Livin' La Vida Luna
We flew back from Cancun on Thursday. Long story short: our flight arrived in Newark around 1030pm, a full 5(!) hours after our originally scheduled landing.
Here's Luna sleeping on the floor of the plane using her sleepsack as a mattress and United's throw as a blanket. Peep the portable sound machine by her face. She is such a trooper.
The Ugly Side of Real Estate Investing
Investing in real estate can be a great way to build long-term wealth. It can also be an incredible source of stress if you let it.
Since January 2020, my team and I have acquired 13 units across 4 properties.
Our total cost-basis is $1.497M
- Property 1: $240K Purchase + $160K Reno = $400K
- Property 2: $215K Purchase + $35K Reno = $250K
- Property 3: $315K Purchase + $45K Reno = $360K
- Property 4: $487K Purchase + $0K Reno = $487K
Our total value is: $2.039M
- Property 1: $589K - supported by Appraisal
- Property 2: $300K - a conservative estimate
- Property 3: $600K - a conservative estimate
- Property 4: $550K - supported by Appraisal
We’ve built roughly $550K of equity (2.039 - 1.497) in the past 18 months. That reward, however, comes with a cost.
Although these costs are best portrayed as an expense in dollars, the psychological impact from the stress can be just as damaging.
Here are a few hiccups we’ve faced along the way.
In September 2020, Former President, Donald Trump, signed an Eviction Moratorium that prevented landlords from legally removing non-paying tenants from their properties.
The original Eviction Moratorium was set to expire on December 31, 2020. After many extensions, the Eviction Moratorium has come to an end at the Federal level on July 31st, 2021.
New Jersey, however, extended their statewide eviction moratorium until January 2022.
Across our 11 unit portfolio, we have one tenant who hasn’t paid rent since January 1st, 2021. As of August 1st, 2021 she is behind on her rent by $9,600 ($1,200 * 8 months).
Luckily for us, this tenant resides at our 4-unit property:
- We already refinanced this property into long-term fixed-rate debt.
- The other 3 units are current and their rent more than covers the mortgage payment.
- It’s fully renovated so the repairs and maintenance + capital expenditure line items are low
If this tenant rides out the rest of New Jersey’s current Eviction Moratorium without paying, she’ll rack up a bill of $15,600 (1,200 x 13 months).
I am not expecting to see any of that money.
We’ve tried to work on solutions with her, but now it looks like we’ll be getting in line to file for eviction and suing her in civil court. It’s a sad solution, but we gave her many options, including just leaving without paying us at all.
Ejector Pump Replacement (2x)
Our 4-family property has these dual cannon ejector pumps in the basement.
There are 2 reasons why we had to install this beast mode version of an ejector pump:
- The property is below grade so these ejector pumps have to fight gravity to get the sewage out of the basement.
- The connection to the public sewer is about 100 feet away from the pump.
This ejector pump costs about $3,000 installed. We’ve had to replace them TWICE. And we’re probably going to have to do it again.
Why? Because tenant’s kept putting random stuff down their toilets and sinks.
- Non-flushable wet wipes
The worst part is the plumbing isn’t separated by unit so we don’t know who is responsible. If we knew who was responsible, we would just bill the repair to the tenant.
When we bought the 4-unit mixed-use building back in March 2021, we knew the roof was patched because of a leak. We also knew the roof needed to be replaced soon.
On July 13th, 2021, there was a thunderstorm that confirmed everything we knew. The roof patch gave out and there was a giant leak into the top unit’s living room. Oops.
We just spent ~$25,000 renovating that unit completely. Hopefully, the water didn’t do too much damage to the floors.
We fixed the patch the next day and completely replaced the roof the next week. It cost us $18,000.
Here’s the text conversation of my partner asking me for $10,000 to fund the roof replacement. Working with people you can trust is the ultimate unlock. That trust extends to our GC who requires practically no oversight once the job is awarded to him.
Hard Money Lender Bait & Switch
We used the same hard money lender to buy two properties. They bait and switched me on the rate and terms both times within 7 days of closing.
On the first one, they said they would fund 90% of the purchase and 100% of the rehab at 0 points and 8% interest. We ended up closing the loan at 75% of the purchase price and 0% of the rehab at 1 point and 8.5% interest.
On a $200,000 loan, 1 point = 2,000 and the extra half point of interest = $1,000 per year.
On the second one, they said they would fund 85% of the purchase at 1 point and 6.95% interest. We ended up closing the loan at 80% of the purchase price at 1.5 points and 8% interest.
The half point on a $400,000 loan = $2,000 and the extra 1.05% in interest = $4,000 per year.
I’m a little salty about the bait and switch, but it was still the cheapest money I could find at the time.
We recently (July 2021) made an offer on an off-market 2-family property in Summit, NJ. The sellers countersigned our contract and we were in Attorney Review.
The seller’s agent immediately put the property on the MLS with a pending status at our agreed-upon purchase price.
Another buyer saw the listing and stole the deal from us by making a higher offer. The seller’s side never even let us match or beat the other buyer’s offer.
Why is this the Agent’s fault? Because there was absolutely NO reason to put the property on the MLS until the day before we closed. That’s how all off-market deals where the seller is represented by an agent should work.
It’s also our fault for not building that language into our offer. But we already bought two properties off this seller/agent combination so I didn’t realize they’d be capable of doing something so shiesty.
We lost an opportunity to make $15,000 in one day on this deal. I can’t wait to leave that agent a 1-star scathing review on every platform that will let me.
The Grand Scheme of Things
When I think about any of these issues in a vacuum, it’s hard not to get upset or feel slighted.
- Why can’t these people stop flushing random shit down their toilet?
- Why can’t these lenders just stick to their word?
- Why is the seller’s agent such a Sheisty McNasty?
In the grand scheme of things, these negative experiences are a small price to pay for the amount of success my team and I have achieved in such a short amount of time.
If I want to continue succeeding as a real estate investor, I have to stay focused on the big picture. These examples of the ugly side of real estate investing are just blips in the radar of my team and me building long-term wealth. We’ll surely get the last laugh.