We finally sold our investment property. We lost a ton on this property, although the exact amount is difficult to calculate for various reasons. This is in spite of the fact that the rent was much higher than the mortgage payment, which seems to be the first criteria that rookie investors look at when evaluating rental properties. In this post, I'm going to detail our mistakes in hopes that someone else will learn from them. But first, some general calculations to show how bad the carnage was.
- Purchase price: $138,000
- Sale price: $114,500
Okay, that's a 17% loss. That's bad enough, right? But wait, there's more. The IRS lets you add to the basis for various improvements and other costs. I don't have the numbers in front of me, but as I recall I got the basis up to about $145,000. Now we're at a 22% loss. Also, in this price range, to get anyone to buy it you've got to throw in 3% of closing costs. 3% of $114,500 is $3400, We're now up to a 25% loss. We had to spruce it up significantly to get it sold also, between repairs we did to get an offer, and the ones demanded by the inspection, you can add in another $6K or so. We're at 29%. Also, you have to pay a realtor. 6% of 114,500 is another $7K. 34% loss.
Okay, now let's talk about the cash flow over the years as a rental. I think we were cash flow negative, sometimes severely cash flow negative every year. In fact, for the first 18 months after we moved out, we didn't have a renter in there at all because we were desperately trying to sell it for 14, then tried to get a renter in for 4 more. So all in, we lived in it for 4 years, it sat empty for 1.5 years, and we had a renter paying rent for 3.5 years, at which point we sold it for a huge loss. We walked away with $18K in cash, but had thrown lots extra at the mortgage over the years. We also had pulled cash out previously to purchase our current home. (Thankfully, we more than made up for our losses with appreciation of our big fancy doctor home bought in the depths of the housing crash.) But you can see how it is hard to give a definite figure on just how bad our losses were. I mean, when you consider the leverage, it's at least a 100% loss, maybe 200%. It's bad. It's an investment disaster by any measurement except for the fact that we could afford to lose the money.
# 1 Bought At The Peak
We bought the property in 2006. Most people who bought any kind of property in 2006 have not enjoyed very good returns since. In fact, if I had been in Las Vegas, it would have been much worse. In 2006 the average property in Las Vegas was $299K. It bottomed out in 2012 at $109K and has gradually climbed back up to $191K. Despite 9 years of holding, the average home buyer in Las Vegas is still looking at a 36% loss. I did a little better than that in Virginia, getting out with a 17% loss, if you only look at the purchase prices. But despite the general rule that you only have to hold a property for 3-5 years in order for your appreciation to make up for the transaction costs, its easy to see there are times where that time period can be much, much longer in many locations. In this situation, we clearly should have rented.
# 2 Paid Too Much For It
Looking back, I think we could have bought the property for about $130K if I had been a better negotiator. I applied the lessons learned on the big doctor house, but in real estate, you make your money when you buy.
# 3 Did Not Pay Enough Attention to Resale Issues
This home was in a diverse neighborhood just off a military base. The schools get poor ratings. We didn't really care about all that. We don't mind living around people who are different from us, and only one of our kids was going to be in school, and that was just kindergarten, while we lived in that house. However, it turns out that racists enjoy better property appreciation. Our neighborhood was probably 75% black. Perhaps we would have enjoyed better property appreciation (or less of a loss, or more of a rebound) if we had chosen to live in a neighborhood 10 miles away that was 90% white with top-notch schools. Hard to say as all real estate is individual. We thought it would be easy to resell the property given its proximity to a military base. We were wrong, and it cost us a lot of money.
# 4 Did Not Buy As An Investment Property
Like many others who bought homes anywhere near the peak of the bubble and then wanted to get out of them within 3-5 years, we became accidental landlords. We never bought this property intending for it to be an investment. Don't get me wrong, we did all the right things. We put 20% down, got a decent rate on a mortgage (6% something was pretty good at the time,) negotiated, and made sure it was a place that was very affordable for us (which obviously helped us become millionaires.) In fact, we used this property to save up for our dream home, such that it was nearly paid off by the time we moved out of it four years later.
