It is said some are born to greatness, some seek greatness and some have greatness thrust upon them. So, too, with landlording. And I was definitely in category #3.
So now the battles have ended and the dust has begun to settle. I’m a home (well, condo) owner! Got my very own personal little slice of the American Dream and all the benefits that entails. (See Parts I, II & III for benefit details, but in a nutshell: Higher monthly costs and a depreciating asset.) Whoopee.
My carefree, comfortable $165 apartment is slowly becoming a distant and fond memory. In its place my condo each month bleeds away $570: $370 in principle and interest and $200 in association dues. Plus, it’s lost half its value. Sweet!
But our newly formed association is hard at work and the building’s common areas are getting done. It’s actually shaping up to be a nice place to live. With what we’ve all been thru together, these are neighbors that know and respect each other. A very nice community. So, of course, I’m planning to move.
It is the fall of 1981 and I’m engaged to be married come spring. We’re going to need (OK, want) a bigger place and after months of searching and copious amounts of due diligence (I may be a bit slow but I do learn), I’ve just closed on my 2-flat. One apartment is occupied with the most miserable tenants I’ll have to endure in my short landlording career and the other needs major renovations. Exactly as expected.
I move in to the one needing the work and begin knocking down walls and ceilings. Seems I’ve developed a fondness for living in construction sites.
this turned out well
This leaves the problem of what to do with the condo. I can’t sell it. Or rather, I can but for $20-25k and then I would have to come up with the $15-20k I’m underwater on the mortgage to be rid of it. But I don’t have that kind of cake laying around to make the bank whole. I do have my honor (and other assets) to keep me from just walking away. I’m stuck.
I know! I’ll rent it. I’ll become a landlord. What could be easier?
Now, investment real estate can be a very profitable venture, but trust me when I tell you backing into it like I did is not the path you want to take. Maybe someday I’ll tell the tale of my 2-flat, a much happier and more profitable story.
In the meantime if real estate investing appeals to you, clearly you haven’t been reading this story very closely. Oh, and you might check out Mr. Money Mustache. If I had the inclination and ambition I’d follow his lead. He’s making it work right now:
http://www.mrmoneymustache.com/category/foreclosure/
Mine is more the story of how not to do it.
Renting my apartment turns out to be surprisingly easy. I pass the word around to my friends in the building and before long a lovely young woman has signed the lease. She will prove to be a wonderful tenant and she’ll even find me my next and also wonderful tenant as she’s leaving a couple of years later. Her rent is $375 per month. The market rate. This will remain the market rate for the full six years I own the joint.
Opps. Remember this number: $570? I’m now hemorrhaging $195 each and every month for the privilege of owning what has morphed into investment real estate. This will continue for the first five years I own the place, costing me a total of $11,700. Then it will get much, much worse.
But on to happier things first.
In January 1982 I get a major promotion at work. I’m made publisher of the magazine I work for, the second youngest to hold such a position in the company’s history. The youngest ever? He is the current CEO.
This means a move to Cleveland and that means I can now justify turning the finishing work on the 2-flat over to professionals. I’ve had the fun of demolition and have done just enough of the reconstruction to realize I don’t like it and I’m not good at it.
Finally, and best of all, in June we get married. It is the most wonderful wedding there ever was or ever will be. The Chicago Sun Times even carried a Page 3 picture of us leaving the church in our horse drawn carriage. It is the wedding Charles and Diana aspired to, but on a smaller and more tasteful scale.
By the fall the 2-flat is finished. My pal Steve, who is now married himself, moves into it and for a discounted rent manages the place for me. The other unit, now minus the miserable tenants, rents quickly and profitably; proving if you are going to do this real estate investing thing it works better with planning.
Cleveland: Home of the most beautiful sunsets I’ve ever seen
My bride and I move to Cleveland and we rent a beautiful 17th floor condo overlooking Lake Erie and the most stunning sunsets I’ve ever seen anywhere in the world. Ah, the blissful, carefree renting life again at last.
I am now both a tenant and a landlord, very likely the best of both worlds. I have four rental units: Two condos (one in Florida which is the subject for another post) and my 2-flat.
Between my job and my better real estate investments, the $195 monthly bleeding is more than manageable. Still, it grates and I am always looking to sell. But the condo market has only gotten worse. Want to know how bad? I can’t even get a real estate agent to take the listing. Yes, you read that correctly.
If you know anything about real estate, you are likely re-reading that last line in disbelief. If you don’t, let me explain just a bit.
Real estate agents live for listings. Get the listing and when the property sells, no matter who finds the buyer, no matter what else (if anything) you do, you get half the commission.
Of course, good agents work hard marketing the properties they list. But here’s the important thing to understand. They don’t have to. They could, and some do, take the listing, put it up on the MLS (multiple-listing service) and do NOTHING but wait. They don’t even have to show it. The agents hauling the buyers around do that.
But in those days in Chicago for condos like mine, the market was so absolutely wretched not a single agent was willing to do even that. There’s a tough market for you. Add to to the mix my living in another city and, well, selling just isn’t likely any time soon.
The rays of sunshine in all this turn out to be my tenants. Each is clean, pleasant, takes care of the place, pays the rent and causes me no problems. The first two even find me the next as they leave. I’ve never even had to advertise the place. But when the third moves on I find out just how special that’s been.
Unlike the others, my third tenant doesn’t find me her replacement. Of course, she is under no obligation to do so.
So once again, I pass the word the place is available. Nothing. I advertise. Nothing. My little unit is in a glutted rental market. Until now I’d had no idea how lucky I was to have my little parade of good and reliable tenants. But I do better understand why the market rent had been stuck at $370 during this period of otherwise high inflation.
Remember when I told you things would get much worse? Well, here we are. The place is not only unsaleable, it’s unrentable. My $195 monthly bleeding? Turns out, those were the good old days. Now it’s $570 out the door every month. This will last for 18 tenant-free months before, finally, I get it sold. Let’s see. 18 x 570 = $10,260. Add in the $11,700 and we have an operating loss of $21,960. So that would give us an ROI of…
…ah hell, I don’t want to know.
In that terribly depressing paragraph above, hopefully you noticed the little nugget of gold. I did, ultimately, get it sold. Let’s turn next to that happy tale and the snake in its garden.
To be continued…..
Part V: Sold, and the taxman cometh
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