You’re in this to win. You decided to become a real estate investor and DIY property manager for a reason, whether it was due to visions of a healthy passive income stream on the side or a retirement where you don’t have to worry about money.

We get it, and we at Haven Homes want to help you succeed.

We’ve worked with investors and we know what works and what doesn’t. That’s why we decided to share the three main reasons we see real estate investments fail.

1. Failure to Budget Properly

In our experience, most property owners don’t consider all the possible expenses that will crop up when they own a home. Whether you own several rental properties or just one, it can be challenging forecasting a number, so here are some factors we suggest you consider:

a. Projected Maintenance Costs

This can be tricky because a novice rental property investor doesn’t necessarily have the experience to feel confident estimating typical yearly expenses. However, it’s always advisable to create a budget for potential issues and general wear-and-tear. While it might be hard for a DIY manager to make an exact projection, reserving some money for these eventualities will save you from some nasty surprises later.

Due to the large number of properties Haven Homes manages, we created a formula based on our experience of what items are likely to need repair. We’ll be the first to admit that this process works because it factors in a number of different moving parts. For example, if a home built in the late 90s recently underwent an extensive renovation, we would estimate that it will likely incur only minor repair and maintenance expenses over the next couple of years and reserve funds accordingly. However, a similar home built in the same time frame with no recent renovation would likely need to budget double or triple the same amount in order to address a major system breaking down.

This brings us to our next point…

b. Repair Cost & Responsibility

DIY managers should try to familiarize themselves with how much a repair should cost to fix. Unfortunately, in the absence of experience, research will have to substitute. That often means spending your free time making calls for estimates.

Sure, that’s a pain, but is there more to it? Let’s look at a worst-case scenario: if you spend $500 to fix a faucet when the plumber’s labor should really only cost $125, that puts you behind on your expenses and starts a vicious cycle. Now your cash flow isn't what you forecasted and you might be barely covering your mortgage payment, if it's financed.

This may not happen every month, but it can endanger that profit you so carefully calculated—which is the reason you decided to own an investment property in the first place.

Another problematic area is determining which repairs must be done immediately. At Haven Homes, we must often make the call between cosmetic repairs and functional repairs. The latter needs to be done immediately, but most cosmetic repairs can wait. For example, a bedroom wall damaged by a resident slamming a door can usually wait until the move-out to be assessed and repaired.

This brings us to the next part of the repair equation…responsibility.

Your leases should be structured so residents pay for any damage that they caused.

For example, say the garbage disposal is broken. We at Haven Homes would consider that a functional repair and would typically fix it. Now, if we identified the cause of the damage was due to a rock in the disposal, we’d ask the resident to pay for the cost of repair. That’s why our leases are structured so residents are responsible for their own damage, further minimizing owners’ expenses and improving their monthly cash flow.

Another seemingly minor piece of advice that we find saves lots of time and money: troubleshooting a repair with a resident over the phone. There’s nothing more frustrating than paying for an electrician to make a house call when a fuse just needs to be flipped.  After all, if you’re planning to pay for a repair, you should have a good sense that a real repair is actually needed.

c. Fines

This category of expenses doesn’t apply to everyone, but as many unsuspecting DIY property managers with homes in HOA communities quickly learn, fines can accumulate very quickly.

For example, if you receive fines of $25 or $50 a week, you're looking at up to $200 a month, especially if they are not immediately resolved. Unfortunately, many residents ignore their violation notices until owners are made aware of ever-growing HOA fines.  Without a strong system of communication in place with the HOA, owners have little recourse but to pay the HOA.

That’s why we strongly suggest that you build a good relationship with your HOA.

The drawback? It takes time. If we’re being honest, it often takes a great deal of time to make calls and send emails and even meet face-to-face. The advantage?  Cultivating this relationship can save you a lot of money. (In fact, we’ve written about it extensively here.)

Although Haven Homes has invested a lot of time creating great relationships with many, many HOAs, we’d like to offer another “trick” that helps. Our lease agreements ensure the residents agree to cover fines that result from their own negligence. We advise you to do the same.

2. Buying in the Wrong Neighborhood

Many DIY investor/managers buy homes in certain neighborhoods because the price is right. However, that doesn’t mean it’s a good choice. You also need to consider the quality of your investment neighborhood.

If you invest in an inferior neighborhood compared to the surrounding ones, the rent you thought was $1,500/month may only be $1,200. That $300 difference may be a real deal-breaker if you were relying on that money to make your mortgage payment. It’s also unlikely “lesser” neighborhoods will appreciate as much as others, which hurts in the long run.

So, do your research before you invest; that’s what we did at Haven Homes. Granted, we’ve acquired thousands of homes over the years, so our experience is hard-won, but we started out doing the research, like any other investor. 

3. Owner Time and Effort 

Your time is worth money. So many DIY owner/managers underestimate just how much effort it takes to properly manage a property.

In our estimation, a DIY manager should look at his or her time as they would if they were consulting for a business. How much would your hourly rate be if you worked as a manager for a company?

If you spend ten hours working on a project, even if you’re just making calls or getting estimates, you should multiply those hours by your theoretical rate to measure how much that project cost you in man hours.  For example, when you’re trying to get a new resident, you may have to be on site for numerous showings. (That’s not even taking into account the time you spent getting the place ready to show.)

Some managers are willing to put in the time, no matter how long it takes. For others, a management company may seem like a bargain when you realize you make $450/month on your own, but $425 with a professional manager. That $25 can be the difference between a frustrating investment that keeps you from spending time with friends and family and a profitable and satisfying one.

The moral of the story? Property management can be tough, but it can also be profitable and satisfying. While there are many things that can go wrong, most of them can be prevented with proper preparation.

Don’t forget to download our Comprehensive Guide to Effective Property Management Checklist to learn about other things to look out for.

If you have questions, feel free to drop us a line. We’re also always happy to hop on the phone.