“You can’t be serious!” I told my property manager.
“Unfortunately yes. That’s what he said,” replied my property manager.
I was just informed that our former rehab coordinator—who we just fired for, well, not really doing anything helpful—was also taking kickbacks from at least two of the contractors we were using. Were staying
“Okay, can I fire him again?” I asked
Unfortunately, I couldn’t.
Shortly thereafter, we came to a similar conclusion about the same property manager who told me about our rehab manager taking kickbacks. She was giving sweet deals to her son-in-law who used to work as a servant for us. On several jobs that I declined, he approved it anyway and then moved the expenses from one property to another to get the budget right. With this we fire him and win the dispute over unemployment.
random act of nature
Then I found myself in a job as a rehab manager. Within a week, we started getting calls about one of our properties: The sewer line was backing up. it doesn’t make any senseI thought. We just had that line and no holes, no guts, no roots in it.
Well, it turns out the line didn’t have a steep enough drop (in other words, it was too flat for sewage to flow down the pipe), and we’d have to ditch the entire line. Oh, and the land was made of rock and hard soil. The replacement ended up costing us $10,000. And during this ordeal of two weeks the tenant had no joy.
After some time, the largest apartment we owned was flooded. The units were spared, but the basement was mostly inundated, leaving all the hot water heaters, boilers, gas lines and doors ruined, while tons of mud were visible inside.
happy times.
Connected: 7 Types of Tenants That Cause Major Landlord Headaches
So we got to work, all the while hearing complaint after complaint from our tenants. It was hard to blame them because we couldn’t turn their gas back on because the city required updated gas lines before they signed on to it. But we replaced those lines with hot water heaters and doors, and hired a contractor to clean out the entire basement. They brought all their equipment there and were ready to start the next day.
After this there was flood again.
All their equipment was destroyed, and we had to redo the hot water heaters and doors. This time the flood went higher and the electrical panels were damaged. So we had to replace all of them. And then we had to deal with two separate flood insurance claims.
Even better time.
unexpected issues
Then, a property manager we had hired to manage a 12-unit apartment with a HAP contract decided to cancel our management contract due to ongoing disputes. The property was not left in good condition (though it was much better than the earlier apartment complex that had been run into the ground by the management company).
Have you ever moved into an empty unit in the middle of winter with the heat at 90 degrees? I have. Ever been charged $150 to “show the tenant how to use the thermostat”? I have. Have you ever been told that the manager had to reject 14 out of 15 applicants after only accepting one out of two when you acquired the building? I have. Ever been told “Craigslist doesn’t work in this area” by a management company who refused to post Craigslist ads, only to get most of their tenants from Craigslist when you took it over? I have.
Anyway, I’m sorry. The biggest problem here is that we are not certified to manage a property with a HAP contract, and as with most things related to government, it is incredibly bureaucratic and complicated. To learn, the process involves a three-day course and familiarization with several HUD handbooks, such as HUD Handbook 4350.3, which is only 794 pages!
All this to manage a 12-unit building.
people are people
And then there was the receptionist who started showing up to work drunk. Or the maintenance technician who brought beer for lunch. Or the receptionist who fell asleep during meetings and filled out job applications at work. Or the maintenance technician who didn’t know how to use a tape measure.
There was also a tenant who got drunk and yelled at all his neighbors (or us) all day and especially all night. There was a tenant who used to ask for money every time he saw his neighbors and our employees. He also abused cars when they were driving. Another let two prostitutes stay with him, who got into a fight and tried to push each other off a third-floor balcony.
Another time, a tenant’s boyfriend had to break a window (?) to get into the building. Another tenant had her son (or someone like him) wanted by law, which caused the police to cordon off the street in front of our apartment. blocked. Of course, we’ve also had a lot of A/C condensers grow legs and go away, and in one instance, a tenant – after being evicted – for some reason decided she’d steal our toilet. I’m not entirely sure what the resale value of a used toilet is, but I’m guessing it’s better than nothing.
What about that apartment we bought on Skid Row? It was so cheap—we had to buy it, didn’t we? We got into it for $120,000, and it only appraised for $100,000.
Connected: 11 Problems Only Property Managers Have
Then there was the house for which we doubled our modest budget of $25,000 and spent $50,000 on rehab, all for $75,000. I didn’t even want to try and refinance, because I was sure the appraisal couldn’t exceed $60,000.
Once our loan went out, we had to give up a house under contract with Fannie Mae. They require a 10 percent earnest money deposit, so we said goodbye to the $4500 that day. And then there was the time several years ago when none of our loans were coming through, and the worry of running out of money was nagging! That one was especially funny.
There was also a lender who was going to give us a huge loan and requested hundreds and hundreds of documents while paying us for dozens of appraisals, with the process taking over six months. Finally, they proudly offered us a loan that was a full percentage point higher than promised, with an LTV of only 65 percent (compared to the promised 75 percent) and two and a half points (instead of just one). We were told that this was because our properties “were not in as good areas as they had hoped” – even though we told them right from the start where they were.
I could go on and on and on. Real estate investing sounds like a blast, doesn’t it?
Oh, and by the way, we’re millionaires now.
What pitfalls have you faced as an investor? Would you say it’s worth it?
Share below!
Note by BiggerPockets: These are the views expressed by the author and do not necessarily represent the views of BigPockets.
