Landlord Chronicles - Lessons in Real Estate Investing

It has been a while since I updated you all on my first rental property progress. Part of the reason is that I have been busy with the move and whatnot, but another part of it is that I really didn't have much good news to report until now. In my last post on my landlording journey I spoke a bit about how networking helped me, and in my initial post I spoke about how my primary concern was marketing. Well it is safe to say that since those posts I have gone through a lot of experiences and have learned quite a few lessons along the way.

One of the biggest lessons I learned was about negotiation. I spoke previously about how when I got the news that I was moving and I realized that I was going to become a landlord my primary concern wasn't laws and leases, but marketing. Well I think that was the right strategy; to an extent. In fact I think my wife and I did an awesome job marketing. Over the past two months we showed our place over a dozen times and got calls about it almost daily. This was with an entirely free marketing campaign. We used a military housing site, craigslist, postlets.com, and a few signs and flyers. The problem was that I wasn't thinking ahead. I wasn't thinking of step two. I was only thinking of getting as many people in the door as possible and hoping that one would seal the deal. When I was taking a professional development class for Air Force Contracting we watched a cheesy movie about a couple of brothers and their quest to buy a minor league baseball team. The movie was hilariously bad as far as acting goes, however it had amazing lessons on negotiation. It talked about setting anchors and having BATNA (best alternative to a negotiated agreement) and a reservation price or the lowest amount you would settle for.

Well obviously I didn't turn my education into action after watching this movie, because I would have saved myself a hell of a lot of stress and trouble had I discussed these things with my wife at the outset. At the beginning we had time on our side and a pretty nice condo to offer. As time went on we had more and more people walk away and we had to lower our price more and more. I set my anchor fairly high asking for $1700 a month in rent. We had a nice young couple come on day two who were extremely interested in the place. They wanted to negotiate rent and me being the rookie that I am, told them that the property had just been put on the market and I wasn't going to budge on the price yet. Well multiple showings later and a few years of my life lost to stress and we eventually ended up getting $1575 a month in rent. As time dwindled away the BATNA that I never set was becoming more apparent. My BATNA was me floating a mortgage in New Jersey while paying rent in Boston. Not a very good BATNA. I did the right thing by setting my initial anchor high at $1700 a month, however my wife and I had never discussed a reservation price. If we had, we likely could have gotten the first couple in back in May instead of showing the place to multiple other people for the next few months. In fact, there is a chance that I could have gotten more in rent had I been willing to budge and give a little while we were asking $1700, or even $1650.

This brings me to my next lesson learned which is the the power of the market. The market will bear only what the market will bear. Because I listed my condo at $1700, does that mean I am going to get $1700? Obviously not. With the rental market as soft as it is, many renters were willing to sacrifice what my condo had to offer, quality, in order to seek out a cheaper rental. Even though I was a little disappointed with the amount of rent I ended up getting, I really do have to say that it is reasonable given the size and location of my condo and the other condos available out there. Although this lesson is not entirely new to me, it certainly is different when your monthly cash flow is on the line. Easier said than done.

In order to avoid writing a real estate investing novel I will break up some of these lessons learned and add to them at a later date.

Geitner Can't Sell His House...But Should He?

Check out this article on ABCNews about Treasury Secretary Tim Geithner and his inability to sell his home. Most people probably just read this article and try to make some joke about how Tim Geithner is running our nations treasury but he can't even sell his home. But I think by doing that a lot of people miss a valuable lesson in home buying.

After leaving the tony New York City suburb of Mamaroneck to take his new post in Washington, D.C., Geithner put his five-bedroom Tudor home on the market for $1.635 million.

That was in February. By May, he cut the price $60,000 but still got no takers. A few weeks later, May 21, the home in New York's Westchester County was reportedly rented for $7,500 a month.

"Mr. Geithner's house is a textbook example of what is happening in the market here," said Leah Caro, president of Bronxville-Ley Real Estate and president of the Westchester Board of Realtors. "Many sellers are bringing their houses on [the market], finding that they don't have a buyer for it, making price adjustments in hope of luring a buyer into the marketplace. In the case of Mr. Geithner, he had to move. And renting was his best option."

