2014 didn’t cause me to rethink why I invest in real estate but it did give me a healthy wake-up call regarding risk and leverage. Higher leverage is the way to achieve higher returns on any producing investment but with it comes higher risk. It was a year of dealing with a tenant going through a bankruptcy (8+ months of no rent) then destroying one of my houses (~15K in damages), more turnovers than planned, and more repairs than anticipated. These events have caused a fair amount of stress in my life to say the least.
What have I learned? Maybe use a little bit less debt when financing my next properties. Keep all properties professionally managed since actually managing rentals is not what I am good at. Don’t give up when the going gets tough. As one of my real estate investment mentors says, treat the losses due to the tenant’s bankruptcy as tuition. It’s an expensive lesson and one that I would have preferred to learn the easy way but life doesn’t always teach you lessons the easy way. Sometimes it costs $25k but you certainly don’t forget those lessons. Tuition.