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Investing in Rental Properties…financial freedom or constant headaches? Here’s 3 Helpful Tips.

Fort Worth Property Management

“I’m interested in investing in rental properties.”

I hear this at least once a week. Everyone loves to talk about real estate, especially how they can profit from it. Real estate investing is very ‘en vogue’ right now. There are several popular TV shows about it. Your brother-in-law is doing it. Your friend and his wife from high school are all over Instagram with their latest flip project that is certain to feature shiplap somewhere. Even for someone who knows little about the industry, the path to success seems promising. Why wouldn’t you be interested?
If you’re looking to invest, rental properties are a great place to begin. In our current market, the financial barrier to entry is low. They generate monthly cash flow, offer multiple exit and use strategies, and build long-term wealth. All of this is done with an asset that you control and a business plan that is understandable. This is why so many of your friends and family are involved in rentals. But are they doing it successfully?

I’ve been investing in real estate since my early twenties. I bought my first house on Jessie Place in Edgecliff Village in 2003. I convinced my wife, Jessica, that owning rental property was the way to financial freedom! I had a foolproof plan: buy a house – rent the house – make rent money – sell the house in a few years for a huge profit. I had a young man’s desire, naivety, and unrealistic optimism as I purchased my first rental property. It did not go well. You name a mistake, I made it. How did I set my rent? I guessed. Did the house meet Texas Property Code? I didn’t know what that was. How did I screen my tenant? I googled an online service. Within two years, I had learned the hard lessons of what had once seemed so simple. One eviction, thousands in repairs, and a court case later, I had been chewed up and spit out by the investment real estate world. But I wasn’t ready to give up. I KNEW this would work and I KNEW I could do it.

After those several failed attempts, my approach to real estate investing changed. I learned to seek out guides and gather knowledge. Guides can never guarantee the outcome. You can hire a fishing guide, but there’s no guarantee you’ll hook a five-pound bass. However, hiring that guide can provide you the expertise and experience to seize the opportunity to make the catch. The guide will keep you from wandering around the lake all day with the wrong fishing pole. He’ll show you where the fish are biting. When I bought the Jessie Place house, I went out on the lake in ignorance. I had no guide, the wrong pole, and no plan of where to cast my line. This is a common mistake made by first-time investors. They go out with no guide and no tools, or the wrong guide and the wrong tools. When it comes to this type of investing, my best advice would be to seek out these 3 guides before you “fish.”

Your first guide should be a real estate agent with investment experience and expertise. Many traditional agents may not be equipped with the proper knowledge and tools to assist you. Ask your agent this question: What kind of return on investment can I expect from this property? Your trusted REALTOR® who has helped you buy and sell several primary residences may handle your investment purchase by teaming up with a colleague with this expertise or may want to refer you to someone they know is sophisticated at navigating this process. {Quick plug re: LEAGUE agents…we have been intentional to make investment transactions a normal part of our business and our agents are equipped with expertise or have several colleagues available to collaborate with so that all our clients get the best guidance!}

Your second guide should be a good mortgage lender. Single-family home financing is backed by the federal government. Because of this, rental homes offer the most favorable lending terms available anywhere. With those favorable terms comes a mountain of regulations, hoops, and documentation to jump through. A good lender will guide you through this and minimize your time investment in the process. When you begin your search for a lender, look at local lenders who work on commission versus a lender on staff at a national bank. He/she will work harder for you.

Your last guide should be an experienced property manager. After you’ve closed on your rental property, it’s time to find your first tenant. Within the investment property model, the tenant is the key. He/she is your source of income and the day-to-day caretaker of your precious asset. You must choose wisely. Most property management companies will provide this service. However, a high-quality manager will earn his fee by understanding that vacancy is your enemy. With no tenant, you lose money. After the lease is signed and the deposit paid, a quality manager makes it their mission to answer maintenance calls and address issues to keep the tenant comfortable and content. To find your property manager, talk to their current or past tenants. Unfortunately, it’s rare that the manager-tenant relationship is a good one, so when you find one that is, that’s the manager for you!

If investing in rental properties is the direction you’re headed, please feel free to reach out! We’d love to help guide you through this process.
LEAGUE Real Estate is a full-service real estate brokerage providing the Fort Worth area with a complete range of services including property management. With combined twenty-plus years in residential property management business, LEAGUE Property Management is proud to serve Fort Worth.

You can learn more about our property management division HERE.

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