WeWork learned the hard way a few basic real estate lessons that are important for us all. If you’re not familiar with this start-up, the main thing to know is that they got a few things right in the beginning, and a more than a few things wrong over time. While WeWork recently learned some lessons the hard way, we can all study their brief and extravagant journey to make important decisions ourselves.
Lesson 1: Buying property and then renting the space out to others can be a great way to make an income
WeWork’s initial premise was a winner: buy commercial office space in popular high population density locations, make the accommodations nice, draft lease terms that people will like and that will also profit the company, and rent the space out, making money along the way. An office-share concept in this case. It’s classic real estate investing. And anybody can do it.
Most people won’t start with large office buildings. But you can sure get started quickly on this same type of strategy by buying a simple single family home or a duplex. When you own a house, you can rent rooms by the year, month, or day to friends, college students, or travelers. Just keep the accommodations in good condition, screen your tenants to ensure their ability to pay, get the lease terms signed in writing, and start collecting your payments. At a minimum, you can have your own mortgage paid for by your renters so you live for free. Over time, as the mortgage is paid down and rent prices go up, your room rentals can pay you an income above and beyond your own basic living expenses.
If you find and purchase a multi-unit property such as a house with a cottage, a home with separate basement living quarters, or a duplex, all the better. You and your tenants both get more privacy, and you still benefit from the steady monthly income. A property with two or more private living quarters will cost more, but it will be worth it!
Lesson 2: Buy in hot spots, high-population places people know and love
This doesn’t mean you have to buy in high-priced cities like New York, Los Angeles, or Denver. Just invest in a medium-sized city like Colorado Springs in a neighborhood that you know is well-desired and perennially popular. Buy in a location that’s convenient to jobs, amenities, and major thoroughfares, where you know people want to live. This strategy ensures you won’t struggle with vacancy and will always have renters.
Lesson 3: Don’t overleverage yourself
What’s going on with WeWork? One main issue they’re having, despite working from a business plan based on a well-proven classic real estate income model, is that they are massively overleveraged. They borrowed so much money from investors to fund the purchase of all their office buildings that their debts and re-payment obligations threaten their business. At the very least, these debts surely cause a lot of stress to the owners.
Don’t let this be you. Borrow what you know you can afford to repay. Get solid footing on your first property before you buy the next one. Make sure your systems are running and that you’re profitable before expanding your investments far and wide.
It’s good to diversify investments. In real estate, this may mean buying in different locations. But before you end up with properties in five different states, consider simply buying in five different neighborhoods in the city you know and love – hopefully in Colorado Springs!
Lesson 4: Don’t let ego get in the way of a good thing
WeWork founder Adam Neumann held a great level of control within the company. What ended up happening though was he seemed to really think he knew better than everyone else, and he made some bold, rash decisions that were based on ego and not on what was best for the company or its bottom line.
Neumann’s problematic choices include lavish spending of company money, heavy partying with drugs and alcohol, and sometimes harsh treatment of employees. These choices caused his leadership to be called into question. It should go without saying, but once you become a landlord, it’s important to treat those around you with respect including tenants and anyone who works for you. It’s also important to continue investing in the properties to upkeep them, not squandering all the profits on partying.
Make sure you enjoy the fruits of your hard work and investment! Just do so within reason, in a way that doesn’t hurt anyone else or put your investments in jeopardy.
These are 4 lessons that anyone considering the best ways to earn money should take under advisement. WeWork started out with a great idea. They should have executed it better with choices that held their long-term future in greater regard. If you invest with an eye to your long-term goals and consistently make decisions over time that align with achieving those goals, you’ll do very well financially. And have fun doing it too!
We’d love to help if you’re ready to have a conversation about buying real estate in Colorado Springs, Colorado! We know all the neighborhoods, prices, and real estate market trends and stand ready to answer all your questions to help you buy a house, duplex, or other multi-unit property to both settle into a great place to live and secure your future through a wise investment. Please don’t hesitate to call or text us at 719-581-3115 or email us using the form below.