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Ten years ago during the Great Recession, I remember thinking “if I could climb out of the debt hole I was in, I would be able to capitalize on a once-in-a-lifetime upswing when the market rebounded“. I probably didn’t use those exact words but you get the idea. I was no expert then and I am not an expert now, but I can say with 100% confidence my gut-feeling”was right. As the mortgage crisis was unfolding, I also remember thinking that millions of people would NEVER be able to fully recover from this collapse.
I know all too well just how hard it is to save $100 a month so the notion of millions climbing out of student loan debt, foreclosure, credit card debt and possibly medical debt was near impossible. This sentiment is captured in a 2017 Atlantic article entitled “Escaping Poverty Requires Almost 20 Years With Nothing Going Wrong”. Knowing this, I presumed that those who got burned with adjustable rate mortgages and foreclosures would likely be renters for the forseeable future. So I started reading up on real estate investing as a wealth building tool, banged through blogs, books, videos, podcasts, attended local meetups and even hit up a few sketchy seminars.
Simultaneously, I set out to pay off all my debts so that I could snowball the extra cash from the debt payments into a down payment for my first investment property. From beginning to end, the process took about four years of me learning, saving and preparing myself to take the leap. By the way, this was well before I knew what a “debt snowball” was.
During that time, I remember speaking with people who dabbled in real estate investing and it was clear there were two ends of a spectrum. On one end, there were those who got burned and spoke of real estate investing like it was the plague. On the other end were super sketchy and salesy “people who wanted nothing more than for me to be their student, mentee aka customer. I knew there had to be some REGULAR real estate investors somewhere in between and figured…”why not me”?
By 2014, I identified and secured my first property and was the proud owner of a two bedroom , one and a half bath condo in Marietta, Ga minutes away from my primary residence. At first, I handled it all by myself and very quickly learned that was a mistake. Potential tenants would fail to show up for property tours, those that did show up were “trifling AF” and contractors were flaky oftentimes leaving me running errands back and forth to Home Depot. Not to mention, I was working full-time and didn’t really have time for fixing things AND finding tenants. After two months, the solution was simple—find a management company. Til this day, I say that it’s the best 8% I’ve ever spent! [the % of rent collected paid to the management company to manage the property].
Aside from managing our taxes, signing off on a few documents throughout the year, I rarely devote more than a few hours a month to our rental property. Secondly, since we’ve had it, while we have experienced vacancies, the home is typically refurbished and filled in under 3 weeks. On the flip side, we’ve benefited from increased property values and rent every year primarily due to the economic development we’ve seen in our area driven by the new Atlanta Braves stadium.
Overall, it’s been cool..except for the last few months.
Early 2018, after our old tenant decided not to renew, the management company found another tenant and her child to stay in our unit. They agreed to the higher rent than the old tenant and me and Mrs. r&R toasted to another pay increase for doing absolutely nothing. But we quickly noticed the funds hitting our business account were a lil light. Upon further review of our account, there were requests for updates here, a microwave replacement there, a dishwasher there etc.
As we headed into Spring, there was a bi##! of a repair job that hit us out of nowhere and we had to completely replace the air conditioning unit. When I first bought this home, I knew the unit was on it’s last leg so I wasn’t too upset about this but it did end up costing us about $1,500 for a full replacement. Again, not a big deal since we did squeeze two years out of the old one. But then the $hit really hit the fan [pun intended].
First,we got a call from the head of the management company thanking me for the awesome Google Review we left them. After thanking me, he then shared that they have reason to believe the tenant broke the toilet off the base, left for a few days and it created a significant water leak in the home. That meant that we had to replace carpet, carpet padding and the toilet. While we had the option of filing an insurance claim, we knew it was a long shot and opted to “eat the cost”; another $1,200. However, we opted to pass some of those costs onto the tenant. From what we’ve been told, the tenant has a “special needs” child so we found a soft-spot in our hearts to let it go.
THEN, about a month ago, we learned the tenant got a new job out of state and needed to end their lease early. The management company, promptly notified her of the early departure fees [approx. two months rent] and the tenant agreed to pay. While we were paid a portion of the charges through the management company, we had to give it all back because the tenan’ts check bounced. To make matters worse, days went by and the tenant stopped answering her phone. Apparently, there were also some medical issues, hospital visits and after an impromptu visit to the property, we have reason to believe that she abandoned the unit leaving behind furniture and a bunch of other $hit for us to deal with. No major damage though.
Long story short, our management company is on top of it and has issued a distress warrant for the unpaid rent plus fees and damages. While she did respond to the warrant we have reason to believe it’s unlikely she will attend her scheduled court date. What also blows is that due to tenant laws, we can’t technically consider the property abandoned until days after other milestones are achieved (e.g. court dates, missed payments, failure to show up etc) which leaves us as owners hanging for at least an additional three weeks. So this year, instead of enjoying a nice bump in rent, our rental property has cost us almost $3,000 in repairs, not including lost rent and likely legal fees if we opt to pursue payment.
Why do I share this?
Well, not to discourage you from real estate investing but to give you a balanced real world perspective on what you may expect should you pursue this undertaking. Overall, all of these losses are business/tax write-offs for us and valuable experience so we know what to do differently next time. We could explore different forms of real estate investing [e.g. flipping, wholesaling etc.] but I enjoy the slow and steady passive income that happens in my sleep versus the fast-paced hands-on real estate investing you see on HGTV.
Also, we believe in balancing our overall wealth and creating multiple streams of income so that we’re not so heavily reliant on any one source of income or investment vehicle. It’s our own little way of hedging so we don’t need as much of a portfolio to pull our 4% from. Either way,
if when the market crashes again, people will still need to rent a home, our property is in a good area and we can rely on steady occupancy for years to come. In fact, our current re-modeled home [mortgage free in the same area] will become our second rental property so combined, the rent from our rental properties will offset our new mortgage by as much as 50% – 60%.
So there you have it folks. The good, the bad and the ugly of our real estate experience. Proceed with caution and if you happen to come across a tenant bragging about ditching out on a rental in Marietta…