Disaster!!Out of State Lessons/ ROI Found after bumpy Start
Ohhh shooot! I often hear I can't invest in this market. I get it! I went to look in a less expensive market myself. My answer, Dayton, Ohio. My husband had been there for training for the AirForce so we had a little knowledge. In our heads it seemed like a good deal. The idea was ......buy a house or several which were turn key and preferably section 8. I found a flipper who did rehab, rented them out and had a management company in place. Essentially it was turn key all the way. We thought we had done this right. The numbers and the rehab that had been done looked good and even if we had missed something we were in for less than 70,000 on every property. We felt like we did all the things:
- We went to go visit the properties and met the property manager.
- We drove around neighborhoods and spoke to a variety of agents and brokers as well.
Cash on cash seemed great. Imagine, 58,000 for a triplex that was in good condition that was grossing almost 1450 a month. We knew going into Dayton that appreciation was not going to be likely or much if at all. Despite this we went in on our first property and followed quickly with another 7. What we had not counted on was the tenants that had been put in these units or the management companies. Our first management company had the worst books ever. Yes, they always answered the phone but that was about it. The books were off on a regular basis and tenants were never served with notices. Those wholesalers, Right Choice Investments put whoever in these units to show they were rented. We switched management companies but that cost us money as we were ending the contract early. Anything to get out, was the goal. As it turns out, I went from bad to worse. My next choice had been RPM. This was a huge company that I was certain would be able to do the work. When we switched , we had 2 tenants that needed to be evicted and one unit that was empty. In the six months that I had been with RPM it took them 3 months to do the evictions, and the unrented unit never did get rented as they "don't do section 8." As it turns out, they never actually visited that property. The 2 evictions became 3 and each unit was left completely trashed. I was given bids for the work that literally included 5$ for a light bulb being changed and 13,000 in rehad work to 700 sq feet. From the pictures you would think maybe 2000. There was nothing structural, flooring, repaint and clean out. I considered going to Dayton myself and just doing the work. This company did everything by departments so it was never the correct department. Needless to say, we left this rental company as well but I was over the edge. How was I ever going to make this work! I actually found someone on BP and was just going to discount and dump all of them through a local agent when a third rental management company was suggested. Bob at Roost has been awesome. We are rehabbed at normal rates, rented to good paying tenants and are well on the path to the success we had hoped for to begin. Lessons were learned along the way for sure BP. The please do not do as I did lessons in all of this are :
- Go slow- I didn't wait long enough to figure out that it was or wasn't working before I bought 7 more properties and suddenly was in it for 15 units.
- Really look to see that tenants are paying ( also I have learned that Section 8 and other housing agencies will pay but it might (will likely) be late depending on the agency. If you need this cash -(all of it to cover your bills each month) BE CAREFUL!
- Management matters- They will likely answer a phone call to get your business but go off of referrals after that. If I had to do this again I would have asked them for an estimate on a rehab that had been quoted to someone else. Previous management companies were charging if it was leased or not - there was no incentive to have it leased up.. I feel dumb that I didn't catch this no incentive piece. This agency also does not charge a lease up fee if the previous tenant has to be evicted. I love this as I FEEL like it ensures skin in the game. I wish I would have looked for this before.
- Tenants- I didn't vet these tenants and just trusted it would be ok. They had no income. I never asked for rental aps and I should have.
Good Luck BP! It can be done. I / we are doing this and the investment is good despite a SUPER ROCKY start.
All the best!
Paige