The Ugly Side of Investing: When everything goes wrong!

[Anna Buffkin]

Long post warning!!

While there are plenty of success stories, everyone likes to hear about the struggles especially when its not them.  Here is my tale

It begins pleasantly enough August 3rd.  My husband's aunt had contacted me in June about buying his grandmother's rental unit. I had originally told her that I appreciated the offer, but would not want to offend grandma buy low balling the offer.  The house is in great shape, but the market is really hot and she could get more for it than I  couple pay and make the rental numbers work.  My aunt calls me back and says Grandmother is aware of what the house is worth as she has talked to a realtor and had paid for an appraisal when grandpa died.  She wants to sell it to you at a $40k discount.  At this point the numbers work and we go under contract on 8/3.  This is the same week the bond yield curve inverted.

I submit my loan documents to my lender.  I have used this lender on 5 separate occasions and have a good relationship with my lender (which will be important as this story continues).  Oddly I didn't hear from him for a few days.  He finally calls me up and says we have a problem.  With some market uncertainty the bank is getting nervous and told me to stop lending on a few loan groups including non-owner occupied single family.  Uh oh.  He says he will see what he can do, but no promises.  I begin calling around to another lender I have used as well as a few I have heard about.  I got a few no and a few yeses, but none offered as good a product as my usual lender.  Just before I was ready to move on, my lender calls me up, her got the bank manager to approve the loan based on a strong current business relationship.  

Meanwhile, I am evicting my first tenant in about a year and a half.  They are not paying rent, i want them to move, we are in South Carolina, so this is generally no big deal.  Well this tenant got the notice and moved out on August 18th prior to the court appointed date.  Generally this is great, but they trashed the house.  According to the neighbor, they got a dog about a month before  they moved out despite having no money for rent.  In that short period, the dog totally destroyed my carpet, marked all over the walls, and crewed through a door.  I have a no pet policy by the way.   Oh and the bugs.  I pretty sure I committed some form of bug genocide in my efforts to kill all the bugs.  This was the worst anyone had every left one of my units.   My husband is a high school football coach and all this started the day before the season began.  I told him don't worry, I got this.  If it takes a month to get everyone out here and the place fixed so be it.   

Ok.  Things are back on track until Aug 25th.  I get a call from the tenant of one of my condos in tears.  The building is on fire.  No one is hurt thankfully, but the building is partially destroyed and my unit is a total loss.  The red cross steps in and provide my tenant with temporary shelter.  She asked if I have anything available.  I tell her I have a unit that I am working on which is about 2 miles from her current place.  She is interested in the aforementioned evicted unit.  She had temporary housing until the 15th and would like to move in then.  Now I have to kick it into high gear as I have just promised a home to someone by a certain date.  My go to maintenance men tell me they are both booked until Sept 24 and Oct 3 respectively.  I have a great contractor, but don't want to pay his prices to fix a small duplex.  I call my mom and arrange for her to watch my boys (twin 3 year olds) over labor day weekend while my husband and I get the place cleaned out, painted, and carpet out and ready for the flooring.  This was a great plan except, my mom lives in Myrtle Beach.  I dropped them off Friday and on Saturday she called to let me know Hurricane Dorian's projected path has changed and the governor has declared a state of emergency.  My husband and I decide to work Saturday and Sunday but Monday I would have to go get the boys as they were now in an evacuation zone.  There is still work to be done, but at least the flooring guys can put in the flooring... or not.  Long story short, I went and picked up the flooring I had already paid for in my Prius (my husband had the truck in Greenwood) and unloaded all of it into the house (31 boxes at 23 pounds a box) by myself in Columbia, SC heat (that's hotter than regular SC heat as any South Carolinian can attest).  I still had no one to lay it.  Enter Joe.  Joe's a retired guy who does small odd jobs for me.  He is also a retired maintenance manager.  I asked him if he had ever laid flooring. He said yes, but at his age he would need an additional body to help him.   That person ended up being me.  We got it done with just hours to spare and Joe did such a good job, I gave him more than we initially agreed upon.

A random note to newbies: Crying and screaming will not undo damage to a unit.  All the owners present at the fire were quite calm.  We were all veterans.  Our tenants were fine and the fire department was working it.  The only thing we could do was watch and call the insurance company.  Meanwhile in another condo, a small pipe leak created very minor damage in the unit below.  The owner was a first time landlord.  She treated me like I had broken a pipe on purpose.  She even cussed at my tenant and threatened to sue her.  My tenant an older single woman called me in tears.  This tale of overblown reactions could be its own tale, but was too small to add any more to this tell of crazy.

