Bought 22 Rental Units and Now I Regret It. Here’s Why…

Stefanie Kebede

Investing in rental properties can seem like a golden opportunity for financial freedom. However, the reality can be quite different. I learned this firsthand after purchasing 22 rental units in only 18 months. Initially, I thought I was on my way to creating a steady stream of income, but I quickly realized that the journey was fraught with challenges and regrets. In this post, I’ll share my experiences, the lessons learned, and the harsh truths about owning rental properties that many real estate gurus won’t tell you.

The Allure of Cash Flow

When I began my journey into real estate, the prospect of cash flow excited me. The conventional wisdom is that by buying, rehabbing, and renting out properties, you can create a reliable income stream. For my 22 units, the average cash flow was around $600 per month per unit. That sounds impressive, right? It adds up to approximately $13,200 monthly and $158,400 annually. However, the reality of cash flow is not as straightforward as it seems.

Despite these seemingly high figures, I found myself questioning my choices. The allure of cash flow often overshadows the substantial costs associated with maintaining these properties. It’s easy to get caught up in the numbers, but it’s crucial to look beyond the surface.

The Dark Side of Rental Property Ownership

Let’s talk about the dark side of owning rental properties that isn’t often discussed. The first thing to understand is that as you scale your portfolio, the money you make doesn’t necessarily translate to personal wealth. Instead of becoming richer, I found myself becoming cash poor. The reality is that owning multiple properties looks appealing on social media, but in day-to-day life, it can be draining and financially straining.

As I accumulated properties, I realized that the cash flow, while substantial on paper, was frequently consumed by expenses. Repairs and unforeseen costs can wipe out your profits in an instant. For example, consider a single-family rental where you might cash flow $400 a month. If your roof needs replacement at a cost of $5,000, that entire year’s cash flow can vanish in a heartbeat.

The Equity Trap

Throughout my experience, I became aware of what I call the "equity trap." While it sounds great to be equity rich, it does not help when you are cash poor. Having substantial equity in properties does not mean you can easily access cash for daily living expenses or emergencies. It’s a frustrating position to be in when you realize that while your net worth on paper is growing, you’re struggling to make ends meet.

Living in a constant state of checking your bank account balance can be exhausting. I learned that being equity rich but cash poor means you might have to sacrifice basic needs like food and gas just to keep up with your property expenses. This lifestyle is not sustainable and led me to regret the rapid expansion of my portfolio.

The Need for Additional Income

One key lesson I’ve learned is that if you plan to build a rental property portfolio, you need another source of income to support it. Initially, we looked into wholesale deals as an additional income stream, but unfortunately, those proved inconsistent. We relied heavily on cash flow from our rental properties, but when expenses arose and cash flow diminished, we were forced to dip into our personal finances.

In moments of financial strain, we made poor decisions, like putting repairs on credit cards. This can quickly lead to a debt spiral, making the situation even worse. I want to share this experience to help others avoid the same pitfalls. If you’re considering building a rental portfolio, ensure you have a stable income to back it up. Without it, you risk becoming financially overwhelmed.

The Reality of Self-Management

Managing rental properties can save money, but it’s not without its challenges. My partner and I chose to self-manage our properties to cut down on costs. While I don’t mind taking on this responsibility, it requires proper systems and processes to be effective. If you decide to self-manage, make sure your properties are fully prepared before tenants move in. This means addressing any repairs upfront to reduce the likelihood of emergency calls.

For instance, if you install a brand new toilet, you’re less likely to get calls in the middle of the night about a malfunction. A proactive approach can save you time and stress in the long run.

Understanding Mortgages and Cash Flow

Cash flow isn’t just about how much you bring in; it’s also about your expenses. A significant portion of your cash flow can be eaten up by mortgage payments, which include principal and interest. For one of our two-unit properties, the upstairs unit rents for $1,300, and the downstairs for $1,100. However, the mortgage on that property costs approximately $1,300, which means that while we might seem to cash flow well, the reality is more complex.

After accounting for utility bills and other expenses, the cash flow becomes less impressive. It’s essential to understand that while you may have high rental income, if your expenses are equally high or higher, you’re not truly profiting.

Reevaluating Goals

Throughout this journey, I’ve had to reevaluate my goals. Initially, I aimed to acquire 100 units quickly, but after facing the challenges of managing 22 properties, I realized that my approach needed to change. It’s crucial to take a step back and assess what you truly want and how you want to achieve it.

Goals should be flexible and adaptable. The experience of owning rental properties has taught me that it’s essential to align your objectives with your current reality rather than sticking to an ambitious plan that may not be sustainable.

Final Thoughts

Owning rental properties can indeed be a pathway to financial freedom, but it’s not without its challenges. My experience has opened my eyes to the complexities of real estate investment. The cash flow may look enticing, but the reality often involves hidden costs and unexpected expenses.

For anyone considering investing in rental properties, I urge you to think critically about your strategy. Ensure you have a reliable source of income, a solid plan for managing your properties, and a clear understanding of your financial goals. By doing so, you can avoid the pitfalls that many investors face and build a successful rental portfolio without the regrets I encountered.

In the end, it’s not just about the number of properties you own or the cash flow on paper; it’s about how much money is actually coming into your pocket and how you can sustain a lifestyle you’re happy with. I hope my journey provides insight and helps others navigate the complex world of real estate investing.

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