At that time, we were having a little trouble selling it, so when we bought a place in Utah 6 months later, we got a 20 year home equity loan as a bridge loan. The rate wasn't great (although still lower than the 6% we had) but the fees were very low, which was the most important thing, since we were only going to have it for a few months. Well, months turned into years, and we still had that 5.35% loan. To make matters worse, we tried and tried to sell it, reducing the price about 20% from its peak value. At the value at which I was then trying to sell it for, it made for a reasonably attractive rental (cap rate 6.7%), although it still took a few months to get a renter in there. But between trying to sell, and waiting to get a renter in, we paid that mortgage without any assistance from a renter for a full 18 months after moving out. It was a good thing it was VERY affordable for us. Most importantly, while it certainly met our needs for a home to live in at the price we paid, it was not a good price to pay for a rental property. It only had a cap rate of 4.7% at that price.
Bottom line, we learned a lot about real estate investing over the 9+ years we owned the property, and knowing what we know now, would never buy it as an investment, would never use the loan we used, and of course, would never wait that long to get a renter into it.
Being an absentee landlord was less fun than crossing that mudhole behind me
# 5 Absentee Landlord
This “investment property” is located precisely 2,218 miles away from my home. I only returned to the area one time in those 5 years, for a WCI speaking engagement. It's one thing to do syndicated real estate deals in another state. It's entirely different to do it when you're the only owner and have to trust a property manager to do a good job. Well, our property manager did a reasonably good job finding a good tenant, but they did a terrible job of keeping her happy. After a while, we fired the manager. That boosted our return a bit, but it also made us the primary property manager. Luckily, I had a good friend I trusted who is a general contractor. He did a great job doing maintenance and upgrades for us, but a lot of it was stuff we could have done far cheaper and easier if we had lived nearby. And forget trying to find another tenant. That's why we put it on the market when this tenant decided to move out.
We also discovered that not only do we dislike being landlords, but we're not that good at it. We even argued about who was supposed to cash the rent checks and that's the easiest part of the whole thing!
# 6 Ignorance of the Importance of the Little Extras
This property is in a flood zone, so we had to buy flood insurance. It also had an HOA fee. While low, it added up. Those two extras, especially combined with taxes, insurance, management fees, and maintenance costs, made sure that we were cash flow negative every year we owned it (although we had a slightly positive overall return several of the years.) The general “55% rule” says that your net income is 55% of your gross rent. For us, it was more like 50%, and that doesn't include that 18 month vacancy.
Despite these six mistakes, this whole episode didn't have a huge financial impact on our life. We had very affordable housing for four years, saved up enough for a down payment on our dream house, and did not have to bring money to the table to close. But from the time we moved out until the time the house was sold, we probably had a cumulative loss of close to $60K on a $138K property. That's the total of the transaction costs, loss in value of the property, and the total of the negative cash flows. Many people who purchased in 2006 and wanted to sell in 2010 did far worse (I had one colleague with a similar military doc salary who bought a $750K house at the same time), so we'll count our blessings. And we more than made up for our losses by being able to buy our big fancy house in 2010. We also will get a pretty significant tax loss out of it. But we certainly learned a lot that goes in to every investment we now consider, especially real estate investments. Like with entrepreneurship, in real estate you want to fail early and with as little money involved as possible. If you are interested in learning more about real estate and minimizing mistakes like mine, check out our No Hype Real Estate Investing course.
What do you think? Were you an accidental landlord from the housing crash? How did you make out? What's your worst real estate investment? Comment below!
We were horribly naive when we moved for undergrad and thought renting our house would be income. Having $400 extra a month sounded great until we lost our home owners exemption. Didn’t plan for that and our “profit” went to barely $100 a month. That, paired with a property manager who didn’t find the greatest tenants and it went downhill fast. We underestimated just how crappy tenants could be, probably because we’re good responsible renters, but after a few who bailed on the lease and property damage it was eating us alive. We managed to hang on to it for 4 years until we finally decided to Sell the first year of Med school and sold it for a loss. Luckily we still walked away with $10k in pocket, thanks to paying our mortgage down fast while we lived there. Lots of lessons learned!
Great post except for the “racist” comment. Perhaps that was humor but I don’t think that people who buy into an area with good schools, safe streets, etc. are all “racists”. Some might be but the majority are not. This is also a great example of why I insist on selling my house in TN prior to moving to Fl where I prefer to be even though the price change is not working in my favor. As a retired person I can’t afford the losses that this transaction had.
