10 Things We Wish We Knew Before Buying a Rental Property

17:37Brandon Turner:So find people who you want to work with, who have a common goal with you. And if that common goal suits your business needs, then you can trust in that because you're right. They're not going to care as much as you do.

17:49David Greene:Yeah. I think property management is kind of like the perfect example. I've fired property managers and most of them started great. And I don't think they were bad business people, their business just like went in a different direction than mine. And they were prioritizing different things. And it was my responsibility to say, you know what, this, this relationship is no longer mutually beneficial. And we got to part ways. And it's like, I don't hold it against them. It's just, it's my job as the entrepreneur to say like, you know, I'm doing what's best for my business. You're clearly doing what's best for your business.

18:23David Greene:And you just have to think about it that way. It's not nefarious. People aren't like trying to screw you over most of the time they're just trying to do what's best for them and no two people no two businesses are ever going to be perfectly aligned along the same path agreed all right henry what is the fifth thing you wish you knew before you bought your first rental this

18:41Brandon Turner:one is i wish i understood the construction process a little better before getting into my first deal when you study real estate investing listening to podcasts uh reading books you hear about you got to know how to find deals. You hear about, you got to know how to find the money for those deals. You hear about, you got to know how to select the right tenants. Like you hear about all the things in the process. You hear very little about construction or understanding the construction process of the background. And I remember after closing on a series of duplexes, we were evaluating contractors and one of the contractors showed up to look at the job and he was like, I don't want this job.

19:23Brandon Turner:Like this was a big waste of my time. He's kind of fussy with me about it. And he basically said, you should just do scopes of work and send those out so that we can see what's going on, the size of the price. Cause, and he told me, he's like, some jobs are going to be too big for some people. Some jobs are going to be too small for some people. But if you, if you approach it this way, you're not going to waste my time or waste other people's time. And A, I had no idea to think like that. And B, I really didn't understand how big the job was. I was asking him to do. And a lot of new investors end up losing money on deals, not because they bought the worst deal.

19:57Brandon Turner:It's because they didn't budget properly on their renovation. They end up overspending and you get in a tough situation. So understanding more about construction, how to do scopes of work, what an actual rehab is going to cost you, like spending the time to learn those things, I think would be a value to you prior to doing the first deal.

20:14David Greene:I think probably my biggest regret as a real estate investor is my weakness in understanding construction. It took me, I mean, I've said it on the podcast, I think in 2024, I made a goal 14 years into real estate investing to learn construction better. And I've done rehabs on pretty much every project I've ever bought, but I'm just not that good at it. I don't understand it that well. And I actually think in my experience, it's not as much losing money on deals. It's avoiding deals that I could have made money on because I was like, this is too big of a project for me. And I didn't want to take on really big rehabs.

20:53And so in 2024, I was like, my goal next couple of years is to get better at this.

20:57David Greene:And I've been lucky, you know, working and doing some flips. At first I did passively and started to learn it. Then I invested and started getting in on the planning process a little bit more. And I did that in sequential steps before actually doing my own. and I found it super helpful. It's honestly not that hard. There's just moving pieces. And I think just understanding what I would call the order of operations was what I needed to understand. It's like, when do you do each thing? What's like basically a checklist in your mind of things that you need to do? And once you do that, it's not that hard.

21:29David Greene:Value add just is the most reliable way to make money in real estate these days. So getting comfortable with some level of construction, it doesn't need to be structural, big lifts, but getting comfortable with it and just ripping the bandaid off is something I wish I did way, way earlier in my career. All right. Number six, Dave, what you got for it? Door count doesn't matter. I know people get mad about that. Efficiency does. I think that is the most important thing. I joined BiggerPockets in 2016 as an employee and everyone's just talking about how many doors you have. It's your badge of honor.

22:04David Greene:I know. It's like you go into any meetup, people are asking how many doors you have. I think it's not only just like an ego thing for people. I think it's actually counterproductive and hurts people's effectiveness as real estate investors. Because first and foremost, depending on what your goals are, as we started this conversation and having a lot of doors might not be your goal. At this point in my career, my goal is to have fewer and fewer doors and to have more and more passive income, whether that means investing passively, doing lending, or just owning a couple of paid off properties. Like those are the things that I prioritize, not scaling more and more.

