Not Always Glamorous: Obstacles I’ve Encountered in My First 2 Years Landlording

by | BiggerPockets.com

Truth: I’ve only been an investor for two years, but I’ve learned a lot of great stuff that I hope you all will benefit from. Real estate is an incredible vehicle to achieve financial independence, and I’m all about efficiency to get there as quickly as possible. Here’s a quick article on things that have either cost me money, time, or both.

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Property Management

Awful property management. We hear about this left and right. My first company in Michigan placed pretty terrible tenants and cost me a good bit of money. Within two months, they approved and signed two leases for my newly acquired duplex—without my knowledge.

Unit 1: This tenant had a prior eviction directly before applying for my property. You can guess how this one worked out. Unit 2: This tenant had incurred drug charges within the past two years. She got a lot of neighbor complaints, and the place was completely trashed when she moved out. In Michigan, you can’t use the security deposit for cleaning, as it must be a separate deposit. Guess who didn’t take a cleaning deposit when they moved in? That’s right. That being said, was my property able to cash flow still? Yes, but it was a bit of a headache to deal with. I found an incredible PM shortly after to help me pick up the pieces, but if your plan is to live off your cash flow, the person in charge of your assets should be spot on.

Related: Open Letter to Struggling Newbies: How I Landed My First Deal After a Cross-Country Move & Two Failed Jobs

The thing is that I interviewed the bad PM extensively. They were extremely responsive and positive. The second I signed the agreement, it somehow went downhill. My point is that I tried making the best decision for my business and still flopped.

productive-2017

Neighbors

This might be in the back of your head whenever you buy multifamily or condos: What are the neighbors like? I have a beautiful condo and pretty fantastic tenants. Unfortunately, the neighbors below them weren’t so fantastic. There were multiple complaints on this unit and even police called due to noise disturbances over a few months. After a call to the owners of the unit, this has worked out, but my tenants did not renew their lease.

Speaking of neighbors, someone in the building of that very same condo left a curling iron on, and their unit caught fire. No one, including pets, was hurt, and after a quick inspection, we learned this didn’t affect anyone else but the unit where the fire started—but it very well could have.

Related: 11 Common Pitfalls Real Estate Newbies Should Guard Against

Life Changes

I had a tenant go through a difficult divorce, which affected the lease and sometimes their ability to pay on time. Life happens. The tenant paid everything in full and on time after a month or two of instability. I waived the first late fee since she’d had such great payment history (mostly early payments) and encouraged her to communicate with me if she thought it would be late again. It was late one more time, she let me know ahead of time, and she paid in full with the late fee a few days later.

owner-occupied-financing

The Pareto Principle

Revisiting this concept, some units cost more than they’re worth in time/effort/whatever. Three of those lessons learned have come from the same unit! If you end up having a property like this, maybe consider streamlining your business if needed.

In Conclusion

It isn’t always amazing, but that’s why I estimate my cash flow extremely conservatively. You just don’t know what you don’t know, and you can’t control a good chunk of the rest. If you make more than expected, great! Even though I’ve run into all of these things in my short time investing, in the grand scheme of two years, I have still been able to cash flow positive. I still invest in real estate, and considering all of the above, the pros still vastly outweigh the cons for me.

What challenges did you face starting out in real estate?

I’d love to hear about your experiences. Leave a comment below!

About Author

Sarah P.

Sarah has achieved Financial Independence as a result of her real estate investing. She did so in one year and has a great time blogging about her personal experiences throughout the process. She continues to invest and is currently in the process of exiting the military to pursue new life adventures.

15 Comments

  1. Andy Wolf

    Thanks Sarah for sharing your experiences of landlording. It is unfortunate you had such a rocky start, but is refreshing to hear very real and possible stories of being a landlord. Being brand new at this process myself, I would like to see more posts like this one to get exposure to more than just the upside of real estate investing. Thanks again.

    • Sarah P.

      You know, I wouldn’t even term it a rocky start. The benefits of real estate vastly outweigh some irresponsible or noisy neighbors. At least so far in my experience. 🙂 But some things to consider and mitigate for sure.

  2. Cody L.

    “Not always glamorous”. I LOL’d. Should be “Never glamorous” 🙂

    Two types of properties:
    1) Trophy (glamorous) properties that don’t cash flow.
    2) Non glamorous properties that cash flow.

    One day I’m going to write a post about the code words that = low return. When you see properties listed as “Pride of ownership!” or “location location location!” or “trophy property”, RUN, because that’s code for “you’ll get no return but you can show the property to your friends and brag about how cool you are.

