Welcome to my (Mis) Adventures in Real Estate series. It’s summer so I thought I’d post some light humor about our experiences over the last few years with real estate. The other night my wife and I were talking about all the drama that went with the rental properties and we had some pretty good laughs about it. It’s good that we can look back on it and laugh. After all, a sense of humor is a must if you’re in the rental property business.
Anyone that’s ever owned real estate will tell you that it can be super stressful when things go wrong. With out of town rental properties, multiply that by 100! During our time owning those properties we experienced some horror stories for sure and I was not a happy camper. But we made it through the hard times, learned some tough lessons and now we can look back and share a laugh.
Without further ado, for you reading enjoyment, the first installment in the series:
That Time I Bought 2 Out of Town Rental Properties!
I’ve always wanted to own a few rental properties to diversify my passive income away from just paper investments like dividend stocks and ETFs. The problem over the past few years in my area has been that real estate prices are absolutely outrageous! So I began to seriously consider buying some out of town rental properties in a much cheaper area and use a property manager to run them. This plan sounded great to me and as I crunched the numbers things seemed promising.
So I bought my first rental property in the summer of 2015 in a city that I had never visited without ever having seen the place in person! Sounds crazy right? At the time, we had a 2 month old baby and 2 year old that took up all of our time so I was never able to get away to actually visit the property in person. That was mistake #1.
To make matters worse, my wife had lived in that city when she was in university and told me NOT to buy a rental property there. I thought my wife was too risk averse and I knew that investing, by its very nature, is inherently risky! Not listening to her advice was probably mistake #2.
What’s even worse, I relied on my realtor and my soon to be property manager about the condition of the property, its location and suitability as a rental. That was mistake #3. I still can’t believe that I did that!
The whole plan seemed a bit risky, but I reasoned that the property (a duplex) was decent enough and that we probably would be able to find renters at $800 plus (which we did). I knew that the success or failure of my adventure owning rental properties hinged on how reliable and trustworthy my property manager was.
10 months later things with our new rental property were going well. Sure we had a few minor repair expenses here and there, but it was actually making some very good profit (Check out my monthly income statements). I figured that you can’t get too much of a good thing so I took the plunge and bought another duplex. Again, I never actually saw the place in person!
It was a bit of a fixer upper, but both sides were rented and it was cash flowing so I thought I could take my time and begin with some exterior work. My PM assured me that his people could handle the work. That’s where things started to go wrong.
Incompetent Property Managers
The PM’s handyman crew only completed a few of the repairs I had requested. After 2 months of putting up with excuses of why they did not complete ALL of the repair work, one of the units became vacant. I knew that vacancies can be a real killer so I pressed my PM to fill the vacancy and do whatever work the unit required. The unit sat empty for 2 months and finally my PM sent me some interior pictures that clearly showed the unit badly needed a coat of paint and the carpet replaced.
This is when I became fed up with their level of incompetence. The PM wasted months on showing a unit that clearly was not rent ready. Since they couldn’t do the repairs I had requested and since they were unable to fill the vacancy, I switched to another PM.
My new PM was great when it came to fixing up the property. They managed to get the unit repaired and updated with new paint and flooring in no time. The problem we had was that it was now December and it’s tough to find new tenants in the winter. To make matters worse, a second unit became vacant in my other property.
Vacancies are a Killer!
So the major issue we had was 2 vacancies. All my numbers had us cash flowing if 3 out of 4 units were rented. 2 empty units meant that we were losing money!
Ever heard the saying “when it rains, it pours”? Well the second vacant unit had major floor damage because the tenant had several pets in the unit. So on top of the extra carrying costs for unrented units, we had to shell out thousands more to fix these places up! Of course, all of this happened around Christmas…when we all have tons of extra money to throw around!
Once both units were fixed up and rent ready, we played a waiting game. If you own rental properties, one of your major fears are long term vacancies and that’s exactly what we experienced. December…crickets. January…nothing. February… nothing. March…still nothing and it didn’t look good for April either! All while I’m having to pay heating and other utilities on empty units.
I thought that my PM was unable to fill the vacancies in large part because of their incompetence in marketing the units. Their ads mislabeled one of the buildings as a city townhouse and they had some other inaccurate info. Even worse, the pictures they initially posted to showcase the unit were of the damage to the unit. Yes, they posted the “before” pictures, instead of the nicely renovated “after” pictures!
Cashing Out of a Bad Investment
Finally, in March, after several months of carrying vacant units it was time to sell and wash my hands of the whole ordeal. Luckily for me, both of my properties sold in about a month with quick closings. By May it was all over and I had money in the bank!
In spite of everything that went wrong with my rental properties, I still managed make money on this investment! Thank God for a hot real estate market! Despite all of the drama surrounding the properties, they actually appreciated in value significantly. This allowed me to walk away from a bad investment and still make some money. But I must admit that it was super stressful and time consuming having to deal with the properties over this period.
For more information, check out my Lessons Learned from Owning Rental Properties.
I hope you found this first installment entertaining and amusing! Stay tuned this summer for these upcoming posts in my (Mis)Adventures in Real Estate series:
The one with the fraudulent property manager!
The one with the asbestos!
The one with the crazy tenants!
The one with the rat infestation!
If you guys have any of your own real estate horror stories, please comment and tell us about them.
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Thanks so much for reading and have a great weekend!