Lessons learned from 13 years of owning a single family home

Last week I sold an investment property I’ve owned since 2011, and boy have I learned a lot from this one. Long post below about some (probably not even all!) of the lessons.

I bought it with intent to flip it, and of course when I closed on the purchase, the numbers all worked. The renovation went mostly as planned (there are always some surprises), but I ended up painting the house myself to avoid going too far over budget. Unfortunately the market was declining at the time, and 4 months later when the renovation was completed and the home was back on the market, the next comp that closed was about 20% lower. I repeatedly dropped the price until it reached the breakeven point and still couldn’t sell it, so I rented it out.

LESSON: When buying with short-term exit plans, there is still the possibility that the market changes enough during those few months that it changes the outcome. Sometimes it’s for the better, sometimes for the worse, but either is a possibility on every deal.

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NEXT: A couple of the items at the home proved extremely difficult to get rid of. One was a dead raccoon in the backyard. I didn’t personally feel like scooping up its partially intact carcass, and any company or agency I called told me they didn’t do that and directed me to another one. I was forced to let nature take its course. Eventually the carcass became a skeleton, and frankly I can’t remember what happened with the skeleton. The other item was the trash cans left by the seller behind the house, which seemed harmless at first. Upon attempting to remove them I discovered they were insanely heavy. Turns out they were full to the top with dog poo. But I thought dog poo isn’t THAT heavy? Yes, underneath the dog poo was concrete. Two (or was it three?) trash cans filled with concrete and dog poo. Trash pickup wouldn’t take them because they were too heavy – I mean I could BARELY get them down to the curb using a dolly. Dog poo pickup people wouldn’t take them because they weren’t just dog poo (and too heavy). I think I eventually ended up paying some random person enough money to take them somewhere.

LESSON: Honestly I don’t really know. Maybe you can find the lesson here.

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NEXT: When purchasing the home I saw something I’d never seen before, which was a sump pit on the exterior of the home, in the ground, near the edge of the house. It’s weird to see a sump pit outside, but even weirder to see any kind of sump pump at a house on a slab – no basement or crawlspace. So what the heck was this sump pit doing there? Nobody knew, so we just disconnected it and went on with the project. Years later, a tenant complained about excessive moisture in the home and mold starting to grow along sections of the lower walls. After digging into the issue, I learned that the ductwork in these homes, which is run under the slab presumably on top of a gravel bed or something, is made of cardboard. Brilliant. Eventually, over the course of 60-70 years, time and water take their toll on the cardboard. If you catch it in time, there’s a company in Crete that will shoot a rubberized liner through the ducts to prevent total collapse. If you don’t catch it in time, they’re a lost cause. I had to fill them in with concrete, run ductwork along the ceilings, box it in with drywall, and replace the furnace with an updraft model. Cost a lot of money.

LESSON: If there’s a sump pump in a strange place, there’s a strange reason why it’s there. Also, collapsing corrugated sub-slab ductwork may be repairable!

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NEXT: When I first got started, I was a pretty crappy landlord/property manager. One example is that I gave tenants way too much leniency when they didn’t hold up their end of the lease. I don’t lie to people and I assume they also don’t lie, which is not true at all. So I kept buying this one tenant’s stories until eventually he was about $10k behind. I struggled to keep up with the expenses during the better part of the year he hadn’t paid, even had to pay multiple installments of property taxes using a line of credit. It took awhile to recover from that, but eventually I did.

LESSON: Real estate ownership is a business and your personal feelings and desire to see the good in people have to be largely set aside in order to operate it profitably. 

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NEXT: When my last tenants moved into the home, I accepted a calculated risk in that they were both new to the area with new jobs. Someone who’s new on the job is more likely to lose that job than someone who’s been there a long time, so I required a higher security deposit in exchange for that risk – remember that last lesson about setting personal feelings aside? Sure enough, just 60 days into the lease the higher earner lost her job. They stayed in the home another month without paying rent and then vacated. I withheld the unpaid month of rent and a handful of small damages they left, which resulted in the balance of their deposit amounting to lunch money. I sent it back to them with documentation in accordance with the lease, the law, and fair and honest business practices. They mailed me back the torn-up check with a bunch of passive-aggressive “God-bless-you”s written all over the envelope.

LESSON: When you run the business profitably, even playing by all the rules, sometimes others will blame you for things that are beyond your control. At least I didn't lose $10k this time around.

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NEXT: After the last tenant moving out and subsequently denying 4 or 5 applicants for lying on their applications and/or failing to disclose eviction history, I decided to sell the house and use the equity I’d earned over time to buy a higher-priced home in a higher-income area that would have better appreciation and easier tenant management. After listing the home, I got a call from the building department saying there was “water coming out of your house.” As it turns out, an agent showing the home must have thought the furnace power switch was a light switch (it does look like one, although it’s not near a light and no lights go on or off when flipping it) and turned it off. In the middle of a deep freeze with extreme sub-zero temperatures. A supply line in the bathroom burst and created quite a mess for me to resolve.

LESSON: Always put tape over light switches you don’t want used. It helps with keeping outdoor lights on at a vacant home, but also with your furnace not being turned off in the middle of a blizzard.

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FINALLY: It’s sold, and in less than 2 weeks I’ll be closing on the replacement property. The proceeds, which amount to a 30% down payment on a home nearly double the value of this one, were sent through a trust (1031 exchange) so that I’ll defer my depreciation recapture and capital gains tax. The next property is in an area that has appreciated by 8% over the past 2 years while the one I’m selling has been flat. Over time, the next property will contribute to my net worth much more than this one has.

LESSON: In real estate ownership, time heals all wounds. That’s one of the key tenets I teach my clients and agents about real estate investing. Even a failed fix & flip, that later incurred strange and costly repairs in several different instances, where I went into debt due to poorly managing the home, 13 years later has become a successful part of my family’s net worth story and a springboard to better opportunities. What started out looking like a loss eventually became pretty darn big win. 

On to the next!