There is an army of self-proclaimed real estate experts selling courses online on how to achieve financial freedom and get rich quick through real estate investing. The best way to learn anything new is to dive in and make mistakes and then to learn from them. The problem with real estate investing though is that even small mistakes can be very costly! Every investment ties up a large amount of capital, often leveraged up with a mortgage – creating significant liabilities from interest payments, property taxes and maintenance.
That is why the stress of doing it right on day one is high, or you may soon be another real estate investor dealing with a foreclosure. And do not think for a second that we exaggerate here. Foreclosures are a very common outcome in real estate investing and often the result of mistakes that could have been avoided with better advice.
We are fortunate, our clients have always had an open line of communication with our property management staff. We will pass along some of the costly mistakes to avoid and present a few points that “I wish I knew” before investing my hard-earned money in a rental property.
1. Know what your path to Financial Freedom looks like
Most investors turn to rental properties to achieve financial freedom. Here it is important to ask yourself how you define financial freedom to set the expectations right. Is your financial freedom where you earn enough passive income a month to be able to maintain a desired lifestyle with no outside work? Is it the freedom of mobility and travel without being stuck in a specific location? Or does your financial freedom look more like having to do some minimal work “tinkering” around a roof or construction site while your joints and back feel the effects of age?
Many of our clients have managed their own properties in the past. However, it quickly became a lot more than they bargained for once the reality of being a landlord started to manifest.
While self-managing is certainly possible, you need to know that rental property investing is:
- a lot of work.
- a lot of worrying.
- not passive.
- you will have sleepless nights.
- you won’t have total freedom of movement.
Sooner or later toilets will get clogged, tenants will cause problems, rents will get unpaid, you will need a lawyer, and roofs will leak. We do not mean this to pointlessly scare you. This is just the reality of being a landlord that you must accept if you decide to move forward with real estate investing.
- Get Trusted Advisors
One of the most important things anyone can do is surround themselves with people that they can trust. That sounds a lot easier than it may be. Realtors, plumbers and electricians are great advisors, however when do you know the line between them helping you to them helping themselves is crossed? The only way they make money (to feed their families) is by selling a property or signing you up for a job. This is not to say that you can’t find great advisors. Most of our clients look for referrals from their friends and family (and often us) rather than trying to find their own advisors.
- Do not Underestimate Costs
Underestimating costs in real estate is so common that it has almost become a joke. If you think that something will cost $1,000; plan for $2,000 – and you will still likely end up paying more than that when it is all said and done. Don’t be the naive real estate investor who makes optimistic assumptions when accounting for expenses. Trust, but verify. Real estate is full of sharks and shady people looking to make a buck off inexperienced landlords. You will nearly always spend more than anticipated. Don’t go for the cheapest contractors; go for the most reputable ones – even if it comes at a premium. In the end, you will often save money in the long haul by avoiding poor quality work.
- Learn about leverage
The self-proclaimed real estate experts who sell you on the dream of financial freedom will often preach the power of leverage with zero down and joint venture scenarios without regard to the risk of it. Don’t get us wrong, leveraging is great. Who doesn’t like using the banks money to make money? But we would recommend a little more caution due to the liability a mortgage puts on your finances. Most of our clients will leverage to a certain loan-to-value (LTV) to free up cash to purchase additional properties that helps meets their Financial Freedom Path.
- Your Tenant is your Customer
Our clients have learned that their number one priority is not their property but their tenant. That may not make sense at the onset when you have put every cent of your savings into purchasing the property and the tenants “just don’t take care of the place”. Let us explain it this way – if your tenant is happy with the life they are leading in your property, where there are no issues with “running out of hot water” or the “heating not working during the cold spells” or “noisy neighbours”, they will often stay longer and may even be willing to pay a small increase in rent every year. The tenant is your customer. The happier they are with the home that you rent to them, the better it is for you in reaching your Financial Freedom Path.
We are here to help
If you are weary from the headaches of maintaining and renting out your property, Westhawk Property Management is here to help. We provide professional service to all properties we manage and offer Concierge service to owner-occupied homes so we help you to find roofers, electricians and other home pros to help you get jobs done.
The Westhawk Property Management team of professionals are here to help you build wealth through real estate investing. We will free you up to pursue your career, spend leisure time with your families, while at the same time saving you costs and frustration. Call us today to discuss how we can be of service to you.