If I would have to select one asset to invest in and where you could earn the most money from, it would be real estate, hands down. With a (mostly) stable rental income, a leveraged buying position and using ‘other peoples money’, the possibilities for exponential growing your wealth with this particular asset class are endless.
However, as we all know so well: the higher the returns, the higher the risks involved.
This blog is partly a documentation of our journey, with the good and the bad. So, it’s about time you’ll hear about the counterpart of our fortunate journey in real estate.
After a skyrocketing start, we have managed to own nine rental units (over three properties) in only one years time. As most of you would know by now, we chose to do all the maintenance and management ourselves. With one property, the only thing we had to take care of was cleaning everything up, and pass over the key. Never had any troubles since. The second, on the other hand, seems to be giving (almost) nothing but trouble. And that’s probably how it should go, once you’re still a bit green behind the ears.
Investing in real estate isn’t just about moving some dollars here and there. There is, of course, a big money aspect that dictates the strategy you can or choose to follow. The bigger your pile of cash, the better starting position you’ll have, just like every other asset class. But overall, there are several other factors, besides money, that come to mind. For instance negotiation skills, which are inevitable when you deal with buying and selling, but also networking, researching data, insight into peoples behavior and adjusting your mindset on how everything works.
We’ve heard from several other investors, older and wiser than us, that they have had similar experiences. Every real estate investor has some story on bad tenants or other pitfalls you should better be avoiding.
For us, most of the issues that came up were because we weren’t incorporating all the details that were necessary. From double checking every corner of the home to sticking whit protocol when talking to tenants.
When you find out there is a major gas leak in one of your units (while people living in it), higher maintenance cost isn’t the biggest concern at stake.
The former owner of the property had neglected to do a checkup every year, eventually causing this problem. I had to make three calls only to find out that there wasn’t any maintenance contract (which is normally the case with a boiler), and a couple more to found someone who could check up on it that same day. The one thing you want to avoid with investing is that you start to worry about it. This has been some intense couple of weeks, and even my blog posts had to suffer because of it.
It took us one week to fix the boiler in the end. It costs us four maintenance visits from the company who we called to fix it, every day arranging appointments on both sides (maintenance/tenants), and probably lots of money (still need to receive an invoice). This was some of the other things that kept us busy the past few weeks:
- we failed to install a washing machine properly – and let somebody come to fix it for us.
- found an electricity hazard due to bad wiring.
- the dishwasher turned out not to be working.
- duplicated some keys than found out one wasn’t working after we gave it to the new tenant… (oops)
- fixed the gas leak, then heating decided to fail.
- had to hire quite a few people to get everything fixed.
- constant calls and texts – every day – from our tenants for about a week.
It led me thinking to all what we have done, and what had led us to this point today. We learned a lot, made great new friends and will be getting more income because of it. Okay, we made some ‘mistakes’. But then again, we started this journey as total noobs in the real estate market. We sought advice from other investors, found a mentor even who guides us and started learning by doing.
The struggles of a real estate investor
In that one week where all seemed to go… a bit difficult. I started to doubt if this was even all worth it? Had real estate been the right choice? Was this something we could pull off?
Since our first buy in August of last year, I’ve already learned more than ever imaginable in such a time frame. Still, there are many things within real estate spectrum that aren’t all that nice and easy.
Relationships go to waste
While having conversations with relatives, friends or co-workers you start to notice that not everyone is that interested in real estate (or investing in general) as you are. The hardest part here lays in the fact that you are eager to share your progress and seek new information from others. Many whom you know, will not share the same mindset as you have. And it can cause friction or misunderstanding. We each go our own way, but we will never share the same hopes, dreams, and mindset of what we want to get out of life.
For many who are on the path to financial independence, this won’t come as a surprise. The more you are enthusiastic about something and the fewer support you get, the tougher it becomes.
Then again, you still have to consider your own relationship, in my case with Mr. Divnomics. I’m fortunate enough to have a significant other on my side to share all ups and downs with on this journey. The struggle we faced here, is that we weren’t always on the same page… The past year included many discussions and heated debates on how to move forward, self-doubt, investing money and again: what’s important in life.
Time isn’t on your side
One of the downsides we faced in the past year was that many things that needed to be done, were during office hours. Looking at properties, meetings with notaries, bank appointments or the first arrival of tenants. There can only so much to be done in the time you have, imagine doing it in the time you don’t have. When you invest actively, think of spending about 10 hours per week on finding deals, creating a network, have discussions and arranging all kinds of stuff. And then still managing a full-time job as well.
It ain’t easy to start in real estate while having a full-time job, despite what some others may say. Then why do it in the first place is a question I asked myself a lot. And ever again I came to the same conclusion. In order to create something, build wealth or a life of independence: it costs effort and a lot of time to get where you want. We just have to keep at it.
Your real-life job is getting boring
If you’re on your way to financial independence, truth is that someday you want to replace that job of yours with income from the portfolio you’re building. If it happens you’re actively investing in real estate and you like it, then brace yourself. The job you held on to because you liked it so much, becomes instantly less interesting. Just like that.
Real estate has brought our outlook on financial independence really close. We expect to call it a day somewhere in the coming years. And it often feels like you just have to sit it out until you get there.
I just started 3 months ago and already I’m feeling less motivated sometimes. The more effort and focus on my job, the more I like doing the work. Expect that on the other hand, it sucks the energy out of me because I just know an ambitious career isn’t a part of my future anymore.
Lack of experience
This one is the toughest of all. Because when you start, you have none.
The first steps you take, and even a little further in the journey, you will come across a whole range of situations. Questions will keep popping up, and you have to find out what and how to do things. This can be very stressful, as you will make mistakes. There is no other way.
All in all
It’s damn hard work. I can’t (and won’t) sugar coat it because it’s the truth. It isn’t for everybody, and that’s okay. Luckily there are all kinds of assets you can invest in. (Anyone a millionaire through bitcoins already?)
You have to decide for yourself if it’s worth it or not. Consider the upsides and the downsides before you plunge in the adventure of real estate. Again, it isn’t for everybody. And that’s okay.