22:38David Greene:But the reason I really, this drives me nuts is because someone may come up to you and have 50 doors and they're 50 terrible doors. Like it is not a measure of success to buy assets. It's a measure of success is buying performing assets. So I would rather brag to people about what my return on equity is. To me, your efficiency as an investor is a much more important metric to hold yourself accountable to. How good are you at this? That's what ROI or return on equity measures. Door count is like, you can just go out and buy stuff.

23:15Brandon Turner:And it matters what kind of assets you buy. It matters what your strategy is because you could buy an asset tomorrow that doesn't produce a great return. But the goal for that asset could be to provide you the kind of return you're looking for in 10 to 15 years. This isn't a short term game and it's not the same for everybody. So measuring somebody's success based on the amount of doors that they own literally means nothing. It's it's it's and I like what you said about measuring the efficiency, the return on equity. Like that's a big that is a good measure of are you getting the return on the money that you put into the business?

23:53Brandon Turner:Because you and I talked about this on an on an episode recently. Like you can go pay cash for a house and it cash flows. That doesn't mean that it was a good deal. It doesn't mean that you're getting a great cash on cash return or a great return on equity. Just paying cash means nothing. It's about what are you getting in exchange for the money you had to put into the deal?

24:12David Greene:You have to think really carefully about what you're holding yourself accountable to. And if my goal personally was to go out and just get to 50 or 100 or 200 doors, I could go do that. I'll go buy bad multifamilies and I'll get to my goal. But my goal is time freedom. And so I hold myself accountable to that instead of the number of doors.

24:36Brandon Turner:And honestly, don't you envy somebody who has like five to 10 paid off properties and is living a great life more so than the guy who owns 3 ,000 units and is stressed out?

24:49David Greene:A hundred percent. I was looking at this the other day. I own, I have a triplex I've owned for 10 or 12 years now. That one property I think makes me$4 ,500 a month in cash flow. It's not even paid off. When that's paid off, it's going to be eight grand a month. I need three of them. Like what else do you need? Right, absolutely. So I just think it's silly. What you should be holding yourself accountable is like, are you working towards your goals? And figure out what your goal is and make a metric that matters to you, not this metric that other people think are important. All right, we've done six of our 10 things that we wish we knew before we bought our first rental property.

25:32David Greene:What's seven?

25:33Brandon Turner:Number seven is to treat your properties, especially your rental properties, like a business. And what I mean by that is when I was getting started, I wanted to find good deals, buy good deals, rent those good deals out. Right. But I didn't think about. You didn't want to operate it. It's not just operating it. Yeah. It's more about like rental properties are a business, like flipping a house is a business. Like if you tell somebody that they're going to flip a house, they're thinking about what finishes to put in it they're thinking about that end customer and how they can add value to it in a way that that end customer will want but for some reason with rental properties people just don't think about that they think i want to get a property i'll just clean it and we'll throw it out there and somebody will come and live in it and in some markets maybe that's true but i think i had to learn like you need to think about your rental properties in the same way that you think about a flipping business who are the people that are come and live there?

26:28Brandon Turner:What kind of amenities do they want? How can I add value to this in a way that those people are going to want? Because vacancies kill rentals. And if your property looks just like everybody else's property, it doesn't stand out. There's no guarantee somebody's going to want to rent yours over somebody else's. But if you add the right amenities, if you think through who your end customer is, and if you position your property in a way that stands out, you get your properties rented faster and saving in vacancy is literally putting more cashflow in your pocket. So think about your rental properties and marketing your rental properties, just like you would think about your flips.

27:02David Greene:I don't know if you get this question, but, you know, speak at meetups and stuff. People always ask this question. Like I have this property, it's sitting on the market vacant. Do you have any advice? Yeah. Have a better product. Like your product's not good enough. Like it's just not competitive. Like you have to think about it in the same way that, you know, if a coffee shop's competing against another coffee shop, like what's the value proposition? What's the difference between your coffee shop? Are you competing on value? Are you competing on quality? Are you competing on convenience? Like think about it in a way, if you were a tenant, everyone listening to this probably at one point in their life has rented a property.

27:39David Greene:What were the things that were going through your head when you were deciding which one to rent? I want to buy the cheapest place I can afford. I really want to be close to the store. I need two bathrooms like what are you how are you going to differentiate yourself and that shouldn't be after you buy your property by the way yes this is something you absolutely need to think

28:02Brandon Turner:about it's probably the first thing I think about it into your deal to pay for the things that you

28:06David Greene:need to do appropriately 100 % like how many times you walk into a rental it's a tutu and you walk in and you're like the layout doesn't work like they're people are going to walk into this and be like, I don't like it. It doesn't make sense for my life. You got to avoid those deals. You have to put yourself in the shoes of your customer and your customer is a tenant.

