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My disastrous life as a landlord (long)
Old 07-09-2007, 06:33 PM   #1
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My disastrous life as a landlord (long)

Herein is the tale of my biggest financial mis-step. Let it be a cautionary tale of woe to all. Being a landlord is great; being one when you're not ready for it is dangerous.

So, for quite a while we've been trying to examine where we want to go with our lives. We've made some great friends here in Minnesota but it's never felt like things "fit". One place Dawn and I love more than anywhere we've been is Marquette, Michigan. But, there aren't any jobs there so we knew we could never make it happen. That's when we hit on the idea of building up a stable of rental houses there and eventually growing passive income from those to the point where we could move there (sort of a 15 year plan for happiness).

We put a ton of effort into finding the right house to jump into the market with. I'd say we looked through 200 houses online, and then another 30 in person before settling on one. It was a single family home in outstanding condition and in a prime rental area (one block from a bar, a restaurant, a grocery store and a liquor store, three blocks from the hospital and four blocks from the university). Houses there typically go for $300 a bedroom so, with a 4 bedroom house, we'd be right at $1200 a month no problem. However, we wanted to attract slightly better tenants and, preferably, rent only to females. Now, obviously, you can't discriminate like that, but we had an idea.

One of the things we noticed with all of the rental houses we went through is that, as a rule, college students don't own beds, much less furniture of any kind. So, to get rent up a bit, we furnished the house with beds and bed frames. That put us at a marketable value of about $1300-$1350; enough to replace the cost of the mattresses every year if needed. To push things over to attract female renters, we purchased more feminine frames and painted with pastel neutrals.

We also hooked up with a well-regarded property manager that seemed like she'd do a great job of managing the property for us. She had a couple minor tasks to line up for us, namely getting a railing around our second story "walk out on the roof" thingy. Unfortunately, she didn't quite seem to live up to her reputation and never quite got around to adding this railing... which, while not required by the city to meet code, felt like a huge liability (drunk college students with access to the roof. Bad idea!)

Well, we realized a few things. Being mentally ready for something isn't nearly the same as being emotionally ready. Dawn ended up with an anxiety disorder from her job at Target (100 hour weeks and being responsible for critical systems will do that to a person). Between the property manager's unresponsiveness, and realizing that we were two states removed from a property we had no control over led to a lot of turmoil.

We ended up pulling the plug on things the very night that four college girls had stopped by to pick up rental applications. In a sense, our plan worked perfectly (we got four women, just like we wanted) and failed miserably (we weren't emotionally ready for what it'd be like to be landlords).

We sold the house, at a huge loss, (that's another story), but we learned a lot along the way. Probably the best life lesson for us is that we went through an emotionally draining, stressful period and came out the other side more connected and committed to each other. We're not always sure if that was worth the $30,000 tution for this particular course in the school of hard knocks, but I think it all worked out.

Bottom line, in addition to knowing if it makes financial sense to get into an investment, also know if it fits with the rest of your life and needs.
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Old 07-09-2007, 08:03 PM   #2
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Wow Webzter! You've said a mouthful of wisdom. So many "landlords" get into managing properties and then the tenants trash the place causing $10,000 in damage. After this experience they vow to never be a landlord and tell everyone that will listen that it's impossible to make money in real estate. They never mention that they just took the first tenant that came along with no credit check. But you have taken the time and determined that you weren't ready for a hands-on investment and moved on.

We did the same thing about 10 years ago when we bought a business that we weren't ready to manage. Lost a little more than you did but I have a notebook full of lessons learned. After that education process we moved on to rentals and really liked it. The key is determining what works for you (circle of competence) and sticking to it. Sometimes it's hard with the "grass is always greener" disease.
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Old 07-09-2007, 08:06 PM   #3
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We also discovered that real estate is not our thing.
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Old 07-09-2007, 08:10 PM   #4
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Four college students in a four-bedroom house...

... what could possibly go wrong?
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Old 07-09-2007, 08:35 PM   #5
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Good story. Live and learn, as they say
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Old 07-09-2007, 10:39 PM   #6
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Four college students in a four-bedroom house...

