Today’s guest post comes from the spouse of a physician, Rachel Hernandez of Adventures in Mobile Homes. As you might guess, her trailer park adventures come not from living in mobile homes, but as an experienced real estate investor.
The focus today is on single-family homes or small multi-family homes. Certainly, that’s one way to earn good income from real estate, but the endeavor requires hands-on management or excellent hired-out property management, both of which can be challenging to do well. Of course, you can also own REITs and invest in residential and commercial real estate via crowdfunders and other syndicated deals, as I have done.
While I have no interest in managing individual properties, tenants, and contractors, I do like the diversification that comes from real estate investing.
The Reality of Real Estate Investing: It’s Not as Easy as It Seems
When my husband picked up the book, Rich Dad, Poor Dad by Robert Kiyosaki, as a medical student little did I know about real estate investing back then. To him, the concept of passive income through buying and holding properties seemed attractive. It was simple. You buy a home. Fix it up. Fill it. And then, voilå. You start collecting payments.
Little did we know what we were getting ourselves into. Real estate investing isn’t easy. Sure, it’s simple. But it’s more involved. And I’m here to tell you what i’ve learned with over a decade of experience as a real estate investor. These are the realities of real estate investing:
Finding A Deal Isn’t Easy
When you buy a piece of real estate you want a deal, right? After all, we learned from reading Kiyosaki’s books that “you make money when you buy.” So you just need to find a deal. But the right kind of deal. Easy, right?
Most real estate investing books start with finding the deal and negotiating it. But what about the steps taken to get there? Before the deal was found. What did the author do to find the deal? How much time and money was spent? And most importantly, how long did it take?
These are items not mentioned in most real estate investing books and courses. Why? Because it takes time. And work. People selling you books and courses don’t want to make real estate investing seem too hard. They want it to sound easy. Why? Because they are selling you the dream.
The truth is that finding a deal isn’t easy. It takes time, money, effort and work to find just the right deal. And the kicker? Most deals are not found: They are made. Through negotiating. Yet another detail many real estate investing gurus leave out.
So if you have no training or do not know how to negotiate, you will stumble around. Which is what happens to most real estate investors. They become mediocre. And never truly master a specific niche.
The key to being a successful real estate investor is to do things that work with your personality. But in order to do this, you must first get experience. Learning about what works and what does not work for you can only be achieved by taking action.
Personally, it took me almost a year to find my first mobile home deal. It took a lot of hard work and effort to find, negotiate, and put together. Imagine if I quit before the year was up? Then what? Real estate investing isn’t easy. Though possible, it takes time and effort to achieve success as a real estate investor.
Property Managers Don’t Always Have Your Best Interest In Mind
Once you’ve found a deal, all you have to do is fix it up and put someone in it. Right?
To make life easier, you can pay someone, like a property manager, to do it all for you. One less thing for you to think about. One less hassle to deal with. Sounds easy, right? It’s not.
Good property managers are hard to find. Many do not always have your best interest in mind. Property managers are there to manage properties. They have problems to solve. Tenants to handle. Quick and fast.
It’s a volume business. You’re not their only account. They have multiple units to manage on a daily basis. It’s a lot of work (not to mention stress) for one person. Usually, your best interest isn’t always in mind. Theirs is.
Property managers are there to solve problems…right away. Even if it means at your expense.
Most property managers (the good ones) have a team of subcontractors they work with on a regular basis. They show up when called, fix the problem, and get paid.
Though, what you pay for in speed may cost you more money in the long run. To protect yourself, only let your property manager authorize a certain amount when it comes to expenses. If the expense costs more than the set amount, they need to talk to you.
For example, say you only authorize the property manager to spend up to $300 for a certain expense. Anything above that figure needs to be approved by you.
But what happens when an item needs to be fixed and costs more than what you can afford? Do you have a contractor in mind who can do the work within your budget? As a real estate investor, you should not only rely on your property manager’s contacts. Take the time to build your own team of contractors so you have options when an unexpected expense comes up.
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Good Contractors Are Hard To Find
As a high-income professional, you may not have the time to do the work yourself on all of your properties. So why not hire contractors to do the work? Seems simple enough, right? The hard part isn’t finding contractors: it’s finding the right contractors. Those who will show up, do the work on time, and charge you a fair price. That is where the challenge lies. And I’ll tell you the truth, it’s easier said than done.
In order to find good contractors, you have to take the time to interview and screen properly. Don’t just go with a referral. The person may not work well with your personality and vice versa. Instead, make up a list of questions to ask over the phone. Pick the three contractors you like the most for each problem area. Then take the time to meet them. Go over the work needed. And get an estimate.
A note about estimates: They should be free. Most of the time. Unless it’s for electrical or plumbing work, both very busy professions, you should be able to get free estimates. Even now with over a decade of experience, I get free estimates for both electrical and plumbing work from the contractors I use. Though, it will depend on your ability to build relationships and trust over a period of time.
Once you find a few good contractors to work with, always be on the lookout for new ones. Take the time to constantly ask other property managers and real estate investors in the area who they use for their fix-up needs. Don’t rely only on the contractors you use. Things come up. There are times when they may not be able to get to your project. Or they may not be in business anymore for whatever reason. It happens.
By having a good amount of contractors lined up, you’ll save yourself time and money in the future. When an issue comes up with a property needing fix-up work, you’ll be glad you took the time to regularly interview contractors. And you won’t be left without any options.
Real Estate Agents and Investors Can Waste Your Time
Since you’re a busy professional, you don’t have the time to go out and look for deals. So why not just hire a real estate agent or work with another investor to find deals for you? Seems simple enough. Or is it really?
The truth of the matter is most real estate agents and investors will waste your time. Their interest isn’t in you. It’s in themselves. I’m sorry, but that’s reality.
If these real estate agents and investors find a deal, do you really think they’re going to bring it to you? A new investor? Most likely they are not. They’d either do the deal themselves. Or bring it to someone with the experience and track record who can close quickly. Hiring another investor to find deals for you is very rare. I was one of them back when I started finding properties for other investors. My service was in great demand. But I kept the best deals for my repeat buyers.
Now I’m not saying all real estate agents and investors are like this but the reality of them are. Don’t let people waste your time. Take the time to know your market and form your own set of buying criteria. Don’t go into a deal because someone says it is. Go into a deal because it works for you. Be careful who you choose to work with. Make sure they have a track record and know what they’re doing. Otherwise, you’ll be wasting a lot of time. And time is money.
Screening Tenants Isn’t Easy
Finding good tenants to fill your properties isn’t easy. The process is simple. But there’s more than meets the eye when it comes to choosing the right people to work with.
If you’ve left the job up to a property manager, be prepared. Most managers will look at the objective which consists of how a prospective tenant looks on paper. But there is also the subjective which is harder to see.
Will this tenant be low maintenance or high maintenance? Will they take care of the property? Will they call regularly asking to fix things? To put it bluntly, will they make your life (and your property manager’s) a living nightmare?
You can only find this out by taking the time to talk and meet with prospective tenants regularly. Over a period of time. There are certain mannerisms people have both over the phone and in person which are clues to how a person will treat you and your property in the future. Though, mastering this skill takes time. And most property managers simply have too many units to manage to take the time needed to learn this skill. Usually, as long as they look good on paper, they are good to go.
Only you can learn this skill by doing it yourself. Or asking questions to your property manager. Before you decide on an applicant. Usually, property managers have to present applicants to you leaving you to have the final say on whether someone is approved or not. Don’t make hasty decisions. Take the time to screen properly. Get your questions answered.