What Your Psychologist Knows About Becoming a Landlord

We didn’t have sex that night.  I was sneaking out of her parent’s house early in the morning to go sign loan docs on my first apartment building.  My appointment was at 8am.  Too early for a Saturday.

She was seated and leaning forward in a chair with her arms folded tightly across her chest to stay warm.  Her toes curled under and pointing in a V pattern.

She smiled through her sleepy face.  I think she was forcing her excitement for what I was about to do.  Pretending as though we were about to build a life together and this was the first big step.

I was about to become a landlord.  I was trying hard not to let it show, but I was really scared.  At that moment, all I could think about was how I would introduce myself to the new tenants.

The 3-plex I was buying was in the heart of downtown Long Beach in 2002.  Most of the houses had bars on the windows.  Graffiti gang signs seemed like they were on every wall, street sign, and trash can.

I was a skinny, cubicle dwelling, white kid raised in a good neighborhood.  The ghetto scared the crap out of me.  It would seem that nothing about my life, to that point, had prepared me for the challenge I was about to trade $26,000 for.  That was my entire life savings.

My car turned off the freeway and started weaving its way past the double parked cars and trash strewn streets of a mostly Latino neighborhood.  Stray cats stopped in the middle of the street and stared as my car drove by.  I felt that familiar stomach cramp that I always got when I was nervous about something.  It would become the same routine every time I had to visit tenants at my new building.

I had this recurring nightmare that one of my tenants would be a Hell’s Angels gang member.  I have visions of him answering the door wearing a black leather jacket and a handlebar mustache.  He just stares down at me through cold, dark eyes.

Btw…If you’re having the same nightmares, I want to put you at ease right now.  I obviously watched too many Clint Eastwood movies in the 80’s, because I later learned that there were ZERO motorcycle gangs in the ghetto.  At least in my ghetto.

Most of my fears were related to tenant conflicts.  What if no one pays rent?  What would I do if I had to evict someone?  What if a tenant trips and falls and sues me?  What if a tenant sues me for breathing toxic mold?  I had heard so many stories of landlords being sued.  I was sure I was the next victim.

For days leading up to the close of escrow, I had all these nagging worries bouncing around in my head.

I was 28 years old and my emotional intelligence was low.  Cracks already started to appear.  I had my first panic attack while boarding a plane for a business trip a month earlier.

Unable to handle the pressures that I was putting on myself… the commitment issues with the girlfriend, the career, the travel, the anticipation of managing tenants for the first time.  I started having anxiety attacks almost daily.

Becoming a landlord was supposed to give me a freedom and a sense of control that I couldn’t find in the corporate world.  But the “what-ifs” of being a landlord, along with everything else in my life, were overwhelming.

Since then, I have purchased many apartment buildings and each time I was scared of financial or emotional ruin.  Every time my gut told me to back out of the deal.  EVERY TIME!

Buying investment property is scary.  It should be.  It’s nature’s way of saying “PAY ATTENTION!”  You’re about to spend 100’s of thousands or even millions of dollars.  If you mess this up, it could set you back for years!

The good news is that investing is mostly a 5th grade math problem.  If you can add, subtract, multiply and divide, you have all the technical skills required to determine if a deal is a good one.  The bad news is that humans tend to let emotions complicate things.  We often talk our way out of a good deal, because of fear.  We even talk our way into bad deals for the same reason, fear.

An experienced investor knows when to stop thinking.  Which, it turns out, is the same as knowing WHAT to think about.  Focus on the things that matter and that you can control about the deal.  Let go of the things you can not control (ie. whether you will inherit a batch of bad tenants).

Instead of letting the fear hold you back, use it to serve you.  Use it to come up with a management plan.  Use it to list all the of capital expenditures to improve the value of the property.  Use it to analyze all the variables again and challenge your assumptions.

And if you’re still worried about something after all your research points to “yes”, try what I do.  Come up with 10 different ways to solve the “what-if” that has you worried.  By the time you get halfway through the list, you will realize preparation is the solution to your fear.

For instance, I hate confrontation.  So, I remember worrying that all my tenants would stop paying rent and I would have to confront them.  If they did decide to stop paying rent, here is a list I could have written:

1. Knock on the door and ask them to pay the rent (crazy how well this one works).
2. If they don’t have the money, you could agree to come back for the money in a couple days.
3. If they don’t respond to you, then you could give them a 3 day notice.
4. If they don’t respond to the 3 day notice, you could hire an eviction attorney to take over the case.
5. Instead of doing any of the above, you could hire a property supervisor to do this for you.
6. After the above actions are taken, I could put a “For Rent” sign up in the front yard.
7. Start advertising the unit for rent in Craigslist.
8. Start calculating how you can improve the unit so you can charge more rent to the new tenant.
9. If all the tenants were to randomly decide to stop paying rent at the same time, just think how much rent you will be able to charge after you evicted them all and cleaned up the units?  That’s more cash flow and appreciation for you!
10. I’m out of ideas.  But you get the idea.  I actually felt better after I wrote the first answer.

If these are not the exact steps that you would follow, fine.  That’s not the point!  The power is in MAKING the list.  YOUR LIST!

So, remember…don’t trust your gut, trust the numbers.  Come up with 10 ideas to solve every scary “what if” that is keeping you awake at night.  If you approach the deal with an abundance of preparation, you’ll starve your fear of the fuel it needs to thrive.