My grandfather grew up low-income in rural North Carolina during the mid-20th century. Despite having to take a job instead of finishing high school, he is now one of the most successful people I know. One of the ways he built his wealth was diligently saving his money while he and my grandmother were just starting out, so he could invest in real estate.
It started with a simple beach house he paid $15,000 to build in 1963 that he planned to rent out to vacationers. He turned a profit on the beach rental, and used it to then build a duplex. He built apartment complexes himself well into his 60s, and now, he has 12 investment properties that support him and my grandmother in their retirement.
I’ve seen firsthand how well investment properties worked for my family and I’ve been inspired to pay off my first home quickly in hopes of turning it into a rental property. Though I know my grandparents came up in a different time, I’ve learned a lot about real estate investing from them. The most timeless lesson they’ve taught me so far? Investment properties are not a get-rich-quick scheme, and, contrary to popular opinion, they’re not “passive” income. Though it does pay its dividends, patience and hard work is rewarded when you prioritize providing your tenants with a happy and healthy space to live. Here are a few more of the best bits of wisdom my grandfather bestowed on me:
1. The best investments you can make is in people
In the same way that no one wants to work for a bad boss, people don’t want to rent from a bad landlord. My grandfather has great people skills and has often gone above and beyond for his tenants (he takes their trash out for them, asks about their families, and has given Christmas presents to renters for as long as I’ve been alive to see it). Because of this, he’s been able to hold on to the best residents: He has two 15+ year and thee 10+ year tenants. Though he’s had dozens of occupants over the course of 25 years, he’s only had one eviction.
While he does his best to ensure he checks out who he’s renting from (always check references, he says!), he’s found the people tend to respect his properties when he’s earned the respect of his tenants.
2. Be frugal, but don’t cut corners
When you own a rental property, chances are, you’ll repair and renovate sometime down the line. While there have been months where the entire rent check went into buying a hot water heater or repairs, my grandpa says he tries never to spend more than he needs to on maintenance. He frequently visits surplus building supply warehouses and salvage stores and keeps track of sales at home improvement stores. He knows that everything will eventually need to be fixed or replaced, so if he can stock up when something’s on sale, he will. He knows a frugal buy is well worth a bit of research and leg work. That said, he’ll rarely go for the cheapest option. He knows from experience that cheap vanities, doors, and even paint won’t last long. Instead, he buys everything mid-range but tries to purchase it at bargain-basement prices.
3. Buy with cash when you can
A number of factors allowed my grandparents to pay for their first home in cash. And though they know this is an outdated piece of advice, it has stuck with me. Of course, it’s no longer a reality for most to buy anything in one fell swoop, but it’s better to buy with cash when you can. That means that materials, supplies, and services are better to be bought outright instead of using financing. Being a good landlord is about keeping rent low for tenants and providing them their money’s worth. When you add interest to your overhead, the burden is often being passed off onto your residents. Buying within your means keeps you—and your renters—from unexpected financial risk.