Monday, November 21, 2016

What Went Right (the Big Picture)

I tend to write more about what goes wrong in our accidental business because, let's face it, it is less boring. But today I wanted to take a moment to discuss what went right.

1. I surrounded myself with quality people. It took a while, but I could see positive changes when I did so. For example, I had the wrong real estate agent for a long time. I wanted to be loyal, because she was loyal to me. But I realized at one point she wasn't a good fit. So, I found someone who was: Jack. Jack was a great fit at the time for many reasons. First, he understood investing the way the Rajun Cajun never did or would. Second, he set boundaries with me I didn't even know I needed. I appreciate all the Rajun Cajun did to help me (and she was paid for her assistance), but I would have handled those chores myself or found people who could help me if Jack hadn't told me upfront what his expectations were.

1.1 I also found someone who would help with the daily boots on the ground kind of work. I owe a great deal of gratitude to Carolsue for this. Thank you my friend.

2. I (finally) hired a property management company. In all fairness, when the market changed in 2008 and I saw that our business model was changing to rentals instead of to a REIT, I fought for a property management company. Mr. Ex-Partner didn't want to spend the money on having someone else manage our homes, after all, he had me. Marty--and I am not being unkind, just stating the facts--didn't realize how stressful managing a gazillion homes was on me and the toll it was taking on my health. After a surgery in 2009 to fix something in me that was caused by stress, he started to come around. But if the truth be told, I just went out and got a property management company. When I did it, I didn't ask permission. Nor am I sorry.

3. I figured out what good tenants looked like. Granted, this was a direct correlation from experiencing bad tenants. But once I got rid of the Waywards, Mrs. 508s and Mr. Smiths of the world, I became more selective. Carolsue's input was invaluable. Though I didn't always listen to her, she was right about folks more often than not. Please understand, there is a huge difference between "bad tenant" and "obnoxious tenant." I had several obnoxious tenants you are more than welcome to read about in the archives of this ole' blog. But obnoxious people having personal problems that trickle down to their landlord is very different than just downright bad people renting my homes.

4. I knew when to get out. However, I couldn't convince our three partners (Marty and the Ex-Partners) I was right. I take a smug satisfactions in knowing this. But an, "I told you so!" doesn't get me anywhere.

5. We started buying homes in the right neighborhoods. If I had to do it all again, I can think of four properties Rajun Cajun advised us about and encouraged us to buy that I wouldn't touch again. The "right homes" we bought were always winners. The "wrong homes" we bought were always losers.

6. The education I got from this experience is invaluable. It is also intrinsic. There is no way to cover all I have learned, such as conducting business in the South--another culture--managing a company, forecasting, talking with investors, lawyers and banks, and lots of other things my college degree touched but didn't really do justice. I remember meeting with a group of investors, me the Yankee, them the Southern boys. I felt awkward and inadequate stumbling through my presentation (that I had practiced for weeks leading up to that moment). When I was done, I answered questions and got the approval and agreement for funding I was looking for. I was floored. I had taken a big step in growing our business. Of course, this was late 2007/early 2008, so the rest didn't go the way I hoped, but I wouldn't be afraid to do that kind of thing again if I had to.

7. Speaking of not being afraid, I would start another business. I would invest again and probably will in the future. Next time I hope what I have gained from this experience has a better outcome.

Sunday, November 20, 2016

Lessons Learned

I have spent a lot of time thinking of what we did right and wrong in our accidental business. I have been doing this because, right now, I have a lot of time to think. There are many mistakes, that if I could take back, probably would still lead me to this moment in time. I am finally at peace that I have done all I could. Of course, if we hadn't invested in Alabama in the first place... No. If I had continued to invest in Arizona real estate, I believe I would have had the same outcome--but maybe with twice the work because I never would have been able to hire a property management company to run things.

That said, this post is not about what I did, or did not do, right or wrong. But what happened outside of my scope of influence. I realize I bought the houses, picked the tenants and managed everything. That's on me. And if I ever take on something like this again, I promise I have a better understanding of what to do. But before I invest again, perhaps I will get a time machine and see what the world looks like 10+ years from now.

