26 Aug One Year After Buying My First Real Estate Investment Property
It’s been one year since I’ve bought my first real estate investment property and I thought it would be a good idea to not only self audit myself but also to give everyone a better idea of expectations vs reality before taking the plunge.
Some Context: Bought my first real estate investment property in the summer of 2015. At the time of writing this (end of summer 2016): currently own 6 properties. 2 in Barrie and 4 in Oshawa. All properties in Oshawa have 2 units (usually split upper level and lower level). Both properties in Barrie are single units. In total there are 10 doors to manage. I have a silent financial backer which makes the financing part of the operation much more manageable. It is also important to note that I am a real estate agent and I’m able to get information much quicker than the average joe as well as put in an offer on a property at lightning speed.
What I’ve Done Well:
- Selected wonderful A+ tenants
- Selected good properties vs cheap run down properties
- Have organized the operation with proper software
- Built good relations with contractors
- Speed and efficiency
Where I need to Improve:
- Being too nice to tenants costs me money
The biggest problem I’ve had?
- Managing temperatures between units during summer and winter
Choosing good tenants for your real estate investment property is the most important piece of the puzzle.
We’ve all heard horror stories of tenants who’ve destroyed a property, never paid or refused to leave. Many of my friends have mentioned “so you’re a slum lord huh?!”. One time I overheard the admin of a colleague who was making calls to tenants say “When do you think you’ll be able to sell you guitar to pay some of the rent?”. I almost died laughing. I’ve never had a problem with any of my tenants. Not a single missed payment and not a single issue with neighbours. I screen them all myself and do not let other agents bring them in. Other agents don’t care if they put a deadbeat into your property. They just want to get paid.
After purchasing my first property, the neighbour introduced himself and the second thing out of his mouth was “I don’t really want tenants living in the basement”. Apparently the owner’s boyfriend lived down there and he was of the biker type. A few months later I have a missed call and I was thinking something had happened. Apparently he just wanted to call to let me know what a good job I had done with my tenants. He had a bad back and they had offered to shovel his driveway during the winter. I only have part of a text he sent me before he called back:
I attribute my success to pre-screening individuals before they are able to view the property. See my other post here about one of the pieces of software I use (rentapplication.net). I have a quick viewing application that takes less than a minute to fill out. If they want to proceed with a full rental application after they view the property then they would go back and fill out my full application. It is mobile friendly and very straightforward. A few clicks are you are done. I would say that 80% of applicants do not even get to come see the property. The quick screening also weeds out many of the losers since a) they are too lazy to spend 30 seconds filling out a well laid out electronic form(mobile friendly as well) b) they cannot read/follow simple instructions. Many people email me “I’m interested”. Thats it. I then reply saying there is a link in the application (and still provide it right there and then for them) and I never hear back. Do not let just anybody into your property. Their story has to make sense, they need to be able to afford it and their first impression must be good. If you get a horrible tenant your life will be a living hell.
Do not be tempted into cheap properties. Cheap properties attract bad tenants.
When I first began searching, I was looking at 200k homes in Oshawa. Most of them were run down, but the numbers I had on my spreadsheet looked so juicy. Well I’m glad I steered clear of the garbage. Garbage attracts garbage. Good tenants don’t want to live in the wrong part of town or in what looks like a meth house. Buy a good quality house and you will attract good quality tenants. I know it is tempting to only look at price when buying your first real estate investment property, but remember the old saying you get what you pay for. Of course don’t go buying something that does not make sense financially. Here are some pictures of my properties incase you are curious:
You need software to keep your real estate investment properties organized
I won’t go too much into this because I have another post which you can see here that goes over the topic. In short, you need direct deposit instead of checks and you need everything to be electronic. Digitize everything. You should be able to retrieve any receipt in less than 30 seconds. Record transactions as you go along so you don’t become overwhelmed at the end of the month/quarter/year end. Read the post I mentioned above to learn about all the tools I use to organize my properties.
Respect and become friends with handymen/contracts/landscapers etc.
Since most real estate investment properties that produce cashflow are found 45 minutes outside of Toronto, you will need someone you can count on when something needs to be replaced/repaired. Develop some type of relationship with the people you work with. Make sure you pay them on time. If they do a good job a a fair price, don’t try and nickel and dime them for every job. It is better to have someone you can text and trust in a moments notice instead of saving $20 on a certain job. I found most of my handymen/landscapers/plumbers/hvac guys on kijiji. The price is usually fair off the get go, and if they are regularly advertising, it means they are hungry for business. You can pay most of them through e-transfers.
