If you’ve read my Millionacres bio, you already know I was elbow deep in my local real estate market for quite some time. During that decade, I dabbled in a variety of different types of real estate-related businesses, as well as investment types. One thing I found that I really loved doing was construction and property rehabilitation, but one year I got a really brilliant idea and took that ONE. STEP. FURTHER.
See, I had a couple of clients who invested in small-scale rental properties, so they’d buy and hold eight or ten units each, with all that needing to be managed. They, of course, wanted me to stick around to do the management, since, obviously, no one would do a better job. Clearly.
It wasn’t too hard of a gig: find the renters, collect the monies, solve the problems, repeat. So, when I got to a point where I wanted to start holding some of my flips, I thought to myself, "Self, why would you bother to hire a property manager? You’re a perfectly adequate property manager… and you don’t cost a dime!"
What I learned from that little experiment was that I was not, in fact, a very adequate property manager for my own property. As it turns out, it’s a whole different experience to property manage for yourself than it is to do so for a client who provides you with a framework for how they want their properties run.
If my property managing for others was a mid-range, reasonably priced, slightly aged red wine, me property managing for myself was bathtub gin.
Learn from my property management mistakes
Look, I am absolutely not ashamed of being a dumb idiot when I was first getting into investing. I made a lot of mistakes, but that was how I learned which things were good fits for me and which were not. I figured it was cheaper than an MBA, though certainly harder to market (except here at Millionacres!).
There are a lot of things I wish I had known before I made the incredibly foolish decision to manage my own properties, but only some of them are probably useful for you. Let’s talk about a few that might actually come in handy.
Never, ever let a tenant know you’re the owner
Hooboy. Letting a tenant know you’re the owner is a huge rookie mistake. Unless you’re a stone, it’s too easy for that tenant to take that opening as an invitation to increasingly ask for "favors" as their tenancy marches on. First it’s little things, like waiving a late fee because they’re just one day late and yesterday was Sunday. Before you know it, they’re moving St. Bernards into your pet-free units without deposits (and before you throw shoes at me, I love dogs, I have four… but Other People’s Dogs can be very destructive).
Don’t assume they’re ever going to tell you something’s wrong
When I got possession of one particular unit back, I discovered, much to my shock and alarm, that not only had their St. Bernard destroyed the flooring, but neither of the toilets worked properly. I had let this tenant take possession and trusted them to take care of the place, not bothering to check in since they had been a homeowner previously. What I found was enough unreported damage that I wondered how they could have possibly lived in this unit. Several thousands of dollars later, with everything working again, I just moved into the place to cut my losses. There was no way I was coming out on that one.
Sometimes Very Bad Things happen
I had a single-family home that I was owner financing to a very nice couple and the wife’s adult son. She was the only one on the contract because her husband was disabled and her son had yet to find a job in the city, since they had only recently transplanted. Her income was ample; I was not concerned that she would make the payment.
Well, I absolutely didn’t count on her dying 45 days into their contract. It was a horrible thing, not just because it was a Horrible Thing, but also because of the situation it created for me as an investor. I still look at this point as the one where I knew I absolutely would never be able to be a landlord. Her husband tried to renegotiate a new deal, but what he could pay wasn’t enough to cover my own expenses, so what could I do?
What I did was nothing. Absolutely nothing. I hemorrhaged money because I had no idea how to proceed and I didn’t want to be That Guy. After 45 days in arrears, I finally went back to them and told them that I was going to let the bank foreclose because I was just done trying to deal with this. They needed to move out and we needed to part ways.
I put the property up for sale in "as-is" condition and walked away from property management. Even my own clients got referred out to other professionals I knew. It was a very hard, very loud lesson in how much I do not have the personality to do my own property management.
Just from the examples above, you can see that I was very good at losing money in rentals. (I was very good at making money with flips, so at least there’s that.)
The Millionacres bottom line
As it turns out, just because you want to be a hands-on landlord, it doesn’t mean you’re going to do well at it. It doesn’t matter how much you love your properties, care about your tenants, or enjoy the idea of swimming in money like Scrooge McDuck. If you don’t have the ability to put a wall up between you and that tenant, then you’re already doomed.
Always, always, always have contingencies for your contingencies. Always treat your rentals like a business, even though they are someone else’s home. Always remember that terrible things happen sometimes and you literally have to be the guy to kick people out in the worst of situations; otherwise, you’re running a charity and not a business.
Always remember, above all else, the name of the game is cash flowing. Can you be compassionate, generous, and still cash flow? Sure. If that’s part of your original business model and you have it built into your business plan, don’t let me discourage you from buying affordable housing or working-class properties. But it has to be part of your plan. It can’t be a sort of afterthought because you like the tenant.