Lesson Learned – No More Long Distance Landlording
Awhile back I wrote about firing our property manager in Indianapolis. Well things turned out to be worse than I expected. Here’s what happened…
The previous tenant had called the health department as retaliation when we filed for eviction. At that point the health department ordered a bunch of repairs. I’ve got no problem with this, because I’m in agreement with the health department that a property should be kept up to a reasonable level for the renters. Unfortunately the previous property manager must not have felt that way. In 3 short years the manager and tenants had let this property go from freshly rehabbed to rather dumpy. It also didn’t help that the rehabber did a lot of poor quality work when he did the rehab. The difficulty with the health department though is they require repairs to be done within a timeline, or they start writing fines. As you can imagine, this makes for a nightmare when you are 350 miles away.
The new property management company we lined up was willing to take on the repairs and get things back into good condition to attract quality renters and satisfy the health department. Although, the work they recommended doing was $10,000 – $15,000, ouch! I have no doubt that a quality rehab, a good property manager, and decent tenants would have turned this property around for some good cashflow. Although, It would have taken several years of cashflow just to recoup the cost of repairs.
We were extremely tempted to fix the property back up and give this a second try so that we didn’t have to admit our mistakes and sell the property for a loss. Real Estate Investing is kind of like the stock market, even if you have negative equity, you don’t take a loss unless you actually sell for that negative value. Although, we kept asking ourselves, if we didn’t already own this property would we buy it again? Our answer was continuously, no. It’s not worth keeping a property that has been a loss 3 years in a row. We decided to unload it, take the loss, and get our focus back to the profitable parts of our business.
We talked to a couple fellow Keller Williams agents, and listed the property for sale at a very aggressive price. Within 2 weeks, we had a cash offer and closed on the sale about two weeks later. This was a big blow financially, because we had to spend a significant chunk of change just to get the deal closed. Although, it’s a big stress relief just to have the property gone, and one less headache.
I’ll admit the easier thing to do probably would have been just to throw in the towel, walk away from this property, and let the bank take it back. Although, I’ve written in the past that I think it’s unethical to walk away from a mortgage just because it’s convenient for your financial situation. In my mind foreclosures and short sales should only be a last resort if you can’t make the payments. We were very capable of making the payments, and selling it for a big loss was doable, but very uncomfortable. So, we decided to maintain our integrity, suck it up, and pay the difference in offer price vs mortgage balance.
In any case, this whole deal was a big learning experience, and we are grateful we had the means to get out of a losing property. We will never again purchase an income property more than an hour from home. I would urge other investors to think twice about doing this as well. This property by the numbers should have been our best performer, but it ended up being our worst. One of my 5 rules of investing is maintaining control, and I failed at that on this one. You lose a lot of control when you are dealing with things from a distance, and you really have to trust the people handling things for you. We look forward to getting our focus back to our real estate sales business and our rental properties that our performing well here in the Madison area.
Lastly, I’m not going to publicly bash anyone, but if any investors are considering a long distance investment property, I’d be happy to share more about my experience, and who not to work with.