Real estate investing is becoming more mainstream. Prices have gone up considerably in recent years. Podcasts and social media make it seem attainable and attractive. Since the Great Financial Crisis (GFC) prices have gone straight up after bottoming out. However, it is not always as easy as people make it seem. I think owning real estate is like a boxing match.
Round 1, Fight!
First, you must get in the ring. That means you must find a deal and make offers. It was a lot easier 10 years ago to get deals when nobody wanted to touch real estate. Today, people want to buy houses and people also want to buy multifamily deals. The word is out, and the space is crowded. Just getting into the ring can seem like its own boxing match.
Multiple offer situations drive up price and competition. Brokers are selecting best and final after apartment investors submit their offer. It can be a lot of work to do research and evaluate properties to a level that mitigates risk—you may have to pull the trigger without all the information. It could be a year or more of competing to get a deal in some cases. And some of those cases bow out, waiting for the market to drop.
Under Contract
You slug it out and now you have a deal under contract. Depending on the bank or lender, closing can take up to 2 months. This will take up a lot of energy closing a deal. You must get inspections and reports done on the property to satisfy the lender’s requirements. If you do not have the down payment you will have to raise money, which can be stressful. There is a considerable amount of paperwork and documents needed for due diligence. You will also need to do your own due diligence on the property.
With increased competition, sellers can take advantage. Putting up hard money for a deal can entice the offer. This can also make being under contract more stressful. You must close or forfeit a considerable amount of money. You can take a few hits in the negotiations, but hopefully not get knocked out.
Asset Management
After you have the deal closed it is time for celebration. I like reading social media posts of people that successfully close deals. It is a lot of work and kind of a relief. It is like being in between rounds because there is still work to be done.
Once you close you must make sure the property is taken care of. You need to keep up with the maintenance, taxes, insurance, landscaping, etc. Some starting out like to DIY and others hire 3rd party property management. Rolling up your sleeves in the beginning can be a good teacher but not always necessary. Hiring a 3rd party requires you manage the manager. If you have investors, you need to keep them updated and satisfied.
Managing the asset properly ensures that you make a good return on your time and money. This requires good business acumen and good decision making. You do not want to over improve a property and waste money. You also do not want to let it slide and cause vacancy.
You can take some punches during this phase quite often too. Unforeseen expenses always arise when owning real estate. Ask anyone that has been in real estate long enough and they can tell you all kinds of stories. Floods, hurricanes, plumbing repairs, AC’s, etc.
My first day back in the US after a 6-month deployment I saw a hurricane on the news. A Category 3 headed right directly over the island I owned my first rental property. A gut punch for sure. Luckily, the hurricane tailed up and the damage was minimal. I have insurance but I would rather not deal with an insurance claim if I can help it.
Selling
Depending on the market, the sale could be considered the final round of the match. Right now, it is less stressful for sellers because buyers are willing to give concessions and pay over asking. This was not the case during the GFC when prices were dropping, and no one wanted to buy. Many properties went back to the bank. This final round was a knockout for a lot of investors.
Usually, most people want to talk about the wins. They want to talk about the returns they made or highlights of the deal. “We made this much money, or it is cash flowing nicely!” “I am going on my 2nd vacation this month.” I say this because I have been investing in real estate since 2014 and listen to podcasts daily about real estate.
Most of what is advertised is the good. I like talking about how my properties have gone up in value. I do not like talking about the Airbnb guest that trashed my house last month and caused considerable damage. Food in every corner of the house. Sheets and towels ruined. A closet mirror door smashed—they did not pick it up and there was food all over it, lol. Permanent marker all over the bathroom. I am still waiting for a decision on my claim.
However, after the property is sold and the returns are locked in, the match is over and on to the next. Hopefully you did not get beat up too badly. I am currently selling a property and will have doubled my money in less than 4 years. There were plenty of bumps and bruises along the way, but it is nice to come out on top.
Conclusion
Owning real estate is like a boxing match. You must go many rounds and take punches along the way. You will not hear this advertised often but there is a certain mental stamina you need to be an owner of real estate. The investment is illiquid so you must be prepared to go the distance. It requires capital and attention. It is rewarding if you can stay in the ring and win the fight. That is what you hear on podcasts and social media mostly: the good. And there is a lot of good for sure that comes along with it if you are successful.
