As of 2018, more than 25% of rental properties sat vacant, losing money for owners.
“I spent too much time chasing tenants for rent, and being nickel-and-dimed to death for small
projects.”
CONFIDENCE RESTORED
An investor’s journey to profitability means finding a way past the bumps and bruises.
by Chris McAllister
Real Estate has always been a popular investment option. There will always be demand, especially in places like Columbus, Ohio and the Florida’s Space Coast, two markets where ROOST Real Estate is heavily involved.
There will always be homes available in slow markets. Low prices draw buyers, such as myself. But those prices come with other costs. Real Estate appeals to investors because it sounds easier than founding startups. Why work for years to build a product when you can just buy a home and start collecting rent?
That’s why Dave and Christine (not their real names) came into real estate. This is their story.
PART 1: WANTING
Dave and Christine were doing well. They were financially smart. They worked for years in dentistry, and accumulated savings. They wanted that money to work for them.
Unlike some, who bought boats or traveled compulsively, Dave and Christine wanted their savings to be productive. They debated funds and investments, but it all seemed too risky, or needed too much time to show returns.
Real estate provided quick revenue. Or so it seemed.
Real estate requires patience. Profits are not instant, and it’s better to ease in slowly. Dave and Christine dove in headfirst. The properties they bought were cheap, but came with costs that weren’t obvious. It wasn’t long before debt began piling up.
It’s easy to judge, but having been to the bottom-of-the-bottom, it’s even easier for me to sympathize. I bought more than $5 million in property from 2003 to 2005. Credit was cheap, and you can guess what happened next: the Financial Crisis. We went under. By 2008, we had accrued so much debt that I needed to declare bankruptcy.
My biggest problem: I spent too much time chasing tenants for rent, and being nickel-and-dimed to death for small projects.
I didn’t quit, because real estate is my passion, but I learned from the experience. I realized property management is key to making real estate investment work. And that’s how ROOST evolved.
Rent Excuse Quiz
Every landlord will deal with tenants who won’t pay rent. It’s not fun, but it’s necessary. It’s easy to feel bad for those who can’t afford it, but if they don’t pay you, you won’t have the money necessary to manage your own property, and you’ll end up bankrupt. Just like I did.
Not every tenant will have a heartbreaking reason why they haven’t paid, however. Some are quite absurd, to the point of hilarity. All of the options listed to the right are real-life excuses that I’ve heard when asking tenants where the rent check is…except one.
See if you can spot the one I HAVEN’T heard!
"Somebody stole my refrigerator, and I really needed the new refrigerator. Can you wait on rent?"
"I have a rare brain disease that made me forget to pay the rent. I think I deserve an exception."
"I'm not going to be able to pay the rent for September. I'm going to prison, and it turns out you pay rent on that too."
"I know it sounds like a cliché but I'm totally serious: My dog ate my rent money."
Polls indicate that 31% of property investors cite maintenance issues as their biggest
“I’ve been in the same position. I felt shame looking at my mess. I felt stupid. I thought about pulling the plug, hiding my shame instead of trying again.”
PART 2: STRUGGLING
We should throw Dave and Christine a bone: They realized they needed a property manager, especially because they didn’t live in Ohio. They discussed the situation with a contractor who was handling several projects for them. He offered to handle maintenance, collect rent, and even advertise the properties. They loved the idea. Almost too good to be true.
Definitely too good to be true.
Months passed, and problems didn’t disappear. Rent was collected, at least from tenants who paid on time. Less than half of their properties even had tenants. What little revenue they made back, and then some, to the contractor as he made repairs. Dave and Christine consulted their accountant. They were headed toward the same low point I found during 2008.
Their investment was a black hole, but their bank statements were red. Finally, they took action, letting this continue would have permanent consequences.
Dave and Christine had acquired 70 properties by the time they came to ROOST, and few were producing revenue. They discovered the “property manager”s tenant-recruitment process was lazy, and his enforcement of payment almost nonexistent. The fees he charged for work as a contractor made up for what he lost by not attracting new tenants, or from not collecting delinquent rent.
Why did I put “property manager” in quotation marks? Because he wasn’t one. Property management requires license in Ohio. Not only was his work shoddy, it was totally illegal. If Dave and Christine chose to prosecute, the state could have fined him more than $100,000. So why didn’t Dave and Christine hit him hard?
Maybe it’s because they’re generous people (and they are). But another factor is the intense shame they felt.
“Give it to me straight,” David asked. “Is there any hope, or are we better off cutting our losses?”
“I don’t think it’s worth quitting,” I responded. “It’s not going to be an overnight job, but it’s salvageable.”
“I don’t know,” he replied. “I’m just so embarrassed. It feels like such a mess. I don’t know if I’m cut out for this sort of investment.”