That valuable lesson is that when it comes to real estate it is a lot easier to make a poor market decision than a poor overall decision. I love real estate and the benefits it has to offer, even in times like these. In fact I am in a very similar situation to Mr. Geithner. I just found some tenants for my condo, as I will be moving to Boston come this weekend. There are many people who would have sold and either taken a huge loss on the sale price or tried to command more than the market is willing to pay and would have lost money with the property sitting vacant. Geithner and I decided that renting was the best option for us. He likely paid someone to take care of it for him. I on the other hand have been working my ass off alongside my partner in crime to get my place rented out for the last two months (read here). People ask me if I regret buying and I have to say I really don't Yeah the last two months have been a stressful hell, but the learning experience has been priceless. I must say as I sit here on my air mattress in the living room with my computer set up on a makeshift desk of boxes, touch up paint still drying on the wall, I am extremely fulfilled with what Heidi and I have accomplished. I am not naive enough to think that everyone should own property and everyone should be a do it yourself landlord: to each his own. But for me it was a great decision, even with my Timothy Geithner like situation. More to come on my landlording lessons learned soon. I really liked the following passage because I think it illustrates the inherent flaw in peoples hindsight way of thinking.

"I don't think anybody is in a position to say that he overpaid, or anybody overpaid, when he bought his house because market value is market value," Stiefvater said. "Back in the those days, everybody was overbidding -- I'm not saying overpaying, but overbidding -- and getting into bidding wars and multiple offers escalated the sale prices to what I think was higher than market value."

At the time everyone makes the decision that they think is the best decision. If you get down the road a bit further and it turns out you were 'wrong' then just change your way of thinking now and adapt and overcome. If that means taking a loss on rent while the market recovers so be it. You are still getting a write off, depreciation expenses, someone else paying your mortgage and building your equity. Not to mention priceless experience. More to come on my landlording journey...I promise.

Landlord Chronicles - An Update

Just checking in to give an update on how things are going on my newest undertaking; becoming a landlord. As for lessons learned thus far, I would have to say the biggest lesson is that your personal network of friends and connections is one of the most powerful things you have access to. If you don't know someone who can help you with something chances are someone you know knows someone.

In my last post I detailed about how my primary concern was marketing my place. Well I have a hockey buddy named Bob who owns his own photography business. The company name is Lorusso Studios and if you ever need anything regarding photography I strongly recommend his work. I got Bob to come and shoot some pictures of my place. They turned out great and are serving as the basis of my marketing push which will hit the web full force on Monday. Click here to see my Postlets profile which can be inserted into any classified ad or social networking site. I think it really makes the home stand out amongst a myriad of postings on different sites. I knew the Postlets profile was a great start but I didn't feel as though it told the story of our home, so I created a blog just for our place. The blog allows me to direct potential rental applicants to a site with multiple pictures so they instantly know whether my rental is for them or not. Its like promotion and potential applicant screening all in one. I know when I was searching for our place and other rental properties I didn't even think to check out a place without a picture. The more pictures the better. People love information and a picture is one of the quickest and easiest ways to tell someone the story of your property. I have made it easier for people to gain access to my property's story.

After working my way through some of the sexier aspects of my new venture like taking the pictures, marketing, etc. I knew that there were some details that I needed to tend to. Once again a few good buddies led me to the answers and resources I was looking for. My buddy Eric has a brother in law who has quite a few rental properties and he had his brother in law call me. We talked for a bit and he was extremely helpful. He even shared his lease agreement with me, which I thought was pretty cool because a lot of experience goes into building those things and he has never even met me. I also touched base with an old roller hockey buddy back in Oregon who I knew did a bit of real estate investing. I asked him if he has any tenants and how he screens them etc. He put me in touch with another roller hockey kid's girlfriend who works at a credit/background screening company. I called her up and that issue was solved. It's pretty amazing how small the world is becoming.

So far it has been a great learning experience. Pretty stressful, but a good experience regardless. I will continue to post updates down the road to landlord land, and if you think you have any leads to fill my property let me know!