After finally reaching the closing table recently after a long and drawn out escrow period on the sale of an investment property, I’ve been reflecting on lessons learned that can be useful going forward. Here are a few that stand out to me:
- Don’t Underestimate the Long-Distance Investment
- Collaboration is Golden
- Be Nice, but not Too Nice
- Weak Contracts Suck
- Outsource = Leverage
- Live, Learn, and Move On
Don’t Underestimate the Long-Distance Investment
There’s a saying frequently spoken in real estate investing circles, “Live where you want to live; invest where the numbers make sense.” That’s all well and good and on the surface makes a lot of sense. However, if you need to look outside of your local area for investment properties with numbers that make sense, what should you do? To me, this is a critical and important decision to consider as to whether you want to or should invest as an ACTIVE investor in a distant location. Obviously, investors do this all the time and it CAN work out great. However, my word of caution is to scrutinize the logistics of how you will oversee that investment throughout the holding period. Will you hire a property management company? If so, do you know what options you have for that? Do you know what outsourcing the management will cost you and how that will impact your bottom line? Do you have local friends or family in that location that could help you out should anything arise that needs more immediate attention? Are you investing with a partner that is in the location and will oversee the operations? If so, what happens if the partner needs to move and what does that partnership arrangement look like?
The property just sold was an out-of-state property. My investing partner in the property was able to be there part-time and we had one of the property residents as our point of contact for when my partner wasn’t there. With those coverages, things were manageable but it was on occasion challenging to deal with various circumstances from a distance. In retrospect, we would likely have been better off instituting a full-time 3rd party manager, but the trade off was we got to learn a lot that we likely wouldn’t have otherwise. So, my recommendation is to work out a detailed plan as to how you will oversee a long-distance investment in any foreseeable circumstance. It’s always so easy to brush off and not plan for various circumstances that you think are unlikely but by doing so will undoubtedly spare you from many a headache.
Collaboration is Golden
There’s an African proverb which says, “If you want to go fast, go alone. If you want to go far, go together.” That pretty much sums up the beauty and benefit of partnerships and collaborations, getting farther by going together, not to mention it is generally way more fun. For starters, the right partner might provide the momentum for taking action that you may not ever even get to on your own. Also, any time more than one person comes together for something there are always a variety of skill sets that each person brings to the table and can be leveraged by all involved. I have found this not only beneficial but a more efficient and enjoyable way to accomplish things.
Beyond the day-to-day benefits, I can assure you that when things go awry (yes, they always do at some point), having a partner to get through the ups and downs with helps temper what could otherwise be stressful.
Be Nice, But Not Too Nice
As I alluded to, my partner and I were mostly self-managing the property (with the help of the on-site resident). My experience, having self-managed and had 3rd party management, has been that residents are more likely to assume that they can ask for special conditions or exceptions to the policies and rules when the property is owner-managed vs. 3rd party managed. Perhaps that is just because of my personality and ability (weakness?) to sympathize when residents are in a bind, but that has been my overall experience. In my opinion, being “nice” with residents can be a slippery slope as you might inadvertently shift their expectations of how everyone has to abide by the same rules and policies without exception.
Weak Contracts Suck
Sounds obvious, right? Well, keep that in mind next time you go to transact a real estate deal with anyone. I’m pretty sure I have a bad habit of tending to always assume that other people will interact with me with relatively the same level of good intention as I do with them. With that in mind, it is not my usual style to pick apart contracts based on largely hypothetical concerns about how things COULD or MIGHT play out. That’s not to say I don’t review contracts carefully, as I think I do, but in retrospect I see where removing ANY ambiguity or potential for loose definitions of time periods or terms is quite prudent. In the case of our sale, such ambiguity arose over the periods of time allotted for due diligence based on several “exception” clauses that were in the contract. The result was that we got into a situation that left us with no clear delineation as to the exact dates the seller would be required to perform and things subsequently moved very S-L-O-W-L-Y through escrow despite the seller’s assurances that he was wanting things to move along just as quickly as we did. Right! So, an escrow period that we anticipated to take 60 days ended up taking 4 ½ months!
Outsource = Leverage
I’ve been quite focused on this concept for awhile but in retrospect I can see where opportunities for outsourcing (i.e. leveraging) were missed in this investment. It’s easy to fall into the trap of feeling like some task is easy and simple and that it won’t be a big burden to just do it yourself. But, after adding 10 or 20 of those easy, simple tasks one ends up creating a huge time suck and a missed opportunity to leverage your investment. Ultimately, this means probably never owning rental property that you self-manage. Unless perhaps it is a house hacking situation where you live on the other side of a duplex that you rent out, I feel like the case can be made to always plan to outsource the management. Either you want to be an investor or a property manager. After this investment, I am even more committed to staying on the investor side of things.
Live, Learn, and Move On
Ultimately, the biggest take away from this investment is the concept of letting go and moving on from something after you either accomplished your goal for the investment or for whatever reason it isn’t logistically or financially optimal to continue holding it. Fortunately, in our case, we accomplished what we wanted to with the investment and although we originally thought we would hold it longer, it was becoming more logistically cumbersome to continue overseeing the management of it based on our individual circumstances so selling it just made sense. It was a tremendous learning experience but I’m happy to move on to new challenges, new lessons, and a new adventure.