What did you wish you knew before starting your first rental?

Question

Hi! I have been researching & learning about real estate for the past year and am now starting to get serious about purchasing a property to ultimately use as a ST or LT rental. I am only 25 and still have a lot to learn. So what did you wish you knew before purchasing and starting your first rental property business? What can I do to prepare more for my first rental business per taxes, contracts, tenants, etc. I am currently looking at 1 or 2 bed condos in the mountains or Denver area. Thanks!

Marcus R. · Answer

I wish I knew...

1) Real estate is great but it isn't passive.  You're trading one job for another and you're much better off using this to supplement your earned income instead of replacing it. Loans, emergencies, reserves, progress, etc...are much easier when you have earned income.

2) Enjoy the journey and have fun along the way.  Once you have the foundation built, be smart about it and let time do it's thing.  Don't be in a rush.  Everyone sells the "quit from your 9-5 in 1 year dream" but it's modern day snake oil.

Nathan Gesner · Answer

The #1 thing I recommend is to know the general laws of managing your rental. Do yourself a favor: buy "Every Landlord's Legal Guide" by NOLO. Written by attorney investors, it's full of practical advice pertaining to management of investment property, has sample forms that can be edited, and - most importantly - they tell you what your primary state laws are and where you can read them. It's updated every year and is the best $40 you'll spend as a Landlord.

James Carlson · Answer

@Marcus R.

Totally agree. Real estate is not much different than the stock market. Unless you're gambling with timing markets and going big during down times, real estate is a long-term buy-and-hold strategy. If you buy regularly -- every year, every two, every three, whatever -- then you're kind of dollar-cost averaging, hedging against the down times, and slowly building a portfolio. There was a real gold-rush vibe the last few years, which is understandable, but this last year, and the coming years, are going to be different. We continue to buy every few years and will continue to do so through this time as well.

James Carlson · Answer

@Halley Havlicek

I wish I'd known that I didn't need to know as much as I thought I did. Or, to put it another way, I wish I'd known that it's not that hard. There's only so much to learn through thinking. There's a lot more to learn through doing. We didn't buy our first place in Denver until our early 30s. I wish we'd bought before that.

Real estate for most people is a long-term buy-and-hold strategy, not unlike the stock market. Do some research, but then take some action. Buy a solid place that will cover your monthly payment plus some expenses and sit on it. In a decade or two, you have an asset that's increased in value, made some cash flow each month, someone else has paid for most of it, and you've received nice tax benefits along the way.

Also ... how exciting for you. It's a big deal to buy a rental. And it will change your financial future. Congrats on taking a big step.

Jacob MacIsaac · Answer

unless youre buying turnkey, allocate more than you think for cap ex

Marcus R. · Answer

@James Carlson - Always good to hear your thoughts on RE investing.  Couldn't agree more.

It will likely take 7-10 years to build up a portfolio and another 7-10 years to really see the benefits.  Like most I was first hooked by the instant adrenaline rush monthly cash flow provides but now I'm seeing that equity paydown, appreciation, and rent growth over time are the real game changers!

Ben Rhodin · Answer

Hey @Halley Havlicek! Lots of great advice in here already, and I will echo almost everyone's response. My answer would be to not get stuck researching for the "perfect" strategy, and just get in. In other words, don't get trapped in the shiny object syndrome. I always tell people there is no right way to invest in real estate, and it's more important to get in and get started. You can always pivot or change down the line if what you choose is not your favorite, but making a decision is more important than anything.

Mindy Nicol · Answer

I would definitely hire a good property manager if it is your first time and learn as much as you can.  There is so much that goes into vetting tenants, leases, managing day to day, and evictions.  Once you do it with them for a year you will learn a lot and could probably handle it from there.

ST rentals are a completely different animal and you will be in the hospitality business. Unless you have a management company (usually 20%) this will take a chunk of time especially answering questions, managing guest expectations, upkeep, cleaners, etc. I would also be very careful at looking at prior years financials of what the property has earned as many markets have changed. I don't think ST is for everyone and you need to really want to be a host.  Once you do the math, and value of your time, you may find that you'll make more as a LT landlord, than ST host.

Mindy

Dave Spooner · Answer

Don't be afraid to take chances. Sometimes it's paralyzing when every decision you make is "hard". Another is making sure you know your laws in that state as a landlord. Lastly, make sure your leases are up to date.

Tanner Pile · Answer

@Halley Havlicek

Track all costs and receipts for the property - Helps with tax season

You can use bigger pockets leases to start or speak with an attorney.

Learn how to be a good property manager.

Finding tenants is easier than you think if you market well and price the rental correctly.

What did you wish you knew before starting your first rental?

Most Popular Reply