I can’t fathom how residential real estate investors fail

[Thomas Clark]

I can’t fathom how residential real estate investors fail. Or even what failure looks like in real estate. Do you all mind busting this naïve bubble?

If my strategy as an owner occupant is to buy a multifamily complex and rent it out, I do not understand how “failure” is possible. Yes, I understand that property management is difficult and tenants can be pain but failure seems (a total loss of time and money) seems impossible to me.

As an Owner occupant If I don’t have tenants then I could drop rent and although rent wouldn’t cover the mortgage it could at the minimum subsidize my living. Or hell, at the first worst let’s assume I’m the only one who wants to live in the property. Hey, as an owner occupant no big deal, I would of had a mortgage/rent payment anyway.. Am I missing something? I don’t see how one could fail? 

My Introduction to REI failure (for those interested):

I’ve been bitten by the real estate bug three months ago and ever since then I knew this was my path to financial freedom. Since, I’ve been bitten by the bug I’ve been devouring “Frank Gallinelli - What Every Real Estate Investor Needs To Know About Cash Flow,” and all things BiggerPocKets in order to educate myself on the craft.

However, will reading the forms last night I came across a post that mentioned most Real Estate Investors Fail. This post has been bugging me because out of all the resources I have been devouring for the last three months this is the first THING I’ve touched that mentioned failure. First.. On top of that the poster noted (and was second by another) that MOST Real Estate Investors fail. When I originally ready this I was completely shocked. Here I was trucking along as though everything was alright and while I won’t say I think nor thought I was guaranteed success, the idea that I could fail simply didn’t enter my mind.

[Maria Stewart]

Good job asking this question. The first step to discovering the knowledge you seek is to ASK! And don't worry, you won't be naive for long because you seem to be hunting for knowledge which is great!

To your question, I think you have reduced some of the risk by going Owner Occupied. Not many investors solely do that (most have tons of properties all over and some out of state). Here are some other things that could go wrong which may cause failures:

• Unknown necessary repairs (i.e. sewer lines, roof, etc)
• Not having cash reserves to cover vacancies / major repairs
• Uptick of crime / vandalism in neighborhood
• Vandalism of property
• Infestations (pests, other)
• Bad tenants / No tenants / tenant family issue impacting stay (i.e. death, divorce)
• Rezoning of school districts / Loss of accreditation of school district 
• Insufficient Property Management (not addressing tenants concerns, no notification of repairs timely - causing further damage, etc)
• Not following market pricing on rental / raising rent to frequently or too much at once
• Legal issues (i.e. tenants sue for injuries on property, taxation, etc) 

I think you get the idea. The best way is to keep learning and keep cash reserves in case of needed repairs. If your personal HVAC goes out, you may choose to do without until money is saved. Can't do that easily with tenants.

Hope this helps!

Maria