We are back for part two! If you missed our episode last week, make sure to check out that one first (we share real numbers for three of our five properties in 2022). Once you have, you are ready for the good, the bad, and the ugly - which we will share here! We’ve learned a LOT since buying our first real estate investment property in 2021. Now five real estate properties later, we are sharing 7 things we wish we knew before purchasing our first home!
If you are new here, welcome! I’m raising my hand to say I am not a real estate educator by any means and neither is my husband. In fact, I’m a website designer and business mentor. If you are an aspiring (or current) branding and website designer, you’ll love my signature course Booked Out Designer. If you own another type of business and want to have a presence online, you’ll love my ready-to-use Showit website templates.
If real estate investing is something you’ve gotten into or have thought about getting into, this episode is definitely for you!
LISTEN TO THIS EPISODE NOW:
For Adam and I, real estate is a side hustle and a big part of how we are spending the “extra” money from my online business. While the last episode was more granular, this one is more big picture, conceptual oriented lessons we have learned five real estate properties later. Let’s dive into it!
1. Finding Good Tenants is so Important and so Hard
Finding good tenants is one of those tasks that have the most potential for pain. While it doesn’t always have to take a long time, it definitely can be hard to find the right tenants at times. Don’t get me wrong, we knew this “in theory” but living it two years later is a lot different. We’ve worked with 8-10 tenants in the last two years and most of them have been great. We don’t want to come across as negative, at all. In fact, last Christmas one of our tenants gave us handcrafted ornaments for our Christmas tree which was really meaningful and sweet.
So far, we have had two bad experiences (but neither was a catastrophe). By catastrophe, we mean have not received money due or have had our real estate properties damaged. We have chosen to self-manage our properties while Adam has the time right now, and we’ve had two tenants create more work than should be necessary. While this makes our profit better because we aren’t paying someone else to manage it for us, it does make finding good tenants from the start even more important.
We talked about this in the last episode about how the mental load of real estate investing is much greater than any of the “hours” worked. I want to also stress this here: the credit scores and financial status of the two tenants could not have predicted the problems we had getting money from them. Finding good tenants is so much more than checking their credit scores.
The worst tenant we’ve ever had is also the tenant that had the most money. What was difficult about them was that they were very needy. We like to think we are good landlords but we felt these people kind of took advantage. In retrospect, there were signs from the start that we ignored from the beginning because we focused too much on the money and their credit score.
At the end of the day, we want to encourage you to trust your gut.
Your gut is never wrong. Your brain can talk you into anything but your gut does not lie. Try to tune into that when you interact with potential tenants.
Another tip we have if you are investing in real estate (or even in the business you have now!) is that with every interaction, you are teaching your customers how to treat you. For that reason we like to discourage texting from the hop otherwise it becomes too easy to text over every little thing on a Sunday night.
Obviously, we are talking about small things here and not things like “water is leaking in the basement” or “we have no heat” that might be true emergencies. We are talking about things like “one kitchen light isn’t working” kind of messages.
If you’ve ever responded to emails quickly on evenings and weekends in the past, you know that your customer will quickly start to expect that from you. Owning real estate properties and dealing with tenants has been the same! You are the one that sets the norms and expectations so be intentional about that from the start.
2. There are resources available that will make your life easier.
We wish we had known about these 3 resources a lot sooner!
- Turbotenant: This is what we use now to collect rent digitally without paying fees.
- My Smart Move: this is the software we use to find credit scores and run criminal record checks.
- Create a list in Google Docs with a list of vendors. When you find a good vendor, keep track of their information.
While the last one is less of a resource, it’s made our lives a lot easier. You’ll need a plumber, painter, electrician - the list goes on and on. Don’t forget to price check too. Adam saved us $2000 earlier this year just by making a second phone call.
3. Buy for the price, not the interest rate.
When you look at getting into real estate investing, you’ll likely be looking at your monthly mortgage payment. Keep in mind, the price of your mortgage payment is largely made up of your interest and principal (cost of the house). In the beginning, we were highly motivated by low interest rates. That worked because they were at a historic low - so maybe it was the one time in history to buy for interest rates - but if you have to prioritize focusing on one or the other, we believe the price of the home is more important.
At the end of the day, interest rates change. You can always refinance when interest rates change in your favor. The price of the house never changes and this matters when you go to resell. When we purchased during a time of low interest rates, we still made sure we felt we were getting a good price.
