Any time you get a bunch of real estate investors in one room you end up hearing their stories. If you have been around for a while and have done more than a few deals then you probably have a story, or several, to share. We are no exception.
When you buy an investment property you know perfectly well that there are a lot of zeros on the line and therefore you do your homework, dot the “i’s” and cross the “t’s” before moving forward. And yet despite this we all still manage to learn many lessons, big and small.
Here are the first two in our series of lessons learned the hard way.
Lesson #1: What do you do with the snow?
Early in our investing career, we purchased a triplex in the spring after all the snow had disappeared. Naturally we thought about the grass and external maintenance but we didn’t stop to think about the mechanics of what would happen when the snow fell.
This property had a long, single lane driveway that could fit three cars. The back yard was fenced and the other side of the driveway was entirely fenced along the neighbour’s property. That meant that the only real opening was the front yard. We knew that the yard had lots of space for snow, but we hadn’t thought about the fact that we would have to move snow roughly 2/3 of the driveway from the back to the front.
After a particularly heavy snowfall the job was nearly unmanageable as the snow banks lining the front yard were huge. If cars were parked in the driveway you could hardly move around the vehicles and all the snow.
At first we tried to take care of the shovelling ourselves but we quickly figured out that this was madness. To make matters worse, we couldn’t hire a service since our tenants had to park in the driveway and their cars would be in the way. You can’t park on the street after a heavy snowfall because the City needs to send the plows through. We eventually hired a teenager to shovel around the cars every time it snowed, which wasn’t an ideal solution for tenants who had to leave very early in the morning.
These days, when we buy, we immediately ask ourselves two key questions: Where will the snow go and how will it get there? If the deal doesn’t have enough cash flow to have someone else deal with the snow, or if the property won’t allow easy access for snow removal equipment we don’t proceed.
Lesson #2: Buy purpose built
The triplex mentioned above was a converted house. The changes had been cleverly executed to yield three good units, however we discovered some of the problems inherent in such conversions, particularly with the wiring.
The wiring in the place was quite dated so we hired an electrician to come in and clean things up. He discovered a couple of switches in one unit that didn’t seem to turn anything on, and he couldn’t find the switch that regulated one of the outdoor lights. So he went digging.
What he found, after much sleuthing, was a mess. The people who initially converted the house into three units hadn’t spent much time worrying about ensuring that each unit’s electrical circuits were independent. It turns out that Unit #1 had a light switch for Unit #2. Unit #3 had the switch that regulated an outdoor light, so they were paying to keep the outdoors safe for all three units. The list of problems went on and on.
The story was the same when it came to plumbing.
After that whole fiasco I vowed that I would never again buy a converted property unless I was the one doing the conversion. Don’t buy someone else’s mess! When you buy a purpose-built property, things should be done correctly from the outset with a separate set of circuits for common areas.
We will be sharing many more lessons in the coming weeks. In the meantime, if you have a story please share it below. The more we share, the more we can learn from each other.
Speaking of learning, we have a workshop coming up on September 19th: How to Read Credit Bureau Reports, Spot Problems and Fix them”. Look for the Early Bird discount.
To your success!