“I can only tell you this,” I said. “I’ve been in the same position. I felt shame looking at my mess. I felt bamboozled, and then I felt stupid. I thought about pulling the plug, hiding my shame instead of trying again. Obviously I found there was life after bankruptcy.”
I laughed, and so did he. Dave called me back the next day and ROOST took them as clients.
PART 3: LEARNING
I had been in their position, and because I had struggled with the same issues, I knew how to pull Dave and Christine out. That’s also how I came to develop the ROOST Landlord Advantage™.
Property management isn’t always a pretty job, and that’s why people feel uncomfortable doing it right. For example, the first thing ROOST did was look at collection records, offer delinquent tenants one last chance, and then evict those who didn’t pay. It’s not pleasant, and I don’t enjoy it. But once you remove irresponsible tenants, you can focus on growth.
I’d rather not evict anyone, so ROOST starts with a tougher tenant-selection process, including credit checks and references. Dave and Christine were eager to fill their homes, but they understood why ROOST did such thorough work recruiting tenants. We wanted to eliminate risk upfront.
Properties started filling slowly, but surely. Many of the homes still needed work and maintenance. We helped Dave and Cindy prioritize fixes, and soon we were accelerating through the list. Where did the extra budget come from? Turns out their contractor “friend” had been nickel-and-diming them. Something as simple as getting multiple quotes made repairs more affordable.
I didn’t lecture them. Heck, I laughed. I knew exactly how it was! I made those same mistakes!
Don’t get me wrong: The first few months with ROOST weren’t easy. Real estate investment is never easy; there will always be ups-and-downs. When you start as far back as Dave and Christine were? Things are going to start rough.
Sure enough, units found tenants…some for the first time. Rent began to come in reliably. It once seemed impossible…but things were changing. For the first time, a profit.
The average cost to the owner of evicting a delinquent tenant comes out as $3,500, in the form of legal fees, lost rent, and marketing to new tenants.
“Real estate investment is never easy; there will be always ups-and-downs.”
I created The ROOST Landlord Advantage™ with goal of keeping investors safe from the same traps I fell into as a rookie landlord.
“All the money in the world doesn’t mean anything in real estate if you don’t have confidence.“
PART 4: SUCCEEDING
Years passed and Dave and Christine kept moving forward. I bumped into them during an event we host at a local pumpkin patch. The temperature was cool, but Dave’s voice was warm.
“You know, a few years ago, the only people who wanted to rent our places were Halloween ghosts,” he chuckled. “Seriously though, thanks for all you’ve done. We feel comfortable financially and, more importantly, confident that we made the right investment.”
“Happy to help! Bankruptcy was the worst that’s ever happened to me, and I don’t like seeing other people struggle,” I said, before winking. “I evicted those skeletons from my closet when I got into property management.”
They laughed. “We’re actually looking for new property,” Christine said. “We were hoping you could find some time this week to show us what you’ve got on Roost Real Estate’s Realtor side?”
All the money in the world doesn’t mean anything in real estate if you don’t have confidence. I want your bank account to look healthy, but more importantly, I want you to trust yourself…that you’re making the right investment.
Dave and Christine were one of the most dramatic cases ROOST has worked with, but they weren’t the first. Sometimes it’s full-time landlords. Sometimes it’s someone who has a few homes or an apartment complex. Or even someone who has inherited a home and hasn’t been able to sell it…an “accidental landlord.”
Dave and Christine inspired me. It wasn’t because they screwed up—it was because they hadn’t done anything terribly wrong. They did the right thing by hiring a property manager, but got ripped off.
Just like I once did.
I couldn’t help everyone, however. My goal to spread the ROOST Landlord Advantage inspired me to write a book. Hopefully it’s helped readers transition into Real Estate investment, but it helped me too. It helped me confirm my passion for real estate.
There’s a mystique to the “zero-to-millionaire” real estate investor narrative. Probably because it never happens. If you’re hoping to take a bare-bones approach to real estate, please reconsider for your own sake. If you’re working constantly for your properties, they probably aren’t working for you. They might even lead to bankruptcy and debt. Just ask Chris McAllister, circa 2008.
But it’s never too late. Just ask Dave and Christine, circa 2019.
Let’s work together
What to expect on Day 1:
No matter where you are in the real estate investment process, the ROOST Landlord Advantage can help you improve your performance and profitability.
To learn more about efficient property management, click here and get a free copy of my book, Make Your Real Estate Work for You: The Eight Mindsets You Need to Increase Your Cash Flow.
Reach out and I’ll be happy to provide a free estimate for services at the properties you own…and more importantly, how much you’ll save by not doing it on your own.
