REAL ESTATE

3 Things That Will Kill Your Rental Property Cash Flow


Floods, evictions, and bad property managers on ONE rental property?! These are the kinds of things that spook rookies out of real estate investing altogether. Fortunately, many of these issues are avoidable, and today, we’ll equip you with some property-saving advice that could help you prevent a major blunder!

Welcome back to another Rookie Reply! While scouring the BiggerPockets Forums this week, we stumbled on a full-blown horror story that involves several problems with the same property. Tony and guest co-host Noah Bacon have encountered similar issues throughout their investing journeys, and in this episode, they’re going to break them down and show you how to handle them. You’ll learn why you should think twice before passing up on a sewer scope, how to adjust your tenant screening process and avoid evictions, and how to effectively manage your property managers!

Tony:
Alright guys, let’s get your questions answered. Welcome to the Real Estate Rookie podcast where every week, three times a week, we bring you the inspiration, motivation, and stories you need to hear to kickstart your investing journey. Now, today’s rookie reply is going to be just a little bit different for a few reasons. Instead of answering your questions, we’re actually going to be featuring one forum users of the BiggerPockets form. We’re going to take one story bit of a horror story and use it as a jumping off point about what to do and what to look out for so you never end up in that person’s shoes. Now the second reason today is that Ashley, my co-host is Ashley Traveling. So I’ll be joined by Noah Bacon and you might recognize him from being on the Ricky Podcast before and from his YouTube series How I Got started, which aired on the BiggerPockets Real Estate Rookie YouTube channel. So Noah, thanks for joining us today, brother.

Noah:
Thank you so much for having me today, Tony. It’s a real, real honor to be here with you.

Tony:
Yeah, dude. Excited to jump in with you, man. So today we’re going to discuss the importance of sewer scopes during your inspections, why you need to stick to your strict application requirements and how to move on from your bad property manager. So I guess first let me maybe share a brief overview of this story that we found inside the form. So this form story was posted by someone named Rantz and here’s what Rantz wrote. It says in February of 2022, we purchased a newly renovated three unit building in the South Austin neighborhood of Chicago. The price was $500,000 and we used a debt service coverage ratio or DSCR loan for the purchase. We quickly found tenants and we were off to a great start. So it seems like everything’s going well so far within a week our ground tenant let us know that the sewage was backing into his unit.
Since this was a safety hazard, he had to move out and decided to find another place to live in. We refunded his rent and his deposit. So things are getting off to a rocky start here, right first weekend they lose their tenant. Flushable wipes and tree roots that had spread into our yard were seeming to be the root of the issue here. Luckily, we were able to fix the problem, but in total this all costs us about $15,000 after cleanup and remediation. The unit then flooded again after the nearby river flooded and cost us another $15,000 in cleanup. So not the best way to jump into your first investment is to lose another $30,000 in repairs and maintenance. Now I know you’ve got a similar story where you were looking at buying a property and identified some issues with the sewer. I guess how could Ransom maybe have avoided this issue altogether?

Noah:
Yeah, this is definitely a tough one and Ran is going to have some thick skin, some calluses early on in his investing career, that’s for sure. But yeah, like you said, Tony, I had a pretty similar story to this when I was actually under contract for a property. It was out in Colorado in the older part of Colorado Springs and there was a really, really shady sewer scope inspection that I had. And I think that part of the reason that ran is potentially in this situation is a lot of first time home buyers, a lot of first time investors, they waived that sewer scope inspection. And I found on mine very quickly that there was going to be a lot of damage down the road if I decided to close on this property. What I found was there was a sewage line that went 180 feet to the city tap and doing that sewer scope, there were offsets, there were roots, there was a lot of problems when you went through it and ultimately sent it over to the seller and there was going to be roughly about $30,000 worth of repairs, pretty similar numbers to what Ran was seeing here for cleanups down the road and seller basically told me to screw off.
I walked away and the contract was ripped up and I’m very, very thankful that we decided to walk away from this property because I certainly would’ve not been able to burden a $30,000 bill just right off the bat on my first property. So yeah, it was definitely a tough one, but I highly recommend sewer scopes.

