In October of 2018, my in-laws, wife, and I purchased a 12-unit apartment complex in Madelia, Minnesota. I had a tremendous amount of anxiety about the $100,000 down payment and the $300,000 we borrowed to invest in the purchase.
Besides the money, I also worried about getting phone calls at all hours of the night with tenant issues and maintenance requests.
But over the first year, the phone didn’t ring. Texts trickled in, but in an underwhelming fashion. In all of our brilliance had we purchased a maintenance free building? Not so much. Here are three costly mistakes I learned the hard way.
1. Invite your renters to “complain” from the very beginning — it’ll save you money
As leases ended and people moved out we did walk-thrus and suddenly heard about leaky pipes, broken bathroom vents, and mold. We’d ask, “Why didn’t you tell us?” and heard, “Didn’t want to be a bother” or “I thought you’d charge me.” I am forever grateful to those that complain — especially about “small” leaks that turn into big moldy nightmares.
2. Secure your garbage — it’s worth a lot
Dumpsters are for garbage and we threw away a lot of money each month that first year. I learned that dumpsters are like big metal magnets that attract everyone in the neighborhood to dump their oversized mattresses, old TVs, and microwaves. Each month there was another big ticket item by our apartment dumpster that we had to deal with, often paying for it to be removed. A $15 a month wireless data plan and a $200 security camera ended the War on Garbage for us at a fraction of the cost.
3. Be on top of parking lot maintenance
Don’t overlook that huge slab of concrete or blacktop you parked on when looking at the building you’re considering buying. I could’ve tripped on the pothole in the parking lot on the way in and still would’ve overlooked it. Turns out little potholes become big potholes. Big potholes become a big liability for someone to trip on, fall, and sue you. We found ourselves needing to borrow another $35,000 to replace the crumbling parking lot. Check the condition of the parking lot or driveway before you purchase a rental property.
Despite these challenges, after three years in the rental property business we’ve reached $150,000 in equity, so I’m grateful for having quality tenants and the opportunity to use real estate to build long-term wealth.