- A property investor with over 100 units shares the top mistake he’s made in his real-estate career.
- Early in his career, he wasn’t selective enough when buying properties, he said.
- When looking for properties today, his focus is a return on capital.
From skimping on market research to overlooking the hidden costs that come with property ownership, there are many ways a newcomer can make mistakes in real-estate investing. But one of the best ways to ensure success is following the guidance of experienced professionals.
Matt, a New Hampshire-based property investor who prefers to go by “The Lumberjack Landlord” for privacy reasons and whose identity is known Insider, has made plenty of mistakes in his 20-year career in real estate, he said. “If there was a mistake to be made, I did a good job finding it.”
The 44-year-old’s portfolio, which now consists of 36 buildings and grosses over $100,000 per month in rental income, never would have even existed if he had not addressed 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 novice, Matt figured that after renovating and fully leasing the three-unit building, he could earn about $700 a month after deducting his mortgage payment, property taxes, and other expenses.
Early on, he didn’t fully understand how to evaluate return on capital — the profit he could potentially earn from his real-estate holdings after factoring in expenses. With his first property, the triplex, he underestimated how much time and expense would be required to renovate and maintain it. “There was always something that was taking my profit with that one,” he explained. “It just needed more work than I expected.”
That was in 2003. Over the next couple of years, he continued to purchase properties around Manchester. By 2007, when the United States housing bubble began to burst, Matt had built his way up to eight units. His growing real-estate business almost didn’t make it out of the Great
that followed, he said.
Many of Matt’s tenants found themselves unable to cover their rent in the years that followed the housing crash, affecting his cash flow and putting additional pressure on his family. Plus, he started to recognize that he needed to focus on learning his market better in order to better understand the assets he was buying. “There were too many deals I had done that didn’t cash-flow well and make me a lot of money,” he said.
Developing a comprehensive strategy: Changing markets and housing type and prioritizing cash flow
After about four years of investing in Manchester, Matt realized he wouldn’t be able to meet his real-estate goals if he continued buying there. “Manchester is the largest 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 multifamily homes.
At this point, “I’d made plenty of mistakes, and I thought, I just need to modify operations and how I’m going about this,” he said. “I need to be more selective about the properties I’m buying.”
He started looking in Dover, a city in New Hampshire’s coastal region, where his wife, Ashley, was in nursing school. He saw an opportunity to buy and rent to students whose housing options were limited.
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 some income on the other side.”
The property was in rough shape, and the couple spent a month getting one side of the duplex in a habitable condition to rent out. Once it was completed, they leased the apartment for $1,600 a month, which nearly covered their entire $1,900 monthly mortgage payment. “That’s when we were like, ‘OK, this is how we’re going to do this. This will work,'” Matt said.
From that point 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 out, and use the rental income to cover the majority (or all) of their housing costs. This frees up more cash for savings to acquire additional properties, which is exactly what the couple did.
The couple continued to buy duplexes in Dover and repeated the process. They would move into one unit while fixing up the other and then eventually rent it out. Then they’d move on to fixing up the other unit. When both apartments were in good condition, they’d start looking for the next duplex to take on for renovation and add to their cash-flowing portfolio.
It was in 2016, after Matt and Ashley had moved nine times over the previous decade, that the pair finally started seeing returns from 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 a month, which was confirmed by Insider.
“It’s really important to find your market and then learn it inside and out,” said Matt, who prefers to buy 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 today’s market.”
Now that he’s established a strategy that works for him and has plenty of money available, he can be pickier when looking to buy. When he’s looking for investment properties, his biggest concern is a return on capital, or what he calls “ROC.”
He’s not just looking for a good return; he’s looking for a great return.
“To understand what a great deal is, you have to understand what every other deal is,” he said. If duplexes in his market are returning an average of 7% annually, he’s looking for deals that will earn him at least 10%, he explained.
Regardless of where you are in your real-estate investing career, whether you’re just getting started or five years in, “do your own research,” Matt said. “Do the work.”