If you read the article, it isn’t about safe streets or good schools. They controlled for all that. Even controlling for socioeconomic status and school quality, homes in diverse neighborhood don’t appreciate as fast as those in neighborhoods that are nearly all white. I can’t think of another explanation for the phenomenon besides racism. I’d love to be shown I’m wrong. How much that affected our situation is anybody’s guess. Probably not all that much. If we had bought a home in a more expensive and whiter area, we would have probably lost a smaller percentage of a larger amount- but the same amount of dollars in the end.
one possible explanation besides racism: real estate markets are just that–a market. they are fickle and subject to influence by its participants. Think of the way the stock market respond to world events and investor enthusiasm can lead to soaring stock prices. In a similar way, local housing markets are subject to influence if the participants take an active interest in it. I see it happening in my own neighborhood right now (a mostly white suburban place). Every guy on the street looks at Zillow and keeps up with prices, cheering for a local “comp” to be sold for a higher price. The wives are talking up the excellence of the local schools/amenities. Some of my neighbors are real estate agents who sell this market. Its in all of our interest for prices to rise and in a sense we have influence to rise our local market (at least to some degree).
Perhaps in some areas with diverse backgrounds (ie non-white suburban) there is less interconnectedness to the real estate market and without that push it stays flatter (and probably more reflects true value, while we have created a bubble).
So white people are more interconnected to the real estate market? Good luck explaining how that is without sounding like a racist. At any rate, I would expect that phenomenon to be controlled once you control for socioeconomic class. I really think it comes down to a certain percentage of folks don’t want to live in a neighborhood where a large percentage of residents are people of color. I don’t know how big that percentage is. Perhaps it is only 5%. But that’s apparently enough to affect appreciation rates.
This seems like a very roundabout answer. The black neighborhood discount is well documented and we should not ignore it for political correctness.
” I can’t think of another explanation for the phenomenon besides racism. ”
Occam’s Razor: the simplest explanation is usually the correct one.
I like your thinking.
I don’t know if that’s true about the lily white neighborhood. I bought my house in a great development with great schools in 2005 for $700,000. I sold it in December of 2014 for $560,000, and counting the $75,000 of improvements and broker commission of $33,000, lost a big chunk of change. It also took almost a year to sell. Thanks of course to the real estate crash of 2007-2008. At the time I had already bought a 3 story townhouse in the same city to downsize, about a year before it sold. I also had a home in Massachusetts I bought in 2013 for $800,000 with no mortgage. Like you, fortunately I could afford it, but it would have been nice to see some real estate appreciation over ten years.
Indeed a painful time to be a homeowner, no matter what the racial composition of the neighborhood.
Agreed, the post seemingly implies that living in a predominately-white area automatically means you are racist. That’s quite a judgmental leap of thought. I have no control over the fact that the town I’ve always lived in is 97% white. I stay here because of ties to family and friends.
Don’t read too much into it. Nobody thinks you’re a racist because your town is 97% white. But if there is an option in your town between a neighborhood that is 95% white and 5% black and one that is 75% white and 25% black, the data suggests you should assume your house will appreciate at a faster rate in the first neighborhood.
We still have our rental house from medical school and residency (at 4%). We are renting it out to residents currently (most of them stay 3-5 years). We are in our first attending jobs and its about 5 hours drive away from us.
Not sure how long we will keep it before we try and sell it. Doubt we could sell it for what we bought it for.
For us, it has served its purpose of being a great starter home at a low cost while we were in med school and residency. While I would love to make a little money on it, it’s not imperative because like I said we can stomach a loss much more now that we could have when we were deciding to rent or sell.
I guess we will keep it until we can’t find a renter or get sick of renting it. Thoughts?
Five hours is about what it takes to get to my rental. It’s been nice to be able to take some working vacations to Hampton Roads to check on or work on the property and squeeze in a trip to the Norfolk Zoo or Colonial Williamsburg with the family and get a small tax break.
I should mention that I like real estate and want to invest in individual properties. How do you feel about being a landlord? If you hate it with the burning fire of a thousand suns, dump it. If you can live with it as long as there’s a tenant, let the good times roll. If you like investing in rentals, this house might be the first step in building the empire.