... what could possibly go wrong?
That reminds me of what the gal loves to call "Tom's Fantasy tenants". Three college girls/3 bedroom house. We got a hard freeze that year - colder than it's been in the 20+ years since. Came home to get a call that the pipes were frozen, went over through the powder snow and got them running again - real lucky, the galvanized pipes didn't burst. A day later, frozen again, though I'd told them to let them trickle. Went back, got them started thawing and went in the house to discuss. There was a dial thermometer in the laundryroom that I noticed as we were talking - it read 30 degrees. Turns out they couldn't afford to fill the oil tank and were buying heating oil 1 gallon at a time and only firing the heater for brief moments. I pointed out that it was going to be difficult to keep the pipes thawed if it was below freezing INSIDE! Tough girls, doing what their finances would allow, but not just the group one wants in his rental house.
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Old 07-10-2007, 12:36 AM   #7
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Hopefully our rental situation won't go nearly as awry being now two states away. We do have an awesome property manager though, so that has certainly put many of our concerns at ease.

Thanks for sharing the story! I don't think it will deter me from my long-term plans of rental real estate, but it certainly will encourage me to be even more diligent than I already am.
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Old 07-10-2007, 06:34 AM   #8
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Funny, this lesson learned reminds me of my short lived period as a boat owner.
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Old 07-10-2007, 07:02 AM   #9
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Thanks for sharing the story! I don't think it will deter me from my long-term plans of rental real estate, but it certainly will encourage me to be even more diligent than I already am.
Well, the moral of the story is to only commit to something if your heart is in it. My past performance is no gaurantee of your future results
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Old 07-10-2007, 07:48 AM   #10
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I think the real lessons here are that:
1) the anticipation of doing anything way outstrips the reality of actually doing it,
2) there is always some luck involved when an activiy goes according to plan.
3) we can increase the odds of coming out ahead by a lot of planning and education, but that
4) there is no free lunch. Making money in anything requires a massive commiment to it and some personal sacrifices as well.

We had an expression in my working life. The product never lives up to the demo. Thanks for sharing.
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Old 07-10-2007, 02:00 PM   #11
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My sister and her DH have a similar story, with one big difference. They have a live-in "property manager" who happens to be their son !

It is a 100 year old home in Detroit not too far from Wayne State University (long walk, short bicycle ride). They typically have 3-4 tenants in addition to their son. Their son, Marty, is very responsible for a 21 year old student and makes certain the important rules are enforced (no drugs, no smoking inside).

The old house was in pretty good shape, but did require a few things. New, custom storm windows (the windows were of various odd sizes), new gutters and soffits, and paint. It could really use a new kitchen, but it is just not in the budget. They are holding their breath on the galvanized water pipes !

Oh yeah, one other unexpected expense. One of the residents was smoking on an old couch on the front porch. A dropped cigarette, that they thought was out, caused a small fire. Ruined the paint on the porch and one window, but that was it. Out of pocket repairs to keep the insurance folks for jacking up the rates.

It has been basically break even for the past 3 years. They hope to make a few bucks when they sell.
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Old 07-11-2007, 01:34 AM   #12
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It has been basically break even for the past 3 years. They hope to make a few bucks when they sell.

Assuming anything 100years old is near downtown, "They hope to make a few bucks when they sell." In downtown Detroit?
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Old 07-11-2007, 03:26 AM   #13
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Webzter - I agree being a landlord is more than just semi-passive (i.e., monitoring) investing.

It probably does not help... But your $30k tuition pales to my internet bubble losses. I paid high tuition for that experience myself. Over all I have made money investing over years. But on some isolated case, I lost money because of poor decisions (that otherwise I would/should not have made).

My Point: Consider this as a loss for an investment opportunity. Over the years... your gains will overshadow any losses. Just be careful to not make the same mistake twice. Think about the experience more broadly than being a landlord... Determine how you made the wrong decision in the first place... How can you avoid making wrong decisions in the future with other types of investments (or biz opportunities)?


Trust me... you have plenty of company on this board whether people will admit it or not!

