The Wild Ups and Downs of Real Estate Investing (& Why It’s Worth It)
“You can’t be serious!” I said to my property manager.
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“Unfortunately, yes. That’s what he said,” my property manager responded.
I had just been informed that our former rehab coordinator—whom we had just fired for, well, not really doing anything helpful—had also been taking kickbacks from at least two contractors we were using.
“Well, can I fire him again?” I asked.
Unfortunately, I could not.
Not too long after that, we came to a similar conclusion about the very same property manager who had told me about our rehab manager taking kickbacks. She was giving sweetheart deals to her son-in-law, who worked as a handyman for us. On multiple jobs that I had declined, she approved him anyways and then moved the expenses around from one property to another to make the budget look right. That lead to us firing her and winning a dispute on unemployment.
Random Acts of Nature
Then I found myself back in the job of rehab manager. One week, we started getting calls about one of our properties: the sewer line was backing up. That doesn’t make any sense, I thought. We just had that line scoped and it didn’t have any holes, bellies or roots in it.
Well, it turns out that the line didn’t have enough fall (in other words, it was too flat for the sewage to flow down the pipe), and we would have to dig up the entire line. Oh, and the ground just happened to be made of rock and hard clay. The replacement ended up costing us $10,000. And the tenant was none to pleased during this two-week-long ordeal.
Sometime later, the largest apartment we owned flooded. The units were spared but the basement was mostly submerged, ruining all of the hotwater heaters, boilers, gas lines, and doors, while pushing what appeared to be several tons of mud inside.
So we got to work, all the while hearing one complaint after the next from our tenants. It was hard to blame them since we couldn’t turn their gas back on because the city required updated gas lines before they would sign off on it. But we replaced those lines along with the hotwater heaters and doors, and hired a contractor to clean up the entire basement. They brought all of their equipment there and were ready to begin the next day.
Then it flooded again.
All of their equipment was destroyed, and we had to replace the hotwater heaters and doors again. This time the flood went even higher and damaged the electrical panels. So we had to replace all of those. And then we had to deal with two separate flood insurance claims.
Even better times.
Then, a property manager we had hired to manager one 12-unit apartment with a HAP contract decided to cancel our management contract due to ongoing disputes. The property was not left in good shape (although it was substantially better than an earlier apartment complex we had that was run into the ground by the management company).
Have you ever walked into a vacant unit with the heat on at 90 degrees in the middle of the winter? I have. Ever been charged $150 to “show tenant how to use thermostat?” I have. Ever been told the manager had to turn down 14 of 15 applicants, only to accept one of two yourself after you took the building over? I have. Ever been told “Craigslist doesn’t work in this area,” by a management company that refused to post Craigslist ads, only to get the vast majority of your tenants from Craigslist when you took it over yourself? I have.
Anyways, I digress. The biggest problem here is that we are not certified to manage a property with a HAP contract, and, as with most things government-related, it’s incredibly bureaucratic and complicated. To learn, the process included a three-day course and becoming familiar with several HUD handbooks, like HUD handbook 4350.3, which clocks in at a mere 794 pages!
All of this to manage one 12-unit building.
People Being People
And then there was the receptionist who started showing up drunk to work. Or the maintenance technician who brought beers for lunch. Or the receptionist who fell asleep during meetings and filled out job applications at work. Or the maintenance technician who didn’t know how to use a tape measure.
There was also the tenant who would get drunk and yell at all of his neighbors (or us) all day and particularly all night. There was the tenant who would accost his neighbors and our staff for money every time he saw them. He also cussed at cars as they drove by. Another let two prostitutes stay with him who got in a fight and tried to push each other off the balcony of the third floor.
Another time, a tenant’s boyfriend “had to” (?) break a window to get into the building, and he ended up almost bleeding to death all over the carpet in the hallway. Another tenant had her son (or someone like that) who was wanted by the law show up, causing the police to blockade the street in front of our apartment. We’ve also, of course, had a lot of A/C condensers grow legs and walk off, and in one instance, a tenant—after having been evicted—decide for some reason that she would steal our toilet. I’m not exactly sure what the resale value is of a used toilet, but I guess it’s more than nothing.
What about that apartment we bought that was on Skid Row? It was just so cheap—we had to buy it, right? We ended up being all into it for $120,000, and it only appraised for $100,000.
Then there was that house for which we doubled my paltry $25,000 budget and spent $50,000 on the rehab to be all in for $75,000. I didn’t even want to try and refinance, as I was sure the appraisal couldn’t be more than $60,000.
One time our loan fell through, so we had to drop out of a house we had under contract with Fannie Mae. They require 10 percent earnest money, so we kissed $4500 goodbye that day. And then there was that time many years back when none of our loans were coming in, and there was a creeping concern about running out of money entirely! That was particularly fun.
There was also that one lender who was going to give us a large loan and requested hundreds and hundreds of documents while making us pay for dozens of appraisals with a process that took over six months. In the end, he proudly offered us a loan that was a full percentage point more than promised, only 65 percent LTV (compared with the 75 percent that was promised) and with something like two-and-a-half points (instead of just one). We were told it was because our properties weren’t “in as good of areas as they expected”—even though we had told them exactly where they were from the very beginning.
I could go on, and on, and on. Real estate investing sounds like a blast, doesn’t it?
Oh, and by the way, we’re millionaires now.
What mishaps have you encountered as an investor? Would you say it’s worth it?