David Fairweather

Bethesda, MD

Years Investing: 29

Number of Deals in 2004: 10

Career Deals: A "couple hundred".

Units Owned: Over 700

Areas of Expertise: Does a little of everything but considers his strengths to be in assessing property values and adding value

Real Estate License: Yes

The United States is a country where people tend to praise speed and daring more than patience and caution. But David Fairweather believes that while decisive action has its place, a smart investor more often will look like the slow and steady tortoise than the jumpy, impatient hare. His emphasis on safety dates back to the time when, as a young man from a lower-income background, he ended the family tradition of lifelong renting, faced his fears, and bought his own home. That was in 1971, and the home he bought cost $42,000.

"When I bought my first house, I put my life's savings into it," he says. "I wasn't very old, but it was my life savings."

When he sold that house a few years later for $109,000, his profit was $67,000. That single event convinced him that no matter what his day job was—he currently earns a comfortable living as a real estate broker—he would build his wealth through real estate investing. But no matter how many properties he buys, and he buys enough that people kid him about "buying them like other people buy shoes," part of him will always remember that cautious young man putting it all on the line to buy his first home. For Fairweather, caution is key, and maintaining the reserves to get you through an eviction, a maintenance emergency, or a market shift gives you a financial cushion to soften the blows. For investors who are just starting out, he recommends keeping at least three to six months' reserves per property.

"Reserves are the most important thing in real estate," he says. "You can't get hurt if you keep a lot of money as reserves."

Fairweather recognizes that at first this may seem like a sacrifice and that it may be tempting to plow ahead with more acquisitions. "Just give it time," he says. "As your number of properties grows, those reserves start building up faster than they're depleted because it's unlikely that something will go wrong with all your properties at once." That means that eventually this cautious approach results in greater flexibility, options, and freedom. For example, having plenty of reserves allows Fairweather to respond to the market in ways that keep him from needing even more reserves, for example, by enabling him to maintain a competitive edge by keeping rents low to minimize vacancies.

"Rents are very market-driven, and you can lose your tenants based on what else they can rent," he explains. "So if you're basing your rents on some formula attached to the value of your house, you'll see your tenants walking out the door."

Fairweather's approach extends into an aspect of the business he says many investors ignore: maintaining the properties. "The government doesn't give you depreciation for nothing," he jokes, and goes on to say that what you spend on roof repairs, HVAC servicing, and lawn maintenance will make all the difference in the long term.

"The trick to gaining wealth through real estate is to own it a very long time and take very good care of it," Fairweather says. "But you don't get anything for it if you let it run into the ground. So maintaining your properties ensures that they'll be around for a long time and so will your tenants."

Keeping tenants happy isn't just good for business. For Fairweather it's simply the right thing to do.

"I'm very grateful to my tenants because they are paying off my building," he says. "I don't know anybody else that's going to do that for me. For the exchange of a decent home, they're willing to pay off the mortgage for me. That's a pretty good trade-off."

In addition, he believes investors need to make a trade-off with themselves, sacrificing short-term toys such as a new car or a vacation to put money back into the business. It's one more way, Fairweather says, that taking a cautious, conservative approach will yield huge returns over the long haul.

"You can make a tremendous amount of money as a real estate investor if you treat it like a business," he says. "It's not a hobby. It's not a casual thing you do. The reward you reap is commensurate with the effort you make."

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