Tony:
Yeah. Noah, let me ask, so how did you know to do a sewer scope? Is it just something that your realtor recommended or who pointed you in the direction to say this is something we need to check out?

Noah:
Yeah, so great question Tony. It was definitely my realtor. So I had an investor friendly realtor, this was before BiggerPockets had agent finders. So I actually went on the forums typed in, Hey, I’m Noah looking for my first property moving across the country and met with an investor agent. So he had a really great home inspector who obviously had the home inspection package and then offered a sewer scope edition onto it with a different company that he partnered with. So had I not had him on my corner, I definitely would’ve avoided that and been in a really, really big mistake my first time out.

Tony:
No, I know something that a lot of folks they get caught up on is the additional cost that comes along with doing some of these inspections because those are sunk costs, right? Once you spend the money on an inspection, whether you close or whether you don’t, that money is spent. So just so people understand, what did your sewer scope cost you? Ballpark?

Noah:
Yeah, great question. So I’ll start with first off, the home inspection package was about $500 without sewer scope. So I think that’s why you say Tony, a lot of people already have that fear of this is going to be a lot of money out of pocket and it’s Notre refundable if you walk away, the sewer scope was an additional 180 onto it. I actually looked back right before our recording here, so all in around $700 to potentially walk away from a $30,000 mistake. It definitely left me with an empty feeling not having the property. Of course I’m out close to $800 here, but it’s much better than being down the road and potentially going into foreclosure just immediately off the bat. So I’ll take that 180 to $200 spend to have a safety net and sleep at night to have my properties

Tony:
100% man. And I think about it like car insurance, we never get to December 31st and we look at the year, we’re like, I didn’t have any accidents this year. What a waste that I had car insurance. It’s like that’s the money you invest for that peace of mind. And I think the inspections to due diligence, it serves that same purpose of giving you that peace of mind. We had a similar, not quite as bad as this, but we had kind of a similar issue with one of the properties that we bought that was on a septic system and it was our first time buying on septic and we did not do a septic inspection and shortly after purchasing it, we get a call and this is a short-term rental, which is potentially even worse. You’ve got so many people come in and out, but we had a guest who called us and they were like, Hey, there’s some brown water coming up from the shower, we don’t know what’s going on.
And lo and behold, we had some issues with the septic and that was a lesson for us. At any time we buy a property with the septic again a few hundred bucks to get the septic inspection done and that really gives you the peace of mind to say, hey, we can move forward with this purchase. So that was my introduction though, really into the world of sewage and septic inspections and luckily it didn’t cost us all that much, we just had to pump the septic tank and I don’t know, it’s like a thousand bucks maybe something like that to get a rectified, but obviously $30,000 is a much, much bigger issue. So big lesson learned for ran here. No, and luckily I think you and I both avoided maybe the worst of those potential issues, but Ran is hopefully like a tail of caution for folks to spend the extra $200 to get the sewage inspection or for ITEP to get that done as well.
Alright guys, we’ve got to take a quick add break, but in the next part of Rent to Story, we’re going to discuss how to know when it’s time to move on from your property manager. Now while you’re away, if you need a good property management company to help you with your real estate portfolio, head over to biggerpockets.com/property management to find a trusted property manager in your area. Alright guys, so welcome back. Getting back into Rana’s story. Now as you heard before the break, there were some challenges around the septic got that fixed $30,000 later, but the story continues. So let me continue Rana’s story so you guys can hear what happens next. So Ran says, after fixing all the sewage issues, $30,000 later we were finally able to get a good tenant in that ground unit and he’s been there for just under one year now.
As soon as he moved in, our tenants in both upstairs units stopped paying their rent. So we decided to move forward with evicting one tenant at a time. After about five months of court, it took the city eight weeks to actually evict. Once the judge gave the order, they destroyed, the unit, trashed it and the turn cost almost $4,000, not to mention the court fees, attorney’s fees and lost rents. Man, I am feeling for rents right now, you $30,000 on the first unit and then as soon as you get that fixed, you got two other tenants to stop paying. Now let me ask, have you ever had to evict a tenant before?

