Don't Become a Property Hoarder or a Door Counter

[Jonathan Greene]

I have been seeing this a lot lately: people who hold on to underperforming properties because they add to their door count or to their self-worth as real estate investors. If you don't like buying hoarders' houses, don't be a property hoarder. A property hoarder keeps properties just to keep them. See the old mom-and-pop investors in their sixties that you are trying to buy off-market properties from.

This is like people who buy for cash flow but don't realize that with the best cash flow comes capital expenditures and tenant issues. You can't have your cake and eat it too. Appreciation is great, but not when all of that appreciation is eaten by the repairs you aren't doing. It's ok to sell properties. It's ok to sell properties at a loss (you get the downpayment back to repurpose into something better).

If you have four or more properties, this is what I would do (I just posted part of this as an answer to someone and thought it would make a good post):

1. Rank them from best to worst in cash flow

2. Rank them from best to worst in how much you like them

*3. Rank them from best to worst in management cost

*4. Rank them from closest to farthest in proximity

5. Rank them from worst to best in capital expenditures expected

*optional, not always necessary

Add those numbers together for each property. The lowest number is your best property, and the highest number is your worst property. Sell your worst property first. Then, take that money and repurpose it into something better.

Door culture is crazy. If you own ten doors and six aren't cash-flowing, why do you want to hold on to them if there isn't overwhelming appreciation coming? Don't be a property hoarder.

Are you guys doing this or seeing this? Who wants to sell their worst-performing property and turn it into a better asset?

[Marcus Auerbach]

Your goals change. In the beginning, it's all about buying more deals with not much capital and frankly, maybe that's not the worst thing, because you learn a lot. Probably even more from the bad deals..

Long term you are better off with better real estate. Financially, but also mentally. Fortunately, I was thinning my herd back in I think 2014 or so by getting rid of a few (experimental) investments in cheaper neighborhoods. They were not terrible, some people would call them C minus, and it wasn't even that much about financial considerations at the time (appreciation was not a thing back then in Milwaukee) but just not what I wanted to own or manage, so I sold them to them tenants - after quite a bit of financial coaching to get them to qualify for a loan.

My standard advice is always to buy the best quality property you can afford. Cheap properties in Milwaukee are fools gold (especially for OOS investors, people literally will scoff at a rough listing and then someone will say: eh, someone from CA will buy it..) The problem is these homes are 60-120 years old and because of the low value neighborhoods, nobody has ever made any capital improvements beyond duct tape. You can kick the can down the road only so long, at some point capex exceeds cash flow.

Also, stay away from weird properties. Don't buy a 2br/1ba without a basement and no garage on a corner lot next to the scrap yard, just because it's cheap and the seller is motivated. That will be you one day.

Your future self will thank you (in 10 years).