"You don't know what you don't know." You hear that a lot from experienced investors. Last week, I got to experience firsthand what that means.
In 2014, I invested virtually from Korea with joint venture partners that I met through BiggerPockets in Jacksonville, Florida.
Here's a breakdown of the numbers:
- Purchase price: $44,168 (Can anyone guess why it's "168?" If you can, comment below!)
- About the house: 5 bed / 2 bath; in need of some cosmetic upgrades (paint and few other touches); needs a new roof; needs new plumbing - water pressure is low
- Currently monthly rent: $695 (old owner put in tenant under market)
- Market rent (what we could get): $900 or above (with the upgrades mentioned above)
- Paid: All cash
The first "bad news email"
This week, I received an email from my JV partners. The sewage line leading out to the street burst! It's going to cost the city some money to fix, and it's going to cost us money, too: on the low end of $1,700.
The second "bad news email"
Later that same week, I received a second email. The insurance company said they wouldn't insure our house unless we did the roof upgrade now. We were hoping to delay this cost until later. Most likely this will cost us another $3,000. Talk about bad news traveling in pairs.
Part of being an investor is taking action and learning on the go. If you wait until you have perfect knowledge before investing, well, then you'll never end up investing.
You're going to meet the unexpected along the way, and you have to prepare yourself for the occasional bumps in the road. And now some important lessons that I learned from this experience that I wanted to pass along.
You don't want to sink your last dollar into purchasing a property and have $0 left in reserves. If we didn't have adequate reserves for unexpected events, then there's a chance we could be facing more problems.
With any investment, make sure you take on the right amount of risk. I was strategic about this investment. Given my knowledge and experience, I didn't want to swing for the fences (risk too much at once) my first time investing. I wanted to risk an amount that I felt comfortable with. As I gain experience, I'll feel more comfortable risking greater amounts.
Partners can be great, but make sure to partner with those who complement your skills. For me, our JV partners have the very real advantage of being there on the ground in Jacksonville. They are also more experienced than me, so I knew that would be important to help guide me through my first investments. I have a ton more I can say about how to choose partners including the importance of having shared values, but I'll save that for another day.
I help organize a meetup called the Seoul Real Estate Investing Meetup out here in Korea.
One of our virtual speakers, Ali Boone, said at our last meetup, communication is key to distance investing. Since you're dependent on your team on the ground, delays in communication can really hurt relationships.
Luckily, I have great communication with my partners; we chat regularly and they're not only focused on this investment but on helping me grow as an investor. So, it helps to deal with situations like these.
There's risk in any type of investment. But remember: Risk is good! Without it, there would be no opportunity. If people weren't "afraid" to invest, then guess what? Everyone would and there'd be nothing left for newbies to do but watch on the sidelines.
Some people will look at the past week and think, "That's why I should never invest!" I, however, look at this way: It's part of my tuition fee. I'm paying for my education through my investment and also my time.
And although these expenses were "unexpected," they're not necessarily bad. Why? Because now we'll do our repairs sooner and the get house ready to rent at a higher number. By calculating a higher monthly rent, we should recover our cost in five to six months.
So, while this year's number won't look as good, going forward, we'll be on a much better path with the upgrades finished and a higher rent (and probably better tenants).
All the while, our house will continue to appreciate (houses in our neighborhood have already jumped, and inventory is at three months, indicating a seller's market), and I get to learn valuable real estate lessons that technically, my tenants will end up paying for.
And now anyone who reads this blog post gets to learn these lessons, without having to go through them! How great is that! Even better than having your tenants pay, learn from the experiences of others. Thus is the power of networking.
Thanks for reading.
Any comments or suggestions? And remember to comment if you know the trivia answer!