Note: this is part two of my saga detailing my experience as a real estate investor. For part one, click here. Part one was all about the sale process.
I thought I was going to be amazing at real estate. How hard could it be? I had intelligent friends going gangbusters with their rental properties. Any and all advice I needed was a message away. Anytime I needed to call someone and cry while hiding in the closet of my giant new house, I had someone to call and talk me off the metaphorical ledge.
Turns out, I am not suited to be a landlord in the traditional sense. Read on for the 5 main lessons I learned and whether or not I’ll get back into real estate in the future.
Lesson 1: I got emotionally invested in the property
After my first foray into real estate didn’t work out, I was even more eager to get in on the game. I found a highly recommended realtor, he sent me some listings, and we were off! The first house didn’t tickle my fancy.
The second house, though, was beautiful. There was Actual Architectural Features on the outside of the house, and the front porch was huge. Perfect for enjoying a summer evening watching the kids play as I have a nice iced tea. The floors were original 100 year old quarter sawn oak floors. The staircase was intact and very inviting and grand. The baseboards! They were at least 12″ thick.
Let me tell you — NONE OF THIS SHOULD MATTER when looking for a rental property. Actually it’s probably better your rental property not have all of these, because they are expensive af to repair and or replace. When it comes to rental property, look for something that’s easy to repair and simple. Buy a box. Do not buy a Neo-Georgian Revival style house no matter how beautiful as a rental property.
Lesson 2: I underestimated the cost of repairs
I’m not an idiot. The house clearly needed some repairs. The gutters were steel (aka OLD) and rusting out. I negotiated for the money to replace the gutters and thought I did really well.
I did not.
I underestimated the rest of the repairs so much. I thought it would be a few thousand dollars to paint the exterior of the house and was absolutely gobsmacked when I got a estimate for $15,000.
Find a friend to recommend a contractor who will do a walk through of a potential property with you and point out potential problem areas. I thought an inspector and their report would be enough. It wasn’t.
Obviously, you’re not going to know everything about the property from what you can see with a casual walk around but the more information you have, the better. They would’ve been able to give me better numbers so I could’ve known that I was looking at $25,000 worth of repairs to the exterior.
Lesson 3: I didn’t get a referral for contractors
I mean, I did but I thoroughly ignored what they had to say and decided I could find someone else to do it cheaper.
THIS WAS A TERRIBLE IDEA.
This is how I ended up hiring that lady from Craigslist (I KNOW I’M ASHAMED NOW) who didn’t sign a contract, didn’t do the work I wanted, and of the work she did do it was crap quality. I wasted $6,000 on that project, which then cost me $5,000 more since she ruined my big front porch. I should’ve spent the $15k on the good contractor for the house instead of $11k on a project which needed to be mostly redone. Sigh.
Don’t hire people off Craigslist kids.
Being cheap is great in normal life. Go to Aldi. Get stuff off freecycle or the buy nothing group.
DO NOT CHEAP OUT ON CONTRACTORS. The expensive ones are worth it.
Lesson 4: I didn’t do any background or credit checks on potential tenants.
I cannot stress enough how important this is. If you do the work upfront by checking the applicant’s background, you will save yourself a lot of time, energy and stress down the road.
I find running background checks on people stressful. I don’t know why but it feels invasive.
This is not a good mindset for a landlord to have. Seriously. It’s an integral part of being a landlord. I ended up with a tenant that abandoned the lease not even a third of the way through because of this. And he was hecking late on rent.
And honestly, I was afraid of what would come back. I didn’t want to see evictions and arrest histories. I didn’t want to have to tell people no. I hate telling people no. This is not a good trait for a landlord to have. I didn’t want to have even longer vacancies as I waited for quality tenants.
Because, let me tell you, I would’ve been waiting for a while.
Lesson 5: I bought in a not so great part of town.
When I bought the property, I did my due diligence. The super sketch part of town had even better numbers than my property, but I didn’t look over there because everyone knows it’s bad.
Instead, I went to a part of town that I thought was fine. I was wrong. It was not fine. Now, I describe that area as “not the ghetto, but the hood”. There were a lot of poor people living around me. There’s nothing wrong with people hanging out on their porches in the summer because it’s hot and they can’t afford central air. Or even to buy and run a window unit. However, people who haven’t experienced that life, who take central AC for granted, get weirded out by that and don’t want to move to the area.
I thought the neighborhood was ok. My car fit in well as a 2005 Pontiac Vibe. My boyfriend’s late model VW? Easily one of the nicest cars in the surrounding streets. The neighborhood was not great. There were reports of shootings mere blocks away, and I even had to deal with the police once when a drive by shooting happened to the house directly behind me. My cameras caught everything in HD. The cops were impressed. I was not.
So, it’s no wonder I had trouble attracting quality tenants in the first place. I thought I’d be ok as I was close to a chiropractic college and a hospital, but people didn’t want to live there, just work there.
My advice would be to buy the cheapest, crappiest house on the block in the best part of town and fix it up. Do not do what I did and buy the nicest house in a bad part of town. Good tenants won’t want to live there and you’ll have all sorts of other stressors from the environment.
Future Real Estate Plans
I realize how fortunate I am to have escaped the situation with money in my pocket and my credit intact. People called my landlording abilities “a joke” and said I made a ton of rookie mistakes. While mean, they’re not wrong. It hurts, but I am not a good landlord.
So, if I do get into real estate again in the future, I will do something that involves investing money with people who know what they’re doing and can get a good return. Like Carl is doing with his mobile home park deals, or Joel did with his fix-and-flip deal.
I won’t get back into traditional landlording, but I can be convinced to do other investment opportunities within the realm of real estate.
If you want to get into rental properties, I strongly encourage you to do so! It can be a great use of money when done properly. Aka don’t do what I did.
Conveniently, my friend Chad Carson just launched a free 7 day course in how to get started in real estate(aff link). I wish this course had been around when I was getting into real estate as then I wouldn’t have made so many egregious errors from the beginning. He has helped me out tremendously the last few months in navigating the challenges thrown out by The Dingle House, so I can’t recommend this course enough. Hurry, though! It’s only open through the 18th!
Thanks for reading! Do you want to get into real estate? Have you had any issues like I did? Sound off in the comments below!
“Buy a box.” “In a good neighborhood.” “Don’t be afraid to say no to protect yourself.” Perfect advice learned from real life experience coming from a landlord myself. Landlording isn’t easy, and super happy that you were able to get all of this experience without getting crushed financially while learning it.
Me too! Thanks for all your help along the way, Bill!
I love baseboards 🙂 Thanks for the tips! Maybe AirBnB is next?
AirBnB is definitely a possibility if I find the right property!
I learned some of those lessons, too. We bought the nicest house in a blue collar neighborhood. Very big, decent-size lawn, a few historic touches. All that stuff takes work. We thought of it too much as “our home,” (We could live here!) when we bought it, but it has still been profitable. Our second rental is much more of a “box.” Modestly-sized, nice and new inside, but there’s much less that can go wrong.
I’ve always gone with the big name contractors. There hasn’t been too many issues, but I always go with the pros who show up on time, are ready with an estimate, and get the job done quick. The extra cost is worth it to me.
But the most important thing is Lesson #4. I vet the hell out of my applicants, starting with filtering out any emails from people who don’t type in full sentences, all the way through requiring pay stubs, and doing credit and criminal background checks. I’ve said no to a few people.
There’s no better teacher than experience!
Jeez. That sounds like a lot of work and heart ache. Just glad you learned from it.
A lot of stress and worry too. I am glad I learned from it and glad I will do everything in my power to avoid getting back into that situation!
You lived and learned. The good thing is you still made out cash positive, right?
Not entirely. I lost a lot of money in the repairs, but I did come out of the situation with money in my pocket so that makes me happy.
Great advice. I’m interested in getting into real estate and appreciate you candidly revealing your mistakes and letting us learn from you.
You’re welcome! Good luck on your real estate adventures!
Ditto. Thanks for sharing Gwen.
I am on the same path of buying my first real estate investment property. Reading your blog after I came back from a four week vacation made me stop in my tracks. Thank you for sharing your tough lessons. Much appreciated.
Real estate is not simple and it is easy to get burned. When we bought, we first found a realtor we could trust to advise us on the sorts of things that got you in to trouble, to get our education going, and to recommend contractors and other resources. We’ve certainly made mistakes along the way as well, and use that to make smarter buying decisions going forward.
It is great that you were about to get out of this problem, and if you ever go forward with real estate again (even if just as a lender), you’ll be able to use your new knowledge to make smarter decisions!
Having a good realtor is key! Mine saved me all sorts of troubles. They were worth every penny 🙂
Sounds like after all is said and done and signed and stamped you at least made a profit on all those headaches. Good for you!
I didn’t make a profit (I haven’t run the numbers yet but I’ll be lucky to break even). I am thrilled that I did get repaid a little of my investment in the property. Thanks for commenting!
No endeavour is a failure if valuable lessons are learned. And thank you for sharing your learned lessons with us.
I agree, Jay! I’m happy to share any and all lessons I’ve learned. Thank you for reading!
Read “Mindset.” You weren’t a good landlord, but you can learn from these mistakes. Since you paid so much tuition in the school of hard knocks, you might as well use the experience in the future. Seek a growth mindset. The secret of landlording in a sub-perfect neighborhood–or any neighborhood–is carefully pre-qualifying potential tenants. I run credit checks on everyone and make sure they can afford the rent and have a history of reliability. I’ll leave a place empty before I’ll rent to the wrong people. And I keep innovating my advertising until I get enough good candidates. Then it’s a numbers game.
It’s no fun learning these lessons. Especially the expensive ones. But you’ve just paid for a good education and now it’s time to use it! Buy more 🙂
Thanks for the Coach Carson link. I’ve signed up!
