Expectations When Buying Your First Investment Property
Have you ever met any landlords who are overly excited to be a landlord? That is, someone who would wake up in the morning and tell themselves, “I’m SO excited to be a landlord today!”
Well, if your answer is no, then that’s normal. I tell my clients that I don’t know anyone like that either.
The End Goal – Being a landlord is not the easiest thing to do, whether it be a side hustle, hobby or your primary source of income. However, what I can tell you for certain is that the random days of frustration that you may have to deal with (relating to your tenant or your property in general) is 100%, without a doubt, worth it in the end.
Of course, those random days of frustration will always seem to come at the worst or most inconvenient of times where it’ll make you want to sell your property. But if you end up making $50,000 from cash flow, mortgage paydown, and appreciation for having to deal with maybe 2 of those bad news calls every year, then wouldn’t those calls be worthwhile?
Let’s say it’s a problem that requires 4 hours of your undivided attention to resolve twice a year. So that’s 8 hours per year of property management to make $50,000 or $6,250 per hour for your time. You can decide if that sounds like it’s worth it.
Now let’s go through the emotional roller coaster of buying your first investment property, so that you know exactly what to expect.
PHASE #1: Not Knowing Where to Start
Emotion: Confused, curious, anxious and everything in between
You hear all of the horror stories of real estate investing, landlords and tenants and all of the other things the media depicts on the evils that come from being a “landlord”. On the other hand, you realize that most wealthy individuals own real estate in their portfolio. During this phase, you want to be wealthy or even at the very least, your hope is to not be tied to only one stream of income.
My Advice: Read Rich Dad, Poor Dad by Robert Kiyosaki. It’s a very insightful book and will help you understand the fundamentals of why people invest in real estate.
PHASE #2: Learning, Information Consumption and Running Wild with Thoughts of Endless Possibilities
Emotion: Excitement, Anticipation
This is the best part as you are super excited at this stage. You start to really understand the principles of investing and why it works the way that it does. You learn about the strategies that could be executed to grow your portfolio faster. Needless to say, everything is rainbows and unicorns at this stage.
My Advice: Make a commitment to buy your first property within 3 months, otherwise your excitement will subdue as the process drags on.
PHASE #3: Looking for the Best Property and Getting Option Fatigue
Emotion: Frustrated, Exhausted
The honest truth is that there is no perfect investment property. There are properties with more upside and options than others. I’ve seen many people look for the so called “perfect property” and try to time the market so that you’re buying at the “absolute bottom”. With these things in mind, you’ll quickly get tired, frustrated and eventually give up. At this point, you may possibly never end up buying anything and would have wasted your efforts looking into these wealth building strategies.
My Advice: If a property answers YES to the following 2 questions, then it’s probably worth it to buy.
- Criteria 1: Is it cash flow positive?
- Criteria 2: Can I sell it easily if I need to exit?
Beyond the 2 criteria above, it is very important to speak to a Realtor who understands the dynamics of real estate investing to avoid making costly mistakes.
Remember, it’s about TIME IN the market, not TIMING the market.
PHASE #4: Closing Time
Emotion: Stressed
There will be stress when it comes down to closing time, especially with how stringent mortgage qualification rules have become. Gone are the days where you can get a mortgage with just a driver’s license and expect to get cash from the bank.
My Advice: Get a good mortgage broker and lawyer. A good Realtor will line you up with the appropriate professionals to help carry out the transaction. We have great contacts and we’d be happy to connect our clients to them.
PHASE #5: Getting a Tenant
Emotion: Panic
This is where it becomes the most stressful. You just bought a property, and you’re anticipating to collect rent from a tenant. You don’t know where the tenant is coming from yet but now on the line for carrying a mortgage.
My Advice: Follow the steps that I’ve outlined for getting the best tenant in this PPTV Episode – How to find the Perfect Tenant and you’ll be just fine.
Remember, if you have followed our advice on where to buy, your vacancy rate should be very low in the areas that we recommend. Take a deep breath, it’ll be okay. We got you!
PHASE #6: Money Starts Following In
Emotion: Elated, Relieved, Happy
You got your first tenant, received the first and last month’s rent, and your property is now paying for itself. You did it! At this point, you’ll probably feel like that wasn’t so bad in the grand scheme of things.
My Advice: Keep some of your cash flow in a separate account for emergency repairs to the property. I recommend keeping funds equivalent to around 3 months worth of carrying expenses.
PHASE #7: First Tenant Call
Emotion: Misery, Stress, Frustration
Getting the very first call is always nerve-wracking, frustrating, and is bound to throw you off your game. Depending on the severity of the call and the issue at hand, you may start second guessing yourself, questioning why you chose to become a landlord in the first place. Your property and your tenant are starting to drive you up the wall.
My Advice: Calm down, take a deep breath, call our team and we’ll guide you through a resolution. Just remember that the reward you get for dealing with these inconvenient calls is worth it. We have contacts for most situations as we’ve seen it all (well almost all – nobody can really claim that they’ve seen absolutely every possible scenario).
PHASE #8: Desire to Buy More
Emotion: Eager, Excited and Motivated
Now that you’ve gone through the entire emotional roller coaster, you’re ready for the next one and laser-focused on building up your portfolio. You have first-hand experience with the power of real estate and what it can help you achieve in the long-run. At this point, you also have a solid understanding of how the real estate investment game works and you begin to strategize on your next move.
My Advice: Let’s chat and determine how to strategically line up your portfolio with a good mortgage broker who understands making the right mortgage moves for investment-specific purposes. Ready to start this exciting adventure, yet again?
The Wrap – Hopefully this guide on buying your first investment property helps to prepare you for your venture into real estate investing, and how to manage expectations. It truly isn’t that bad if you understand the whole journey from start to finish.
If you are looking for your first investment property, reach out to the PPTO Team, and we can chat about how to navigate through the real estate market, and more specifically, the investment side of things. Our team has decades worth of real estate knowledge and expertise to better serve you and your needs, goals and aspirations.
Your Move. Your Future.
- Zhen@PrimePropertiesTO.com
- 416-436-9436
RE/MAX Excel Advantage Realty
- 120 West Beaver Creek Rd, Richmond Hill, ON L4B 1L2
