Now that I’ve posted on the Financial Details of My Real Estate Investments,
I wanted to share what I felt I did well in this effort and where I could have improved.
I’m hopeful that my learnings can be helpful to others who are interested in real estate investing.
What Went Well
Here are the things I think that went well:
- Got knowledge from someone who knew what they were talking about. Seeking out my friend, Eric, and using him as a mentor was a great move. He not only provided the education I needed, but also added the practical tips they just don’t write down in most books. Plus he knew the market and helped me buy the best properties.
- Had a financial plan and stuck to it. I knew what I wanted to accomplish (10% return or better) and stuck to properties that would deliver that (or close to it). I was tempted to give a little at times, but a “caution first” approach kept me safe from making a bad move.
- Timing was great. Buying shortly after the real estate crash helped me get some great prices. You’ve probably heard the saying that you make your money when you buy the property not when you sell, and I was able to do this because of the market situation.
- Negotiated well. Early on there was little competition and we could negotiate with owners. Plus we had cash, which not many had, so we had an advantage. This helped us in both pricing and getting deals we may not have gotten otherwise.
- Found an awesome property manager. This was more luck than anything. The property manager I have now was managing the second property I owned. I interviewed their agent, loved him, and stuck with them. They have turned out to be great, especially since we now live far away (FYI, while it’s good, it’s not all roses and rainbows – I’ll write about that someday).
So that’s what went right, which was much of the process. But everything wasn’t awesome…
What Didn’t Go Well
Here are the things that didn’t go so well:
- Starting too late. This was by far my biggest mistake. If I had started a couple years earlier I would have had more properties with better returns (because the prices would have been so low). If this had happened I might have three times the properties I have now at 10% return — which would certainly put me in the financial freedom zone!
- Too stringent. I was too tight on my financial projections. If I had loosened up a bit and been willing to accept properties with a 9% return, I’d probably have twice as many properties as I do now and they’d be earning at least 8% total. That would put me very close to the financial freedom zone even with no other source of income.
- Estimated expenses low. There are always more expenses than you think there will be. I built a cushion into my projections and yet there were even more expenses than I had planned for. Ugh.
There were other hits and misses along the way, but these are the major ones.
I know many ESI Money readers are real estate investors. For those of you who are, what are your biggest wins and losses through the years?
A bit of advice is well worth listening to.
Thank you as always sharing your experiences.
Hope people listen:)
I purchased all my properties at the height of markets, w/maybe 2-3% returns going in, now fast forward 30 yrs, the rentals have increased at least by a factor of 2-3-4, prices have increased by a factor of 4-5-6 times.
Believe the road out of the “Rat race” is to just pull a trigger, and don’t worry-provided after your down payment the property carries itself , if you are in it for the long term…
Have been semi retired now for the past 16 years, trying to have fun:) Am now 57 years old:)
Funny, a property I bought in ’85 for 265G, I am buying the identical next door property as we speak for $1,325,000.!
Do the numbers make sense? Cash on cash 3-4%… horrible you might say, yet, proof is in the returns in the long run, w/all the tax benefits, depreciation, etc…IF you have patience:)
By the way, tried all financial investments, so-so returns.
Am involved a lot these days in marketplace lending, and hedge funds, and firms like NSR Invest, and Peter Renton (subscribe to their free e mail blog at lendacademy.com – a must for each and every one who wants to make money), and returns are good, yet no tax benefits, yet believe all should hold some for diversification, and income.
Thank you again for all you are doing. Just wanted to give back to you:)
Keep up the great work
You have listed sticking to your return expectations of 10% as a positive that kept you out of trouble. You have also listed being too stringent and not accepting 9 or 8% returns as a negative that kept you from being able to get more properties.
Could you speak in hindsight to what you think the right balance should have been between those two conflicting views?
I have some thoughts but am interested in where you think the balance is before I state anything.
That’s a great question. Not sure I have a great answer.
The fact is that if I had just given a little I could have had twice the number of places and earned almost twice as much. That’s all I would have needed to do, so in hindsight that’s what I would do.
That said, the comment above argues for a much lower return percentage if you have the time.
Whatever era of investing you are in, it is difficult to not be constantly comparing each deal to others and trying to get the “best” deal available. Best deal is often thought of on a purely numbers basis. As I have developed my strategy, property type and location has become just as important if not more important than just the numbers. I passed on a couple properties because the price was 10K more than I was paying (135K vs 125K) and slightly smaller properties. But the property location and type was excellent and I really wanted to buy them. I got talked out of it, but I should have bought them anyway. They sell for 200K today and the returns would have still been very good.
It is also the case that while there was plenty of inventory, there was not much of this quality. It was a mistake to pass on those deals. You need to look at a comprehensive investment strategy, thinking about your overall portfolio, and considering the overall availability of the kinds of properties you want in context of how many properties you want to get.
In that sense I think getting properties that have some lower returns but are the right properties does make sense especially if there is a limited supply of such properties. You also need to be looking to the future and trying to anticipate the availability of such properties a year or two out. Sometimes you might think you are slightly over-paying but the market trends means it will just keep getting worse in the coming years as the market is heading that way.
It is my belief and experience that if it is the right property and it still makes investment sense even if the price is a little more than you wanted it to be, trying to squeeze it or pass on it for the best possible deal is usually a mistake.
Great and thoughtful points, as usual.
Thanks for sharing!
OB @ Out of State Investor says
I saw your guest post on FS and I’m so glad to have come across your site! It’s interesting that you found that you were too stringent on your minimum acceptable returns criteria. I passed up on several deals that were just below my minimums a couple years ago and now those same properties have even less returns! I’m kicking myself now because you’re right, at the end of the day, I would have preferred the larger portfolio.
Brian - Rental Mindset says
Too stringent jumped out as me as well. I think first timers often get “analysis paralysis” where they are trying to get the best deal, a great deal isn’t good enough.
But people like you, OB, or me with a couple properties often want it to be like the good ol’ days when everything was so cheap. It’s hard to have the right balance between standards and not being too stringent.