Great advice! I like this small rental that I have. Would like to get into some larger rentals like whole apartment buildings with some partners. Kinda of nice to do something other than medicine that I enjoy and hopefully make a few bucks doing it!
Dr. Dahle, we are absentee landlord neighbors! My wife and I are using our old med school house across the water in Norfolk as a rental. My experience has been quite different, but then again so much of real estate is timing and location.
We bought for $145k in 2010. Converted it to a rental in June 2015. Zillow says the house is now worth about $135k. We take home an average of $150 in cash each month after accounting for a couple of handyman calls and minor expenses. Because it was only rented for half the year the expenses worked out so that we had a paper loss on our taxes this year, but next year it will probably generate a small taxable income of about $2-3k.
The big issue coming down the line is it’s on a VA ARM that resets in two years. Although the loan can only go up 1% per year, 5% max over the life of the loan, we plan on paying it off early. The nice thing about the ARM is that the payment resets each year, so although we will be paying more interest it will at least be nice to have the smaller monthly payment due and be able to get cash flow positive. Either way this house will be paid off a few years out of residency.
Surprised you’re still under water after buying in 2010.
I suppose it depends upon how much faith I have in Zillow. It was worth $159k according to them back in June and went downhill this fall and winter. I have not had an agent pull comps or have an appraisal done.
I know I’m not going to be good at being a landlord. I know I’m not passionate about real estate. I know negotiating deals on real estate is not my strong point. I know dealing with the hassles of renters will stress me out. This article just goes to show that before I ever do any real estate investing, I will have a million dollars in my total investment (stocks/bonds) portfolio, have my primary residence paid off and buy any real estate investment with CASH (cue Dave Ramsey). Yes, real estate can be a great investment but some the pitfalls listed in this article show that for those of us who are not passionate or skilled in it (and do not have the zeal to learn more about it), it makes more sense to thread carefully.
Thanks WCI for the insight. It was well appreciated.
What a nice post! The list goes over details that people don’t usually think about.
We did enjoy some appreciation by selling in 2006 but that was just so pure sheer dumb accidental incidental luck, and I would never try to pass that as any sign of intelligence on our part.
I have followed all the posts on rentals on WCI through the years – and here is my summary – accidental landlords or deliberate – there is lot of money in property management, and “facilitating” investors invest.
In being property manager, you are taking a commission – almost as much or more than the investor’s best case scenario profit, the investor may be losing money. But property management is work and without it, it is very difficult to make rentals give profit.
I know of a local Ob Gyn who bought a house every year for 30 years and had no other investment. Every house was paid cash from the get go. He was doing property management all along, and now does just that. The real difference in profits came from property management. He also handles all transactions (contracts etc.) himself.
And in helping others invest, the principles of OPM – other people’s money apply.
When you think about it like this, REITs become very attractive as far as investment goes, if you buy REITs with low commission. Otherwise, it is super-concentrating a lot of money in one asset.
WCI did an excellent review in 2013 about a book by Real Estate Investor John Reed. His books will cure anybody of the real estate fever, or give an insight that is hard to find. Here’s a link-https://www.whitecoatinvestor.com/best-practices-for-the-intelligent-real-estate-investor-a-review/
Oh the timing! Headed off to court today for a small claims battle over unpaid rent/property damage.
Accidental landlords from thousands of miles away? Check.
So dumb on our part to do it once in residency at the same time period you describe.
At least we purchased in a ritzy gated community on a lake in sunny Phoenix. Yeah, that lake dried up a few years ago when water rights were denied.
You are probably overstating your “losses”. You need to reduce your calculated losses by your cumulative tax savings related to interest, property tax and the capital loss. You also need to account for what your rent would have been (as you need to live somewhere). If you had not stayed in the house for the 3 years and had rented instead, you would have had transaction costs in moving and perhaps double rent for some period of time as well.
I would suggest that better analysis would be what was net “loss” (really “cost” would be better word) after accounting for tax benefits and compare that to the total rent you would have paid during the 3 years you were living there (cost of owning vs cost of renting comparison).
