The Challenges Buying My First Real Estate Rental

Exploring the Pros and Cons of Owning a Condo Rental

I have invested in real estate for the past two decades and have loved the challenge it provides. Challenge is an interesting term to use. Personally I have always loved a challenge. Something that is too easy is great but not always fun. It is too easy and something you could do in your sleep.

Accidental real estate investor

For a few years, I wanted to get into real estate investing but didn’t know where to begin. Only through fate and an order from the Army did I become an accidental real estate investor.

I was stationed in Hawaii at the time on the island of Oahu.

After a few years in the Army, they sent me to Hawaii, a place I never expected to get stationed.

9/11 was the week before as I was getting settled into my new duty station for three years.

Hawaii was great with warm temperatures, sun, and bodies of water no matter what direction you took.

This was the best place I was assigned in my career.

I was literally in paradise.

No matter how bad the day went, I could get to a beach within 30 minutes.

During this time, the Army was at war in the mountains of Afghanistan and then forces started to deploy to Iraq as well.

My commanding general was focused to train and deploy the units to join the fight.

Other installations had sent forces over and some soldiers were going on their second rotation.

We continued to enjoy the palm trees, beaches, and sunny weather in Hawaii.

Two years into my assignment, I had rented a condominium with my wife.

I had spent a little bit of time reading about real estate investing.

Robert Kiyosaki and his best selling book, Rich Dad Poor Dad, were beginning to become popular. Rich Dad Poor Dad was on the New York Times Best Sellers list for six years.

Over the next few years, I would read anything I could get my hands on that Kiyosaki wrote.

Real estate prices in Hawaii had not taken off yet. They had been stagnant for a few years.

My next-door neighbor said her condo price hadn’t changed in years.

As we were about to start our third year, the property owner wanted to raise the price of our rent.

By this time, my wife and I had saved some money.

I said to my wife, let’s buy a place.

We checked out several properties in Wykele and Miliani, areas we were familiar with.

Finally, we settled on a condo that was close to where we lived that was almost identical to the rental we stayed in for two years.

After two months, the loan and financials were taken care of and we owned our very first property.

We bought the condo with a Federal Housing Administration (FHA) loan which allowed us to get in the home for only a few thousand down.

A FHA loan is available to first time home buyers who plan to occupy the home.

The only thing I didn’t like was the PMI, private mortgage insurance, which added extra costs to our loan.

If we had put down 20% on the property, there wouldn’t be this extra fee.

We ended up refinancing a few years later to remove the PMI.

Change of plans

The operations tempo was getting high as forces were preparing on the training fields in Hawaii as well as the National Training Center (NTC) in California.

Usually, when forces train at NTC, that is a sign they were going to deploy for war.

This is not 100% true for all forces that go to NTC but very likely part of their pre-deployment training requirement.

About a month after we closed on the condo, my wife was told she was going to deploy.

Then a few weeks later, I found out I was going to deploy as well.

My wife asked me what were we going to do with our condo.

I said why don’t we rent it and use the property manager we rented from for the past two years.

We understood how he worked and were comfortable dealing with him.

This solved our biggest problem.

Working with a property manager you know and trust plays a big part when you use property management. We signed some paperwork and our place would be for rent after we deployed.

After we got on a plane, made a few layovers, we finally arrived in Afghanistan.

We maintained contact with our property manager over email and sometimes I called him.

It was starting to get nerve-wracking since our place still wasn’t rented.

This started to worry me.

Did we make a mistake?

Should we not have bought our condo?

Did we have time to sell our condo?

So many thoughts were running through my mind.

Based on my experience when we arrived to Hawaii two years before, finding a place for rent was tough. Once they were available, someone rented the place out.

So finding a rental was very hard since so few were available.

I had to tell myself things would be fine.

Finally, my property manager emailed me that the condo was rented.

This was a big sign of relief and less to worry about.

I had to cover the previous month’s rent since it was vacant.

Now that someone was going to live there, that took some burden off my shoulders and bring in the cashflow.

As the months passed by in Afghanistan, I would get letters from my property manager with the rental receipt that showed the rent, property manager expense, and any items that were repaired or fixed. The repair costs are minimal but they cut into my cashflow.

The condo has an association fee that is an additional cost.

Over the years that the condo was rented, the neighbors' dog downstairs chased away renters. The dog was always barking at someone.

To get a renter, my property manager had to lower the rent amount to get a tenant in the door.

Some years, the condo association would raise the association fees. Of course, this made me mad as it reduced my cashflow.

Then my property manager informed me that the condo association was requiring a special assessment to repair the stairs. This was another fee that bit into my cashflow.

After a while between the associated fee and the reduced rent because of the dog, we were barely breaking even.

After a decade, my wife finally said, let’s sell the condo.

I didn’t want to at first, since it was our first rental.

Finally, I agreed.

We placed the condo on the market and within a month or so, someone bought the place.

I was sad to see the condo go.

But times changed and we weren’t planning to visit Hawaii anytime soon.

Benefits of owning the condo

While we were reassigned to another location or two after leaving Hawaii, we had the chance to take a business trip to visit Hawaii and our property.

When you own a rental property, you can take a trip to visit the property and write off some of the expenses. This makes your trip a business trip.

Since the condo became a rental after we deployed, many repairs on the property became tax deductions.

In addition to the repairs, the property manager fees were also tax deductions.

Owning a rental property opens up many advantages someone wouldn’t receive if they owned a REIT, real estate investment trust, in the stock market.

Some people don’t like owning real estate, and they invest in REITs or similar platforms that allow owners to invest in real estate like a stock. Some examples are Cardon Capitol and Fundrise.

Despite the association fee, we enjoyed our time living at the property and then as a rental.

If I had to buy again, I would search for other places to buy and rent out. Condo association fees can get expensive over time.

Overall, I enjoy the benefits of having rental properties.

It can be financially lucrative over time.

Disclaimer — This information is not financial or tax advice. I am sharing examples of my time owning a rental property. Any information should be verified with a real estate agent, property manager, and tax adviser. Times change and some situations may differ now as of this writing. My example may not be the same in your situation. Some links enclosed may be affiliate links and I may earn a commission. You will not get charged any extra making the purchase.

Tom Handy is a top Investment and Bitcoin writer on Medium, and father of two kids. He retired from the Army and sits on several non-profit boards. Tom is the top Yelper in his community and a top Google Guide. He’s on several social media channels and you can find him on Twitter @tomhandy1 and Instagram @tomhandy1.

This article is for informational purposes only. It should not be considered Financial or Legal Advice. Not all information will be accurate. Consult a financial professional before making any significant financial decisions.