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Real estate is a powerful way to build long-term wealth. But like any business, it comes with challenges that make you question why are you are even doing it. This episode is a quick reality check with some suggestions on how to look at the challenges in front of you.

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Transcript

Before we jump into the episode, here's a quick disclaimer about our content. The Remote Real Estate Investor podcast is for informational purposes only and is not intended as investment advice. The views opinions and strategies of both the hosts and the guests are their own and should not be considered as guidance from Roofstock. Make sure to always run your own numbers, make your own independent decisions and seek investment advice from licensed professionals.

Emil:

Hey everyone, welcome back for another episode of The Remote Real Estate Investor. My name is Emil Shour, and today I am only joined by one of my co hosts

Tom:

Tom Schneider, more than just an only you ARE joined by Tom…

Emil:

Glad I am joined by THE Tom Schneider, no Michael Albaum today he's he's traveling around in Portugal being the true remote real estate investor that is so just Tom and I on the episode which I mean, I don't think is a bad thing. You know, Mike, Michael is kind of dead weight around here anyway.

Tom:

Nice. Throw him under the bus.

Emil:

Throw him under the bus. I'm just kidding. Michaels, Michaels man will miss him. But today's topic, we're going to be talking about dealing with the hard parts of real estate investing. So contrary to what some people may believe it's not all mailbox money. It's not all rainbows and butterflies and sunshine and making money. This business will test you It's hard. There are points where you may want to throw in the towel. And I've certainly felt that Tom, I think you've probably felt that at certain points, too. I know many other investors have talked about it as well. So we're going to be talking about how do we deal with that we deal with the those emotional moments and those moments when you want to just give up? And how do you overcome them? Keep going. So let's get into this episode.

Emil:

All right, Tom, I hope I hope people don't see this as like a pessimistic episode, I'm more so you know, we talked about this before we started recording, I think it's just important to be aware of these things. You know, when I first got into investing, it was just awesome. And then something, something happens, right, you have a large expense, or you're dealing with probably, maybe your property manager isn't communicating the way you'd like, there's all these various things that will happen.

And it's going to test you it's going to test you emotionally, it's gonna test your resolve to kind of stick with it. And so I thought it'd just be good for us to talk about, like, these different points.

Tom:

I love it. It's just, it's something just kind of add onto that it's not a question of like, if something negative is going to happen, it's like, okay, when you know, like, it's go ahead of me.

Emil:

Yeah, exactly. It's, it's going to happen. And that's okay. And that's part of it. And I think, you know, anything where you're gonna make money, and there's opportunity, part of your job is to handle challenges. There's really nothing in life where you just kind of, you know, limp in and put some money in. And it's not that challenging, and you just have awesome out weighted returns, right?

So this is a business, you know, it's not just like putting your money in the stock market. And what happens happens, there is a business, you manage it, you have tenants, you deal with people all the time. So, you know, these things can throw curveballs in your life. So, Tom, do you have any moments recently that you can think of when you kind of when this has happened? I don't know how recent it's happened for you.

Tom:

Yeah. So I guess one more thing, kind of high level throw in is, you know, we all understand the benefits of real estate investing, right, you're getting loan pay down, you're catching, you're collecting rent, you're getting appreciation, there's all this good stuff, you know, but these challenges, they, they provide a little bit of a moat, in getting into it, you know, in being able to deal with it. For people who don't want to deal with some of these challenges that come up, that's that's a bit of a moat in kind of the perseverance and patience and all that good stuff.

So let's see something sort of recently that happened. So this happened maybe two years ago, I bought a property where there was a tenant in it for a very long time. And so there was what’s really called deferred maintenance. And one of the things ended up being in the bathroom, the I think it was like the tub or something, there was a little bit of leaks going on, in in the plumbing. So like it, it's like the worst type of leak where it wasn't a lot where was obvious it needed to get fixed. It was a little that it's just enough to wear down some of the sub flooring.

So I ended up on this property needed to do sort of a full sub floor gut job on the bathroom. And, you know, when you're mapping out these acquisitions, you're, you know, putting some assumptions in on how much you think renovation was going to be and this ended up being I think, like, five times like what I had for the year, is like several thousands of dollars to have floorboard, new tub, all of those trades. So this was a a real backbreaker in looking at this property as cash flow, which, you know, hit it for next few years thinking about cash flow.

Emil:

Yeah, I think that's when it hits me the most is like, anytime you're you're doing, it's usually with maintenance stuff, right? It's like things that cost a lot of money. And it's always the unexpected thing. So like, you go in, you're like, oh, we'll just have to, you know, clean the tub or whatever. And then they they open some things up, and they're like, Oh, your sub floors rot. And you got to change that out. You're like, man, why do I do this?

Tom:

Why do I do? Yeah, Does somebody want this?

Emil:

It's always with turns, mine is mine is the same thing. I'm doing two turns at the moment. And it's like, it's the ultimate emotional test is when you have a tenant leaves, and you think, oh, maybe we'll just have a couple $1,000 in repairs, and, you know, usually adds up, usually adds up.