28:24Brandon Turner:And then as a bonus to this one, in terms of operating your rental business, like a business is having some sort of system to help you track tenants and track collecting rents. Because when I got my first rental property, I don't, they could have paid me in a sack of pennies. Like I was like, somebody wants to pay me to live here, give it to me. I did that for 10 years.

28:46David Greene:Give it to me. I would lose checks and I'd have to be like, uh, can you, can you write me that check? I had a little old lady had to write me another check. I did that too.

28:57Brandon Turner:Little old lady was like, are you, do you know what you're doing? Oh man, I'm figuring it out lady. But once I used the property management system and it just collected everything for me, it saved me driving around town and taking things to the bank. And it doesn't seem like a big deal now because you're just so excited to have somebody pay you. But I promise you, the sooner you do that, the easier your life gets.

29:18David Greene:Well, I think those things go together because treating your tenants like a customer is not just about you. It's about their experience as a tenant. And if you're more organized, I think that's what ultimately got me to be more professional. It's like not because I couldn't handle it. It's like, I'm not doing a good job for my tenants if I'm losing their checks, right? Or if you forget about a maintenance request or, you know, you don't follow up on a lease renewal proactively that you should have just had software ping you about.

29:47Brandon Turner:Because you don't want your tenants to hit you with the Uno reverse card and be like, I gave you the check. You didn't get it already? And you're like, did you? I have no idea. So yeah, totally agree. All right, we're going to get into number eight on our list of things we wish we knew before we started real estate investing right after the break.

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34:08Brandon Turner:All right, we're back talking about things we wish we knew before we started investing in real estate. Dave, what's number eight?

34:15David Greene:Number eight is that the 10 years it takes for the average person to achieve financial freedom, it goes really fast. And it's kind of fun, right? I mean, I mean, I started doing this 16 years ago now, and I didn't really know what my goal was when I was first starting. But like, all of a sudden, I'm 15 years into this. I have made a lot of friends. I've had a good time. I've built a portfolio. And I honestly have been more financially successful than I ever dreamed that I would have been when I started. And I think the reason is because I just took it a deal at a time. I kind of knew like sort of what I wanted to do, but I just, you know, worked hard every day and kept going after it and did other stuff and had fun and enjoyed my life and didn't get too crazy about any particular deal or anyone, you know, losing 500 bucks.

35:05David Greene:And it went fast and it's been fun.

35:07Brandon Turner:Yes, the time does seem to go quicker. But what I like about this strategy and what I think people who haven't started yet need to hear about this particular thing I wish I knew before is when I look back at my portfolio, the deals that have the most equity, the deals that have the most cash flow, the deals that give me the most flexibility in terms of being able to leverage and do more real estate are all the deals I bought in my first couple of years. And that's not because I just bought the best deals in my first couple of years. It's that I bought them in the longest period of time. Real estate compounds over years.

35:45Brandon Turner:Your value goes up. Your equity goes up. Your debt gets paid down by your tenants. And the longer you hold the asset, the more typically financially beneficial it gets to be. And you start to see some of that after about five years in the space. because when you're buying a property after five years in and you're looking at the performance of your property that you bought in year one or year two, you're like, man, how do I do more of that? Yeah, exactly. Well, you're actually doing it. You wait. Yeah. You just need to wait. Yeah, 100%. And so what I'm saying and what I hope people hear from this lesson is that you just need to get started.

36:18Brandon Turner:You need to buy smart, use the fundamentals, and you'll look back in five years and think, man, I'm so much closer to that financial freedom than I thought I was when I'm looking at the performance of these assets because real estate truly is a long-term game. 10 years sounds like a long time, but I promise you it goes fast and there is a lot of upside along the way.

36:39David Greene:Well, this might be different for you than for me. So I'm curious your opinion, but for me, it's like, oh, you, I've been doing this for 16 years, but I work full time. And like the energy I've had to put into real estate comes in bursts. You know, I'll buy a new deal. It takes couple months to stabilize something. And then it's like pretty chill for a while. And so like, that's why it's always gone quickly for me. Cause I'm not grinding on real estate every day. You know, I work at bigger pockets, but I'm curious how you feel about that.