I'm now done with the initial condo fire insurance claim information, my trashed unit is now renovated and a new tenant is in place.  Everything feels like its falling into place.  Then comes the call from my lender again.  The underwriter has finished the loan and their is a problem.  I am a remote bookkeeper.  Prior to this year, my largest client paid me on a W-2.  Now all my income including income from them is on a 1099.  This has skewed our debt to income ratio.  This is a commercial loan in our LL's name so it is not as important as for a conventional loan, but the underwriter does not want to approve me as the guarantor.  Stacy says he is taking it to the bank manager for an override (2nd time for the same loan).  The only problem is that she is on vacation and won't be back until the following week (8 days before close).  Monday comes and after sweating it out, we got the approval with my husband as the main guarantor.  

Now it's the Thursday before close and my husband tells me he can't make the closing due to a school testing obligation.  I get a power of attorney and fill out a corporate resolution letting me sign for my husband.  I send it to my lawyer's paralegal who says I need approval from the bank to sign the loan with a power of attorney.  I am nervous calling, but get a no problem as soon as I ask.  

Closing comes Tuesday morning, I had planned on having a friend watch my kids (again twin 3 year olds), but I woke up sick and she has an infant who no go. I end up taking my boys solo without my husband 2 hours to Columbia to the attorney's office. On the ride there, a fellow owner of the condo building that burned let me know he and others were planning on being at the HOA meeting tonight (which slipped my mind) and was I coming. So I went with tired boys in tow to an HOA meeting before driving 2 hours back home.

Many details were left out to keep this brief(briefer), but it has been a long and wild 2 months.  Just thought I would share a far less fair weathered account of real estate.  But with out tears, screaming, or any overblown dramatics, my insurance is taking care of the fire damage, I now own a new unit, I have an upgraded unit with a good tenant making more rent, and my newbie landlord acquaintance is no longer cussing me out (at least to my face)

[Jeff Willis]

...and then you woke up and all was ok. This is "Murphy's Law" as defined. "Anything that can go wrong will go wrong"

On a different note and maybe because we do things differently in the West. What is this "my husband tells me he can't make the closing due to a school testing"  Do you have to appear for a closing? Out here the Escrow company sends a Notary to my office and we sigh here. I set the time I want them to arrive. Everything else is done by DocuSign.

[Anna Buffkin]

Originally posted by @Jeff Willis:

...and then you woke up and all was ok. This is "Murphy's Law" as defined. "Anything that can go wrong will go wrong"

On a different note and maybe because we do things differently in the West. What is this "my husband tells me he can't make the closing due to a school testing"  Do you have to appear for a closing? Out here the Escrow company sends a Notary to my office and we sigh here. I set the time I want them to arrive. Everything else is done by DocuSign.

First,  thanks for reading.  I didn't realize how long this post was until I posted.

In South Carolina,  closing is a little more formal than in other states. All parties meet and sign at the attorney's office on the closing date.

And yes, in the end everything has or is working out. 

[Jeff Willis]

@Anna Buffkin

Thanks. I am now more educated. Those damn lawyers have to be involved in everything (I can say that, my wife is attorney)

[John Koster]

@Anna Buffkin  Thank you for your post.  It's always refreshing to read a realistic RE tale, however long it may be.  (This post was just a murder away from being a Dostoevsky novel.  Kidding.)  I think it's important to realize that sooner or later, every investor will have their share of wounds to lick.  Honest accounts like this are alway helpful, especially for those with less experience.

[Caleb Heimsoth]

@Anna Buffkin. Outside of the fire a lot of this sounds like pretty normal stuff honestly. In the last 6 weeks alone, I’ve evicted a tenant (inherited) and cleaned out another apartment with so much trash and had a tree Dorian blew over on another rental.

The lender stuff sounds like a major pain but that’s also seems par for the course. I’m refinancing right now and that bank is super busy, so the inverted yield curve doesn’t seem to have affected that at all.

Glad it all worked out for you in the end !

[Jhon Restrepo]

Trouble arises in any kind of investment, you are doing good and probably getting some profit, otherwise you wouldnt be buying another property to add , to list of headaches you already have. IF becoming millionare and having great body were easy , everybody would drive a ferrari and would be an sport ilustrated model. 