Noah:
I have, and it was actually this year and the only reason I’m laughing is I feel the pain through this story right now ran and I can definitely feel that there’s a really big expense when it comes to these things and it’s sometimes avoidable and sometimes not. And it’s unfortunate that we’re in this business at times.

Tony:
Yeah, it is an unfortunate part and if you landlord long enough, what’s the saying? It’s not a matter of if you’ll evict someone, but because we focus mostly on short term, we haven’t had to evict anyone. It’s not something that necessarily happens in this side of the space. But no, I guess let me ask you because I think the best way to avoid an eviction is by getting a better tenant upfront. So for your eviction that you went through, was this a tenant that you inherited or was it someone that you had actually screened and brought into the unit yourself?

Noah:
This was somebody that I actually placed myself, so it was definitely hard to look in the mirror and say that I’m the one that was the root cause of this. Not to say the unfortunate events that led to the eviction, it’s not like personal finances were in my control, but I look back and there’s five to 10 to probably 20 things that I could have done better on my screening and it led right back to me.

Tony:
Yeah, so let me ask then, Noah, what do you feel you missed? What were maybe some of those red flags you overlooked during the tenant screening process that maybe if you would’ve caught those things maybe act a little bit differently, you could have avoided that eviction?

Noah:
Yeah, so my tenants had actually moved in with a pretty new job and I was okay with taking a future employment letter and it was a couple of phone calls with the employer, had a couple phone calls with the previous landlords and to me it checked off all the boxes, but the unfortunate part of accepting a future employment letter was that they didn’t actually show up to their job then. So they were hired and then within three months stopped paying rent. Essentially my first couple months you could see the writing was on the wall that yeah, we’re going to be late this week, or excuse me, we’re going to be late this month by a week, we’re going to be late by two weeks and now we’re late by an entire month. So it really came back to me not doing my due diligence on the employment side of things.

Tony:
Yeah, I guess I’ve never thought about that being a potential challenge because you think like, hey, job letters in hand, most people are probably going to show up when they get offered a job, but maybe something to say, Hey, we got to wait until you actually get that first paycheck or something to that effect. No, I guess just generally speaking, are there any other maybe potential red flags that you as a landlord now look out for?

Noah:
Yeah, absolutely. When I was obviously self-managing this property, I was the one who was doing the tenant screening. I was the one who was showing up to do the showings as well, and I had a couple of applicants including the one that I actually placed that offered me three months of rent, four months of rent upfront. And to me that was a massive red flag. The fortunate part for me was that they checked off every other box they had the employment history, they had the future employment lined up, they had great landlord references. It was a normal family it seemed like to me on paper and then meeting them in person and just unfortunately we went down the road of eviction almost immediately at the immediately off the bat. So I would say that somebody offering you a lot of money upfront or trying to give you any kind of sob story to move in is an immediate red flag to me. And then obviously any landlord reference has any kind of remarks that give you any hair, stand up on your arms with a yellow flag or red flag. I would trust those landlord references probably more than anything else that has to do with the application process because they just had these tenants and now they’re giving ’em to you. If it was a terrible tenancy, they’re likely going to let you know unless they’re not the right landlord reference.

Tony:
No, I totally understand, Noah, the sob story of like, Hey, here’s what’s going on in my life, here’s why I need to get this unit. But maybe give the Ricky’s a little bit more insight why someone who’s willing to pay for maybe multiple months upfront may not be a good tenant. I feel it might be somewhat counterintuitive because as a landlord you’re getting four months of rent all at once, so there’s guaranteed rent at least for that timeframe. Why in your mind, might that be a potential red or yellow flag?