37:07Brandon Turner:I mean, I am full time in the business, right. And I look at my business in kind of two separate windows as a flipper. There's one thing, and that is much more active and on a day-to-day basis, but my rental properties, I don't think much about. My property manager handles most everything. And then I get to look at my P &L at the end of the year and be like, oh, look it, I have a lot of equity over there. And so I think about it in separate veins. So if you're a buy and hold investor, the power is in the hold. Yeah, I mean, if I think about the total amount of time

37:38David Greene:I've spent on my portfolio, like it's not like eight hours a day for 15. I don't know what it would be, but it would probably be more like a year of work or two years of work. Minutes a day. Yeah, exactly. Exactly. It's like minutes a day. I will calculate that.

37:53Brandon Turner:He's not lying.

37:54David Greene:All right, Henry, what's number nine?

37:56Brandon Turner:Number nine is your goals will change over time. And that's okay. That is okay. Mine changed by a minute. My very first goal when I got into real estate was to buy one house a year for the next five years. And after I did my first deal, I ended up doing like four more in the same year. and that's because I didn't know what I was actually capable of because I hadn't done a deal. I didn't know that you could find financing and people would lend you money even though you didn't have a ton of experience. Like I had all these thoughts in my head about what was possible and then that theory got blown out of the water after my first deal.

38:37Brandon Turner:And so my goals changed and they should change because your lifestyle is going to change. Your family dynamic is going to change. what you want out of life may change right like everyone's different and so i think we should all be evaluating our goals on at least a semi-annual basis because sometimes things change that we don't have control over that forces us to pivot what we need to be able to do and so it's okay to change your goals it's like right now i my goal was to grow my portfolio i wanted 200 doors right and we talked about how door count doesn't matter now i want to be somewhere around 50 paid off assets.

39:12Brandon Turner:And I don't care because my life changed. The things that I want out of life changed. I had kids. It's okay to pivot. And the cool part about real estate is there is a strategy that fits almost any lifestyle goal that you want.

39:27David Greene:My goal when I first started, I hadn't heard of BiggerPockets. I was 22 years old. It was literally to pay rent and have some money to go out with my friends. Like that's it. I was like, can I get 200 bucks a month? Cause I was waiting tables. I was like, that would be awesome. I hadn't really thought that much more about it. And I, you know, this was 2010 real estate was kind of cheap. And so you're saying you wanted to buy a

39:51Brandon Turner:house for drinking money?

39:52David Greene:Literally. Yes. I'm not going to pretend it was that different. I wanted a ski pass. I wanted to go drink some beers with my friend and I didn't want to be worried about rent every month, which was, I was, you know, I was straight out of college. So of course your goals are going to change. But I think, I think where people sometimes struggle is we started the show by saying, you know, think 10 years out, which is, which is true. You should, but it can change. It's just a reevaluation. You need to iterate on your goals. And it's kind of the fun part of real estate too, is like to keep dreaming, to keep being inspired and thinking about the things that this business can get you because that's what keeps you motivated and it's cool because you know i think you've seen this for me like i've totally shifted the way i do real estate in the last couple of years based on how my goals have changed and i also think people set goals

40:43Brandon Turner:based on things that they think they're gonna like but if you've never actually done it then you don't know if you're gonna like it like i remember one of my goals was to buy like an over 100 unit apartment building i don't want that i do not want that in my portfolio now that i've operated other properties. And it's not that I think large scale multifamily is a bad thing. Some people are great at it. Yeah. And it can be a great asset class. I just don't enjoy it as an asset class. And that doesn't make it bad or wrong. It's just, that's not what I want in my goals anymore. Totally.

41:12David Greene:People always talk about raising money. Oh, I don't want any part of that. Yeah. I would be so anxious when someone gave me their money. I'd be like, take it back. Right. You know, I'm just, and I don't need to at that point in my career. And that's like, what has changed? Like if someone had said, I'll give you money to go buy rental properties to me 10 years ago, I'd be like, give me every damn dollar you have. Right. But just it changes. Right. And that's the cool part about it. And the market changes too. Like you have to adjust to what's, what's possible, not just what you want. All right.

41:44Brandon Turner:Well, we got through nine things that we wish we knew before we started investing in real estate. Take us away with number 10.

41:50David Greene:Number 10 is something I really wish I knew. It was when in doubt, buy the best asset that you can afford. I just think as a buy and hold investor for someone in this for the long run, there are a lot of things that can confuse you. What strategy to go after? What tactics? Short term rentals, long term rentals, midterm, whatever you're going to do. At the end of the day, if you control a high quality asset, you're going to be okay in this business. Don't buy something in a fringe neighborhood speculating that it's going to turn around. When in doubt, if you want to take the safe path to real estate, if you're in this for the long term, I would rather buy an amazing asset that breaks even than a questionable asset that gets a 10 % cash on cash return.

