THE QUESTION OFTEN MISSED BYMOST BEGINNING INVESTORS: DID YOU EVALUATE IF THIS REAL ESTATE OPPORTUNITY IS APPROPRIATE FOR YOU?
BUSINESS BYDESIGN ISA DEMAND FORWISDOM
Why do so many properties lose money? I have heard many stories, and even had a couple myself. Stories explain (or blame) circumstance. There will always be life circumstances. When we take responsibility, without explanation, something remarkable happens. We discov- er the real answer why! It reveals the error of our ways. The value of that wisdom is incalculable. And it’s eternal. When properly applied, the value compounds with time. For me, I failed to design my business. I never asked myself the right questions first, before doing. I didn’t even know which questions to ask myself. Like many, I read a book, got excited, and jumped in. I bought one investment property in Baltimore, and after I got married and bought a new home, I’d converted my first primary residence into a rental. Rent was coming in and everything was going right, until everything went wrong. Within 18 months, life circumstances changed dramat- ically. Without forewarning, my marriage was in jeopardy. And the real estate market had begun its downturn. The Great Recession impacted my renters, which I had to eventually evict. There was a period when I was carrying three mortgages; a divorce settlement forced the sale of one of the properties, and soon thereafter I found myself jobless weeks prior to the bubble bursting in late 2007. We all live lives filled with stories, and I could easily ex - plain why I lost money on those rentals. Yet I had learned the power of taking responsibility. After digging, I realized that I really didn’t know how to manage a rental, and I didn’t have a plan. Now jobless, I committed to learn how to properly manage a rental property. I started a manage- ment company, where I created processes and systems, and I truly began to understand risk management while I was getting my master’s degree in real estate.
BUSINESS BYDESIGN ISADEMAND FOR ANSWERS FIRST The management company provided opportunities to speak with many “accidental landlords” who had no choice but to rent their houses, requiring them to move because of circumstances. Most didn’t understand risk with financial consequence. And I had been successful in helping some people realize they did not want to rent their first residence, so selling would be a better option. They realized they would not be successful on their own managing a rental and were unwilling to relinquish control to a third-party management company. It was better for them to realize it first than it would have been for me to onboard them as a client. It was worth the immediate opportunity cost, rather than the time it would have taken to manage for them. I provided them with a self-survey exercise to help them discover if they have the wherewithal to be a rental housing provider, and whether it also fit with their financial plan and capacity. So back to the question often missed by most beginning investors: Did you evaluate if this real estate opportunity is appropriate for you?
26 | think realty magazine :: july 2020
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