We had a great conversation with Enrique Jevons about what it takes to be a successful investor in Seattle rental properties. He’s a good person to ask. Enrique runs the Pacific Northwest region for Mynd Property Management. His team manages 850 properties. More impressively, he owns 73 personal rentals, so he has seen a thing or two in the investment world.
It helps to have Enrique approach our questions from both sides of the coin. Not only does he effectively manage rental properties for other people, but he also has a ton of personal experience that helps him identify the things that work and the things that fail. He is quick to understand what’s needed to manage successfully and to make some money off of Seattle real estate.
A common question is something many real estate investors fear. It involves failure. What we want to know is – why do investors fail? Everyone has their own unique path to failure of course, but Enrique has noticed some trends. We asked him to share those trends with us, and on today’s Seattle real estate investing blog, we are asking him to list the top three reasons that investors in Seattle fail.
Not Understanding Laws and Ordinances
One thing about being an investor in Seattle is that there are a lot of city ordinances, and not all of them are easy to understand and follow. We know this is not a problem that’s unique to Seattle. Cities and states all over the U.S. are adopting new laws and altering the laws that are currently on the books. This could cover everything from rent control to screening processes and evictions. There’s a lot to know.
In Seattle, following all the laws and remaining successful as a real estate investor has become more difficult for some people. One of the main reasons an investor can fail is that they’ll get fined for not doing something correctly or lawfully, and those fines can be prohibitive as well as punitive. One major fine can completely shut you down.
Many of the penalties in Seattle are extensive and expensive. The average cost of a mistake in the leasing of your property is around $5,000 or $10,000. In some cases, it’s even higher. Enrique recently talked to a fellow investor who flips houses, and he recently received a complaint against him because of a mistake he had made or a law he had misread. The fine imposed on him is $20,000. That’s pretty incredible, and no matter how successful you are with your properties, it’s hard to bounce back from a $20,000 fine.
If you don’t know all the rules, you’re certainly at risk for making an expensive mistake, and that mistake can immediately lead to investment failure. To make things more difficult, it’s not like all of the rules and requirements are published in a single repository. As a rental property owner, you have to pay attention to all city, state, and federal laws as they apply to your investments. But, there’s no single resource, and the laws are changing all the time. It can be confusing.
There are also micro-communities that have their own rules and requirements. Consider HOA and community associations, for example. Homeowner associations have their own sets of covenants and restrictions, and if the property you own is in an HOA, you are subject to following them and so are your residents. There are also separate requirements for neighborhoods throughout Seattle. If you don’t know them, you can lose a lot of money on these fines.
It doesn’t matter if the law you are found to be violating was unknown to you. Even if you had no idea; not knowing the law is not an excuse.
When you don’t know the law, you also increase the likelihood that you may get sued. A resident can sue you for not getting a repair done quickly enough, and that’s going to be expensive, time-consuming, and stressful. Maybe you did not realize that in Seattle, all hot water and heat-related repairs have to be started within 24 hours of being reported. If you were traveling and you didn’t get your resident’s voicemail reporting the issue until late, you could be liable for breaking that law. Even if you get the work going as soon as you receive the message; you’re required to start within 24 hours. The law does not care if you were on vacation or sick or tending to other matters.
This first reason for failure is a big one. Make sure you educate yourself on all the local laws and regulations and if you’re not sure you have the time or interest to keep up, you absolutely need to work with a Seattle property management company that can keep you in compliance and out of legal hot water. Don’t fail as an investor simply because you didn’t know you had to start a repair sooner than you did or because you weren’t sure about the differences between an emotional support animal and a pet.
Trying to Do Everything Yourself
A great way to fail as an investor is to try and do everything by yourself. This is a trap that many new investors fall into; they want to go it alone from identifying the investment opportunity to closing on the sale, preparing the home for rental, and moving forward through the management process.
Do not try to do everything yourself. You have to realize that no matter how much you know, not everyone is an expert in everything. That’s why we hire doctors and attorneys. Not many people know how to argue a case in court or remove their own spleen. You have to let professionals do what they do best so that you can focus on what you do best.
Hire the rockstars who are knowledgeable in their own areas. Instead of trying to do your own taxes, work with a CPA or a tax attorney so you can be sure you’re not losing money or miscalculating your income and expenses. When you’re preparing your investment for the rental market, hire professional cleaners so you’re not the one scrubbing toilets and waxing floors. People often think they are saving money by not hiring professionals and by doing everything themselves. But you’re not saving money. You’re losing money and you’re also losing time. These things can set you up for a major failure that you probably never anticipated.
Not Knowing Your Market
Finally, investors will always fail if they don’t know their market. Seattle has a much different rental market than Memphis or Orlando. It’s important that you understand the properties here, the market trends, and the resident pool. If you don’t know the market, you’re not going to make good decisions.
Make an effort to gather all the market data possible. Perhaps you’ll read an article that tells you rents in the Seattle area are going up 10 percent this year. So, you raise your rent 10 percent on all of the leases that are renewing. Well, that’s a great way to chase away good residents. Just because the average growth in Seattle was 10 percent doesn’t mean it pertains to your neighborhood or your property type.
Maybe you decide to raise your rent three percent because that’s the general cost of living increase. That’s a terrible way to settle on rental value. There are so many micro-economies within major economies. Your neighborhood will be impacted by its own nuances. If you don’t really understand your market, you have a good chance of making mistakes. You’ll raise your rent too much or you won’t raise it enough. Then, you’re stuck playing catch up or you’re stuck with a vacancy. With the vacancy of course comes additional costs. You have to start over and find another resident and do the marketing and take care of the turnover maintenance. It’s a huge expense. It can cause an investor to fail.
Educate yourself about the rental market and the sales market as well. Chasing down investment opportunities just for the sake of investing is a great way to fail. Remember that you need an investment plan. You need specific investment goals that define what you’re doing and why. If you get off track because you’re chasing something that isn’t right for you, it’s a surefire way to fail as an investor.
Everyone has their own reasons for failing as an investor. One simple mistake does not need to knock you off track permanently. But, if you want to reduce the chance that you’ll make a terrible mistake that puts an end to your investment career, pay attention to these three things. It’s a good starting point, and it tells you what you want to avoid.
We don’t like to see anyone fail. So, if you have any questions about investing in rental properties in Seattle, contact us at Mynd Property Management. We would love to be your Seattle property management resource.