July 1, 2022
  • July 1, 2022

A real estate investor shares the biggest mistake he made

By on March 8, 2022 0

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  • A real estate investor with over 100 units shares the biggest mistake he made in his real estate career.
  • Early in his career, he was not selective enough when buying properties, he said.
  • When researching properties today, he focuses on return on capital.

From skimping on market research to overlooking the hidden costs of homeownership, there are plenty of ways a newcomer can make mistakes in real estate investing. But one of the best ways to ensure success is to follow the advice of experienced professionals.

Matt, a New Hampshire-based real estate investor who prefers to call himself “The Lumberjack Landlord” for privacy reasons, has made many mistakes in his 20-year career in real estate, he said. to Insider. “If there was a mistake to be made, I did a good job of finding it.”

The 44-year-old’s portfolio, which now consists of 36 properties and brings in more than $100,000 a month in rental income, would never have even existed had he not approached and learned from the biggest mistake he made: not being selective enough when buying properties. He learned the hard way that due diligence is necessary if you want to succeed as a real estate investor.

His first investment was a “triplex” in Manchester, New Hampshire. As a relative newbie, Matt estimated that after fully renovating and renting out the three-unit apartment building, he could earn around $700 a month after deducting his mortgage payment, property taxes and other expenses.

At first, he didn’t quite understand how to assess return on capital – how much profit he could potentially make from his real estate after factoring in expenses. With his first property, the triplex, he underestimated the time and expense required to renovate and maintain it. “There was always something taking my advantage with that one,” he explained. “It just needed more work than expected.”

That was in 2003. Over the next two years he continued to buy properties around Manchester. By 2007, when the US housing bubble began to burst, Matt had built as many as eight units. His growing real estate business barely made it out of the Grand


Recession

that followed, he said.

Many of Matt’s tenants found themselves unable to cover their rent in the years following the housing crisis, affecting his cash flow and putting further pressure on his family. Additionally, he began to recognize that he needed to focus on knowing his market better in order to better understand the assets he was buying. “There were too many deals I had made that didn’t have good cash flow and were making me a lot of money,” he said.

Develop a global strategy: change markets and housing type and prioritize cash flow

After about four years of investing in Manchester, Matt realized that he would not be able to achieve his real estate goals if he continued to buy there. “Manchester is the biggest city in New Hampshire, and there was way too much inventory,” he said, so he decided to start looking in smaller markets and explore the idea of buying multi-family homes.

By this point, “I had made a lot of mistakes and thought I just needed to change the operations and the way I do it,” he said. “I have to be more selective about the properties I buy.”

He began looking in Dover, a town in coastal New Hampshire, where his wife, Ashley, was in nursing school. He saw an opportunity to buy and rent to students who had limited housing options.

matt owner lumberjack

Matt owns several properties in Dover, New Hampshire.

Courtesy of Matt and Ashley


In 2008, the couple bought the only property their budget allowed in Dover at the time: a foreclosed duplex. “We couldn’t afford a single family home,” Matt said. “We had to buy a duplex where we could get income from the other side.”

The property was in poor condition and the couple spent a month renting out one side of the duplex in livable condition. When it was finished, they rented the apartment for $1,600 a month, which almost covered their entire monthly mortgage payment of $1,900. “That’s when we were like, ‘OK, that’s how we’re going to do it. It’ll work,'” Matt said.

From then on, their strategy evolved into a methodical process. The first step is to buy a multifamily (either a duplex, triplex, or quadplex), live in one of the units, rent the other units, and use the rental income to cover the majority (or all) of your their housing costs. This frees up more money to save for additional properties, which is exactly what the couple did.

The couple went on to buy duplexes in Dover and repeated the process. They would move into one unit while fixing the other, then eventually rent it out. Then they would move on to repairing the other unit. When both apartments were in good shape, they would start looking for the next duplex to renovate and add to their cash portfolio.

It was in 2016, after Matt and Ashley moved house nine times over the previous decade, that the couple finally started to see the returns for their time and effort. Their rental income went from being just enough to pay for their housing costs to matching Matt’s take home pay from his day job.

Today, their gross rental income from their 36 properties exceeds six figures per month, which was confirmed by Insider.

“It’s really important to find your market and learn it inside and out,” said Matt, who prefers buying multifamily properties. “I only have one single family home. I really focus on duplexes, triplexes and quads because I think that’s the most undervalued asset in the market today.”

Now that he’s established a strategy that works for him and has plenty of cash, he can be more picky when looking to buy. When he’s looking for investment properties, his biggest concern is return on capital, or what he calls “ROC.”

He is not only looking for a good return; he is looking for a big comeback.

“To understand what a good deal is, you have to understand what all the other deals are,” he said. If the duplexes in his market bring in an average of 7% per year, he looks for offers that will bring him at least 10%, he explained.

No matter where you are in your real estate investing career, whether you’re just starting out or five years old, “do your own research,” Matt says. “To do work.”