What Would You Do Differently If You Were Starting Today?

Question

If you were starting over in today’s market—with the knowledge you have now—what would you prioritize first?

Capital access? Education? Networking? Deal analysis?

Mohammed Rahman · Answer

Hi Melinda,

Love this question. If I were starting over today, I’d focus first on people and reps.

Building relationships early makes everything easier; learning curves shorten, mistakes get smaller, and opportunities show up faster. At the same time, I’d be underwriting deals constantly, even if I wasn’t ready to buy yet. Running numbers over and over is what really builds confidence and helps you recognize a good opportunity when it shows up.

Eric Fernwood · Answer

Hello @Melinda Eilts,

Here’s what I wish I had understood early on: the tenant who occupies your property determines your investment success—not the property itself or paper returns.

My first purchase was an off market C-class four-plex in Houston that (I believed) I got at a great price. On paper it looked like a cash cow. It attracted low-income, cash-based tenants. To make a long story short, I lost about $1,000 a month due to evictions, vandalism, and unpaid rent. Also, most were Section 8.  I always received the government portion, but I rarely received the tenant portion. So on average, I only received about 80% of the expected rent.

By contrast, my next purchase—two A/B-class four-plexes in an Atlanta suburb—attracted young professionals. They paid on time, maintained the property, and I had only minimal repairs. Same asset type. Completely different tenant segment. Completely different outcome.

Here’s the advice that experience taught me:

• Don’t be fooled by “paper returns:” High cash flow on paper means nothing if you can’t collect the rent or lose everything to Section 8 tenants or massive repair costs. Actual returns depend on the tenant, not the property.
• The property is only a container: Buildings never pay rent—tenants do. Start by identifying a tenant segment that stays for years, then buy properties similar to what they currently rent.

The 17-year results of this tenant-centric strategy:

• 600+ properties delivered to 170+ mostly remote clients
• Clients typically buy three or more properties because of the sustained performance
• Average tenant stay of over 5 years
• Seven evictions across 1,000+ tenants
• Zero rent decline or vacancies during the 2008 financial crash
• The properties averaged ~7% annual appreciation and ~5% rent growth since 2015
• Vacancy rates below 2%

The bottom line

Property type doesn't matter, no property ever paid rent, the tenant pays the rent. Choose a tenant segment who stays for many years, then buy properties similar to what they're currently renting.