would figure at a higher percentage on my next properties.

So my two cents to add to this post is that you also have to be careful not to "over build" or "over rehab".  There's a fine line of what has to be done and what needs to be done.  Just watch the overall budget and get bids from several contractors.

Great post.  @John Chapman  

@John Chapman  Thanks for the post.  Many newbies come on here and think that they are going to make a lot of money as a buy and hold investor.  And they never consider that they could actually lose money, or that they could make a mistake.  I am still paying for a early mistake that I made.  A mistake that cost me more than most people (including me) typically make in a year.  And I have a friend who almost went bankrupt with an apartment purchase.

Originally posted by @John Chapman:

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.

 I totally agree.  I made a big mistake on my first out of state rental about 10 yrs ago at the peak of the market back then.  I got bad financing, had negative cash flow, overpaid, house had way too many big ticket items that needed updating (roof, furnance, etc...).  Suffice to say I took a major bath on it.  But if I would have went out and gone nuts and bought 10 of these at once, it would have bankrupted me.  Good thing I went slow and only bought that one mistake, so I still had money and good credit to be able to scoop rentals after the crash in 2008 when things were going dirt cheap and be able to live to learn from that first mistake.  Many people I know went out and bought tons of rental property all at once back 10 years ago lost entire life savings, went bankrupt, etc...  Catastrophic.  And even worse those people were broke with bad credit post crash so they also missed on one of the best buying opportunities in a lifetime (2008-2012) in many prime areas of the U.S.  So you are right.  Take it slow at first.

Free eBook from BiggerPockets!

Ultimate Beginner's Guide Book Cover

Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!

  • Actionable advice for getting started,
  • Discover the 10 Most Lucrative Real Estate Niches,
  • Learn how to get started with or without money,
  • Explore Real-Life Strategies for Building Wealth,
  • And a LOT more.

Lock We hate spam just as much as you

Get the Ultimate Beginner's Guide

Sign up today to receive the popular eBook for free!