The tax benefits do soften the blow. They’re not that big though since we were in the 15% and 25% federal bracket and the 0% state bracket for those 4 years. I have no idea what you’re referring to with “double rent.” We had a “double mortgage” but would have never had to have “double rent.” A big chunk of the savings we would have had had we rented was the 18 months of extra mortgage payments we made while no one was in the place. If we could have sold when we moved out, even at $115K, we would have been much closer to breaking even.
Your capital loss tax savings should be based on your current bracket.
By double rent I meant cost of overlapping leases unless you have perfect timing.
Far easier to avoid overlapping leases than overlapping mortgages. The capital losses are based on current bracket. I was referring to the interest deduction while I was living in it.
Also bought in 2006 to start residency, 138k, area wasnt much in a bubble, but still didnt do great afterward. Tried selling in 2012 and being an absentee seller while in fellowship didnt seem to get the realtors trying hard at all. We held almost 2 years, 3 months of which we rented to the buyer whose first mortgage fell through. At closing paid an additional 8k to get rid of it. What a mess. Wish we had rented from the get go as that likely would have been simpler as its a residents neighborhood, but we clearly didnt know squat.
Then I read in the WCI book why not to buy a house, ah, wish I had seen that prior.
Curious if your loss is less when you calculate out any tax benefits…I purchased in 2006, and sold in 2011 and took a beating but because of how far away we moved, and the age of the house I didn’t want to be stuck being a landlord. Sounds like I may not have fared much worse than you, but I think there is greater tax benefit on losing money as a landlord than as a primary dwelling…
Yes, and that’s part of the reason why we did it. The other, of course, was that no one would buy the darn place at any price short of a fire sale in 2010.
Counterpoint to dealing with tenant hassles
Docs deal with spectrum of people , from adm to pts -tenants should be relatively a cakewalk with screening to ensure credit worthy tenants and ability to evict people who falter and end up being unable to pay for services rendered….
Property managers are another issue
Section 8, no experience…
Dealing with tenants is rarely a cakewalk for anyone. In some areas, if you wait for a tenant with perfect credit to apply, you will be vacant for a long time or renting at a low price to entice a creditworthy tenant into the area.
The doctor-patient or doctor-staff relationship is completely different from a landlord-tenant relationship.
Just because I’m good with my patients and staff, doesn’t mean I’m the best at screening tenants, evicting tenants and making sure they pay on time.
Yeah the relationship is different, but the comment was regarding people management skills , ability to analyze data(credit, criminal background etc for screening) – are these abilities restricted to MD, no; but MDs use these skills in their profession. Again like in healthcare one needs to work with/utilize other professionals – handyman ,lawyer, agencies that provide credit/background info etc, to run the business.
Ability to evict depends on the local state laws and lease – so based on these, it can be far easier than a physician relationship to terminate business, if payment for services are not being obtained.
If the tenant is unable to pay on time, the state laws and lease dictate what can be done. Of course one tries to work with their tenants in a one off situation, but if they are perpetually late, at times the late fee can/may be agreeable to the alternatives.
As a financial educator for members of the uniformed services, I love this post.
Awesome and unique post. I have lost money on all my houses. We never recoup all of our upgrades and the transaction costs are enormous. All I read about elsewhere is how to “make easy money in real estate!” On the other hand I have had nothing but financial success with REITS, private placement investments, stocks, and bonds.
I completely agree with you.
I think (my opinion based on listening to people in parties and social situations) that most people confuse profit with speculative growth. Gold is something like that – remember what Warren Buffet said about gold that it doesn’t produce anything and you have to spend money to protect it. Most of the time, real estate is like that. And even for speculative growth, most real estate just tracks inflation – William Bernstein says that over and over in his books based on solid evidence. People try to oversell their “system” of making easy money if they got lucky- we got lucky in 2006 but there is no system.
REITs, stocks, and bonds are investments in companies that generate profits, selling goods or services. Easy to understand and invest in, just keep the expenses low.
Real estate is a great asset class and if done right, you can certainly make money. The point of this post is that it is entirely possible to do it wrong (and to get unlucky) unless you are very deliberate about how you do it.
What happened to the 7th reason? Wasn’t good enough to publish? I feel gypped.
I bought a small condo in 2005, although it was in the bay area, CA so multiply your purchase price by 3x+. Got caught up in the overbidding and also paid too much. Threw tons of extra money at the mortgage so it’s not underwater, but it’s still not worth what I paid. I’ve rented the condo to a friend to avoid the headache of being a real landlord. When she moves out, perhaps the market will have recovered enough to sell it. Fortunately, I purchased my grown up, fancier home in 2011 when prices were low.
