Here we talk about residential real estate investment. Rather than saying it’s investing, it’s more like doing a business. The owner/landlord is the boss. Take me myself as an example. Since I always want the largest return, I do not just invest money like investing into mutual funds, I run it as a business, following all applicable laws and regulations. Since I don’t have a lot of money, this is a relatively small business.
First of all, to start a business, we need to find a business-friendly place. There is no best place, only better ones, which are the ones that are far away from political issues or unpredictable risks. I personally think the suburban areas of big cities in Texas are such places. In the business of real estate, customer is people, so we need to find places with consistent population growth and that are friendly to small businesses.
Secondly, when your business starts to growth, you need to hire professionals to help. A good realtor, property manager, accountant, attorney and a few nice contractors are all my team members. I don’t think I have the time, energy or knowledge to complete all tasks of the business. I define myself as a general manager and I need to learn skills of people management. Even though most of my “employees” are independent contractors, I still have a very good relationship with each of them, just in case I’ll need them some day.
Then we need to follow local laws and regulations. Each state or city has its own rules and regulations on rental properties, in addition to Federal regulations. Being familiar with those rules is the very basis for business success. We also need to keep learning and sharpening our skills. As time goes by, rules and regulations will change and we need to keep up with them, or we need to find new technology to help us work more efficiently and keep us away from risks.
Running a business is time consuming and requires experience. Now I assign most of jobs to professionals while I manage them. In this way, I don’t need to spend too much time and those professionals can do a better job than me.
Last but not least, sometimes we need to cut expenses. I will do my own homework and research on various service providers and vendors, and choose one that charges reasonable price with nice quality work. When it comes to repair, doing it in the right way is very important. You can’t always think about paying the least money to have the job done. That might cause the job to be done very poorly. I don’t usually work with someone who provides the “lowest price”. The lowest price always comes with problems. Of course I don’t go with the most expensive ones either.
A recent case was for a rental property managed by my real estate team. The landlord declined my team’s repair proposal because she thinks the price was too high, and she found a “cheap” one. After the repair, she called me and complained of being too tired, and I told her that by taking her time spent into the consideration, the work was not cheap at all. She is a high-income tech person and her time worth money. If her company fires everyone and hire some low-pay people instead, they probably can save a lot on salary, but might be closed for business in a very short time.
This is a business, so do it as a business.