These are the thoughts going through my head as I pull together our business taxes for 2015. Yes, I know it’s August. We filed the extension, which will end September 15th for corporate returns. I said we were tenacious, I never said we were organized.
2015 was not a great year for our business. I don’t think I’ll need to worry about writing a huge check to the IRS like I had to last year for our 2014s. We may even get a sizeable refund, which I’ll leave in place to cover some of what we’re sure to owe in 2016. Our fortunes have definitely turned around, due to our persistence. As Napoleon Hill wrote in Think And Grow Rich Every Day (which I read every day):
“A few people know from experience the soundness of persistence. They are the ones who have not accepted defeat as being anything more than temporary. They are the ones whose desires are so persistently applied that defeat is finally changed into victory...the few who take the punishment of defeat as an urge to greater effort.”
I don’t think it’s an accident that those words are the entry for this date in Hill’s inspiring daily meditations. I needed to read those words as I comb through the expenses of 2015 and relive the year I’d in many ways rather forget.
Experimenting with different business directions
2015 started off with us doing two major rehab projects for other investors, having completed four others in 2014. We will likely never do rehabs for other investors again – way too labor-intensive for not much profit. In the future, we will refer our investor partners directly to the contractors we’ve vetted, and have them manage the project. I don’t regret having done this ourselves – we had to do it to learn we shouldn’t be doing it ourselves!
Another thing we were doing then was managing the rentals of our business partners’ properties once the rehabs were completed. I don’t recommend doing this for several reasons. Unless you have the business agreements drawn up by an attorney in compliance with state law it can be illegal. (Yes, we did, thanks for asking!) But aside from that, property management is extremely labor intensive. Not only are you dealing with tenants and all the drama that comes with that job, but you’re also responsible for the accounting of every dollar that comes in and goes out in relation to that property. I’m not saying “never again” to managing properties I do not have 100% interest in, but that will not happen again until our company has a flawless system for managing our own properties to the point that we feel comfortable taking on others. It’s in the Future Business Plan, as a Maybe.
Valuable lessons learned – such as your vacant property insurance doesn’t cover a pipe burst!
2015 also began with a flip we did in 2014 failing to sell. And as it sat empty in the cold of January, a pipe burst on the second floor. A vigilant neighbor called the phone number on the sign we had out front, and that rang to my husband’s cell phone. He called to report water pouring from the second floor windows!
Steve rushed to the property, expecting it to be like the classic cartoon where you open the front door and a tidal wave descends out of the house, complete with flopping fish and sea creatures. If the water was coming out of the second floor windows, the first floor must be completely submerged, right?
Nothing nearly as dramatic. The bathroom was on the second floor, and that’s why the water was leaking from the windows. It wasn’t a lot of water, but it was enough to cause some damage. And that’s how we found out our vacant property insurance doesn’t cover damage from burst pipes. That set us back around $3,000, but it wasn’t the end of the world.
We eventually found a buyer for that property, as a rent-to-own tenant, and he’s still living happily there with his family, making his payments on time. But he wanted some further renovations done to the property before he moved in. And that ate up a lot of the first part of 2015, putting in a driveway and a half-bath on the first floor.
The effects of local politics on your business & livelihood
2015 was also the One Strike Incident in Wilkes-Barre, which inspired the creation of this blog. Ginger Snapped was originally supposed to chronical the crusade of an apolitical, ordinary middle-aged Mom forced to fight City Hall in the name of small business and property rights. One Strike was an ordinance enacted by then-Mayor Thomas Leighton as a way to shift blame for the city’s increasing crime problem onto the backs of rental property owners. The law allowed the city’s code enforcement division to shut down a rental for six months if a tenant – or anyone else – was arrested at the property on a drug or gun charge. Of course it is totally unconstitutional, and when One Strike struck one of our investor partner’s units in March of 2015 I was prepared to take it all the way to the Supreme Court. But our investor didn't want to.
The ACLU has launched its own lawsuit, which is ongoing. Mayor Leighton left office and the new mayor fired the Assistant City Solicitor responsible for One Strike. The law is still on the books but hasn’t been enforced (that I know of) since Tony George took office. And Wilkes-Barre has elected some forward-thinking people to city council, including an openly gay Republican and a whip-smart twentysomething millennial I’m convinced will be mayor herself before long.
Things certainly look brighter in Wilkes-Barre now, but in 2015 they were dark and foreboding. I didn’t feel welcome here. I actually felt like I was in danger! And we came very close to packing up our family, our dreams, and moving back to New England.
After One Strike I didn’t want to manage our partners’ properties anymore. Even though none of this was our fault, I just didn’t want that kind of responsibility. And while we were looking for professional property management firms to take over, we decided we were going to let them manage ours as well. Then we could move away.
So in 2015 we gave up 10% of our collected rents to two different property managers. The first one fired us in October – and it saved us the trouble of ending the contract. Property manager #2 carried us through the rest of 2015 until May of this year, when we decided we would not be leaving the state after all and took our properties back to self-manage. For our business, it was the best decision. Another 2015 experiment that failed.
It’s not failure – it’s experimentation!
I like that – looking at 2015 as a year of experimentation. It makes all these tribulations seem worthwhile as opposed to needless suffering.
I have quite a bit of work left to do on assembling our income and expense data into something my accountant can make into a tax return. Somehow writing this blog has made me feel better about reliving the good, bad and mostly ugly year that was 2015.
“If the first plan which you adopt does not work successfully, replace it with a new plan; if this new plan fails to work, replace it in turn with still another, and so on, until you find a plan which does work. Right here is the point at which the majority of men meet with failure, because of their lack of persistence in creating new plans to take the place of those which fail.” - Napoleon Hill