Ok well horror is a relative term I suppose because I’m obviously not talking about zombies or monsters raiding your investment property (but of course if you’ve experienced any of those then by all means share). Horror stories in terms of either critical mistakes you have made that cost you a lot of money, a crazy bad experience you have had with an investment, or any other experience you can share that you feel investors could learn from.
Mine isn’t necessarily a horror story (although my wallet would highly disagree) but rather a lesson learned. Surprise, surprise, I’m talking about those two back-to-back evictions I always refer to. I only use that as an example because it’s so straightforward and gets right to the point, but I have had other properties with similar problems which all tie back to two issues: tenant quality and property management. I learned the very hard and expensive way that both poor tenant quality and poor property management (which often leads to poor tenant quality) will tank an investment faster than you even know what is happening.
How to Invest in Real Estate While Working a Full-Time Job
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My Horror Story
Again, no zombies or monsters, although I would not be hesitant to call my property managers in this case monsters because they cost me a fortune. Basically they were letting any Joe Blow who filled out an application move into the property. When I bought the property it came with tenants, and the first rent check they owed me they bailed on paying.
Really? I’ve only owned this a month, a&%holes! At least that what was going through my head at the time. I didn’t fret too much though because the seller had sold me the property with a 90-day rental guarantee, meaning I’d get paid the full rent regardless if tenants were in it or not. No problem, evict away! They covered the evictions costs too. Sweet! They finally placed a new tenant about a day shy of the 90-day mark, which means I’m pretty sure they must have forgotten to advertise the property for rent because 90 days was a stupidly long time, but I didn’t care, I was still getting paid because of the guarantee.
New tenant moves in, second month, late payment. Third month, no payment, eviction. No rental guarantee this time so I was out payments as long as there was no tenant, but at least I had a 6-month tenant guarantee so I didn’t have to pay the placement fee for a new tenant which was nice. What wasn’t nice was the maintenance crew, and I still have no idea why, didn’t get around to starting repairs on the property until about April. All the while they refused to give me an invoice for the costs I was paying which totaled about $2400.
Stupidly high for the work they did might I add. I don’t think the cost was the only that was high during that deal… Oh well, whatever, keep trucking along. They didn’t place a tenant in that house until, get this, July. July? Clearly they forgot to advertise again. New tenant moves in, and guess what! Pays rent on time every month! Get out. Oh well, hold on, that’s exactly what that tenant ended up doing six months later. He apparently got a job offer and bounced, didn’t call anyone until he left a voicemail saying where he had left the key (although we never did find the key). Leases mean nothing, in case you were wondering.
Summary of that property management company running my property, and keep in mind as I tally that the only reason I kept it under that management company for as long as I did was because the property management fee was only $50/month but more importantly they kept giving me a six-month tenant guarantee so I never wanted to change managers until after the six-month mark with a tenant so I could save a pending tenant placement fee. Turns out that paying $150/month in (good) management fees and even paying $1000 for a new tenant once, or twice for that matter, would have been significantly cheaper and with less headaches. Am I sure about that? Let’s see. Two turnovers: one $2,400 and one $2,300, less security deposits, so $4,300 in turnover costs. Nine months of no payment, so $9,000. $13,300 total and I feel totally justified in just rounding that up to $14,000 to account for a few miscellaneous eviction fees and other repairs that happened more than once. $14,000 in a year and a half. Yeah, no, pretty sure that well tops what I would have paid extra for the good property manager.
My lesson learned from that is the importance, and criticality, of tenant quality. I no longer have any desire whatsoever to invest in a property that is more likely to attract bad tenants. I have every desire to pay substantially more for a property if it means the likelihood of good quality tenants is that much higher.
What is your best lesson-learned story? And what was the lesson you learned?
Just think. If every real estate investor compiled a log of their lessons learned, and then all of those logs were joined into one, and a new investor sat down and read it all the way through? They’d be a genius and never have to nosedive like the rest of us!
Photo Credit: verityatthedisco