I got a call from a friend of mine from college, “Rich”, a
few weeks ago. After the prerequisite
ribbing was completed (Do you have any hair left? Is your Linked-In profile photo from your
high school yearbook? Are you still
awful at basketball?), Rich got down to business:
“I’m thinking of buying my first rental home for
investment. Got any advice?”
Me: “Ummm… have you
looked at the blog I’ve been writing for the past 5 years entitled ‘Charlotte Property Management?’ It seems like all I do is spout out advice on
this stuff.”
Rich: “Sure… I read it all the time, sometimes to my kids at
night. I meant any other advice
for the special people in your life.” (wink, wink)
Me: “Oh, the “insider tips”?
Of course! It will cost you,
though!
I suppose “insider tips” means the advice from people that
have been burned (or are getting singed monthly) on investing errors. They now know better.
My top 3 insider tips for first time investors:
1. Don’t buy in
low-priced areas (aka places where you are buying the house for under $75K in Charlotte ).
Common retort: “But I can get the house for $15K. There is a tenant paying $400/month. And I could buy 10 of them just like this
one. The cash flow would be insane!”
My response: Can you stomach getting calls that say any of
the following:
a. I just saw someone
get shot in my driveway!
b. The air
conditioning unit got stolen again.
Should we order you another?
c. I think my
flooring is caving in.
Sadly, I’ve gotten these calls. I (and my checkbook) didn’t enjoy taking
them.
2. Hire a great
property manager. I know I’m biased, so
I won’t expound on this. Suffice to say,
you don’t know what you don’t know. And
you may enjoy cost savings from not paying a property manager for years; then
you make one mistake that wipes out all of the savings and you wonder why you
were taking tenant clogged toilet calls at midnight for no long term financial benefit.
And my top tip…
3. Don’t get a
mortgage; wait until you have the funds and then pay for the house with
cash. Or at least pay more than 50% with
cash.
It’s a drain on cash flow when you need everything to go right
to make money every month (or to break even).
Because things break (sometimes major things), tenants don’t always pay
(but you better pay your bank!), and you will find yourself losing money. Yes, your accountant will tell you that it’s
great for your taxes, but it stinks in real life. The purpose of investments is to make
money. Locking into an investment that
consistently saps your cash flow is no fun.
Example: $1,000 rent - $850 mortgage payment – $100 property
management fees – $250 HVAC repair = $200 loss (bad feeling)
Or
$1,000 rent - $0 mortgage payment (you paid with cash!) –
$100 property management fees – $250 HVAC repair = $650 gain (good feeling!)
So, Rich, my insider advice in a nutshell is… Set yourself
up in a wise, peaceful manner so you can enjoy and make money on your real
estate investments! Be disciplined now
so your assets don’t become financial and emotional liabilities… And don’t crack on my hoops game!
Brett Furniss is the President & Owner of BDF Realty (Charlotte Residential
Property Management), the trusted real estate advisor for Charlotte
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