Noah:
Well, I think the answer is actually in the question they give you the four months of rent, that’s potentially all the money that they’re going to give you in their tenancy. I mean I’m a long-term investor, so these are 12 month leases. What’s the other eight months look like? Because this contract is for an entire year, but you’re basically only promising four months upfront and that’s maybe not even including the security deposit. So in reality that could be only three months of rent and deposit and if they’re not a great applicant you might be charging double security deposit. So that’s actually what I did moving forward. Next is if anybody came in lower than what was required on my even more strict application. Now moving forward since I essentially burnt myself was that I require a one and a half or a two times security deposit just to give myself a little bit more of that safety net. So I would absolutely run away from anybody that says I’m going to give you more than one month’s rent upfront unless you require that as a landlord on your application.

Tony:
Guys, one thing I will say is always check your local landlord and tenant laws because it will vary from state to state, from municipality to municipality. I know there are some states, I think New York, there’s a cap on what your security deposit can be. Ashley talked about that quite a bit as well. So just check those things now. No, I want to get into the actual eviction process and what that looked like for you. But before I do, I guess just one follow-up question. A common way to avoid going through the eviction process is cash for keys is just telling your tenant, I’m going to give you x dollar amount, I want you out by this date. Did you offer that to your tenants and were they responsive or did you just go straight for the eviction?

Noah:
I did and one of the pieces that I did with that was still post the 10 day demand on their door because I wanted to show that I was serious that I had a deadline. It’s not just, Hey, I’m going to offer you this to get out, it’s that if you don’t take this offer, option B is going to be the unfortunate road that we’re obviously going to talk about here. And what it went to was eviction. So I did offer that they didn’t want that. Of course it wasn’t enough to get them out to move into the next home or next apartment or wherever they went after that. And then posting that 10 day demand was me being as serious as I possibly be that we’re going to go down this route if you don’t accept offer a,

Tony:
Yeah, and obviously every tenant’s going to be slightly different, but if we look at ransom story here, it was thousand dollars just for the unit just to get the unit ready and then he still had the court fees, attorney fees, and the lost rent. So I don’t know, maybe let’s tack on another 2000 bucks maybe just to be conservative. So 6,000 bucks rents lost. So in theory he could have offered anything $6,000 or less and still came out on top. So even if he wants that tenant said, Hey, here’s five grand to get you out, but I want the place spic and span spotless when you leave, he’s out five grand, but he’s got a unit that’s still in good condition, doesn’t have to worry about the lost time of the eviction and all that stuff, and he can hopefully re-rent that unit faster. So guys, I totally understand as a landlord, this is your pride and joy. You put a lot of blood, sweat and soul and work into getting this listing up and running and just the kind of ego of it maybe wants you to never give someone just cash to walk out of your listing. But if you look at it from a numbers perspective, sometimes it does make sense. So Noah, let’s actually walk through the eviction process. So your first eviction, what did that look like? What was your very first step?

Noah:
Yeah, so first step, like we kind of just said option A was let’s see if cash for keys is an option. Obviously it wasn’t same day simultaneously 10 day demand probably should have set the boundary or set the scene here a little bit better. But it was in the state of Colorado. So I know ran to stories in Chicago, so the duration is actually a little bit similar to what I felt, but I know that every state is going to have way different eviction laws. So take that with a grain of salt of course if you’re not in Colorado right now. But I started off with the 10 day demand essentially that took, well obviously it went up to 10 days and then now I send it over to my attorney. So once it gets sent over to the attorney, the attorney contacts the tenant basically says, Hey, do you have X amount of money to pay your 10 day demand or are we going to go to court?
And they didn’t have the money that was on the demand, which was about two months of rent at this point. So I’m pretty close to rent’s number here at about $4,000 with a $2,000 rental rate on this property. A couple weeks go by now, I want to say it was about 18 days until it was sent over to the eviction court then so we go to eviction then this was about one month now since the 10 day demand. And right after we go through eviction, it took about another two weeks to get the sheriff to come out then and then actually remove the tenants. So all in all, it took, I want to say about 15 to 16 weeks. It was a much longer process than I would’ve ever anticipated and definitely the number that I was offering for cash for keys was certainly lower than the number that I ended up paying out of pocket after this entire process. And again, rant, I’m laughing with you because I feel this pain just as much as you my friend.

