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Investing in Real Estate Is Pretty Much the Worst—But THIS Makes It Worth It (Hint: It’s Not Money)

Ben Leybovich
5 min read
Investing in Real Estate Is Pretty Much the Worst—But THIS Makes It Worth It (Hint: It’s Not Money)

I’ve said it on each of the three BiggerPockets podcasts I was on—and on every other podcast when I’ve been a guest. I don’t like real estate.

Why I Don’t Like Investing in Real Estate

Real estate investing is a dirty business that all too often exposes us to the side of humanity best left in the dark. Tenants who skip out in the middle of the night, contractors who don’t show up (or do shitty work when they do show up), bankers who want to give you a prostate exam…

None of that is sexy. None of it is pleasurable. None of it is spiritually elevating or gratifying in any way.

And, all of it is why I don’t like real estate.

Yet… I Love What I Do

As you know, we buy apartment communities in Phoenix and then remodel them. When I say “remodel,” I don’t mean resurfacing the existing laminated countertop and painting the cabinets. Instead, we install new cabinets, granite countertops, flooring, paint, appliances, and all the rest. These are large renovations.

One of the fortunate side effects of our extensive scope is that we are able to make adjustments to form and function as we go. If we want to move a wall to accommodate something or someone, we can do it. If we want to change the cabinet layout in the kitchen—no problem. While these changes may add some cost to the rehab, a lot of times the cost is very incremental since we are already committed to doing large-scale renovations.

I’ll address this below.

Related: Why I Don’t Love Real Estate—But Just Acquired $20MM of Property in 6 Months

Man Came Into the Office—My Day Changed

A couple of months ago, my partner Sam Grooms and I were sitting in the office at Ridgepoint Apartments. We had purchased this 164-unit community about a month prior and were taking meetings.

The front door opened, and a middle-aged man came in. He looked unnerved and on edge as he proceeded to tell us an incredible story.

Business people talking while standing by table in office. Businessman giving demonstrating on laptop to colleagues

He, as it turned out, was looking for an apartment for a friend. His best friend, who has been wheelchair-bound for many years, recently received notice that his lease would not be renewed. His friend had been in the same one-bedroom unit for close to 20 years, but now the community was sold and the new ownership was performing upgrades and hiking rents.

Well, they were unable to approve this guy for some reason.

So, he needed to find a new apartment. As you can imagine, in and of itself, the activity of searching for a new apartment is a complicated endeavor for someone in a wheelchair. And compound this by the reality that if you are in a wheelchair, you do, in fact, have certain limitations and accessibility issues that need to be addressed in your dwelling.

Can you imagine the stress?

What Is An Entrepreneur?

An entrepreneur is an individual who understands many things, but the key principle is this:

The more people you help, the more money you make.

Sam and I are entrepreneurs. We looked at each other and almost instantly both of us moseyed over to the wall displaying the floor plans of our units at Ridgepoint. After a minute or so, the answer was clear to us.

“We Can Help”

Sam and I turned to the visitor and told him that we’d be happy to help. We had a first-floor unit floor plan that we thought would be perfect coming up the following month in the renovation schedule. If his friend calls the property manager and completes the application process, we would renovate this particular unit as per the discussed modifications for him.

It just so happened that days ago we’d completed an identical unit. We walked it together. He loved it and said that, with a few adjustments, the unit would be perfect for his friend. We discussed the changes we’d need to make, and the deal was done.

Once our manager approved the application a few days later, our renovation team went to work on the remodel.

Vertical Integration Helps

Now, this process of catering to an individual in the way I am describing is certainly made easier by the fact that our interior renovations are vertically integrated. Sam and I own a construction company that handles all of the unit interiors. We currently renovate 20-plus units per month, but having just closed on another asset, we are interviewing folks for our construction team as we speak.

At the end of the day, being vertically integrated in this way offers us a lot of control, which makes lots of things easier.

House model and blueprint plans, residential building project architectural design

One of the changes we made to accommodate this gentleman was to eliminate the door and remove about 2 linear feet of the wall separating the hallway from the bath. This allowed access to the toilet in such a way that a person could be lifted out of a wheelchair by a helper and transferred to the toilet and bathtub.

Also, instead of a cabinet under the bath vanity, we built a sloping enclosure, which allows more room for the wheelchair to slide under the sink. And finally, we spent an extra $100 for a range featuring controls on the front.

Related: Yes, I’m Afraid of a Real Estate Bubble—But I Continue to Invest Anyway. Here’s Why.

No Downside

Sam and I did not see a business downside to working with this gentleman. First, the added cost was very minimal, and in light of our knowledge that he’d occupied his prior apartment for close to 20 years, the cost seemed like a no-brainer.

The range cost an extra $100. There was an hour of additional demo expense and a couple of hours of framing. There were a couple of hours of labor to build the vanity enclosure. We paid a bit more for drywall and paint. While I don’t have all of the numbers yet, I’d be amazed if the added all-in cost was more than $500.

On the other hand, the vanity we typically install (which we did not need to install) costs us about $250. And with this in mind, we likely only spent an additional $250 to accommodate this tenant.

A Lot of Upside

First, the obvious. Let’s look at the numbers.

His rent is $1,050, or $12,600 per annum. The stabilized underwriting calls for 9 percent of economic loss, which is a loss $1,134 per annum. This includes items like LTL, bad debt, vacancy, etc.

Understand, this tenant will have 0 percent economic loss. If we assume he stays in the unit for just three years, that’s a savings of $3,402, which flows directly into the NOI. Thus, we spent $250 to create $3,400.

My math ain’t 20/20 no more, but Sam’s telling me that’s a pretty good deal. And this gets better the longer he stays!

Secondly, how many other folks in wheelchairs are in search of an apartment and an owner who’s willing to accommodate their needs to some extent? We can do it because of the scope of our renovation to begin with, which hardly anyone else does.

As such, did we just stumble on a bit of a business model…?

Most importantly, though, I am of the opinion that when life hands you an opportunity to help another human, you do what you can—period. Sam and I knew right away that we wanted to help, and it was just a matter of figuring out a cost-effective way to do it.

This is what we do as entrepreneurs. We figure out cost-effective ways to help people, and the more people we help, the more money we make for ourselves and our investors.

I Don’t Like Real Estate But Love What I Do

We’ve now come full circle, and I hope you better understand what I mean when I say that I don’t like real estate. Yes, in the course of running this business, I come across a lot of nonsense, which I could do without.

However, I get to help make people’s lives a little better, as showcased here. I get to be creative. I get to do it with a partner who sees things the same way. And if life is about finding out how good you can be at something, I have the pleasure of pushing that envelope each and every day.

So while I don’t like real estate, I love what I do!

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Do you love real estate? Or hate it? What are your likes/dislikes? Why do you choose to invest?

Let’s discuss below in the comments.

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.