According to the rich pros, I’m supposed to hang onto my income property for the long haul.
I’m not rich and I’m probably doing everything wrong. Because in the past, I’ve always sold.
I’ve been a house-hopper, a whole-saler, and a flipper. Because that’s what I’m good at!
I have an incredible knack for picking up a great property at a great price. I’m ahead of trends, I have good taste, and I’m great at creating a huge bang for my buck. I’m creative and I love all the challenges that come with flipping a house– the hunt, the creative process and the awe that comes with a unique and well-tailored transformation…
The idea of just hanging onto something only for the sake of getting rich… well, to be honest, it’s pretty fucking boring and, in real estate, it’s a giant hassle.
The first time we almost bought to hold:
One time, we did purchase a property to hold. The property had been previously sold through an owner-financed deal. The buyer under contract died, her daughter turned squatter, and the actual cash owner was going through court probate– In a different state.
Really, all this translates to is this: it was going to be a slow-drawn-out closing process for us, the new buyers. We came under contract before I had ever heard anyone utter the words “coronavirus”. By the time we closed, nearly six months had passed and we were in a full-blown pandemic. And I was spooked. Crazy spooked. We thought we’d hang onto the house as a long-term rental because the cap rate was awesome and even after renovating the house, it was a killer deal. BUT- squatters were all over the news, eviction moratoriums were in place, and the thought of being a landlord was frankly TERRIFYING. So we flipped.
Zero regrets. It was the right move in the moment and the moment is all we get when it comes to decisions like this. Besides- I’m a fast mover. Maybe too fast?
Our new “long-term” hold: A 5-Plex:
Anyway, last year we bought our first multi-plex.
And I was so naïve. You don’t know what you don’t know, right?
In my defense, I’d been exposed to the life of a landlord nearly my entire life. I’m not so naive as to believe the myth that landlording is all passive income. I knew that it would require work from both myself and my partner and that it would be a semi-passive investment, at best.
BUT–
I thought it’d be pretty easy to find good tenants. Wrong.
Also, I thought I’d be able to relax once good tenants were found and locked into their lease. Wrong.
And with a contractor as a spouse, it should be easy to get repairs done in a timely fashion, right? Wrong again.
I figured I’d be able to handle the financial burden on my shoulders; the stress of the outgoing expenses, debt, etc. Also, wrong.
As it turns out. Maybe being a landlord just isn’t my cup of tea.
But they say to hold forever. They say that if I sell, I’ll regret it; wealth comes from long-term gains.
But is this always true?
Because I’m fantastic at flipping. Really. So maybe this should be just another flip…
Rather than act rashly, let’s go through the classic questions I’m supposed to ask before making a big decision:
Like-
How will I feel if I sell in 5 weeks? Fucking relieved.
How will I feel if I sell in 5 months? Still relieved.
And how about if I sell in 5 years? I don’t know. It depends on the market but probably still relieved. Maybe I’ll be happy I held on but it’s possible we are in the throes of another downturn and I’ll regret not having sold sooner.
Finally, how will I feel if I hold out now and sell in 20 years? Probably pretty good… But jeeze- the shit we have to deal with between now and then…. Is there really no other option to build wealth? Ugh!!!! I don’t know. I’m sure at this point I’d be glad I’d have hung onto it. But in the weird headspace I’ve been in lately, I’d like to believe there are other ways to build wealth than being a landlord for a multi-plex. Like using the flip profits to fund my board game, for example.
Perhaps I’m foolish though.
So why’d I buy this particular 5-plex in the first place?
Well, I’ve always LOVED the house and said, “if that one ever comes up for sale, I want it.” Remember my post on the magic of curb appeal? Those seeds of inception already had their hold on me. Also, I’m supposed to be building wealth, right?
I dreamed that some day, far down my future path, after having rented it out for many years, I’d finally have the money to turn it back into the single family home it deserves to be.
It’s on a gorgeous street surrounded by stunning trees. The lot is huge and the house sits far back, basking in grandeur (well, when I’m done with it). These features are necessary building blocks for a property to reap high appreciation rates and they can’t be “bought”.
We purchased the house for $175,500. It has 3,460 sf and a 3-car garage on .78 acre. There are five units total and after we finish renovating the last one, they’ll provide a combined monthly revenue of $3200/month. To me, this sounded pretty good because that’s more than I make from my part-time job. So far, we’ve spent about $38,000 on repairs/renovations. I think we will spend about $15,000 more putting our total investment at about $228,000.
I thought, hell, even if the house can only pay for itself over the next 20 years, by the time the loan is paid off it will hopefully be bringing in even more revenue- leaving us with a nice semi-passive income…
This house actually had a slightly lower cap rate than some of the other properties we looked at. But I liked this one because the overall “potential” was greater with a larger target market.
Most multi-units are usually zoned R-3 or commercial. Which means they’re usually surrounded by other rental properties and they’re in neighborhoods with slower rates of appreciation.
But not this one! The location is awesome- it’s an old tree-lined street full of single-family, big, expensive, grand-ol’-homes.
The neighbor to the south has a $600,000 house and the neighbor to the north has a $375,000 house (and so it goes all down the road). From an appreciation perspective, it was a great buy.
Also, we can capture the target market of the typical property investor plus the higher-end buyer who’s looking for a renovation project in an established neighborhood. Because that’s my dream. That’s what I’d do if I had the funds. This house is begging to be turned back into a beautiful single-family home. Doing that would be my literal dream job. But I don’t have that kind of money. Ah, dreams… (turning it back into a single family home would probably cost around 200k but it would re-sell at 500-600k depending… )
Two units were already in great shape when we purchased the property. We’ve renovated two of the other units and there is one left to go.
That one is in shambles right now- started but very unfinished.
I’m out of money so it’s just gonna have to be put on hold for a bit. Which is fine. Because the four units provide enough money to cover the bills.
That said, I still can’t help but question, should I just sell the damn thing?
Finding good tenants in a 5-plex isn’t easy. Professionals just don’t seem to want to live in them. Probably because so many multis have earned a bad name through their hodge-podge-barely-maintained reputation. Then there are the sound and smell factors. Tenants can hear and smell everything that their neighbors are cooking up… Not great.
I would have loved to have an apartment in this house when I was in my early twenties so I thought that “young me” was my ideal tenant. But it turns out “young mes” live with their parents now… Yeah- finding great tenants isn’t as easy as I’d thought.
I naively was like- Oh! Five rental incomes with ONE roof; ONE electrical system; ONE HVAC; ONE lawn. Less maintenance… less taxes… less insurance.
Interesting fact, insurance for a 5-plex must be under a commercial policy in my state. This was a new and recent change. My insurance more than doubled from what the previous owner had been paying. Yep- definitely wrong on that one!
And even though some of that maintenance is “less”, because the house is so freaking big, all of those items cost much more than on a normal house.
Keeping each unit rented is also tricky. You need to make sure the tenants all “jive” or you’ll have countless headaches with them complaining about each other.
I don’t mean to sound like I’m complaining. I’m not. It’s more like I’m just giving myself the fierce reality check that I missed when I initially went into this deal. In fact, buying this place was sketchy right out the gate and I should have listened to my gut when it felt squeamish. Eh, oh well.
I don’t regret buying it but I can’t tell if I’ll regret keeping it rather than flipping it. Keeping it is going to be a royal pain in the ass and prevent me from using that money on other things that I’m more interested in.
I really want to fund my board game! Is that enough of a reason to sell when everyone else says that I should hang on to it?
Anyway, I’ll have to decide eventually. And remember- indecision becomes a decision.
Have advice? I’m all ears!
Thanks,
HouseRat Zero
