If you are a regular follower of mine, you might be wondering where I have been for the past little while. I would like to send out a big thank you to all of you who contacted me to see where I had gone.
First of all, I would like you to know that I am fine. I couldn’t be better!
The reason for my absence from the blogosphere is a result of dealing with matters that arise when you are a real estate investor.
You will have to pardon my French, but I am currently getting my a$$ handed to myself.
I am in the eviction process with tenants that live in one of my properties.
So far I have lost about $4000 in rents owed and I am no where near out of the woods yet.
When all is said and done, I will be taking a financial hit on this property.
Unless things dramatically turn around and I am able to recover my rents from the tenant, which I highly doubt at this point, money will be lost on this property.
As such, it is going to take me a number of years to recover this loss on this property. That is of course if I remain invested in this property without selling it prematurely, due to the poor performance.
If you are a new real estate investor wanting to purchase your first rental property, you can’t be afraid of things like this. You can’t be afraid of things like this because if you stay invested for the long term, you will always, always, always win the game. Here is what I mean…
Although I am currently taking a beating on this one property, I realize the following:
It is part of the business
As a real estate investor, you are going to have ups and downs. If you are invested in real estate for the long term, you more than likely will have non-paying tenants. You will lose money when they don’t pay you. However, here is the cool part (if there is even a cool part about non-payment of rent)…
If you have owned multiple properties for a number of years. These properties have more than likely appreciated in value and you have definitely had mortgage pay down on the properties.
Therefore, if you compare your total Return on Investment for your portfolio compared to your money lost on one property where you are not getting paid rent, chances are you are still coming out on top, and making a positive return on your investment.
This is the case in my situation. The strength of my portfolio and the overall return on investment far outweighs the loss I am taking on the one property where the tenants are not paying. However, it is important that you never underestimate how significant a financial loss can be. This is important because you are responsible to your joint venture partners.
Your Joint Venture Partners
Many new real estate investors may have a joint venture partner on their first renal property. If this is the case, and you take a financial loss on the property due to non payment of rent, both parties are losing money. With the property that I mentioned above, I do not have a joint venture partner. As such, the financial loss I am taking is entirely mine. I am fine with that. However, if I did have a joint venture partner on this property, we would be sharing in the financial loss. Further, if this was the only property that we held together as partners, the performance of our investment would not be good.
Rather, if I owned multiple properties with a single joint venture partner, and we took a hit on one of the properties with non payment of rent occurring, chances are is that collectively we would be much better off, because our other properties would be performing well, with regular mortgage pay down and steady appreciation.
Nobody wants to lose money
Nobody want to lose money, especially a joint venture partner whose money you have invested.
You have to be aware
You have to be aware of the fact that you CAN lose money when you are invested in real estate. This happens and it probably will happen to you if you are invested long enough. Like I said earlier, new investors cannot let this scare them away from investing. With real estate investing, you realize the benefits many years down the road. Non payment of rent is a bump in the road. You cannot let this bump stop you from realizing your long term goals as a real estate investor.
How to overcome the bump in the road
Here is how I overcame this non-payment drama that I am dealing with. Tax time is slowly approaching in Canada. As such, all of the banks and mortgage companies start to mail out to their customers their mortgage statements.
Today I was feeling a bit frustrated about the non payment issue. I made myself feel better about the situation purely by accident. This happened when I opened up the envelopes sent to me by the mortgage companies and took a look at a number of the mortgage statements for my properties.
When I saw how much my mortgages had been paid down over the past year, and when I reflected on the total appreciation of my portfolio, I felt a lot better. The non payment of rent issue really did then feel like just a small tiny little bump in the road.
Best Regards,
Neil Uttamsingh
ps: If you want to buy your first rental property, follow my blog so you can gain knowledge and confidence.
Way to go Neil, keeping things in perspective.
if I might ad my little view on the issue. Everytime I think about the entire rent ( non-payment) as a loss, i get myself worked up for nothing.
Here’s how I look at it:
It is the cost of doing business. Every business has problems. This one is no different.
Also this is not a loss, but a revenue not collected or a profit not capitalized on.
Third, you are still making money, like you said by appreciation and mortgage pay-down.
Good luck and great article as always.
Todor
Hi Neil,
Good to see you back and you raise a great point. The risk of non-payment from tenants is always there, but when you build a portfolio of rental properties you spread that risk around. The gains from your other properties will offset the loss these tenants cause. Better yet you’ll probably still make money on this property if you hold it for the long haul.
Cheers,
Andrew
Neil this is part of our tuitiom as sophisticated investors. My struggle was the same with about 6k lost but it taught me so much to bring to the table when I speak to potential. Jv partners. Being truthful about these situations and not just selling the lipstick and rouge is so important to your credibility keep it up bro.
Buddy I’m going there right now…
Neil-
You are absolutely right. For anyone that is in real estate and has a long term buy and hold strategy, you must get your mind around the fact that this is part of the game. Great post.