IceCreamKid
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Thanks for the questions, @biophase and @MJ DeMarco
Here's the full story:
All of the above. It was a myriad of mistakes.How did you lose 6 figures on rental properties?
Repairs? Vacancies? How big were these properties?
Here's the full story:
- My sisters have been investing with a turnkey property management company for years and were very satisfied with them.
- Early 2020 I decided to jump in and quickly buy 10 properties in Ohio because there aren't really any deals that cash flow in California. Also spending $1.5M on a rental property in Cali scares me as opposed to 10 rental properties in Ohio.
- All of these are low end properties averaging 100-150k in price. Blue collar tenants who are very likely to be living paycheck to paycheck.
- Inflation starts to ramp up and the tenants can no longer afford rent. Multiple evictions happen at the same time.
- The property management company charges a full month of rent as commission when finding a new tenant. Then after that they charge 10%.
- New tenants come in and stop paying rent almost immediately. After they're evicted the properties are trashed with mice, cockroaches, broken windows, etc. I don't know how a property can get damaged like that so quickly. At first I thought it was just a fluke, but this pattern starts to repeat itself again and again.
- I dig deeper to find out why this is happening and it turns out the property management company sold the biz, but kept the original name since they have been around for decades. The new owners have no process for qualifying tenants. Basically if you have a pulse they'll take you in.
- I fly to Ohio to see what's happening for myself. Turns out I was paying for fake repairs that never happened and the few real repairs were charging me Cali labor rates but in Ohio. If it was a real repair, the quality of the work was terrible.
- I ate the loss and am now slowly selling off the properties. They haven't appreciated much because it's Ohio. Who wants to live out there lol
- I was too hands off with these rentals. I'm busy running a carpet cleaning biz, a software biz, and am also managing a team of tech sales folks. They say real estate is passive income, but I don't think that's entirely true unless you're investing in a REIT.
- I wish I didn't buy out of state. I'm sure there's a way to do it effectively and not get burned, but I clearly didn't do that.
- I moved too fast because I blindly relied on the fact that my sisters had been happy with them for years.
- I mistakenly focused on buying lower end properties because the calculations initially told me I'd get a higher ROI. It didn't factor in the fact that lower end tenants are more likely to stop paying rent if inflation skyrocketed.
- Turnkey properties sound nice at first, but there's no one to hold the property manager accountable. For example, the repair guys were often relatives of the property manager. Next time I'd rather build a team that holds other team members accountable.
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