What to Expect after first year of Rental Properties
A couple of things will likely happen after your first year investing in rentals. You should consider all of them learning experiences.
First you will learn that you don’t know it all. No matter how many books you read or seminars you go to you will be surprised by how many things you didn’t know or didn't expect. This should not be seen as a bad thing but instead the difference between reading about something and doing something. Putting your money, credit and time into a rental property is the real deal and if you pay attention you will learn many valuable lessons the first year. If you don’t pay attention you will repeat mistakes and that can be very expensive.
Second you will find out that Excel based profits you ran during the acquisition stage are not the same as actual profits.
I suspect most people with their first investments will admit they made less money than they expected the first year. This can be caused by lower rents, more expenses, longer vacancy times, etc. Again learn from these experiences and work them into your business model so year two is better than year one.
As the owner of the business you should focus on making every deal as you start out better than the previous one. If you do that you will truly build an impressive portfolio.
Third you will learn that this is a people business instead of a financial business.
People rent properties, people repair your units, etc and thus you have to deal with all the good and bad things that happen in life. You will find out that some people play games and look to cheat the system somehow, you will find out that sometimes bad things happen to good people. In the end you can’t let the people side of the business get to you. You run a business, you have rules, and you should enforce the rules and take decisive action else you will let other peoples problems become you own which is never a good idea. Remember this is a business and not a charity.
The final thing you should learn is if this business is for you and your family. If you let all the little things eat at you your business will become less fun and less profitable and thus you might think about investing in real estate via another means.
Active investment is hard but if it is for you and you learn lessons along the way and focus on not repeating mistakes you can make a strong business. If you can look back at the first year with a smile and be satisfied with a few good stories and excited about year two you will be successful. If you sit back and stress about all the mistakes or issues that creep up I suggest you stop before the portfolio gets any bigger and look for another way to invest as life is too short to have a business that causes you and your family stress.
As a foot note to this I would like to highlight a few things that happened during our first year in the business:
We bought 5 Properties (4 houses and a duplex)
Our first tenant had to be evicted after 90 days (it took almost 75 days to get them out)
Duplexes may show more cash flow on your Excel sheet but they have a very different expense model than single family homes.
Stuff breaks in old homes (Water Heaters, AC’s, etc)
Don’t plan on any cash flow for 6 months as you season a property. Especially if it is an REO or Foreclosure that has been vacant for a long time.
Every deal we did was better than the previous one.
We learned all handyman and contractors are not the same