Great post. Very timely!
Thanks for this post.
There are definitely a lot of lessons to learn when it comes to real estate. It is not for everyone. Neighborhood is so important. Hopefully your lessons saved someone else a bit of heartache!
I think being a landlord is really tough. There is so much to do and the responsibility is huge. We are so attached to our house I completely get the attachment issue. Thanks for the article we have been considering an investment property – maybe we should think again.
Hi Gwen,
You have gained experience from this incident. I believe that such experience will propel you to make appropriate and better decision in respect of future matter.
WTK
Good stuff what about crowdfunded RE investing?!
I feel like your real estate friends let you down! A friend is supposed to talk you off the emotional house-buying cliff.
Dude, background checks- WTF? I guess I grew up in the city. Wow.
OK, that came off as harsh! I just meant wow- I guess I’m a hard core, untrusting cynic! You are way nice! I run background checks on my background checks!
Glad you are out of it and…safe.
Great Article i’ll tell you a Landlord Lesson I recently learned is I thought I was making all this money with my Rentals I learned I am not making near as much as I thought I was after taxes and insurance and repairs.
I feel like I would have made each and every one of your errors if I were to begin landlording. Cheaping out when I shouldn’t and being too nice are my fatal flaws too. Your article is probably saving a lot of us from learning the hard way. Thank you for your candor! I’ve made my share of business mistakes, but am grateful in hindsight for the life experience, although was certainly no fun in the moment.
Gwen, thank you so much for writing this lol. Because I was also contemplating rental properties but have the same personality traits as you, e.g., hard for me to say no, etc. which is why if/and/or when I have rentals I was thinking a property management firm that’ll take care of everything. Like making sure the right tenants get in, etc. but like you said, experience is the best teacher so we shall see what the future holds lol. Thank you again for writing this out!
Real state can be quiet tricky, my uncle has had his own real state company for years and even though it has great benefits when it comes to profit, of course, if you do it right. It can cause a lot of stress on you because everything relies on you.
Thanks for sharing your experience. Good thing you were able to escape that situation. Good luck on finding the best rental property! I wish all the best after that experience. You have learned a lot and surely it wont happen again! Positive vibes!
Hey there,
One can easily learn from his/her mistake. You share your bad days where you learn to become an expert on your field. I read your entire blog post and found very interesting.
Thank you for sharing…
Credit checks are good, but credit is NOT a statistically significant stat in predicting renter quality. I work in this industry and this is a very bad assumption. Credit is important but does a very poor job of predicting how your tenant will fulfill his/her lease obligation.
If you’d like an unsolicited referral, check out: MyRental.com They do Criminal, Credit, and Rental history checks and then use their algorithm to compute a Tenant Score which does a much better job predicting the quality of an applicant (they also have a digital application form!).
Real Estate is tough, we always hear the success stories and very few times do we hear when others struggle. The good thing though is that you can EASILY learn from bad real estate mistakes.
Good luck Gwen!
Oh man, I’m kind of lucky I’m investing from afar which requires me to get a property manager who deals with a lot of this. I would NOT be able to deal with the tenants the way she deals with it. She sent me messages of her busting and evicting tenants using or dealing drugs and all I can think is thank goodness I’m not dealing with that. Totally worth the price!
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Gwen! So you are super courageous to openly share your mistakes as well as take responsibility for them. A lot of people who don’t know what they are doing make money in RE and a lot of people who do know what they are doing lose. It seems like you learned a lot in the process and if you do choose to get into something in the future, you will have your eyes more open and maybe even recognize when you are letting your emotions get in the way of a rational decision.
Old houses are tough. We have several rental properties, and our oldest was built around 1920. We recently had to replace ALL the plumbing under the house after a leak turned the side yard into a giant mud pit.
Don’t give up on real estate entirely. Like you mentioned, crowdfunding is one alternative, or just hiring a good property manager (emphasis on good — screening managers is a job in itself).
Good luck!
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It sounds like a premature investment. Thank you for sharing your learnings though. I’m sure it will help a lot of people. Including me!
Hi Gwen, I believe that experience is the best teacher because you will never forget the things which you got from experience. Thanks for sharing your personal experience with us. Best of luck for the future Gwen.
I appreciate you for sharing the things you learned with this experience. May be that experience could have prevented or didn’t happen in the first place if you are expert in real estate already. But how would you learn that what you did is wrong if you haven’t done it in the first place. Now you already had your fair share of bad investment and it is time to pump up your game! You know what to do, and what to expect just seeing at the map or at the house, it may be interior or exterior part. Good luck on your next investments!
This is a great article, loved the way you have put this up. People don’t realize the amount of work that goes into rental property investment. Thank you for sharing this.
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Hey Gwen, Absolutely loved this article! Always remember we learn from failure, not from success. Even I had a bad experience in the past and learned a lot from it. Thanks for sharing your experience with us and, I really appreciate your efforts on this post. Keep Posting Similar articles.