Guess what? Real estate investing is not always going to be perfect. Not to be all cliché about it, but if it were that easy and perfect, everyone would do it.
Here’s the thing though. Or, here’s some good news at least. Quite often, what investors perceive to be a crucial deal-breaking problem isn’t always that bad. Now, that’s not to say that legitimately bad disasters haven’t happened in real estate — they happen all the time. But at the same time, it’s very easy to make a mountain out of a molehill when you are new at investing.
I was a brand new investor just seven years ago. But it wasn’t until well after I had started investing that I felt like I had learned enough to have a solid handle on things. I still haven’t learned everything, but I’m much better-versed now in the reality of investing than I was back then in the first few years of owning my properties.
Two things I’ve learned over the years with my properties are:
- There is absolutely no need to immediately freak out at the mere hint of a problem — there’s lot that can be done prior to freaking.
- What seems to be a big problem in the moment very often turns out to be irrelevant over the long term.
Because my experience has been primarily with rental properties, everything I say in this article relates to my experience with those. What I say may or may not transfer to things like flipping, syndications, or whatever other form of investing you may be involved with.
I’ll give a quick example that happened with one of my rental properties. It speaks to both of those points. And then from there, I’ll offer you a concise list of tactics I’ve learned over the years in relation to these ideas that have helped me keep my sanity during challenges with my properties.
A Real-Life Rental Property Experience: Cash Flow & Vacancy
I have bought several turnkey rental properties. This experience is not a reflection of all turnkeys by any means, but it does have to do with a property I bought from a turnkey provider.
I had been on a buying binge for quite some time by the time I bought this property. When I found it, I was nearly beside myself because it was so nice and seemed like such a great deal. I got even more flabbergasted when I got the inspection report back during the due diligence period and there was barely anything on it! That is fairly unheard of for any property. It seemed like I had hit the jackpot. I purchased the property and went about my business.
Not but a few months after I bought it, the tenants had to be evicted for non-payment. This was especially surprising because not only was this the nicest and highest-quality property I owned, but all of the properties through this turnkey provider had been signed on with three-year lease options (rather than leasing it as a standard rental). So in theory, the tenants should have been much more capable and long term than your everyday tenant. No biggie. I knew evictions were possible with any rental property.
What I didn’t have quite as good a handle on was being able to gauge when a property manager was severely underperforming. The property manager that came with the property filled the vacancy fairly quickly, only for those tenants to get evicted shortly after as well. I thought to myself — How in the world is it that my nicest property is getting the worst tenants? But then even worse, after that second set of failed tenants, there was next-to-no movement on new tenants. The house sat vacant for months before we finally found a tenant who has now been living in the property for a few years (yay!). I probably don’t have to say that I secured the current tenant after I fired the initial property manager and went with a new one.
Fortunately, during this time, I had minimal eviction fees because Georgia is a very friendly state for evictions. But I was incurring a heck of a lot of vacancy fees. Every month, I was paying the mortgage on this house with no income coming in to help. Even though my other properties were performing well, a sour taste of skepticism was growing rapidly. I was leery of what I had bought, of the people who sold it to me, and generally of everyone who told me real estate was a great investment.
A few months after it had been rented, I was hanging out with some real estate colleagues. I made some kind of snide comment about how this particular property had become such a loss. One of my colleagues stopped me and said, “Whoa, what do you mean a loss? How do you figure?” Long story short, we sat down in an airport seating area and mapped out the actual profit centers of the property. One thing that had been happening during all this time of vacancy was that Atlanta was booming, so the amount the property had appreciated just in that year alone was more than enough to make up for the cash flow shortage that year. Then we dug into the tax benefits I got from it as well. And so on. As I write this less than six years after I bought that property, the value has more than doubled. And I’ve been collecting solid cash flow on it the entire time — minus that one down period.
This experience is one of the primary ones I think about in relation to the two points I made earlier.
There is no question that my mind was constantly jumping to worst-case scenarios. I had been scammed, this property was going to demolish me, I couldn’t trust anyone, the world was ending, and I was going to go broke. These were just the ideas that came up as soon as I caught wind there might be even a miniature problem with anything. It turned out, though, that none of those things ever came true.
While each month that I had to pay a mortgage with no tenants in the property appeared to be the demise of my investment, even with the two evictions it was really only pennies compared to the financial awesomeness that I have gained from the property over the past six years. Despite it being oddly difficult to rent (check out Is There Such A Thing as Buying Too Nice of a Rental Property? Hint: The Answer is Yes), it’s been one of the most financially advantageous houses in my portfolio.