Speed is your friend
One of my biggest strengths is speed. If you send me a text, I’ll text you back before you put your phone to sleep. Speed has helped me a lot throughout this whole adventure. I’m able to purchase a house within a few hours of it being listed on the MLS. I’m able to get leases signed electronically. Same goes for the first/last month’s deposit. If tenants have issues, I respond and acknowledge the issue within minutes even though I can’t fix it for a day or two. The same goes when coordinating the mortgage broker, insurance broker and the lawyer. If they need any type of paperwork, I scoop it up from my dropbox and send it to them within minutes. You need to be fast and efficient. There are hundreds of people trying to do the same thing.
Being too nice to tenants costs me a little bit of money here and there.
This is an interesting topic. I believe that if you have a good relationship with tenants, then your life will be 10x easier. It is a matter of give and take. If the place is vacant, I let them move in early if they need to. If they want blinds, I give it to them. I will gladly trade $30, $50 or even $100 to foster a good relationship with a tenant. It is important to note that since it is the first time tenants are moving in, most of their demands are things I should have in place for the long run anyways (blinds, closet rack, lawnmower, replacing an old broken w/d a week into tenancy). Giving in on certain demands means they will be more lenient when I need to access the property or once it comes time to show the property once they decide to end their tenancy.
The one instance where people might not agree with me is when I let new tenants get away with a broken mirror. Here is how the situation played out. New tenants were moving in and I did not have any mirrors in the bathroom. I said I would have them in by the time they moved in. I took a trip specifically to buy and install these mirrors. Took me a whole evening once you take into account an hour there, an hour back, time at the store and then finally setting up a whole bunch of anchors to secure both mirrors in place. I went back a week later since I told them they could just leave all their paper boxes/trash from moving in the garage since I had a lot of stuff that had to be hauled away. I saw my 2 mirrors I had installed sitting in the pile of trash with cracks in them.
Each mirror was $22. It’s not really the $44 I cared about. It took me a whole evening and I don’t know if they plan on taking the mirror they installed once they moved. Of course common sense would dictate that you would, especially if you chipped the mirrors that were there when you moved in. But who knows. So what to do? How do you politely say “Pay me for the broken mirrors” or “You will need to leave the mirror you installed”. I didn’t want to have a rocky start to our relationship so I let it go thinking that I would mention it once they left (if they took their mirror). I know some of you are thinking that I’m too soft to be a landlord or that I let them take advantage of me. But it was a judgement call I made. Don’t get me wrong. I was fuming the day it happened. In the end it all worked out. They are great tenants and take wonderful care of the property. They even told me that the place was a bit small and if I had any other properties to let them know because they only wanted to rent through me. Their furniture is nice and modern so I assume that my 2 simple mirrors didn’t make the cut.
Of course I’m not a doormat. If someone punches a hole through the wall or if something much more expensive gets damaged, no more Mr. Nice Guy.
The biggest issue I’ve had is managing the temperature between the upper and lower levels.
The only pain in my a** throughout this whole experience was trying to balance the temperatures throughout the units. When the A/C is on in the summer, it is very cold on the lower levels. In the winter it is either too warm or too cold. The only fix at the moment is to close up the vents during the summer. I have not had a major issue in the winter but I’m sure it is coming. Surprisingly one of my tenants said it was way too hot on the lower level during the winter. That one left me scratching my head. I need to find a better solution because I can’t be opening and closing vents at 6 properties every time the season changes. Getting 2 zones of ducts would mean ripping apart the walls and ceilings. I would most likely have to replace the furnace as well. Financially it is not an option.
I still have not experienced tenants moving out and its effect on vacancy
None of my tenants have moved out or have given notice to move out. This makes sense since I started 1 year ago and leases are 1 year in length. Since I am a real estate agent, I’ve seen how tough it is to rent out occupied units. They never look as good as when they are vacant and it is very tough to schedule in appointments with someone occupying them. I have not yet decided whether I will try and lease it out a month before end of occupancy or just wait until the current tenants have moved out.
My advice: Learn By Doing
So there you have it. So far 6 properties, 10 doors and it is still manageable. I’m sure it will become a bit trickier once tenants start moving out. My biggest advice to anybody starting out is to learn by doing. You can read as many articles as you want or get as much advice as you want but nothing will be as beneficial as experiencing everything for yourself. If you want to start slow, get a one unit townhouse or semi. It isn’t as profitable but it is very manageable and it will give you a nice boost of confidence moving forward.
Of course if you are thinking of purchasing a real estate investment property I would love help out. You can get in contact through phone, text, email or live chat.
Norman Hill Realty Inc
20 Cachet Woods Court #2