Tony:
No, just ballpark. What were those two numbers? What did you offer cash for keys and what was your actual end cost after you went through the entire eviction process?

Noah:
Yeah, my offer for cash for keys was $4,000. I was only looking at it at two months of rent and I was like, okay, if you can get out in the next 60 days, I can rerent this place and I’m going to basically make my nut and get back to where I want to be. All in all, I will talk to my accountant in April, but I want to say it was just north of 9,000. I know it was just under 10,000. So somewhere in that ballpark and it was certainly not a fun process. Found out that the tenant actually moved in pets that weren’t supposed to be there too. So the turnover was a lot more expensive than I was ever imagining. The court fees were pretty much what I was anticipating. And then the lost rent was, it just drags on further and further than you can ever imagine. So take it from me to be as strict as you possibly can up front.

Tony:
Yeah, so you could have offered seven grand and say, Hey, I want you out by next Friday. And maybe that would’ve been the motivation to actually get them out. But again, we learned these lessons together, man. So I 16 weeks, that’s a long time. That’s a long time for an eviction man.

Noah:
I hate to say that it was at this time of the year, but the eviction started right at Christmas time. So it took everything a lot more. Everything went a lot slower than I think everybody was imagining at that point.

Tony:
Let me ask one follow-up question I guess for you now having gone through this process, do you now at all set money aside when you’re closing on a property for the possibility of an eviction or are you just calculating that in with your CapEx, with your vacancy, with your repairs and maintenance costs?

Noah:
Yeah, I will say that before I did so I would always save three months of reserves and that was basically just the mortgage payment. Now I look at it a little bit differently. Like you said, I break apart my CapEx from my vacancy rate, from my potential, my losses. So I also factor in maintenance and eviction into another bucket now. And now I’m closer to saving about six months of reserves in my CapEx. So again, for just numbers on this property, like I said, it was about $2,000 of rent. I’m keeping over $10,000 in a safety net account now instead of just living by the skin of my teeth at the 6,000 because that well ran dry a lot faster than I thought it would

Tony:
Guys. So no, appreciate all the insight there man, and kind of sharing your lessons learned on the eviction process. Now the next part of Ransom story, because believe it or not, there’s a little bit more here. We’re going to discuss how to know when it’s time to move on from your property manager. So we’ll be right back with Ransom story after a quick word from today’s show sponsors. Alright guys, we’re back and we’re going to finish off with the final part of Ransom’s story and unfortunately the news doesn’t get much better. So we first we have the sewage issue, then we have the tenant evictions, now we’ve got another one and the bad luck is kind of coming to a close, but now it’s talking about finding the right property manager. So here’s the final part of Ransom story. Ran says our management company at the time was trying to find new occupants for months and it was not looking good.
One day the manager called my wife very excited about an application they just reviewed as my wife and I were reviewing it. We saw a few things in the application and the credit report that looked funny after what we had just been through. We were very, very cautious. After about 10 minutes of digging, we found out that same applicant was applying with fraudulent information, the same fraudulent information our previous tenant used. Needless to say, we were more than frustrated with our management company for not catching this. We found a new management company that has helped us flip both units, give our current tenants some more structure, and is now fan of two additional tenants, one of which is our first CHA tenant. And just to clarify, CHA stands for Chicago Housing Authority. We are very excited to finally have a fully occupied property after about one and a half years of issues and huge sums of money going towards them, man. So super frustrating as the landlord here to have a property manager that maybe isn’t paying close enough attention to some of these details. I think it is something you see, especially as some of these PMs start to get bigger, that the attention per client or the attention per unit starts to go down a little bit and sometimes you overlook these things, but I guess now let me ask for your portfolio, do you have a pm? What does that look like for you personally?

Noah:
Currently now I have a full-time property manager. Previously I was self-managing my properties but moved across the country and I did not like the option of trying to self-manage from really far away.