If you tune into the episode, you’ll hear us talk about the Alabama house and how we may have had our eyes a little too focused on the interest rate when we wish we had focused more on the price. While ultimately it will still lead to profit eventually, I love the way Adam put it when he said “it won’t be a catastrophe, but I won’t be adding that purchase decision to the highlight reel”.
Read more: Thinking of growing your real estate business on the side? Here’s why I think side hustles are a truly wonderful thing.
4. Calculating Capital Expense (+ The Age of HVACs).
Next, we wish we had known a little more about calculating the capital expense on our real estate properties. Capital expense is real estate jargon for big-picture renovations that add to the value of the home. We aren’t talking about leaky faucets over here. This is more about renovating a total kitchen or (in our case) buying a new HVAC.
Capital expense is the sneaky thing that makes your profit less than you think it will be. These are big expenses that don’t happen all of the time. The simplest way to calculate this is to add up everything that needs to be replaced over time divided by the number of years it will last. For example, if a roof costs $20,000 and should last 40 years, you’ll have $500/year for capital expenses on the roof alone.
This also might just be bad luck, but we have only been in this two years and we have replaced two HVAC systems which take about $12,000 from our “profit”. In two years. While we did know capital expense was a thing, we focused more on things like the roof and less on things like an HVAC system.
Read more: If you are stressing about your profit year over year and need a little encouragement, read this.
5 & 6. It’s easier to rent out a townhome than a stand-alone single-family home (and vacancy is a KILLER).
Of our five real estate properties, three of them are townhomes and two are stand-alone. One of the stand-alone properties used to be our personal home so it is a little big to be an “easy” rental property. To date, it’s been the house that’s taken the longest to rent out. It sat empty for about 6 weeks which doesn’t sound like a lot, but trust us, it is! This is when you start negotiating with yourself about whether you should lower the rent just to rent it out faster or if you should hold out. Both cut into your profit margins.
In the past, we had always found tenants for our townhomes within a week. When we look at townhome renters or condo renters (typically), they are more transient. They are likely renting your townhome mostly for location, and they don’t want to commit long-term necessarily but they want something close to work. Overall, they tend to be less picky about which particular townhome they rent.
Now, let’s compare this to a stand-alone home where you are likely going to attract tenants who are ready to set down some roots. They are pickier. They are looking at the yard, the street, the neighborhood, and the finishes/colors. It takes more time.
There is also just more expense when it comes to single-family homes. In a townhome, you don’t need to think about the roof or the windows or any part of the exterior really. The expenses really are so much less (and you carry less mental load too). The amount of time we have thought about the lawn on the rental properties might surprise you!
If you are looking to get into real estate investing, we ultimately believe townhomes are a lot easier. But in the interest of transparency, stand-alone houses also appreciate more over time.
7. Rent Increases Every Year (Yay!)
We thought we would finish with an upside! A lot of people talk about this in real estate, but when you are crunching your first year numbers, your potential rent is the lowest it will ever be. We raise our rent with every lease. Just as there is inflation every year, your rental income will increase every year but your biggest expense (the mortgage) will likely be fixed.
Did any of these real estate properties lessons surprise you?
You know I don’t skim the surface around here and I would love to hear if any of these 7 lessons surprised you the way they did for us! DM me on Instagram and I will be sure to share your feedback with Adam too! While I won’t be creating a real estate investing course anytime soon (haha!), I know in my annual survey this year you all mentioned you love to peek behind the scenes. If you have any questions about our real estate ventures so far, we would love to hear that too!
My Showit Website Templates (+ How we Started Our Real Estate Business)
I know this episode was all about real estate but I wanted to take a second before I let you go to talk about your website. Our real estate business is funded almost entirely from my website (where I house my courses, my templates, and the podcast!). How you look online matters. If a picture is worth a thousand words, I would say a good website is worth a million. Having a strong online presence is INVALUABLE.
If you are looking at your website (or lack of) and know that something needs to change this year, you can shop my fun, personality-packed, easy-to-use Showit website templates here. A new website doesn’t have to mean coding (or crying). A good website doesn’t have to be frustrating. In fact, it can be a place that you can’t wait to send potential customers to. A recent template customer recently told us they actually can’t wait to start blogging now that they have something to show off!
January 24, 2023