Are you proactive or reactive in your investments?

Question

Proactive: (of a person, policy, or action) creating or controlling a situation by causing something to happen rather than responding to it after it has happened.

Reactive: showing a response to a stimulus. "pupils are reactive to light" Acting in response to a situation rather than creating or controlling it.

In talking with investors there appear to be two separate schools of thought. I am curious what you personally apply and find most effective. I would like to hear both sides of the debate and pros/cons. Side 1: You buy a home that needs rehab. You do the required cosmetic and deferred maintenance the home needs to get it rent ready. Not slum lording but you don't do anything extra. You wait for a problem to come up and fix it.Side 2: You buy a home that needs rehab. You do the required cosmetic and deferred maintenance the homes needs to get it rent ready. You also replace systems/appliances that are aging or will need work shortly. Rationale 1: Your upfront costs are lower but I could see this being more of a headache always fixing things. Rationale 2: Things should run smoothly for the first few years however unexpected expenses could be more frustrating. Your upfront costs are greater. Drawback is you could potentially be replacing systems that could have gone several more years.

In talking with investors there appear to be two separate schools of thought. I am curious what you personally apply and find most effective. I would like to hear both sides of the debate and pros/cons.

Side 1: You buy a home that needs rehab. You do the required cosmetic and deferred maintenance the home needs to get it rent ready. Not slum lording but you don't do anything extra. You wait for a problem to come up and fix it.

Side 2: You buy a home that needs rehab. You do the required cosmetic and deferred maintenance the homes needs to get it rent ready. You also replace systems/appliances that are aging or will need work shortly.

Rationale 1: Your upfront costs are lower but I could see this being more of a headache always fixing things.

Rationale 2: Things should run smoothly for the first few years however unexpected expenses could be more frustrating. Your upfront costs are greater. Drawback is you could potentially be replacing systems that could have gone several more years.

Trevor Ewen · Answer

Ryan Dossey

I think everyone wants to say proactive, but the truth is most people end up on the reactive side of the spectrum.

I would look at the characterization of repairs vs. investment purchase price as being a factor. For instance. In much of the midwest, my roof repair is going to be slightly cheaper than in NY or NJ, but it will not be a full 20% of the cost. However, for the same style of home, that is the ratio of my purchase price, in many cases.

Obviously, all other things being equal (making the same % return off of my tenants), I have a much larger incentive to do the most I can with improvements on the higher priced home in the Northeast.

Ryan Dossey · Answer

Great answer @Trevor Ewen and I agree that your location/market is definitely going to come into play.

Are you proactive or reactive in your investments?

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