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Money Principles
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Real-estate & Property Management

Lesson 15

So I turned my first home into a rental. I didn't do this alone. I have a father and a father in law that are property owners, managers and landlords. So I have support and mentorship (some really good and some bad habits they taught me).

So with many reservations I share if you do choose to become a property manager of your own or other peoples properties I have some education for you.

Step 1: Run it like a business

Owning a rental property is challenging. 

Managing a rental property is challenging.

Here are some of the challenges you will need to overcome to be good at both challenges/jobs. 

  • Selecting renters
  • Move in process
    Maintaining the property
  • Evicting bad renters
  • Move out process
  • Collecting rent
  • Insurance
  • Contracts
  • Handling emergencies 
  • Taxes
  • And the list goes on

The best advice and holistic approach to handling rentals I have found is Bigger Pockets Book, "The Book on Managing Rental Properties.”. The advice from her has never steered me wrong. 

Step 2: Avoid Major Pitfalls

A number of experiences in being a property manager for my rental home have changed my perspective about rentals. 

Own outright the property (no mortgage, no leverage) - Dave Ramsey's advice about this is the best advice anyone has ever given me about owning a rental. So most of the money your rental brings in can be used to maintain the property and when the property is vacant you aren't devastated.  

Be willing to lose it all - Short of owning the property outright (smartest plan), what can you do to make it very unlikely you would lose your investment? Well first off I have accepted this is a very risky investment using other people's money to help me pay down a mortgage until I own the property outright. Since it's risky I have reduced my risk in 4 ways. 

  • I don't pay myself (all the money goes into the property fund to be used to cover maintenance, improvements and vacant days). 
  • I made sure there was a large gab between the mortgage (My cost just for owning the property) and the average rent for the property.
  • My property is at a very low interest rate.
  • I am willing to cut my loses by selling the property even at a less than ideal rate to say an investor. I'm not so invested in this property I would ever choose to lose it to foreclosure. But even if the worst could happen, I am willing to accept this risk to my credit and life (likely not allowing me to move for 10 years). 

I have learned some lessons first hand and even 2nd hand, owning a rental is risky and just because good times are right now, does not mean they will be forever good times. 

Don't believe the influencers - If I were to believe the influencers on YouTube I would have 100 Air B & B's or sold my properties when market conditions seemed bad, or buy all my properties in certain states... and the list goes on. Basically none of this people share the risks of such crazy risk taking. Dave Ramsey described how he lost it all betting big using other people's money, and so he is one of the few people I respect enough to listen to. 

Step 3: Use The Best Tools

These are the main tools I use to simplify my rental. I hope they help you get started.

Conclusion

For me I use 3 investments:

  • My businesses
  • My rental
  • My Roth IRA

And that is enough risk and potential reward to retire well for me. I hope it helps inspire you to make your own way.


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