We invested in homes in Alabama starting in 2003 for two reasons. First, there was a significant shortage of rental homes in the Birmingham area and an overflow of eligible renters. When I realized this, it blew me away. In fact, one time I advertised for renters in the Birmingham Sunday paper--before buying the house--and the Rajun Cajun called me at 8 a.m. on a Sunday morning and told me her voice mail box was full of expectant tenants and exactly what was my plan here? Because I had a Phoenix mentality, I figured I would get one or two potential renters by advertising in the paper, let them find the house I could buy and be on my merry way. I ended up buying eight homes within a six month period. All based on one Sunday ad.

The other reason we invested in Alabama was that we could buy a rental home in the Phoenix metro area at the time for $200,000 and rent it out for $800 a month. We bought our first home (the one in Leeds) for $75,000 and rented it out for $950. So, it made sense in 2004 to 2006 to sell my Arizona homes and invest in Birmingham. Because money was cheap to come by, we didn't pay cash for our homes, but financed them. That gave us the buying power to pick up a gazillion properties all at once. After all, the market was booming. Prices would go up, right?

It wasn't just that we had illusions of grandeur. The banks believed in us. The tenants believed in us. Investors--I mean big money investors with millions to spend--believed in us. Even the SEC attorneys I visited in early 2008 thought our business model was spot on. By then we had four years of success. Our financial statements rocked. Our bank accounts looked great.

However, there were a couple of items that changed the landscape in Birmingham. The first one was the wave of hurricanes that blew through the South (that's for you, Alec). There was Charlie. Wilma. Irving. Katrina. All of these brought in the displaced to Birmingham, a land-locked city. At the time, there was work in Birmingham. Savvy investors, realizing these folks were desperate for a place to live, were buying up homes everywhere, even in the questionable parts of town.

Also, around this time the economy was on a spiral into the abyss. People who had less capital than I started loosing their homes. And what did the investors do? They bought smart. The same home I may have paid $130,000 for was for sale on each side of my rental for $30,000. When the investors purchased these properties, they were asking $600/month for rent. I was asking--and needing--$1,000.

Then when the economy tanked, Birmingham was hit hard. One of the main employers in the area, the iron industry, closed down. This affected the Honda and Mercedes plant, which also drew in a lot of workers into the area. Government programs, such as Section 8 housing, came to the rescue. Most people who rent in Jefferson County right now are on Section 8 vouchers. It is the culture in Birmingham. Last I looked, Birmingham had more than double-digit unemployment, with a good portion of its citizens just living off the dole.

And because a good chunk of the population cannot find jobs (or want to find jobs), what happened to the tax base in Jefferson County? I am so glad you asked. Regular resources such as fire, schools, police and the like have been seriously hurt. Those who can are moving to the suburbs. I have homes in the suburbs too. Those who live in the suburbs weren't immune to the failing quality of life. They just cared more and want better schools for their kids. I had a long-time renter who had worked in management for the same grocery chain for 20+ years. He, his wife and two kids lived in one of our priciest homes. When the grocery chain closed down, he was out of work. They left to live with family, giving me an empty home that cost more than most of my other properties. The house is nice, but it was still hit by the down market.

And remember how all those investors were scooping up homes for the displaced in the questionable parts of town? They lost those properties too. And then those neighborhoods became ghettos. Here is a home currently for sale. It is priced high for this neighborhood. Last time I was in Birmingham, I saw multiple homes with plywood across where the windows used to be with spray painted "For Sale: $,2000 OBO As-Is"). No, that price is not missing a zero or two. Essentially, Birmingham is becoming the next Detroit. There are currently more than 2,000 homes slated for destruction because the city has condemned them. However, the city only levels about 10 houses a year. They don't have the resources.

Knowing what I know now, I would like to think I could have predicted better. But probably not.