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Old 07-11-2007, 08:04 AM   #14
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My real estate investments are confined to VG REIT index. I had a friend who was a landlord and saw what he had to go through just to get the bum out. There are all kinds of laws, notifications, etc. This doesn't include the midnite calls cause the a/c went out. Not for me, thank you very much.
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Old 07-11-2007, 08:26 AM   #15
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I think any truly successful investor has made many of the traditional mistakes. In a recent survey on this board, trusting their financial advisor was the common one. There are many others.

With all investment choices, you win some and you lose some. The lesson you learn is to take your losses and move on. The investors that hang onto losers because they can't face taking a loss are the ones that have not learned yet how to be successful investors. Buy and hold only applies to winners.

Congratulations on your $30k lesson. You got off cheaper than I did. One of my associates was over a million in debt before he learned his lesson. Now he is worth over 15 million and not yet 50.
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Old 07-12-2007, 07:50 AM   #16
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It takes a certain stomach to become successful at babysitting (landlording).
I've been doing this for close to 20 years and have never seen a market as bad as the last few years.
I've also found that single girls are among the worst type tenants.They are much sloppier that guys are.
N.Ohio is still in the economic doldrums,very few good jobs.I've had more evictions in the last three years than in all the previous years combined,Just fortunate that here evictions are quick.It takes about 38 days or so from the time of an eviction notice till put out.

We are selling our properties now,10 sold,43 to go.
I would keep them if the tenant pool was better,but of late it's still getting worse.The sub prime lending has screwed up the system.It's often cheaper for renters to buy a house than it is for them to come up with rent and security.Now we get the bottom of the bottom of the barrel.

My vacancy rate has been at close to 45% since 2004.Vacancies are also prime targets for vandals,which we have had more than our fair share of.

Property taxes has also skyrocketed over the last few years.

I would suggest that anyone getting into the game put aside and keep as large a reserve as possible.Thats what kept us going through these times.
That and the fact that in good times I paid extra on the mortgages.

My properties are in a low to moderate income level,just can't find moderate income tenants.Most callers to my ads are deadbeats with very low income,welfare recipients with less money coming in than the rent alone is.
I check everyone out for prior evictions on our muni court site.Very few applicants without priors.Mondays at eviction court has went from 15 a week to over 50 some weeks.
Rust belt areas are just dead in the water right now.
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Old 07-12-2007, 10:05 AM   #17
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You folks are making me pretty happy that I didnt buy six rental homes 11 years ago like I planned.

But then I'm sad when I remember that those six $150k homes would all be worth $400-450K today.

I was actually in escrow on my first one, little old grandma that was going to move in with her kids. Then she changed her mind 3 days before closing and I was so grumpy about all the time and effort wasted that I decided to shelve the idea for a while. Then rates went up.

Oh well, I did somewhat okay with the money in equities in the late 90's...

Although I'd be really nutty rich if I'd bought those and sold them last year.
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Old 07-12-2007, 10:40 AM   #18
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Funny, this lesson learned reminds me of my short lived period as a boat owner.
Memory says three boats/motors and one duplex in my working lifetime.

No real horror stories but unownership is cool - and a lot less work!

14th year of ER - low/no maintenance lifecycle fund - Target Retirement 2015.

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heh heh heh - still got the putzers(a few individual stocks). Hormonal disease don't ya know!
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Old 07-12-2007, 10:53 AM   #19
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Assuming anything 100years old is near downtown, "They hope to make a few bucks when they sell." In downtown Detroit?
Well, to look at it from another angle: From 1970 to 2000, more than 160,000 dwellings left the Detroit housing stock. In 30 years, Detroit lost almost as many dwellings as Cleveland has now. Wait long enough to sell and there won't be any competition.
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Old 07-12-2007, 11:07 AM   #20
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You folks are making me pretty happy that I didnt buy six rental homes 11 years ago like I planned.

But then I'm sad when I remember that those six $150k homes would all be worth $400-450K today.
At 450k, only 10.5% CAGR from which you deduct:
- Selling commission (even if DIY to compare apples - use 6%)
- Maintenance (ditto)
- Vacancies and rerenting costs (ditto)
- Lack of liquidity

Lucky for you CFB!
But then I repeat myself...
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