I also give that example because when I work with people buying rental properties, and even turnkeys, I feel confident in saying that the most common challenge that arises is when someone gets a bad tenant they have to evict. And much like I did in response to that scenario, I find that people are quick to freak out and think they just got scammed by the person who sold them the property.
Because of this scenario and everything else I’ve experienced over the past seven years of my investing career, I’ve concocted a list of helpful tips to help you through any challenges that arise with your properties.
6 Ways to Keep Your Head Straight When Investing Challenges Arise
While most articles tend to focus on practical how-to instructions for different things in real estate investing, I’m a big believer that none of those will ever be of much help if you aren’t in the right mindset to implement them. The reality is — real estate investing may mess with your mind a little! Like I always say, none of us learned this stuff in school. We are all basically reliant on trial and error. Add that on top of investing a lot of your hard-earned money, and you may quickly find yourself on an emotional roller coaster.
So in support of your psyche, in support of reaching solutions for any challenges you come across in the most timely and efficient ways possible, and to ultimately support you in a happy and successful real estate investing career, here are six things I recommend everyone do at the first sight of trouble.
It doesn’t seem like I should have to say this, but it’s amazing how quickly we can nearly fly off our couch when someone presents something we don’t want to hear. It’s like the whirlwind of emotions grabs us by the hair, slings us around, and we have no control. Just breathe. If it’s any help, scientifically, emotions tend to start dying down about 90 seconds after the reaction starts. So if you can just breathe or hang ten for 90 seconds after you hear something you don’t want to hear, you’ll be able to start thinking more logically and chill out easier. Just breathe.
2. Take the Emotions Out
While you’re breathing, or at least once those 90 seconds of crazy emotions calm down, realize that there is absolutely nothing personal or emotional about a real estate investment. Even if someone involved with your property completely bends you over sideways, it’s not personal. Just because someone sucks, doesn’t mean it’s personal.
If tenants destroy your property, it’s not personal. It’s also not indicative of any kind of conspiracy against you. Especially with the turnkeys —people love to jump to the conclusion that after one bad tenant, the turnkey provider must be a total scammer with no moral compass who has absolutely boned you. Umm, no. That’s not the case (usually). You are allowed to be fearful of your investment; I know I certainly was, so I can totally understand. But you have to start looking at things practically and objectively as quickly as you possibly can. The longer you stay in the emotions, the less headway you are going to make finding a resolution.
3. Ask Questions
My mentor over the years actually had to teach me this one multiple times before it sunk in. At the smallest sign of turmoil, my mind would automatically go to those assumptions I listed earlier. Never assume anything. When something is presented to you, ask the appropriate people applicable questions. For instance, if you don’t receive a rent payment one month, simply reach out to the property manager and ask them where the payment is. Do that before assuming anything!
Ask questions. It’s almost freakish to me how many people I’ve met who, upon being hit with some challenge, don’t reach out to someone to get clarification or ask questions before resorting to the worst-case scenario in their heads. Quite often, the minute I’ve reached out to someone and asked a question, I’m quickly relieved of all stress because their answer makes total sense and it’s clear that the world isn’t going to end after all.
4. Reach out to Your Mentor
The asking questions part is more about asking the people directly involved in the issue (or at least closely related to the issue) questions. Hopefully they can shed light on what is going on and help you work toward a solution. Reaching out to your mentor is more about keeping sanity. I know my mentor has talked me off the edge of a cliff numerous times. He’s also the one who helped me realize that one property wasn’t a total loss that year. Often when we are directly involved in a situation, our perspective is clouded. We can’t always see the bigger picture. A mentor can help shed light on this bigger picture. Your mentor may be able to help you formulate more effective questions to ask or offer creative ideas for solutions. If nothing else, it always helps to have a friendly ear with you anytime you run up against a challenge. Especially if that friendly ear is well-versed in real estate and can aid in your journey.
5. Decide What Would Constitute Resolution
I oftentimes see situations where people get caught up in the emotions and the he said, she said of it all. When I see this start to happen, I just go straight into asking: “What specifically would relieve this issue for you?” Let’s skip the small talk and get right to resolution. I see no need to dwell on the drama. Oftentimes, when someone lays out exactly what would constitute resolve for them, it makes it a lot easier for everyone else to work with that and find the solution.