Gypsies everywhere are writing in to say how offended they are. The post went from 4 reasons to 7 reasons and back to 6 reasons. SEO title now fixed.
LOL. I say this every time someone says this as well! Funny the words in our language and some of their roots.
As a 56-year-old CPA who (like all tax accountants) sees lots and lots of real estate investor tax returns, I would share this bit of opinion… Real estate is basically a business you have to learn. And it seems to take several years (three? five?) to get up the learning curve.
One of my favourite actors had one of my favourite lines, ‘A man’s got to know his limitations’. Words to live by, both in practice and investing, and one of the reasons I never, ever considered becoming a landlord.
we bought a house in Virginia in 2007 at 252k, moved to a different house in 2012 for a better school district. the old house has been rented for a price lower than my mortgage paynent. Iam incurring a loss every month but that is better than trying to sell it at the current value of 220k and having to bring nearly 30k to the table at closing which I do not have anyway.
We own a vacation home and have resisted putting it out to rental, even short term. After paying for management ( 50%) , and then income taxes ( 46% marginal ) we’d be left with only $100/night ; too little to deal with damages.
Interesting… assuming you can only rent out 2 months of the year, are you saying you could net $6,000 yearly? That is not sufficient incentive to rent out your vacation home even part-time? What hassles do you anticipate that over-ride this type of profit?
My wife and I purchased a new construction condo for 400k in 2005 in a very prestigious neighborhood for Residency.
We spent another 50k decorating it with furnishings and floorings.
In 2008 we relocated and became accidental landlords. Unfortunately our condo was work maybe 200k at the time.
We rented it out for 2500/mo for 4 years. In 2012 the value was still maybe 225-250k.
We through in the towel at that point and started a strategic default.
We finally were foreclosed on in 2014.
It sold last year for around 300k in 2015 from the bank.
So in the end we lost a bunch of money and took a hit to our credit. Fortunately the credit aspect was very minor. In fact my score is back up to 760 as of today.
Very happy to have that headache over with.
Wow…$450K for residency housing….Sorry to hear it worked out so terribly. That’s far worse than I would have imagined. I’ve also been surprised how minor the credit hit is on these sorts of things. My understanding is most people can get a loan to buy another house within 2 years.
At the time we just happened to live in one of those booming areas.
As far as the credit damage it was amazingly mild.
To give you perspective I can purchase again with 20% down with about a 0.5% interest penalty.
In 4 years I will be eligible for market rates with no penalty.
Consumer loans(not that I need them) are no penalty.
My wife and I have about 100k credit card access. Which is down from a peak of 175k preforeclosure.
Ultimately, shedding the debt and liability via the foreclosure route was far more advantageous than “toughing” it out.
I hope this advice helps someone else still stuck in a similar situation
how did the bank not go after your personal assets to make up the difference, unless you are in Florida?
We also lost money on each house owned then sold. But it beat rent in the one we lived in for 4 years- doubt any landlord for any price would’ve let me farm and modify as I did. The other- bought in-laws’ home since we were moving there until the Army changed where it did RAM program that year- at least we did the in-laws a favor. Now in 2nd home we’ve lived in, and expect to sell it quick would be at 80% purchase (70% amount we have in it with “improvements”). As spouse says, we haven’t lost money until we move- and if the loss would be too big we might not move!
Nice post , not a lot of people care to publicly share their poor investments. I too, had a couple of single family horrible investments back in the real estate craze. I did one lease to own and one rehab, both of which were complete failures and took a loss on each one. The wife of the family that bought my rehab actually booked an office appointment for no real reason – except to thank me for creating a nice home for her family, as she heard from the real estate agent that I took a bath on the property. I try to think of it as my charitable donation to the community although it still stings…
Meanwhile, I had bought into our medical office building which continued to crank out handsome checks despite the downturn. That opened my eyes to commercial, which is where I focus to this day. As mentioned elsewhere on this blog, multi family and office can do very well if properly structured. I went forward and syndicated a multi family apartment complex which does well, not great, but is a stable cash flowing situation. In addition, I have invested with other large commercial syndicators and am very pleased with the results.
