Final Reflections on 2019 Portfolio Performance

Originally posted on 1/20/20:

Here it is mid-January of 2020, and I’m in the thick of diving into achieving new goals for the year. I did a lot of reflecting about the business over the holidays, and wanted to share some of my thoughts.

I’ve also been inspired to write shorter, more frequent blog posts. This inspiration is due 99% to meeting another Central PA real estate investor/blogger Chris Wagoner (I know, it’s a VERY specialized niche!). Chris is a beast at Twitter and at cranking out blog posts. He’s already built an impressive buy and hold portfolio by the age of 26. By the time he’s my age he will probably be retired! Check his blog out at https://chriswagonercpa.wordpress.com/ or follow him on Twitter @Chris_Compounds

My personal problem with blog posts is that I treat them like a consultant treats a Power Point presentation (yes, I’m a former engineering consultant!). I mull over all the details, make sure I’m not contradicting myself and have a clear message, and try to back up all my data and facts. I guess that perfectionism was ingrained in me from spending so much time in the “real world” presenting to clients. In the interest of simply getting content out that I’m sure will be “good enough”, I’ll be doing my best to hold back my perfectionism and just get my thoughts written down. We’ll see how it goes :)

2019 Reflections

For those who have been following along, you already know this, but 2019 was a pivotal year. Not only did I go full time into real estate, but my acquisitions from past years finally started to REALLY perform well. I also accelerated my new acquisitions exponentially, as well as did 2 flips.

So, 2019 was a year of insane growth and cash flow. I think a lot of things went well, and some of them have to do with luck and some have to do with hard work and education:

• Vacancy was <2% for the year across the whole portfolio. I don’t have the exact number and it might actually be closer to 1%. I think this is attributed to a red hot rental market in Central PA, as well as having great, updated units and improving property management. More on that below…
• My PM collected about $5k in late rent/late fees that should have been paid in 2018. So, this made 2018 look bad and 2019 look all the better. Furthermore, I believe now that my PM has had a chance to work with me and my properties for a few years, he’s learned the properties, the area, the tenant pool, etc. and it shows in the numbers. He’s getting better tenants, he’s getting them to keep paying, etc. Also, maintenance bills are minimized as most/all of the issues were addressed in the initial rehab and first 6 months of stabilization.
• Capital Expenses overall were much less than previous years. Again, due to a shift to the BRRRR method, and being able to spot issues earlier and address them during the rehab. There’s also some luck involved here too; I believe sometimes major things just happen due to tenants, weather, or just time (e.g. roof wears out, furnace gets old, etc.)
• Using the BRRRR method exclusively. I shifted completely in 2018 and while I got off to a rough start, once everything got rehabbed and stabilized, the cash flow has been awesome. As mentioned above, reduced maintenance costs is a factor, and I think stricter/more conservative underwriting of the initial deals ensures that the ones that meet my criteria will cash flow like crazy.

Marketing

I spent about $4K on marketing in 2018 and a little over $20K in 2019. This is mostly direct mail costs, but also includes paying for lists, skip tracing, and CRM tools. I also spent MUCH more time marketing in 2019. It is a whole other aspect to REI that many seasoned investors still haven’t touched. I’m still learning the best way to do it and it seems like I will continue to do so for years, or forever!

Marketing is not a strength of mine but I feel it is a necessary skill to learn, especially in this current market. If you follow me on Twitter (@RealLifeRentals) you’ve seen me lament about the insanity of the MLS and what homeowners/newbie investors are paying right now. I don’t want to compete with these people because I’ll lose 100% of the time. So, I believe it is necessary to reach owners a)before they contact a realtor and/or b) with properties that need so much work no realtor will touch them.

There’s a lot of downsides to marketing…it’s EXPENSIVE, it’s TIME CONSUMING, and you’ll get rejected A LOT. As an engineer/consultant who was never very adept at sales, the rejection is probably the toughest part for me. I’m fine with people telling me “no”, but when some people resort to personal attacks and insults, that can sting. I’m getting better at dealing with it, but it’s still tough.

A New Partnership

About halfway through 2019, I was busy managing multiple rehabs while trying to market and find more deals. I was becoming very active in the rehabs out of necessity, and marketing/deal flow was suffering as a result. My contractor (who is also a buy and hold investor) was also complaining about his own personal deal flow. We began talking about a partnership in which he could manage all aspects of rehab and property management, while I would focus on deal flow and financing. After many discussions including drawing up an Operating Agreement with an attorney, a new LLC was born.

I never thought I would want/need a partner before because I’ve always liked to be completely in control of everything. I think my partner would say the same. However, we both felt comfortable with each other after working on several projects together. We are at a similar age and have similar values and goals. Most importantly, we have complementary skill sets allowing each of us to focus on different aspects of a deal. The hope is that this partnership can help us to get more deals by being more competitive with rehab pricing plus I’m now devoting over 90% of my time to finding new deals.

Summary

There’s so much more that happened in 2019 (flips, losing a key lender, to name a few) but I will save these topics for a future post. Thank you so much for following along, feel free to leave a comment or shoot me a message if you have any questions or a topic you’d like me to write about in the future.