Thursday, November 17, 2016

Bending Water

I will spare you all the details about how insufferable Mitch and Tanya's tenants happen to be. Except, for this tidbit.

Apparently Mike was unhappy the other day. You see the sprinklers in front of their townhome--on common ground, that is not owed by Mitch and Tanya--were going off "for a long time." Mike's solution as the dutiful tenant was to bitterly complain to their landlords, expecting them to single-handedly stop everything they are doing and force the sprinkler to stop. I guess.

Now please understand, there is grass outside. It needs to be watered. It is watered on a daily basis. But for some reason, this and only this sprinkler's timer apparently malfunctioned, though every other sprinkler on this watering system works just fine. A fluke of nature or a botched terrorism attempt perhaps? Either way, there seems to be some conspiracy against these tenants to make their lives a living hell.

Sadly, poor Tanya was stuck with the unfortunate task of having to discuss the entire Sprinkler Fiasco of 2016 Mike the Bombastic Jerk (that is his given Christian name I am sure). His complaint was water from the sprinkler is coming through into their garage and Mike, if he were to go near the water might--and I am not making this up--"get wet." Though, I have to tell you, I have no idea how this is even possible. In this case, you see, the sprinkler is at point Q. The garage is at point X. Unless there is some significant wind coming from the Southwest that can magically make water go around the side of a building, I am not sure how to even compute this as a reality. Never mind the fact that the garage door is closed, sealed and water has never in the past managed to rush into the garage when the sprinklers went off.

My true advice to Mitch and Tanya was to give him the number of the management company that handles the yard maintenance. Let the tenants deal with it and make themselves a nuisance to some naive administrative assistant who will answer Mike's phone calls. I also suggested to Mitch and Tanya they are at a point where everything from these yahoo tenants should come as written communication because Mike and Pam seem to be looking for a reason to break their lease.

Tuesday, November 15, 2016

Our New Reality

Closing our accidental business is a relief yet to come. Frankly, the process just downright sucks. It isn't the emotional aspect of the entire thing. Because, I can honestly say, I am totally over Alabama. There are no more tears.

What does get to me is the actual day to day garbage that is a result of closing our accidental business. When you spiral from 800+ to a negative FICO score in the course of a few months, life changes. It isn't that we need credit right now, because that isn't an issue. But we have a lot more hassles in our life and a lot less freedom that comes with garbage credit.

For example. I need to book a hotel room in advance for a place far away. In the past, I would have used a credit card. Unfortunately Visa/Master Card/American Express now feel I cannot be trusted with a credit card (even though my now-former card had no balance on it before they took it away). Instead, I will have to use a debit card and have the hotel company hold a portion of my checking account hostage.

There are lots of stories in my life like this now. It is a new part of our life. I understand that. I am not big on change. Nor am I big on jumping through hoops. However, both are the new reality for us.

Wednesday, November 02, 2016

The Renters From Yuma

I know you three have read versions of this in my archives, but apparently everyone didn't get the memo of how to be a good tenant. After a lovely talk with Tonya yesterday (of Mitch and Tonya, the wonderful landlords and even more awesome friends, whom have made this blog a time or two), I was blessed with this particular blog fodder.

Mitch and Tonya have the Renters from Yuma. Yes, Yuma. It is South of here and often has the hottest temperatures in the US, when Death Valley, CA and Gila Bend, AZ want a reprieve from this particular title. Their tenants are a retired couple who apparently think Mitch and Tonya are offering concierge service. The home in question is a townhome, with a two car garage and unassigned community parking spots on the street.

And may I remind you, in the Phoenix metro area, rental homes are in such hot demand that even if you have 700+ credit, a job making $100k+, a squeaky clean background and own a lawn mower, you aren't necessarily going to get the rental home you put an application in on. Why? Because there are five applicants with the above credentials all competing for the same home.

But Pam and Mike don't seem to appreciate the fact they have a place to live. For example, they have a slight annoyance that is out of their landlord's scope of influence. Normally, sane people would just solve this issue themselves or learn to live with something that truly isn't any of their business.