    Meanwhile, I show my properties to my friend and they ask “Dude, why did you buy that?”. Which is fine. Because the answer is “they make a shitload of money”

    • Do they really? Take two identical houses, one in Beverly Hills and one in Riverside. The one in RIverside, I would argue has MORE hassle and expenses associated with it and will make a “shitload” less money!

      Once you get past the Mortgage and property tax. But here’s the main point, the Mortgage and property tax (in California with prop 13) are fixed costs, everything else goes up with inflation. So the property in Beverly Hills has a great future as the real costs go down and the rents go up. The house in RIverside has less of a future upside because the overall costs that go up with inflation are a larger share. Plus the land is not as much of a percentage of the value, so the house itself will be more of a money sink and will appreciate less. The prime Beverly Hills House will probably go up a million in the next ten years, whereas the Riverside house might go up 1-200K. Which is not as compelling. Which would you rather make for your time and effort 1 million or 100K? No this is not a trick question.

      • Devin Langham

        I think the “location, location, location” comment was in reference to listings that would use such a descriptor to play down other, less enticing fundamentals, especially within the same area as better options. Not necessarily two very different markets like your example. But that said, yours is still something everyone should bear in mind, particularly those getting started that may want to lever up quickly.

      • Cody L.

        The house in BH will be 300x the rental price. The one in Riverside will be 100x the rental price. The one in BH won’t bring enough rent to cover the costs. The one in Riverside will cash flow.

        All things being equal, sure, I’ll take the nice flashy house. But all things are not equal.

        I have an $800k home I rent in San Diego for $4,000/month. I have a $600k home I rent in Houston for $4,300/month. Which do you think has better financials?

        I looked at a 10 unit buidling in San Diego that rents for $15k/month total. They want $2.3m. I bought a 78 unit in Houston for $2.3m that brings in $50k/month in rent. Which do you think has better financials?

        • The San Diego home might have better financials depending on when you bought. Say you bought both homes for $300K 15 years ago, then the San Diego home has better financials because of the prop 13 tax rate which would be a fraction of what you pay for property taxes in Texas for a house worth $600K.

      • Cody L.

        “Once you get past the Mortgage and property tax”

        really? Again, this is my point. You’re talking about “Well in a decade, the appreciation of BH will be higher”. Sure, maybe. Or maybe it won’t. But that’s my point: People don’t buy in ‘high end’ areas (San Diego in my local case) for cash flow.

        If you’re buying with the idea that you might be upside down in a while but in several years you will benefit from appreciation, then by all means. I’m not going to bag on that strategy. Everyone has their own goals. For me, I want to build a cash flow machine, which Houston has allowed me to do. By the end of next year I should be at $1m/month in rent income. Then, I’l stop (maybe 🙂

        • People in San Diego don’t buy for cash flow?

          That’s news to me. Have you talked to a lot of investors there?

          Did they actually tell you that?

          I find that amazing.

  3. TED C. I am a 20 year LL keeping 2 or 3 single family homes over the years – mostly a hobby – I do everything – repairs – hiring contractors – selecting the tenants – no property management.
    For me It boils down to this, if you select a good tenant you win if you select a bad tenant you lose. And how do you select a good tenant? I do a pre screen with eight question to eliminate the tire kickers. Then a couple of must things. Obtain a reference letter from the potential tenants previous land lord. Do a face to face with the potential tenant at the rental unit. During the face to face. Did the potential tenant arrive on time – what type car did he/she have and was it clean – What was he/she personal appearance – ask about credit score – ask about source of income and is net income 3 times the rent – determine the character of the person during the face to face. What did he/she say about the house – This has worked for me about 90% of the time. I have had a couple of bad ones lost less than $500 both cases- but I have had no evictions – did ask one to leave with no issue. Good luck Sarah.

    • Devin Langham

      Excellent strategy if the demand is great enough. I could foresee difficulties getting everything you want (recommendation letter, type of vehicle–I’m in Chicago, so lots of people don’t drive) depending on the type/location of the property, but it’s still worth asking all of those questions and taking what you can get in making your decision.

  4. robert ferrell

    Neighbors are the variable that I am most worried about because that is an aspect that you virtually have no control over. They can easily turn a great property into a terrible deal if they scare away all your renters. Is there anything you would suggest for inheriting terrible neighbors?

    • Sarah P.

      I would say to weigh the risks. Often times you can knock on doors and see what all the neighbors think of the area. If there’s an HOA see if there are any complaints on surrounding units or even police reports. That just takes a phone call. If you inherit terrible neighbors I think the best thing to do is find the owner if they’re tenants… but I don’t have much of a recommendation on this. I hope others see your post and respond!

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