Lessons I have learned from owning & managing SFR's

[Satyam Mistry]

🏠 Sharing some lessons I have learned from owning & managing a portfolio of single family properties over the last 5 years in the Omaha, Nebraska market:

If just starting out don’t undervalue the power of locking in historic interest rates for 30 years on conventional loans. You get 10 of these conventional loans if you qualify!

If owning a couple of single family rentals do not rely on the cash flow to be steady or consistent. Large expenses wipe away this amount for long periods of time, but this does not mean they are bad investments.

When you hit say 10+ single family rentals the cash flow becomes much more consistent. Maintenance budgets also become more realistic month to month. You can absorb large expenses within your monthly budgets. 

The vacancy factor becomes more powerful as you scale. If you have 10 rentals that have all successfully collected for 1 year that is 120 months of straight occupancy! If you have 1 single family rental it would take 10 years to achieve the same record.

Scheduling leases to end during spring and summer months can help fill vacancies faster. Would not have all leases ending in the exact same month, but rather try spreading them out over say March to August time. 

When you have scale, buying something at or near market value can make more sense than if you have 1 or 2 as it can plug into your existing systems seamlessly.

The key systems I have benefitted from are proper tenant screening through credit/background checks & references, online rent collection, regular maintenance visits, strong leases that will hold up for collections, reliable contractors, & regular punch lists.

Reliable contractors are hard to come by and when you find ones that stick, treat you fairly, and respond promptly don't forget to value them. We are in a mindset to constantly reduce expenses which is an important aspect to monitor, but do not compromise the service providers who perform well for you even if they are a little higher in price than a general handyman. A large part of your success in this business comes from quality service providers. 

You should have confidence in the quality of residents in your properties. You cannot catch everything and there are certainly uncontrollable events that happen, but being able to have this confidence will go a long way in your peace of mind as well as your operational success.

Provide excellent tenant service that is fair and friendly. Stuff comes up in the first 30 days of a tenant move in, but usually settles down after that. This gives the tenant confidence in your management.

Patience helps when replying to non emergency tenant requests, especially ones that come up over the phone or in person. We are in a hurry to make real time decisions to requests, but saying you will double check and revert back can avoid uncertain decisions.

Hold tenant deposits in a separate account even if you just have 1 property. Mixing tenant deposits is illegal in many states and will also give you a false sense of security of how much operating capital you have.

Create sheets that track your equity & cash flow. Adjust them a few times throughout the year with updated loan balances, rent rolls, insurance premiums, & property taxes.

Create a sheet with your insurance premiums for each policy that include the premium, deductible, expiration date, and who all are included under the policy such as which bank is financing that property. I found using one or two insurance providers for a portfolio of properties is much easier than communicating with separate contacts for each in order to save a little. I used to prepay the policy in full for the year to save 5%, but switched to escrow them monthly as many conventional mortgage providers require you to escrow insurance & taxes together so in effect you are holding up extra money you do not need to.

It is difficult to scale with single family homes unless you are getting consistent opportunities to purchase properties at below market value.

Refinancing at market value will usually not make sense due to the rent to value becoming too far spread and causing negative or minimal cash flow. Nothing wrong with keeping that equity in the property while maintaining healthy cash flow levels.

I have used 15, 20, and 30 year amortization periods. They all have their benefits and it depends what your own investment goals and comfort levels are.

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Would love to hear lessons and tips others have learned!