[John Teachout]

Thanks for sharing this story of everything falling apart at once. Wednesday (2 days ago) my wife informed when I got out of bed that the HVAC was inop as the house wasn't holding temperature. My regular HVAC guy is going through a business crises and not available. My back-up HVAC consultant (helps with troubleshooting but doesn't come to my jobs) is also going through a business crisis and can't be reached. I have two identical units and by playing musical parts determined I had a bad condenser fan motor. (my clue was when I saw fire shoot out of the motor when I pressed the contactor). Now that I know what part I need, I drag a hose over to that side of the house and hook it to the hose bib. Water starts shooting out of the stem on that as soon as I turn it on. I'll have to shut off the whole house's water to fix that. I then rob part to get the downstairs unit working since we have an Airbnb guest staying in that part of the house and the temps have been over 90 degrees everyday. My third HVAC source was able to get me a motor and I drove 35 miles to his house where he met me (thankful). It's all working now except the faucet. So while this situation was resolved, I spent two half days on it which is delaying a remodeling job on a different property. So, yeah, sometimes life is just like that.

[Dennis M.]

Sorry your going through it . I had literally half my portfolio go vacant in the same month and messy slob turnovers won’t be cheap .. and one of my tenants tried to kill him self by jumping off my roof so he was admitted into the psych ward right before rent is due of coarse . Also I’m fighting a nasty cockroach problem thanks to tenants leaving food sit out and piles of dishes lay around .

It’s all part of the fun of this “ passive investing “ I keep reading about on here

[Nathan Gesner]

And this is why real estate investing is not a "passive" path to wealth. Even if you had a property manager handling things for you, this would involve a lot of phone calls, emails, money, and stress.

Well done, and thanks for sharing!

[Joe Splitrock]

@Anna Buffkin I am not sure if this makes you feel better, but as I read your story, I thought to myself, this sounds like a typical couple months.

I had to replace three AC units this summer, we had three tornadoes pass through town two weeks ago, we had trees down, had a leaky roof, had to replaced multiple fence sections, had a vacancy where I had to drop price, had a PVC sewer pipe that tree roots grew into (how can that even happen). In the vacancy we spent several thousand to get it rent ready and only got $90 extra rent because our market is softening. Of course despite all them money I spent this year, I will have a taxable profit come January...

This may sound bad but after a while I just feel like I am numb to problems. But to anyone who thinks real estate is passive, it is not. It can be with one property. Buy two properties and you just doubled your likelihood of problems. Buy ten and you just 10X your likelihood of problems. This is why so many people get out of rental property as fast as they get in.

Anyways, I hope your year ends on a better note. Problems seem to come in waves and there are always periods of calm.

[Jim Cummings]

@Anna Buffkin. Bravo - Bravo Anna! Much praise and glory to you for stepping up and making things happen!

[John Morgan]

@Anna Buffkin

Thanks for posting. Seems like all we read about on BP is all the home runs everyone is hitting. In the last 14 months I’ve had to replace and buy 5 HVAC units. I’ve had to repair 4 foundations (about 5k each), and evict two tenants for not not paying. Both houses were completely trashed. The typical holes punched in walls and doors and floors ruined. One tenant decided to smoke in the house non stop once he got served his eviction court papers. I repainted that whole house inside and it still smells like an ashtray. And a third tenant I inherited, had such a bad cockroach problem, I had to evict her too due to sanitary conditions. She was paying on time but the cockroaches were spilling out of everywhere..including her fridge! And I only have 7 SFRs! My 50k cash reserves got depleted quick! So it’s not all roses in this business for all of us. I’m hoping 2020 will be kinder for me, because I’ve lost my shirt in the last year or two.

[Jason Merchey]

I too am kind of stuck in a bear trap for the time being. I hope that I can access the patience and trust in my business partner required to allow the needed time to pass (before I gnaw my own leg off to free myself). Sorry for the weird metaphor. 

Bottom line is, yes, when you get involved in something with more than a 2% return, the risk rises in lockstep. Once you get up to 100% return, where this redevelopment project sits, you're talking about setbacks, overages, down time, and various frustrations. It's the big-leagues when you put your money on the line and hope to get it all to come out right. Not an easy way to make a living at times. Even one single rental house can keep you awake at night. That's why I wouldn't want to build from the ground up, especially not now in the economic cycle - too much risk, too much time. 

In the last six months, I settled three successful private loans, but I'm having to sell a condo for a net gain, but less than I bought it for ten years ago. That plus the stumbling blocks and pitfalls on the way to redeveloping a small multifamily property can really be irritating. The good times are good, and the bad times are bad! Overall, I suppose it's a pretty decent career, though.

Good luck to the OP!

[Rick Klopp]

@Anna Buffkin thanks for sharing. Whenever I run up against similar circumstances, I keep thinking of what Henry Kaiser said - “Problems are only opportunities in work clothes.” It doesn’t always help but keeps me in a positive frame of mind. Kudos to your efforts.