2015 has been a rough year for Good People Good Homes. (Actually we have several business entities with different names that make up our little real estate business, but I consider Good People Good Homes to be our brand, so that’s what I’ll refer to us as.) Here is a short list of the things that have happened to us. But first a warning: this may make you think twice about getting into rentals or any other kind of real estate entrepreneurship. But thinking twice isn’t bad – I recommend thinking three or four times, actually. I also recommend reading blogs like this so you can learn from others’ mistakes and misfortunes without necessarily having to go through it yourself. Rest assured, though, if you go into any kind of business endeavor you will experience plenty for yourself. Make peace with that now, and take a moment before you read my list.
Now – here are the lemons life gave us so far in 2015, along with our attempts to make expensive, gourmet, fresh-squeezed organic lemonade:
Lemon #1 : The Wilkes-Barre One Strike Law – in March, the City of Wilkes-Barre shut down an apartment owned by one of our investment partners with their blatantly unconstitutional One Strike Ordinance.
Lemonade: It brought out my inner activist. Even though our investor chose to just accept the shut down and not fight the city in court, I lined up everything I’d need in case it ever happens to one of my units. I found a good lawyer who specializes in such cases (not the same one who was at our appeal hearing.) I have an idea of the legal strategy and what such a lawsuit would cost, and I have set aside an investment fund with the money that I can tap if I ever should need it. If I never use it, it’ll simply go into my retirement fund. Speaking out about One Strike on talk radio, TV news and in front of investors’ groups has stretched me professionally and personally. This very blog was started because of that One Strike incident. And even though my activism is on indefinite hiatus – I’ve chosen to let the ACLU fight the battle while I attend to other matters – the blog lives on. And it’s also made me a better business person. Fear of retaliation, should I ever execute my plan of suing the city over One Strike, has caused me to become very meticulous about our business practices. They will find no chinks in our armor!
Lemon #2: We flipped a house in Ashley, put it on the market, and no one bought it. The flip was done at the end of October last year. It sat empty all winter, and we even had a pipe break (!) Finally, in the spring we found an interested rent-to-own buyer, and he moved in July 1.
Lemonade: We now see the potential of the rent-to-own business model in this area, and will likely pursue this avenue of business.
Lemon #3: We flipped a house in Hanover Township, put it on the market, and no one bought it. No one even wanted to rent-to-own it! Finally, rather than have it sit empty, we made it a single-family rental.
Lemonade: Now we can refinance it and get the money back for our expenses, and let the tenant pay the mortgage. They have the option to buy the house later, if they decide they like it and want to stay permanently. Or it’ll just remain a nice cash-flowing rental. One thing we’re learning is there are houses, especially in the older neighborhoods, that will never be anyone’s “dream home.” You’re too close to your neighbors, the rooms are too small, the yard isn’t big enough, you have to park on the street, etc. So when we acquire these kinds of properties, we go in knowing their best and highest purpose is as a rental, and we plan accordingly. We can renovate them to be nicer than an average rental and thus attract a higher price, but that has to be done within reason. I have noticed a trend, though: young families aren’t buying “starter homes” anymore. They’re renting. Then when they’re more established, they want the 4,000 square feet McMansion in the high end development. Or a loft apartment downtown – a lot of developers are betting on that one!
Lemon #4 : We Got Royally Screwed by a Contractor – That’s almost an ordinary expense item in the real estate investment business, but we got screwed big time this summer. We were very excited to do business with this particular contractor. He was an entrepreneur, too. He spoke our language, seemed to understand the mindset required to grow a business. He convinced my husband and I that he could help us. Our biggest problem has always been reliable maintenance help. Steve ended up doing a lot of the work himself, and that was not allowing him much time to work on actually growing the business. This contractor told us he had the crews available to do monthly preventative maintenance on all our rental properties, plus handle emergency calls for a monthly fee. And, he told us, he had the crews to handle additional capital expense projects for additional money. We had several of those, so we let this guy into our dream. We put down several deposits on several different projects. Some were never even started.
Lemonade: We’re actually still trying to squeeze this one. I guess we’re going to get more familiar with navigating the local legal system! But this experience set off a chain of events that are fundamentally changing our business, hopefully for the better. We made the decision to get out of self-management entirely. We’re giving people far fewer chances to screw us than we used to, as we’re starting to recognize the signs a lot earlier. And I think it’s taking my personal growth a step further – I am not letting this contractor drag me down into the negativity. A previous version of myself would have made it my personal mission to destroy this guy. But I realize he’s not worth the energy. Believe me, he’s on my list of Things To Do, but more important items relating to my business are ahead of him. I’ll get to him, but not at the expense of The Big Picture.
Lemon #5: When we finally decided to go with a professional property manager, the one we chose was a bad fit. This was not a bad manager. I want to make that clear. After finally making the hard decision to let go and turn our properties over to a pro, we picked the wrong one for us. I think professional property managers are like doctors – you could have a perfectly competent doctor, but if you don’t click, the relationship doesn’t work, you should find another doctor. NOW imagine you ARE a doctor yourself, but you need medical help. The doctor you go to see is doing stuff completely NOT the way you would do it, and you’re not confident you’ll get the results you want. Would that make you crazy? Probably. And guess what – it would annoy the Hell out of the other doctor, too. That’s what happened to us with this property manager.
Lemonade: I learned exactly what we are looking for in a Property Manager and wrote it out in my Property Management Manifesto. We think we found a woman who is a perfect fit for us, and we’re going to give her a try. She’s a real estate professional with her own well-established business. She has experience successfully managing rentals in a lot of the same neighborhoods as ours. She’s streetwise and assertive while having a very pleasant personality. The good tenants will love her. The ones who don’t pay or pull shenanigans will fear her. And she has so much energy! If this works out it could end up being very profitable for all concerned.
Lemon #6: 2015 was the Year of the Destructive Tenant. I know I’m not the only landlord who’s gone through this, as I read the discussion threads on the Luzerne County Homes & Apartments Facebook Page. But it seems the trashy tenant population has increased greatly in the past year! One of the reasons we decided to stop self-managing was we felt we needed experienced professional help to screen these people out, because the ways that always worked for us before were no longer working! We had eight units go empty this year with significant damage left behind by tenants we either had to evict or who just moved out without bothering to clean up their debris. There may be a ninth soon – we just filed eviction on a tenant who bounced her rent check, made a promise to pay and never showed with the money. And who now is ducking phone calls.
Lemonade: This helped along our decision to get out of self-management, which is going to be good for our business in the long run because we can focus our energies more on the Big Picture. We are fixing up these damaged units to be nicer than they ever were, and as a result we’re getting to know more area contractors who we can trust to do good work. There are so few! I intend to treat every one of them like gold that we find. If you work for me and you do good work, you will be paid well and promptly. We had a friend who was helping us self-manage, and rather than leave her out in the cold we decided to send her to real estate school to get her agents’ license. Steve is taking the class with her. I think one of the biggest advantages to Steve becoming a licensed real estate agent is that he will see first hand what people are looking for when they set out to buy a house. And that is going to help us target our retail flips, rent-to-own and high end rental business ventures.
What a proud moment it will be when I finally cross that stage to pick up my diploma – a Doctorate from the School of Hard Knocks!
NEXT WEEK: This tough year has birthed some potentially great business ideas. If you’re thinking about real estate investing but you don’t necessarily want to do the “landlord” thing you’ll want to read next week’s blog. My husband’s been working on something big, now that someone else is fixing toilets!