A pity, because it’s a great article – oh, for anyone looking, here’s Part 3

http://www.getrichslowly.org/blog/2010/02/11/how-my-real-estate-investing-adventure-came-to-an-end/

Great article.

I have been a landlord for 2 years and have honestly enjoyed the experience. The difference is I got started with a foreclosure property which I bought at a good price and was $200 per month cashflow positive from the start. But it was a single family home and I think that was more forgiving in terms of learning curve.

The multi-units can be more lucrative but as we can see from the story also require to be run like a business. And like any business it requires capital. Of course that is easy to see now in hindsight from your story but at least we can learn from you.

I would really hate for this series to be used to put a negative spin on real estate investing…

I thought I could rent it out rather informally because I knew all the people renting it personally, and they were other grad students. I was naive and didn’t realize that one of the three had credit problems and was going bankrupt. I didn’t even get a deposit from them, or have them sign a rental agreement. When the one with the financial problems moved out, her final rent check bounced and I got charged a fee, she had not paid the rent for the last month, or her share of the utility bills. She left a whole bunch of stuff that I had to clean up, though at least I was able to sell some of it on Craigslist. She didn’t answer the phone or emails, and had moved far away. I finally had to use an internet service to send her notice that I was going to send the amount to collections if she did not pay and it would ruin her credit report (which was not true, actually, but such fake letters can be purchased on the internet for about $20, much cheaper than actually taking real action).

That got her attention, she called and gave me a sob story about how she just hadn’t had the time or money to get back to me (even though I was in school living on loans, and she had a highly paying job!). So that is my little cautionary tale about how to deal with renters when you don’t have a good rental agreement or a collections agency at your disposal. And a reminder that even supposedly solid renters like graduate students may cause problems.

I agree that real estate investments should be carefully weighed and evaluated, just like any other investment. Investors need to take the time to perform their own due diligence, and whole-heartedly understand the risks involved. I look forward to seeing the grand finale of your story.

@Bret regarding REIT’s:

On the surface, I agree that REITs or REIT ETF’s may sound like an attractive alternative to a single multi-unit dwelling. REIT’s may appear to have “less risk” by offering risk-hedging & diversification in exchange for a favorable return.

But, this is not always the case. Just like any other investment, you need to take the time to meticulously dig through the provisions of the REIT (including the management fees and other conditions) to make sure that it meets your risk tolerance levels, and to determine if it will earn you a return commensurate with its risk compared to other investment alternatives.

For example: is it better to own a an REIT whose investment is broad-based (including “investment” properties in highly volatile markets like Phoenix, Vegas, Miami, etc), or is it better to own a small niche building in an area like Central Austin near UT campus that has higher rent stability due to a comparative lack of real estate supply and consistent demand from undergraduates in the West Campus area? (Even weighing in the cost of hiring a management company to handle the investment, maintenance, and rent collection…)

It depends on the investor. There are too many factors to make a apples-to-apples comparison of REIT vs a rental building in one city, of which are an individual’s appetite for risk and one’s required rate of return.

Our team works with real estate investors on a regular basis in the Austin, TX area. We have always made sure that our clients understand the risks associated with their decisions, even before the recent real estate turmoil.

Just my $.02. Good luck everyone.

(Just kidding, JD!)

Enjoying this series of posts too…

I’m looking forward to reading more about the bipolar tenant.

Great article!

Emergency fund is absolutely critical for landlord business. Life is quite unpredictable.

Keep on landlording Adam. Write more about your experience. Love to read things like this.

I’ve been a career renter, and truth be told, the worst landlords are the mom-and-pops. I’ve much, much preferred renting from property management companies than dealing with someone who does this stuff on the side.

With one landlady, we actually got into a disagreement on whether or not the air conditioner was broken! (This was in the San Fernando Valley of Los Angeles, where AC is a necessity in the summer.) To bad for that landlady, I found out the property she had was zoned improperly (illegal addition) and therefore legally owed no rent whatsoever on that unit.

That chapter from the “how not to be a landlord” book is an interesting read.

Amen. The warped logic some people use to make themselves the wounded party can simply astound. People who have never dealt with it sometimes think you’re making it up, or it’s a lone crazy person. But you learn a lot about human nature as a landlord. As I have said before, everyone wants to do the right thing, but it’s amazing how often ‘the right thing’ is exactly what they want to happen, and the logic they use to get there.

Enjoying the story…just don’t like the cliffhangers!

-Erica

OMG that video. OMG Boy George. OMG the 80s.

I think the only fallacy of the argument is the grass is greener with new tenants logic. Not sure how long ago this was, but you have tons of risk in this economy with new tenants too. You can credit check them but likely where the property is isn’t going to be stellar renters. And people who had great history when times are good still stop paying their rent when they lose their job. Working with your tenants isn’t a bad idea but you need to keep them on a tight leash and be very clear that if they miss a workout payment, you move forward with eviction. Given that you had no emergency fund (the real problem as you identify it), you couldn’t afford to evict them and rehab the units. With the lost rental income and the work on each unit, I am sure you were looking at the need for at least $10,000.

I like the fact that you realized you weren’t being tough enough and got emotionally involved.

Looking forward to Part 3.