42:34David Greene:I don't know if you agree with that. But for me, because I'm thinking 10, 15 years down the line, the best asset is going to win the marathon. Maybe not the sprint, but the marathon it's going to win.

42:46Brandon Turner:Similarly, a lot of people look at real estate and think, I want to pick a market where houses are cheap or a neighborhood where houses are cheap. And even though they may be able to afford a more expensive asset, they go and buy the$30 ,000,$40 ,000 house that needs$100 ,000 rehab. And if you're new, there is so much that can happen in that rehab. And there is so much that can happen with who you're going to rent that property to. And are you going to be able to get the return that you're looking for? My better assets aren't the ones I paid the least for. I've often ended up selling those.

43:21David Greene:For sure. Exactly. And I should clarify, the asset doesn't need to be in the best shape today. I just mean the highest and best use of this property. It's in a great location. If I fix this up, it's going to be a beautiful place that has demand from renters. It has demand from homeowners. It's in a great neighborhood. It's close to a park. Like it's near a job center that people want to be. Like those things, they say it in real estate, true. The things you can't change, how much you pay for it and the location of the property. You also don't normally change the total layout or structure of the house.

43:55David Greene:You might, but I don't. So like as a buy and hold investor, I'm thinking like I can make something great out of this house over the long run. It's buying that and figuring out the way to operate it to me is so much easier than trying to figure out how to make money off a place that has a bad layout or has bad architecture or is in a neighborhood that doesn't have a lot of demand, that to me is way harder.

44:19Brandon Turner:I think you're right. And I think the key to this rule is the first part of the sentence, which is when in doubt. So in other words, if you don't know and you're uncomfortable, buying a better quality asset that you can afford is going to be a safer play. Yes, there are cheap houses. And yes, people make a ton of money buying cheap houses, but there are lots of intricacies and risks involved with that. And if you're new and you're unsure, then I totally agree with you. Buying a safer asset that maybe costs you a little more, but is better positioned to be successful in the long run is a much safer play.

44:54David Greene:I have literally never regretted buying a house in a great location. Even if I quote unquote overpaid for it, it has always been the best returns on every single deal. I think it's, it's not just location, but it's quality of the house, housing stock kind of thing. But I think that it just matters so much if you're in it for the long run.

45:12Brandon Turner:I'm selling a house right now that I overpaid for in a great neighborhood and I'm going to overpay, make 70 grand. Someone's going to overpay you 70 grand to take it off your hands.

45:24David Greene:All right. So those are our 10 things that we wish we knew before we bought our first rental property. Hopefully this is helpful for you. And if you're watching this on YouTube, let us know in the comments, what's one thing that you wish you knew before you started investing in real estate? I'm Dave Meyer. He's Henry Washington. Thank you so much for listening to this episode of the BiggerPockets podcast. We'll see you next time. Thank you all for listening to the BiggerPockets real estate podcast. Make sure you get all our new episodes by subscribing on YouTube, Apple, Spotify, or any other podcast platform.

45:58David Greene:Our new episodes come out Monday, Wednesday, and Friday. I'm the host and executive producer of the show, Dave Meyer. The show is produced by Ian Kay. Copywriting is by Calico Content, and editing is by Exodus Media. If you'd like to learn more about real estate investing or to sign up for our free newsletter, please visit www.biggerpockets.com. The content of this podcast is for informational purposes only. All host and participant opinions are their own. Investment in any asset, real estate included, involves risk. So use your best judgment and consult with qualified advisors before investing.

46:26David Greene:You should only risk capital you can afford to lose. And remember, past performance is not indicative of future results. BiggerPockets LLC disclaims all liability for direct, indirect, consequential or other damages arising from a reliance on information presented in this podcast. Attention, passive real estate investors. Make sure you have the Passive Pocket Summit on your calendar. Better yet, plan on attending it in Denver, Colorado from April 30th to May 2nd. This conference is built exclusively for the LP or limited partner. It's a great place to network and talk current deals and current strategies for accredited investors investing real estate deals right now.

47:01David Greene:Go to passivepockets.com forward slash summit for all the details and use a coupon code podcast to save you$50. Hope to see you in Denver.