Jason Robie: Risks and rewards

By Jason Robie

For some reason, I have stumbled across a handful of articles lately about investment properties. Never wanting to be left out, I figured now is as good a time as any to join the fray. Even if you are not in the market for a new home, how about exploring the possibility of buying a home as an investment.
If, after all the facts were in and all the calculating and figuring was done, you could own a piece of real estate while having someone else pay the mortgage; would you do it? I think most of us would say a resounding, “Yes!" There are a few more factors to the equation than just the financials, so let’s take a look at a few of them.
• Time: When I purchased my first investment property it was a two-family home in Southern New Hampshire. All was well in the world right up until I got laid off from my job and decided to move to the White Mountains. This is where time became a significant factor in my ownership of this property. Since money was tight, I was “on-call” when anything with the house went wrong. If the boiler stopped “boiling” or the plumbing leaked or a window was broken, etc. I would hop in the truck, tools in tow, and head off on the two-hour drive to repair what was wrong. There were also a handful of occasions in which I simply made a phone call to get something fixed. I believe strongly that the first step in knowing how to repair anything in your home is to know what you don’t know! Some things are just better left to the professionals. (I can see countless wives nodding their heads in agreement!)
The other time-killer for me was interviewing new tenants and showing the property. I am a huge proponent of credit checks and contacting references. (Sure, some folks can put their best buddies on the list for references. But for the most part I found people to be fairly upfront and honest.) Living two hours away certainly made this process a little more time-consuming, but most of the work was done over the phone and through email. I also made it a point to schedule all of my weekly showings on a single day.
• Stress: We all experience stress in our every day lives. We also (typically) have a choice as to how much stress we put on ourselves. Adding the ownership of a second home will certainly increase your pile. In my experience, I found that the property was always in the back of my mind. If a friend or relative was telling a story about an apartment they lived in or a bad neighbor they had, my mind would immediately go “south” and start focusing on the house. It is one of those things that, while maybe not “front of mind," never really leaves your consciousness.
I know of numerous people who own property in the White Mountains, but live down South. A couple of them have taken strategic steps to reduce the stress related to their second home. Hiring a property manager is an obvious choice. Not only can this person take care of any “issues” that arise with the building or property but they can also collect rent, screen tenants and essentially act as your eyes and ears for your investment. Of course this comes at a cost. As I mentioned earlier, we typically have a choice in our stress level, and hiring a property manager is a big step in reducing that stress. Sure, you will earn less over the course of your ownership of the property, but the peace of mind will very likely be well worth it.
• Money: The obvious goal in investing in real estate, or investing in anything for that matter, is to better your financial status. Whether you are thinking long-term and are happy maintaining a steady flow of tenants, or you are thinking short-term and have the goal of flipping the property, the goal is to make money. Obviously your tenants will have a significant impact on your success. I was fortunate enough to have tenants who paid their rent. My upstairs tenants were always late, without exception. But they always paid. I learned early on that as long as they took good care of my home and didn’t bother the neighbors or the downstairs tenants, I was happy to get the rent check whenever it came. They were clean, respectful and hard-working people. Being a few days late with the rent was not an issue.
I am also not afraid to get my hands dirty. There are tons of things you can do to spruce up your property and increase both the rental amount you can charge and the resale value. The house I bought needed all the carpets ripped up, new flooring in the kitchen, a new bathroom and a complete paint job from top to bottom. At the outset, this seems like a ton of work, but when it came right down to it, it was something I enjoyed doing and was a great way to keep busy on weekends and relieve stress. There is also no greater feeling than knowing every action you are taking throughout the day is going to pay you back in spades. It was a great learning opportunity and I have to mention that just writing that last paragraph has got me thinking about getting back into it again!
“If you have an accountant that you are comfortable with, I’m sure they could provide you with one of the many formulas used to determine if the home you are considering buying is a viable investment property,” said Badger Realty agent Janet Nickerson. At the end of the day, it will come down to the simple question: Will the rental payments cover your expenses? Just like a normal home, you need to consider the mortgage, taxes, insurance, water and sewer and other standard bills. With an investment home, you have to also consider your liability insurance (higher with a tenant), vacancy rate (what if nobody rents it?) and how you will handle the utilities. For what it’s worth, I always encourage landlords to have their tenants pay the utilities. You would be amazed at how much more motivated your tenants will be to add plastic to drafty windows, shut off unused lights/fixtures and turn the heat down a bit when THEY are the ones paying those bills.
Owning an investment house is one of the most rewarding things I have done. I was able to sell it after a short while and make a little bit of money. The best part is that I don’t have to drive to Southern New Hampshire on my weekends anymore (unless I go for fun). I strongly encourage you to explore the possibilities of getting into investment property yourself. There are still government programs out there that provide assistance with down payments and other finance related help. Don’t just assume that being a landlord is only for the rich and wealthy. I was able to do it for over four months without a job! (Thankfully, my tenants paid their rent.)