Sorry in advance for a long post; I want to write a detailed post on how I got started in RE investing a few years ago, the lessons I learned along the way, and why I'm thinking about stopping now. I want to be as specific as possible so that others can potentially use this post as they determine what is best for them.

I became an accidental landlord in 2014 and had to learn a lot of things the hard way. Fortunately, I found BP and got an amazing education. The learning curve was steep, but eventually things fell into place. What I realized was that my former home was not an ideal rental; I set about finding SFR's that would be better.

Over the next year, I checked on nearly every home in my area that was listed. I was looking at grade A townhouses in my local area. My goal was B&H for cashflow and high IRR. After running the numbers on dozens of potential deals, I ended up purchasing a nice townhouse for $110k, about 5-10% below market value. It needed some light rehab, and it really turned the place around. We got a great tenant who lived there for 2.5 years and there has been very little in the way of maintenance. It just turned around and we got another tenant that has been very good so far; there was only 10 days of vacancy in between.

So far, sounds like a success story, right?  Further, I have said that I love this rental unit and had been saying for years that I would gladly buy more just like this one if I could get a deal.  However, I just ran the numbers for 2.5 years:

Cash flow $5000

Principal paydown $3500

Net gains $8500 (excluding taxes and appreciation)

I compared this to what I would have gotten if I had invested the $29k in the stock market as a lump sum at the time of my investment:  $7500.  So for all the extra work - scouring deals, inspections, rehab, managing it myself, paperwork, etc -- I have gained an extra $1k - a terrible return on my time. If I had hired all of these activities out, it would put me significantly behind in terms of overall return.  More importantly, I have found owning the unit to be very stressful for me. Doing the work myself is difficult, and I don't have systems in place with people I trust to get things done.

If you add $10k in appreciation, the numbers look stellar. But that completely belittles the sheer number of hours that go into one unit. If the same amount of work went into a 10x larger investment, it would seem worth it. But because I am doing a lot of the work myself, the investment does not scale.

So the following lessons have been learned (at least in my case):

1. Know yourself, and be honest if things stress you out. I find being a landlord stressful, and more than anything, this is probably the biggest reason I'm probably going to be getting out of the SFR game. I spend too much mental energy on it.

2. Understand that some of the gains come at a cost - the cost of your own time.  This is opportunity cost. For me, I think I would have been much better off investing in truly passive vehicles and spending the time on my career or on earning more.

3. Make sure the extra gains from real estate are worth your time in absolute dollars. I love the idea of getting 25% returns YOY on my money.  However, this might result in only another couple thousand dollars, which at the end of the year does very little to move the needle for FI.

And lastly, how might things have been different (or who would have been better suited to SFR's than me):

1. If I was buying significantly below market value. These deals are tougher to come by today, and take even more time.

2. If I was able to not feel stressed about being a landlord.

3. If my opportunity cost of my time wasn't so high (my regular job does pay very well)

4. If I factored in the cost of management into all of my pro formas, and only did deals that still made sense with 3rd party management (Josh must have said this on every podcast and somehow it still didn't get through my skull!)

5. If I did not feel as comfortable with stocks as I do. I can accept historical 10% rates of return over the long haul; volatility bothers me much less than rental property headaches do.

I'd be remiss if I didn't say how extraordinarily helpful BP has been over the years. I think RE investing is a great thing; it turns out it just might not be the thing for me, and I'm okay with that.  My only hope with this post is to share my experience and why sometimes RE investing might not work out as you anticipate.  Acknowledging that for myself, I just sold one of my properties and will probably sell the other one within the next year.