In this two-part series, we’re hearing from Peter Lohmann, Co-founder and CEO of RL Property Management, as he discusses his start in real estate investing and how that first investment has led to exponential growth and the founding of his company.
Investing in your first property taught you a lot about rental ownership. How did that first property inform the choices you made about the second property?
With every property we bought, we started to learn more about two important things. One is the process of buying real estate. We came to understand all the nuances of the closing process: what’s title insurance, what are closing costs normally going to look like, how much is insurance going to cost, how much are property taxes, how long will it take us to get it ready to rent, how much rent can we charge, etc. We started to get better and better at being able to underwrite the purchase of a rental property so we could make really informed and strategic investment decisions.
The second thing we got a lot better at is forecasting the expenses of a rental property. We started to be more sophisticated in our analysis of the ongoing costs of maintaining a rental property over a long period of time. We’d factor in the initial costs of getting the property ready to rent as well as the ongoing costs of the capital items that slowly wear out, depreciate, and need to be replaced.
As most investors know, the IRS has you depreciate residential rental properties over 27.5 years. If you run the math on that, it’s actually quite accurate in terms of how much you have to reinvest in the property every year in order to maintain its value. This was something we started to become more strategic about as we grew our portfolio.
Early in your investment journey, you and your partner were self-managing properties while still maintaining full-time jobs. Tell us a little about how the idea of starting your own business – RL Property Management – came to be.
For the next several years, from about 2008 to 2013, we bought about one property per year. For each of those investments, we generally followed the same playbook. My business partner and I bought it together, we were 50/50 on everything, invested with conventional loans, and so on. With each new investment, we leveraged our engineering backgrounds to refine our systems and processes for managing properties. For a brief moment, we explored hiring a third-party property manager, but we decided we could still comfortably manage these properties in our spare time.
During this time, we were also learning every day, every month, every year about business, investing, financial independence, and building wealth. We read books like Rich Dad, Poor Dad and The Millionaire Next Door. These books really had an impact on our mindset and put us on to the idea of becoming business owners.
After work each night, we would whiteboard all kinds of different ideas. Eventually, we landed on starting a property management business. This was in part because we started going to real estate investing meet-up groups where we discovered that everyone really disliked their property managers. We (naively) thought, “How hard could this be?” It turns out property management is really hard and there’s a reason no one likes their PM, but we figured, let’s give it a shot. We already had systems and processes in place from managing our own properties, so we put together some forecasts for our business, got our real estate licenses, and in 2012, we launched the business.
How are things going now 15 years into your personal real estate investing journey?
Things are going really well. I can honestly say those real estate investments I made all those years ago are some of the most effective financial decisions I have ever made, even when you look at other assets like my retirement accounts. It’s hard to believe that just the act of buying a few properties many years ago, paying down the mortgage, and letting them appreciate is all it took to significantly impact my net worth.
What advice do you have for newbie investors looking to break into real estate?
Real estate investing is about taking the long view. When you focus on long-term appreciation, maintaining the property’s condition, and keeping it rented, things will work in your favor. While the week-to-week, month-to-month, and year-to-year expenses are going to fluctuate, your principal pay-down and appreciation really start to snowball, and the longer you hold the property, the greater your returns.
If you’re looking to grow your real estate portfolio in Columbus, turn to the team at RL Property Management for help. Contact us today to learn more about our services.