Help! Am I doing something wrong? Do I have what it takes?

[Shalom Shore]

I'm turning the community in the hopes that you can talk me off the ledge. Or at least provide some support or advice. 

I dreamed of investing in real estate for years. I networked my *** off and managed to buy four properties, all financed at around 75% LTV, so I have some margins.

I picked a good location - Baltimore, where I have supposedly enviable cash flow, $400-600 per property after PIMI, but before variable costs. 

That's the clincher. All the stuff that goes wrong. I tried bracing myself for this in advance - "always expect something to go wrong" I was told. I braced myself for the 50% rule - I was gonna have expenses every month on the houses. A repair here, a fix there, I thought. 

I wasn't prepared for massive expenses, on all the houses, for what feels like all the time. Bleeding thousands of dollars in one go on pest removal, tree removal, mold removal. Expenses that wipe out an entire year's rental profits in one afternoon. How do people do it? 

I can't catch a break. Not a week goes by without a tenant complaining about an issue. And these are good tenants, who pay on time and try to take care of things themselves with the professionals I send.

And the truth is, worse than the expense, is trying to get people to help me resolve things. For fear of sounding like a trite broken record, It's such a huge struggle to find reliable people. No one has anyone to recommend. I find people myself (after calling lots of numbers where no one answers), have good initial conversations, and then they don't show up. There goes another day. Time to make more phone calls tomorrow while the tenant tries to live in a basement that's flooded in sewage. 

Don't get me wrong. I'm not afraid of hard work. When I discovered heaping piles of bat guano in an attic of one my houses, I rolled up my sleeves and cleaned it all out myself. I try to be a valuable contributor to my local community, referring others to key market resources and helpful individuals. 

I supplement the costs of all these repairs with my day-job salary, otherwise this would all be over a long time ago. But I'm plagued with frustration, feeling like I can't get it right even though I've tried so hard. Am I unlucky? Am I actually lazy or undisciplined? I'm wondering if there's something I'm missing, or if other people have word of encouragement for me.

Thank you all for being such a great community. 

[Erik W.]

How long have you been doing this? It's not uncommon for the first 2-3 years for a business (and for most newbies, REI is a business, not passive investing) to show little to noprofit.

I'll share my background and maybe that'll be encouraging.  

I started in 2005 and knew NOTHING. I tried reading books and doing research, but you don't know what it's like until you do it. So we bought a SFH in a Class C hood...then another, then a few duplexes, then a quad-plex...then came 2008-09! For the first 5 years, we made little to no money, and being in the hoods we were, very little to no increase in property values. I did almost all of the work I could and self-managed. Only hired out professional stuff. We weren't feeding the rentals from our W-2 income, but we never did better than break even. Gradually, I came to almost hate rentals.

Then our second mortgages paid off (we'd borrowed on our home and from family to get started), and we started actually cash flowing positive on a regular basis.  My outlook improved.  

I also learned that if you're going to play in Class C, you must STEAL property.  Not just get "good deals"....STEAL them.  The owner should almost be cussing you on the way out the door at closing, but simultaneously they love you because the property is such a disaster they can't figure out what to do with it.  So the 2% rule (monthly rent is 2%+ of the "all in" purchase + closing + rehab cost) is where I START looking.  If below 2%, I don't touch it.

That's how I began to make money. The cash flow covers all expenses, CapEx, PITI, Management, etc. I still self manage but I include a management fee of 10% I pay to myself along with my owner's monthly draw from profits.

I'm not a big time player, but we're now doing well enough that if I lost my day job, we could live okay.

Going forward, I'm looking at moving in more full rehabs in B hoods so we can get cash flow and appreciation.  It's a tight market now in my area.  I see posts here on BP how some folks pay $500K for properties worth $750K.... I don't know how they do it honestly, but I think they're not the norm.  Either that, or their markets are extremely inefficient and my market is ridiculously efficient.

If I were you, what would I do differently?  Lay out your target numbers (expenses and anticipated profits) before the deal.  What kind of a deal would make you smile if you bought it?  Then do a deal that fits your numbers.  Afterwards, ruthlessly scrutinize how well you did vs. your projections.  Where were you accurate?  Where did you miss?  Where did you totally fail and fall flat on your face?  My worst area has been estimating rehab costs.  I always went too low, even after adding in a 15% "WTF?" cushion.  So I have to add even more cushion.  Where I succeed is estimating rehab time lines, ARVs, and rents.  Get to know your strengths and weaknesses through strict planning pre-purchase and afterwards doing honest self-evaluation.  I learned this in the Army.  Make the plan, execute the plan, evaluate how it all went.

Also, try to find someone who is doing what you're doing and job shadow them in exchange for free labor.  The investors I know who are busy always need "go-fers" to run errands, pick up supplies, take documents to the courthouse, etc.  Trade labor for education.  Maybe have the investor agree to scrutinize your next project.

Good luck.