What to Expect When Owning a Rental Property

Guest post: From a fellow Augury Research Member

( I have actually stayed in one of his properties before we knew each other)

I have talked to a lot of people about managing investment properties. LTR. STR. Long distance. House hack. I have had discussions about all of it. My biggest piece of advice applies for everyone planning to get an investment property, regardless of what type, and that piece of advice is this…bad shit is going to happen. Period. End of story. You need to know how you are going to handle that fact. You will get phone calls about toilets, leaks, electrical issues and all of the other things that have to do with houses and condos. Whatever your reaction is to being told that bad shit will happen will probably determine how you fare and if you really want to go down that road of owning an investment property. 

I don’t give this piece of advice to be mean or discouraging. Quite the opposite. I do it because I care. I love the game. I love getting to test my model and see how it matches up to reality. I love everything about that process. Once you purchase a property you will need to set up systems for a STR or LTR. Once rent checks start coming in is when you will see that bad shit happens. People typically respond in three ways:

  1. They get frustrated and annoyed. They signed up for “passive investing” and dealing with broken things, even if it is just trying to get a plumber to the property once a year, isn’t passive enough for them. They typically think things like “this is a money pit” or “this place is a lemon”. Usually find they aren’t made for the game and exit or try to transition to #2 if it is financially viable. 
  2. They count the number of days before they can retire or be in a financial position where they can hire a property manager (who will take 25-45% for STR and 8-15% of LTR in addition to passing along any costs they incur to fix the bad shit that happens). Nothing wrong with being in this spot, but you need to be honest with yourself so you can set up an accurate financial model prior to purchasing a property. 
  3. The ones that get the call or notification about bad shit and get on the response immediately and handle it. Yes, this person can get frustrated. Yes, this person can get annoyed. But this person also understands that bad shit is going to happen and that is ok. In fact, this person understands that handling the bad shit allows them to have renters that pay down their mortgage so they can own an asset free and clear if they stay in the game long enough. They understand that dealing with the bad shit allows them to get cash flow every month while having their mortgage paid. Real estate can provide an income stream similar to fixed income AND generational wealth by being gifted that asset at the end of the journey. But, to get that reward you have to deal with the bad shit. 

People have been around me when I get the “code red” calls. The initial reaction is something negative and expressing sympathy for having to deal with “bad shit.” My response always goes something like this. I ask them if I offered you $1,000 to call a plumber to fix a toilet, would you make that call right now? Every single person has said “of course.” In reality, this is essentially what dealing with “bad shit” is all about. You basically get paid an absurd amount of money to handle a problem. When you put it in that perspective, I believe the only logical thing to do is smile and take care of the problem. If you don’t have that perspective, you will find yourself as a #1 or a #2 waiting to pay someone else (far more than $1,000 per plumber call) to handle the bad shit. 

This is a very macro level perspective, but if you don’t think you can handle the macro level then there is no need to delve into the detailed micro level and discuss the day in the life of managing a real estate portfolio. You will burn out long before you get to portfolio level. If you do not think you can get to a place where you appreciate the chance to handle problems for someone living in your property in exchange for them paying your mortgage and giving you monthly cash flow, then you probably shouldn’t plan on managing or purchasing an investment property. If you think you can handle a code red in exchange for someone paying your mortgage and getting monthly cash flow, then you just might love the game and should proceed with trying to purchase an investment property. 

Published by

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: