12 Lessons from My First 12 Months

[Jason Hutcheson]

We finally did it! A year ago, my brother and I formed a partnership and jumped in to the business of rental properties. With just over 12 months experience under our belt and an initial investment of $20,000, we have 7 properties in our portfolio.

While we are proud of the effort, we have certainly learned a lot over that period. Here are 12 lessons learned from our first year (in no particular order):

• 1.Tenants will let you down
• It’s just the way people are. No matter how much I emphasize my disdain for late rent, late rent payments happen. People lose their keys, fail to mow their yard, and even break leases. There are many great tenants out there, but most people will let you down at some point. You’ve got to prepare to be disappointed and stay on top of people.
• 2.It is easy to overpay for a property
• Ever done it? Yep- I’m guilty. Although cash flow numbers may justify deal, don’t just rely on the income method to determine the value of a property. Always check comparable sales. Our county assessor’s website will show the most recent transactions (including all of the property details) on the county’s web site which is a great place to find reliable information. Had we been more prepared with comparable, we would have negotiated a better deal.
• 3.Do inspections
• In my area, I can hire a professional inspector to check a single family house from top to bottom for about $300. Almost every time, the inspector finds repairs that we can either have the seller complete prior to closing or get cash a closing to repair. Having an inspection can easily pay for itself and certainly save you from costly surprises after closing.
• 4.Neighborhood matters
• If the numbers make sense on a deal, why should the neighborhood matter? If your ideal tenant is scared of the neighborhood or can’t handle the neighbors’ 24/7 barking dogs, you may not get the tenants you want. It may also hurt your ability to get a timely resale in the future.
• 5.Repairs are expensive
• I can do basic maintenance on a furnace- or so I thought. I could do basic maintenance on MY furnace, but as it turns out, I don’t know much about most any other furnace. What I do know is that furnaces only go out at 10:30 PM on a Sunday evening on the coldest night of the year. And getting it repaired at that time isn’t cheap either. You best have plenty of cash on hand to cover needed repairs. They happen at inconvenient times and always cost more than you expect.
• 6.Thank goodness for deposits
• Tenants fail to pay rent and even move out early. Sometimes they break stuff. Having a healthy deposit on file gives investors the needed insurance against lease violations. It can cover unpaid rent, compensate for unpaid vacant days, or repair items damaged by tenants.
• 7.Nice guy = more work
• Our leases say that the tenant is responsible for mowing the grass. What happens when a single mom with young kids doesn’t mow the grass often enough? I get angry, throw the lawn mower in the back of the truck and get it done myself in 15 minutes. Although I was angry about it, I thought I was being a nice guy and helping a stressed mother out. Guess what- now I mow the grass EVERY week. I could refuse to do it or demand extra compensation, but I’ve learned my lesson and mowing each week reminds me of that.
• 8.No shows happen
• Prospective tenants sound really eager on the phone. They are moving to town and desperate to find a place to live. They have cash for a deposit, and we’ll meet tomorrow at 6:30 PM. That is- until they fail to show up. Or a tenant behind on rent says I can pick it up at 7:00 PM- and then they aren’t home and don’t answer their phone. Now shows happen. You should probably call 15 minutes ahead of any scheduled appointment to verify the meeting time. That can help reduce the frustration of dealing with no shows.
• 9.Everyone wants your money
• Expenses don’t stop at closing. Cities may want money to transfer rental permits, the water company may want several months of fees in advance (along with connection fees), and utility companies may want a deposit. As a landlord, it seems like every time I turn around, someone wants a check. Be prepared for that.
• 10.A partner makes all the difference
• I wouldn’t do this real estate gig without a partner. My brother and I segregate duties and fill in for each other when we are in a bind. He oversees rehabs and repairs, and I handle the leasing and accounting. We often disagree and working through those pros and cons of a deal makes us smarter investors.
• 11.Showing properties is a lot of work
• Marketing a house, taking calls, qualifying tenants, cleaning the property, fixing up the lawn, showing the property to multiple tenants, conducting reference checks, and signing finalized documents is a lot of work. Yes- we could outsource that work, but at this stage of the game, every dollar matters to our business. Although renting out a house isn’t rocket science, just be prepared to spend quite a bit of time on tenant turnover if you plan to self-manage.
• 12.Pick up rent in person
• Many do-it-yourselfers will disagree with me on this one, but I like to pick up rent in person. It allows me to personally get to know my tenants and check on the inside of the property each month. By doing so, I’ve been able to discover extra bodies living in the property, get a head’s up as to a job loss, proactively talk about issues with neighbors, and even get to know the things important to my tenants. The better I know my tenants, the less likely I’ll be shocked by their actions in the future. When we get to a dozen houses, I will probably switch to online payments. For now, it has helped me be a smarter landlord.
  
  That’s it. Those are the top 12 things I’ve learned over the last 12 months. If you are an active investor, I’m sure you can relate. If you are getting close to pulling the trigger, perhaps my experience can help you out.