What almost sank your first rental?

Question

Not the win, the near miss. The roof you didn't budget for, the tenant who stopped paying in month three, the rehab that doubled, the loan terms you didn't read closely enough.

I'll go first. I planned for the foundation repair. I did not plan for what leveling a house does to the plumbing underneath it. Once the house moved, the pipes had opinions, and suddenly I had a second project I never put in the budget.

What almost took you out, and what did you change after?Best answers run in a Thursday send of the BiggerPockets Investor Brief newsletter.

Ming Yi · Answer

My second year, a water heater let go during a vacant week between tenants. No drama, just a $1,400 bill I hadn't budgeted, because I was tracking everything in my head plus a spreadsheet I updated 'later.' The repair wasn't what almost sank me. It was realizing I had no idea which properties were actually profitable, because I'd been watching my bank balance instead of per-property numbers.

What changed: every expense gets logged to the property the day it happens, with the receipt attached. Boring, takes two minutes, and now I can spot a bad month on one house before it becomes a bad year. The habit matters more than the tool.

Dan Nelson · Answer

My near miss was a condo. I bought it because it was cheaper, and it looked like I'd be on the hook for less. Somebody else runs the building, I collect the rent. That was the plan. The HOA docs allowed rentals. The owners who lived there were not fans of renters.

The complaints about my renters came in like clockwork. So did the fines, and when a fine was wrong, I had to fight it. Then the HOA changed the move-in dates and raised the cost of moving in, so my renters paid more just to get in the door. The docs still said yes to renters. The owners just made yes cost more.

I owned the unit. I didn't control the rules. Lots of people have success with condos. What I changed is what I buy. Now I want the land under my investment property. I love the long-term appreciation, and I love that nobody down the hall gets a vote.

Carter Ricks · Answer

Mine was more simple, I didn’t understand how rentals worked.

I didn’t account that my rental would take 3 months to rent. I didn’t account that the home I bought had over 1k worth of repairs before being ready to rent. I didn’t account that the property manager keeps first months rent.

And lastly, I didn’t account that stuff actually breaks in rentals (stupid right?).

Now I know what a rental costs but it cost me a lot to find out. I think the problem is so many people saying you should invest in real estate but never actually telling you how it can take months before you’re seeing any profit whatsoever.

What almost sank your first rental?

3 Replies