My wife and I bought our first starter home in 2002. It was a small one-bedroom home and it was ours. We could have bought a slightly bigger property initially, but we had made the big decision to buy another apartment to rent out. My father always hammered into me the idea that property was the best route to financial independence (and he was right!). But it came with some unexpected financial and mental set-backs.
A few years after investing in our initial home, we welcomed our daughter, Abigail, into the world and it was time to expand our living quarters. We moved into a bigger space and rented out our smaller “starter.” We now had two rental properties. We felt like real estate giants.
Some of our friends warned us that renting out properties on our own was not for the faint hearted. But we are both head strong, disciplined people so we thought we would study up on every aspect of the business and we would be fine. We learned about screening tenants, credit checks, crafting and signing leases, managing our properties online and finding great suppliers for maintenance work. We were very proud of our collective efforts. We were so excited when it seemed that things were moving along swimmingly and we were actually getting the hang of it. But then came the wake up call when you realize you hadn’t quite budgeted for all of the eventualities.
Here are a few things that knocked us sideways:
Property taxes can change in the blink of an eye.
In the last few years many Colorado residents have seen a spike in their property taxes. One year our taxes had mushroomed by 200% and we had not made provisions for this possibility. At the time our rental income was just covering the mortgage and we hadn’t foreseen this particular nightmare. Luckily we were able to make a rental adjustment to be able to factor in the higher taxes.
Tenants can do excessive damage to your property in a very short space of time.
We were devastated at what we encountered after a family had moved out of one of our properties. Carpets had been completely destroyed, window panes broken and not replaced, broken locks, leaks left unreported causing rising damp and a landscaped garden left untended and all the plants had perished.
Fortunately, we managed to get the tenants to pay for the damage but we did learn an important lesson about doing regular property visits.
Repairs can be expensive and even more so when they are emergencies and require immediate attention. It seemed that the maintenance problems always happened at the least convenient time financially for us. We quickly learned that we needed a maintenance fund so that we didn’t have to keep dipping into our savings.
You have to stick to the rules you laid out in the contract.
When some tenants started paying late every month we didn’t start charging late fees or lay down the law, we said, “don’t worry, pay as soon as you can.” But then it became a habit and it was hard to enforce the rules after we had let them off the hook so many times.
We realized that we had to do a better job at getting tenants who would look after our property. We were lucky enough to find perfect tenants who really look after our one home. They keep the lawn mowed and the house immaculate, with the result that we never have to do as many site visits.
When we had a property portfolio of 4 units we realized that we were spending every last moment dealing with tenants, vacancies and maintenance issues. We finally decided to invest in hiring a property management company. We really did our research before making the final choice here in Colorado. My wife and I investigated fee structures, every item of the contract and negotiated a really great rate with our Colorado Springs property management company.
I wish we’d made the decision sooner as we are both experiencing quite a lot less stress. They look after all repairs. They do the property visits and report back on the condition of the unit. They get to be the “bad guys” with defaulting tenants enforcing regulations and charging late fees. I have to say they have found us some wonderful tenants who are looking after the homes perfectly. But if they move out I know that the whole screening process will be handled by them and we can get on with our busy lives, looking after our brood of three children and focusing on our primary jobs. Buying property is a phenomenal investment but getting someone to help you run it, is a wise decision.