Tony:
How many property managers have you gone through? Have you chosen one and been able to stick with that 1:00 PM or have you had to maybe cycle through a couple there?

Noah:
I’ve had the same property manager and I’ve actually, I haven’t had to fire them, but I’ve had tough conversations that required a pretty decent explanation that either led to either a discount on something because I was very frustrated with the timeline of things and I can get into that, but I haven’t had to fire a property manager. What about you, Tony? Have you had to fire anything on your short-term rental side of things?

Tony:
No, we do all of our management, so we haven’t had to fire anyone on that side. And when we were investing in long-term rentals, we only had 1:00 PM that we were using. But part of the reason why we were somewhat, I think fed up with the traditional long-term rental space was because it’s like our PM, and this was maybe unique to our situation, but I feel like you see it a lot across the country. But our RPM, they had their property management company, but then they also had a repair and maintenance slash construction company. And whenever a maintenance request came in on one of the units, their only option was, Hey, here’s our quote, or if you want a quote from someone else, you’ve got to find it yourself. So naturally I was busy working a W2 job, obviously fine, you guys should take care of it, but when you look out over the course of a year, they were making more money on the repairs and maintenance from us than they were from the actual management.
So it’s like we’re talking a few hundred bucks of cash flow on some of these long-term rentals and it starts to get eaten up by all these little kind of small, maybe somewhat overpriced repairs they’re doing on the property. And that’s where you start to get a little bit of the frustration. So we didn’t necessarily fire them for that reason, we just kind of left the long-term rental space altogether. But that was my experience with the PM side, I guess. No, you said there’s been some tough conversations. What was the genesis of that? What kind of led to those tough conversations?

Noah:
Yeah, so it was pretty similar it sounds like to what you kind of went through here where you were having those repair fees come up and you’re like, why are the maintenance hours this high on some of these? I actually just moved out of a property here in May and came out and thinking it was going to be pretty turnkey. I actually had the property manager walk the property with me and anticipate there was only going to be a couple hours of repairs. It turned out it came out to over 40 hours worth of repairs. So I immediately hop on the phone and I’m like, Hey guys, I need a really good explanation of what’s going on here on my owner portal. Nothing was being communicated all that well. So I was getting really nervous right out the gate. I already had one property being managed with them that had been going really smoothly, absolutely nothing, no repairs from the tenants, no problem getting it leased right away.
And I was really upset because I moved out of this place anticipating it’s only going to take about three weeks to turn this property and get a tenant in there. And it took about two months, so it was just starting to burn money. And with the repairs coming up, I started to question how much are we doing here? On one of the remarks it said we came, we didn’t have the supplies and we went back to Home Depot. So I said, why am I on the hook for this one? So they ultimately waived a leasing fee, they deducted some of the hours that were on the billing, but without that I likely would’ve started to look for a different property manager. But I do have, like I said, a pretty good relationship with my other property. This was hopefully only a one-off occurrence and it does give me a little bit of concern, but ultimately right now everything has gone smooth since that. And I can honestly say I’m happy right now, but definitely had a couple sleepless nights with what I was seeing on our timeline here.

Tony:
I think the challenge is, and this is maybe especially for the rookies, is that when you hire a property manager, you assume that they don’t need a lot of oversight, but that is not true. Property managers need oversight from you as the owner of the property and that’s called the asset management, right, where you’re managing the asset even though the PM zoom and the day-to-day stuff and reviewing things like why did it take you two hours to swap an air filter? You want to drill down on those things to get that insight and force them to be accountable to doing right by you as the owner. Let me ask you, what would cause you to potentially move on from the PM that you currently have?

