How do you guys deal with setbacks?

Question

Hey guys,

Just this morning I got news from the contractors that the bedrooms in the last unit of my 3 unit property needs complete gut job and is gonna end up costing me $2,000.

Not a good way to start the morning. So I just wanted to know how do you guys deal with setbacks? I had plans to go out and look for my 3rd investment property this weekend and I had been so excited about it till last night. But since this morning I am doubting myself that whether I am doing the right thing or not. I am just wondering if I am moving too fast for my own good. I have bought 2 investment properties in last 6 weeks and had plans to buy the 3rd one in next couple of weeks.

Do you guys ever have self-doubt or did you when you started out? This $2,000 expense is not a big deal, the property will still make money. With all the expenses combined (purchase price + rehab), it will come out to about $55,000 and I already have tenants lined up for total monthly rent of $1,800/month and with tenants paying the utilities. But I am started to doubt myself now.

Sorry for the long post. I guess I am looking for some guidance. I am a little confused.

Brysen Heath · Answer

I think that you should always plan for setbacks when you are putting your deals together.  That way if you are lucky enough not to have any then you gain more profit.  The best part about what you are doing is that you are learning how to clean it up and what to look out for in the future.  No one said investing was easy but it can be well worth it.  As a rule you should always remember that due diligence has its rewards and to always underpromise and overdeliver.  I think you'll be fine.

Jeff S. · Answer

I think you answered your own question with your comment above.  My response however is, donâ€™t sweat the small stuff.

If youâ€™re going to be in the rehab business, or pretty much any business, you have to plan for and expect the unexpected.  If $2000 is a big deal out of a $55000 property, you might be over extended.  How much are your actual vs planned rehab costs?  As a percent of the rehab costs, how much cushion do you think you need to be able to ensure a profit and also be able to sleep at night?  This should be a fairly generous number until you either manage the rehabs yourself, or otherwise figure out how to estimate accurately and control your expenses tightly.

Shari Peterson · Answer

When I was first starting in real estate investing, I encountered my fair share of setbacks. Some were worse than yours, and would end up causing me to lose money on a deal. It was all part of the learning process.

You can react two ways to setbacks. You can let them hit you in the gut, weigh on you heavily, and cause you to recede so you won't encounter another setback.

Or, you can step back, look at the situation unemotionally, and assess what exactly happened. LEARN FROM IT! What did you do wrong that you could do differently next time? What happened that you completely didn't expect to happen? Anticipate that it could possibly be something to expected next time.

The key is to view the situation as a learning experience. That way, there is ALWAYS value in what just happened. Thinking positively like that will keep you in a better place in your head, ready to take on the next challenge.

Rachel H. · Answer

Honestly, it's really the obstacles and frustrations that I've faced where I've learned the most in this business.The key is learning how to get past the obstacles and really having the drive to push forward. Usually, it's a good idea to bring in different perspectives when faced with issues and problems. There have been so many times where I've conferred with others to help solve an issue. It's good to know there are others out there willing to listen and offer their insight and expertise. Hope that helps!

Account Closed · Answer

setbacks are a part of life..at the end of the day, i'd rather have setbacks within my business, than have a boss come up to me at the job, and say that he had setbacks this year and has to let me go....if it's been a real rough day, i take a few steps back, have a few pbr's, and get back to it tmrw... :lol:

Douglas Peterson · Answer

Don't feel the need to grow too fast.  You can get overextended and not have a good handle on expenses.  This can only come with experience.

Don't forget to calculate a reserve for each property and have an actual savings account with the reserve.  Don't take from it.

Calculate a certain percentage for vacancies and loss payment of rent, and plan on it.  You have to plan for it and calculate it as a cost of doing business, or, when it happens, you will get depressed.  Every business has collections and money owed.  It is part of business.

Like the others, I agree that having a long-term vision is place helps to get through the short-term pain.

Aly W. · Answer

Great advice from everyone. Things happen, and the way my husband and I sleep at night is to have money in reserve. So far, all our investment properties had more repairs than we expected, although we estimated they could run high. We were pained by the extra expenses, but knew they could arise and had planned for them.

It's normal to feel doubt when things don't work out exactly as you planned. But they did work out to a high degree for you, and you have to look at the long term. Our first rental property's repairs cost 3 times more than what we had expected. A burst pipe in the 2nd property was also unexpected, as was an eviction soon after.

We just turned over a rental property, and the tenant hadn't paid the water bill and the water had been shut off.

I verified the bill with the water company, including the restoration fee, and deducted that from the tenant's security deposit. What I hadn't thought of was that the water company was going to do a final bill, and the convoluted way they calculated it came out to another $200. I had already given the tenant back her money.

Lesson learned - never give back a security deposit until all repairs and final utility bills are calculated and documented. If your state says you have 30 days to give it back, take the 30 days.

Other lessons...if you persevere, and keep learning, you'll make money. If you quit, you'll make nothing.

Matt Rosen · Answer

Hi Max,
I guess allot of this is how you define a setback? And how you perceive the situation? Is 2k a big deal? Nope not at all when you are still profiting. Here is what I do...On every deal I think about what is the worst thing that can happen in this deal. Then I accept that "setback" as a possible outcome and hope for the best. To me, a setback is along the lines of losing money and valuable time. But with every adversity comes an equal or greater benefit.

Another thing you can do is drop everything and go exercise. Trust me, you will feel like the weight of the world is finally off of your shoulders.

Hope this helps

Bill Gulley · Answer

There are setbacks with almost all properties. If I can't control them or know exactly where they are, I have it surveyed.

Surveying your setback will let you know right where you are with a property and how far you can build upon that property. If your setback is much, and you can't proceed as planned, you might sell it and let someone else address the issues.

Will Gaston · Answer

Unfortunately, being a Landlord means that you might get that type of news.  A call on a Friday morning saying that you need a $4,000 Heat Pump.  I hate it, and it's the worst part of the business. But of course, the pros far outweigh the cons.

How do you guys deal with setbacks?

Most Popular Reply