So I guess my next question is like, how do you deal with it? Alright, you feel like this waits, and you're like, oh, man, this is way more expensive than I thought, you know, like, like, walk me through how you're feeling? And how you kind of deal with it?

Tom:

Yeah. So I think with any kind of challenges, it's good to break down, like, what is the path to being done like, on the other side of the good. And for this particular case, and also to kind of evaluate, like, what your options are, and have some long term context of like, what you're trying to do. So getting to the other side of this, it was like, Okay, I don't really have a lot of options outside of making these repairs, this is safety, this is habitability, this is function, you know, I like where this property is located, I, it is appreciated a little bit, is continue to appreciate quite a bit. Since then I'm, I'm still bullish on this, I'm going to keep kind of marching forward, and just take my licks, fix this up, I'm going to be in trouble and cash flow.

But giving it context, like I said, so I am very long on real estate, and this kind of stuff I know is going to come up. But if you you know, sure this is going to take a big kick in the teeth on the cash flow aspect of it. But the way that this property is continuing to be in demand, like it, you know, and occupied and appreciating, you know, I I'm okay, not needing, you know, the extra 5000 or $10,000 needed to fix up this issue. I am long term on sort of reinvesting these funds, that is going to go into fixing that to continuing this keeping this thing moving along.

Emil:

Solid I think that's great.

Tom:

So yeah, having a broader context. And then also, just not thinking abstractly and just thinking sort of, okay, this is what what I need to get to a point from where I'm at right now to where I want it to be. And having that broader context. And in the back of my mind.

Emil:

Smart, very smart. I think it's so important, whatever you do to surround yourself with people who are doing that as well. So if you invest in real estate, join groups, watch YouTube videos, listen to podcasts, like ours, or many others out there. Because I think, knowing that you're not alone, like knowing it's so easy when this stuff happens to be like, Oh, man, I made a bad investment, or I'm not good at your job, whatever it is, right? And think you're so singular in this problem. When you think follow more people talk to more people, you realize, everyone hits these speed bumps. Everyone deals with these really, you know, painful challenges, especially if it's the first time you've dealt with it, right? I think as as you keep going, and like, these things come up, you're like, Oh, just the cost of doing business. They don't like, they don't mess with you emotionally like they once did. So I think just like hearing other people's stories, surrounding yourself with people, allows you to realize you're not alone, and that this is all just part of it. And it's common, more common than you think.

Tom:

Yeah. I love just to echo that community aspect. I think it's important in that community that you build around you, as you know, has kind of similar experience or more experienced than you because, you know, if you start talking about these kind of issues with someone who doesn't invest in real estate, they're like, it's hard, harder context for them to get it.

Emil:

Right. Yeah, they'll tell you to sell like, oh, why do you do that? Like if someone doesn't invest in real estate, they'll be like, why are you even doing that?

Tom:

I think the one of the worst things that can happen as a real estate investor is being forced to sell, you know, thankfully, in my situation, I had proper reserves to go and apply it to fixing the property up I didn't you know, the property didn't have to go be dilapidated or whatnot. I had a friend who got involved in real estate investing and needed to sell for whatever, you know, whatever reason how to sell really quickly. And during escrow, the person came back to him and said, Hey, you know, you have a roof that's having some issues like I want you to take $10,000 off and he was in a rush to sell so he didn't really have a great negotiation chip and ended up selling during a super hot market for like $10,000 under what he could have had and that's just like bottom line money gone.

So I think another really important thing in managing the hardest stuff is to make sure that you have the right reserves behind you. Because that's really the the main way you can lose in this game is not having the proper funds. When stuff like this comes up.

Emil:

Yeah, you your first line was the most important thing. Don't be a force seller. That's when you lose money. Like you want to be in the position to sell when things are are doing well. You don't want to have your hand forced in this game.

Tom:

What's some recent nightmares in Emil's real estate investing?

Emil:

Mine is, you know, like I've been mentioning these turns man, like, I bought this property this triplex in November and like I underwrote, I don't know, I think like $5,000 for turns or something, because I knew, you know, a couple tenants were super under market, I was like, Alright, we're gonna try to raise rent, they'll probably leave let me write in some, some repairs. And just right now with the way things are, it's hard to find contractors, they're charging a lot, right, just given the way like, labor costs are going up, supply costs are going up. So like, are severely underestimated my underwriting. And so it's going to cost us a lot more to do these turns.

And they've taken a lot more time than I thought, right? Like some of these are taking four to six weeks when I was like, Oh, we can get them done in less than a month. I think it's always when your expectation and your reality is way off. That's when frustration or just like disappointment occurs. And that's what's been going on.