Noah:
I would say lack of communication would be something that would make me walk away. Throughout this whole process though, I was extremely frustrated. I was being communicated to very, very fastly and I actually was able to talk to the owner of the company to really escalate my concerns and had a lot of really great conversations with him who wasn’t fully involved in the situation, but helped me remediate and resolve the issue. So I would say if there was no communication from upper level management or supervisor to say, Hey, I’m noticing something going on here, are other owners in your portfolio feeling this too? And ultimately that was what it came down to, which it did give me concern. But like I said, we’re at a point here today where things have gotten a lot better. Communication has been at an all time high. And like I said, if they didn’t talk to me throughout this process and I’m getting billed for all this and then hey, we have a tenant the next day, Noah, just to essentially shut me up, that would’ve left a really sour taste in my mouth and I would’ve definitely sought another property manager right at the gate.

Tony:
And I think going back to Rana’s story here, I think the lack of attention to detail is a big one. Also. It’s like, guys, you saw what we just went through of having to evict not one but two tenants and you’re trying to set me up and for the exact same thing to happen all over again. That would be a rather pretty big red flag for me as well, right, is like, guys, we got to do better here. We got to do better here. So no, you’ve gone through some ups and downs in your investing journey as well. We’ve seen the same thing in our portfolio as well. I guess just maybe what is your perspective or maybe advice for Ricky’s that are getting into this who hear ran a story and think, see I told you guys real estate investing isn’t as great as everyone makes it out to be. What’s your advice to folks who might be here or might be thinking that here in ran a story?

Noah:
I think as aggressive and as leveraging, you want to get right out the gate, be as safe as possible when it comes to your reserves. And I think Ran and I are great examples of, we have calluses from our first couple of properties, our first couple of years in investing, and I wouldn’t expect any rookie owner that is relying on a full-time property manager to go and dive into applications that they’re supposed to be screening. It took rants to get burnt a lot of money to go back and say, Hey, this is an application that you guys have already done. I don’t go and look at the applications that my property managers have screened because I haven’t had problems with tenant placing since I’ve had a full-time property manager. But I go and I look really deeply into my repairs now because I’ve gotten burnt once or twice on repairs being too high or repairs them not being prepared for them and things like that.
So I would say always have a reserve probably twice as much as you’re anticipating right at the gate. I know a lot of people like to say two or three times your mortgage. I was that way where I only had three times my mortgage in a savings account that I wasn’t really accumulating any money to say it’s going to be six times in a couple months. Have that reserve. I would even go as aggressive as one year. If you really are concerned about getting into the game and if you’re not concerned about getting into the game, let rants, let Tony, let my story be just a guiding light that you’re going to need money outside of your tenant’s rent coming in.

Tony:
Yeah, no, you framed that up perfectly and think a little more cash in the bank can oftentimes let you sleep a little bit easier at night. But I think the other piece to that’s important to understand here, guys, and this is for all of the rookies that are listening, there is always going to be some level of risk in investing in real estate. Just point blank period. But the reason that we’re able to get a reward is because we’re willing to accept some level of risk. So the goal that you start to invest is how do you maximize your upside while also minimizing your downside? And I think the purpose of today’s episode was to give you some tactical things you can focus on to help reduce that downside. So screening your tenants a little bit more effectively, keeping a really close watch over the work that your property manager is doing, not skimping out on your due diligence period and really doing all the inspections. It sounds simple, but those are the things you can put in place to help reduce the risk of actually owning this asset. Now, any final words on your side, brother?

Noah:
One thing I would say is if your home inspector recommends you additional packages onto their home inspection, don’t think that they’re the next average Joe salesman. These are going to save you money in the long term, I guarantee it. So absolutely do your due diligence upfront.

Tony:
Awesome. Well, no, thank you so much for joining us today, brother Ricky’s. If you guys want to get involved in the community and the same place that Ran went to share his story and get support and get advice, head over to biggerpockets.com/forums. Okay, that’s biggerpockets.com/forums. Look, we hope you guys got some value out of hearing the story today. And if you’re enjoying the Real Estate Ricky Podcast, whatever podcast player you’re listening on, make sure to subscribe and follow. If you’re on YouTube, do the same thing there, share it with a friend. But we appreciate you guys and we’ll see you on the next episode of Real Estate Ricky.

 

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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.



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