Personally, I learned I was a terrible landlord, being too busy in the office to deal with issues, and outsourcing everything chewed into my cash flow. I learned enough to syndicate although it is somewhat of a hassle managing the investment, the managers, the tax issues and of course dealing with my investors. Now, I hand it over to the syndication “experts”, good firms with solid track records and I sit back and collect checks and K-1’s. There are lots of ways to invest in commercial real estate , again covered elsewhere, but my advice is caveat emptor when dealing with syndicators. They don’t always have the expertise you may think they do.
This leads to the question I have wanted to ask WCI for a long time because of a similar experience – Do I rent or buy? My story is as folIows: I also bought in 2006 for 126,000. Six years later with kids growing up, moved to a better school district (where I am still a tenant). During the six years, we spent over 40,000 on new roof, windows, french drains and other stuff, spent another 8K getting it ready for sale. I listed it for sale by owner in 2012, four months after we moved to a rental and it was under contract within two months (an amazing blessing). If it had not sold, I might have held it for a year before considering renting it. We walked away with 26K. The bad thing is, that since that experience, we have been renting because: 1. Where I now live is not were I am sure I want to be -at least for another 5-6 years and 2. That whole home ownership experience was so stressful( repairs and selling), I am actually enjoying being a tenant while I decide whether I want to stay in this town -where I have been for 3-4 years. I do passive real estate investing with my brother who is a real estate investor – though the returns are modest on the short term and hopefully better than modest on the long term. What would you do? Just buy already as 2016 is not the same as 2006? or hang in there as a tenant until I feel the urge to settle already. I am not getting any younger. Thanks.
When there is any doubt, rent. 2016 isn’t 2006, but it’s not 2010 either where buying was a no-brainer in many markets, even for a 3-4 year period. If you think there is at least a 50% chance of being somewhere for at least 5 years, then I’d go ahead and consider buying if prices aren’t outrageous compared to rent. But there are plenty of ways to build wealth while renting and home ownership has only made a relatively small contribution to my first couple of million in net worth.
Congrats for unloading that property and probably took some weight off your shoulders just not having to think about it anymore:) I’ve been real estate investing for 9 years, and not all of my properties have performed as calculated, despite all the number crunching, tenant screening, buying it under market value etc that you can do. It really just depends on the markets, financing terms, and rental market…things that are out of your control. Overall, you’ve been doing great in your portfolio, this loss is probably little compared to your wins and that’s what matters.
Yes. I had an advantage selling it too. The renter moved out in March but was on the hook to pay rent through December, so I didn’t have any vacancy on the back end but still had an empty place to show. It still took 6 or 7 months to get it under contract though.
I was an unintentional landlord on 2 properties at the same time. We had good renters, but there were small headaches along the way. If I had made money, it wouldn’t have been worthwhile. Losing money made the situation(s) that much worse.
We were able to sell the residency condo for a bit of profit after 12 years, but lost big-time on the home we built. Glad to be down to 2 properties and no renters.
The only RE investing I do now is via Vanguard’s REIT index fund.
If it makes you feel any better I made the same mistake and my story is almost exactly the same as you described in points #1, #2, #4, and #5 above. I bought an overpriced condo in Washington, DC before starting residency, literally a 4 months before the 2008 crash, under the classic blanket advice that if I was going to live there for 3 years, I’d be better off buying rather than renting. Paid way too much for it ($345K plus closing costs, etc), I had no idea how to negotiate at that time either. Became an unintentional landlord after moving on to fellowship and realizing that if I was going to sell, I’d have to take a loss. I have rented it out on and off the past 3 years through a property manager and basically broken even each year. Recently put it on the market for $340K and it still didn’t sell. I don’t know if it’s pride or stupidity but I refuse to sell it for a loss at this point, it’s a great condo in a great area, so back to renting it out for a few more years at least. I do not like being a landlord at all, but as others have commented, I guess there’s something to be said for learning the hard way! Truth is, if I hadn’t made that mistake at that time, I’m sure I would have made it later at some point…now when I hear people make blanket statements like “you should buy a house, why would you throw your money away renting?” I tell them to check out a buy vs. rent calculator–it’s surprising how many people have never used one.