So for me, it's just been with this triplex like getting it turned getting at leased. Luckily, during this time, rents have also gone up. So like, I was way conservative with my underwriting on what I thought we could get for rents. And so like now, even with these expenses, it's like my cash on cash is gonna look much nicer than I thought it was when I bought the property. So, you know, not all terrible things. But man, you know, every time you have a turn and getting the unit renovated and leased out takes longer than you think it's just, it's always painful. It's always like, tough dealing with your property manager, because you're like, why are we getting this leased and blah, blah, blah. So, I don't know that for me, it's always during tenant turns that it's like, frustrating.

Tom:

Yeah, I think another point that I like that you brought up is just comparing your expectations, you know, against reality. And what's probably also like that much trickier and your your position is you're getting a little bit more on some more multifamily stuff where it's kind of like newer expectation building, you know, of what you know that versus if you're in a swim lane that you understand really well, like you just have a much better understand on the kind of expectation of a beta around like, timing. And so getting into either a new market or a new asset class, it's a whole new set of expectation setting and, again, to that community aspect, that's why it's important to have these people to bounce like, Hey, does this make sense for in this market for this property type talking to somebody who has that experience? To You know, let you know if like, yeah, you should be upset or no, that's that's normal Emil like for what you're doing what you're managing. I think that's an important to have for sure.

This is may or may not be related to the topic, I think it kind of is. It's it's a story that I heard yesterday that I thought it was just so intense. So this guy was trying to time the market, which is something that is like patently impossible to do. And this wasn't with the rental property. This was his personal property. So he has a house in the East Bay of San Francisco over in Walnut Creek, nice suburb. And two years ago, you know, the markets been climbing like crazy, he's like, no way the markets gonna go up anymore, I'm gonna sell my house and then rent. So he does this, he sells his house, and he rents for the last two years.

And meanwhile, his home is probably appreciated, like 30%, or some crazy amount, and now he's trying to go back and buy a house. And, you know, trying to buy just the same house that he was in before he like out priced himself because it appreciated so much. So this is not totally related. I mean, when you think about the different ways of going down as an investor like not being successful, it's I think it's important to think about what would make me more upset. So like, if you have this rental property, and you ended up, you know, selling it, and you no longer kind of have access to this type of a wealth builder versus managing through these waves of the challenges like I think it's important to kind of run scenarios as impartially as you can, kind of playing out these different paths that you can have when you're in a frustrating situation.

Having that five year 10 year 20 year mindset is I mean If that's your strategy to build long term wealth through real estate, it makes it a lot more palatable in going through these, Oh, darn, I have to change the sub floor out. But, you know, hopefully, that's something I don't need to do again.

Emil:

Right? Right. It is important to remember that, like, you know, when you want to throw in the towel, when you're like, man, am I maybe this just, I'm just not cut out for this, or whatever it is. I always think about all the people who bought 20 years ago and still own a property, and I'm like, man, imagine if I had bought 20 years ago, you know what I mean? Like the people just, they deal with the problems, they they persevere, they go through it, they maintain the hold for the long term, you know, the longer your time horizon, generally, the more smooth your returns will be. And all these these bumps will kind of smooth out with the periods where you have three years, same tenant, no issues, you know what I mean?

So I always try to remember those things in these moments of frustration and, and hardships, we'll call them.

Tom:

Yeah, some, some grit.

Emil:

It's mental. You know, it's funny, because it's a mental game, especially for us, we invest remotely, it's not like you or I have to go change out the sub floor or anything, right. It's really just like, we have to take money out of our pocket, give it to somebody else, and they fix the actual problem. So it's all just like, the mental game, we're playing.

Tom:

It was something I was, like, an angle I was going at a meal is, you know, while we are like in really fortunate positions, to be able to have extra income to invest in real estate, because there is a barrier of entry of like, being able to buy it, right. We're not like, like, overly wealthy, like, this is like a meaningful part of the, you know, the extra savings that we have that we're applying towards this and you know, very grateful to have the opportunity to do it. But it like is really meaningful. Money. It's not like, you know, abundantly wealthy to be able to do this. It's,

Emil:

Yeah, I wouldn't everyone thinks or their landlord is like this super rich dude living on an on an island, just sipping pina coladas. And it's like, I forget where I heard this joke or something. And he was on Twitter. It's like, like, some real estate investors, like, Oh, I'm wealthy, but I don't have any cash. Because it's like, your cash is always kind of tied up in your assets. And so it's like, you're building well, right? A lot of the times, you know, sitting in, in your portfolio, so…

Tom:

Totally, but you know, again, it's not like lost on me, like it's very unfortunate, very fortunate position to be able to save enough money to partake in this type of investment. But, you know, it's not like there's a money tree behind. So like, the mistakes and those issues are real, for sure.

Emil:

Totally. Yeah. Yeah.

All right, I think good spot for us to end this episode. Hope you all found this, this helpful next time, you know, you're dealing with a challenging situation. Hopefully, we gave you some tips to to break through that feel better and keep moving, keep chugging along and ride out your investment journey. So with that, thank you all for listening, and we will check you out on the next episode. Happy investing.

Tom:

Happy investing.