You bought your first rental now what should you expect?

First, I suggest taking a few minutes to celebrate your success as most people just talk about investing or buying rentals and never take action.  You signed on the dotted line and risked at least some capital so you should celebrate a little ….  Ok that is enough celebrating it is time to get to work at running your investment business.  All the research, time and activities up to this point can fall a part if you’re not ready to be a landlord. 

Now keep in mind we invest 3 hours away from our home so we pay property managers to run the daily business of managing tenants, toilets and trouble.  However, we are active managers and we communicate with our Property Managers daily and most days we speak/email multiple times.  Thus even if you have property managers during the daily work you need to run your business and your first rental as that initial step into running a business.  This is not a hobby, it is not a game but it is a business.

The first thing to understand about any rental house purchase especially your first is that all properties come with surprises and that goes double for bank owned property.  With any new property purchase we plan to run into problems in the first 90 days and in multi family’s the first six months is expected to bring different challenges.  The following is just a small sampling of issues uncovered after taking over a former empty bank REO.

Plumbing pipes dried out and cracked because they had not been used with any regularity in 2+ years.  Old copper wire rusted which caused a small shock when turning on the shower when the light switch was on.  Wall Heaters, water heaters and AC’s stripped of components or tweaked to only operate at full blast.  In the end no matter how much you plan and budget the new investment house will throw a surprise at you during the first 90 days.  I suspect it does this to just test your mental fortitude as an investor and see if you are going to keep going.  As owners of a fair amount of property we are happy to report that after the first period of which we call “Seasoning” most of our properties fall in line with our expense expectations.

Another thing you must know is that as a landlord you are in the people business.  Even if you don’t have to deal with your tenants directly you must be ready to hear every story in the book on why rent is late.  As we have stated in other articles we like to think of ourselves as compassionate capitalist.  Unfortunately in the beginning we let compassion get the better of us and it cost us.  Don’t make this mistake.  Your job is to provide a safe and secure rental property and it is their job to pay the rent.  If they do not pay, evict them it is just easier.  If they learn you’re a softy you will soon find your rent collection way down and you will be in trouble as your mortgage company won’t cut you any slack.

The final thing you need to realize is that you must start to setup a tracking system for your new property.  The IRS is not an agency you want to mess with so keep great records of income and expenses.  Take every legal deduction you can and keep every record that backs those deductions up.  With a single property a simple Excel sheet is fine but as your portfolio grows you can look at other options. 

So in summary, congratulations on the purchase!  Remember every purchase will have surprise that cost you money and don’t let it drag you down.  Also you are in the people business but it does not pay to be a patsy.  Finally get ready to keep precise and accurate records to insure you don’t end up with an uncomfortable conversation with the IRS.

Good investing

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