In the case of Pam and Mike, there is a car parked in front of their home in the community parking area. It isn't doing anything. Nobody knows if it is abandoned (even Pam and Mike). But it bothers Pam because she has to--and I am not making this up--"look at it." It bothers her so much that she told her cousin (who is the one who referred Pam to me) and asked me to do something about it. I relayed, "Call the City and report it if it is a big deal." But nobody listened to me.

What did Pam do? She whined to Tonya. The car was parked in a legal parking space. Though it doesn't appear to be abandoned, it has been parked there more or less for weeks. Nobody knows if it is someone who works nights, and sleeps days who may come and go when Pam isn't paying attention. Nobody knows if there is a dead body in the car. It is just a car in a legal spot--just like lots of other cars parked in legal spots throughout that particular community that aren't in Pam's line of sight.

Apparently Pam wants Mitch and Tonya to wave their magic landlord wand and make it disappear. Mitch did contact the homeowner's association and mention it. What did he get for his efforts? Another bitchy note from Pam, stating the car is still there.

Additionally, Pam and Mike don't seem to understand renting isn't permanent. It is for right now, not forever. Mitch and Tonya have a really nice rental home. They have taken care of it. Between tenants they have replaced all sorts of things, like the pottys. They have repainted. They have even--and this blows me away--epoxied the garage floor. After the tenants moved in, Mitch and Tonya even bought a new dryer for these two.

When Mitch and Tonya went to visit recently (mind you, they live out of state), Mike and Pam drug Mitch and Tonya through the house pointing out all of the issues with the home. It needed touch up paint (it didn't when they moved in). The (brand new) pottys are "garbage" and need to be replaced. The new dryer makes it hard to close the laundry room door and by the way, the washer is "old."

And oh yes! The room Mike and Pam WANT to sleep in is "too hot." By the way, this is not the master bedroom. Just a random bedroom in the home that happens to be west-facing and upstairs. The master bedroom is downstairs and not too hot. And just so we are clear, Pam and Mike knew exactly where the master bedroom was and which bedrooms faced the west prior to them moving in. But as far as these tenants are concerned Mitch and Tonya need to adjust the position of the sun for the sole purpose of their tenant's comfort.

If Pam and Mike are unhappy, they have another nine months on their lease. Perhaps they can either 1) break the lease and find another place they will like even less three months into their next lease or 2) buy a home where they have nobody to whine to but themselves. If they decide to break their lease, there isn't a landlord alive who will rent to them in this market. Landlords don't have to rent to tenants who have already stuck it to another owner. There are enough applicants out there who do honor them wanting homes. And, if they decide to buy, good luck to the real estate agent who wants to deal with them. I suspect they will also be the Buyers from Yuma.

Thursday, October 27, 2016

The Great Leeds Inferno

So, Carolsue sends me an e-mail link yesterday to a wildfire burning out of control in Alabama. She wrote, "Is this close to your home in Leeds?"

Nope. I don't have a home in Leeds.

Let's hope Mr. Ex-Partner has fire insurance.

I did just check, the fire is now contained. It did not burn any structures. And it would have had to go about a mile South and passed through several neighborhoods prior to getting my now-former home. 

Tuesday, October 25, 2016

Ok, I'm A Little Crazy

Mr. Ex-Partner e-mailed me today. He wanted Legal Owl's information. He did not ask for an introduction. I did not offer one either.

Though this may seem mundane, I have to tell you, it is about once a week Mr. Ex-Partner asks me for something I have already given him. In this case, I knew darn well he had Legal Owl's information. I know he has e-mailed her last summer (because he cc'd me). And I legitimately believe he doesn't realize he has this information.

He also doesn't believe he has the financials for the first and second quarter of 2015. He does--and so does his accountant because he filed his 2015 taxes earlier this year. He misplaced Mario's phone number at one point--though he e-mailed me for it, and cc'd Mario. I am sure if he just Googled Mario's name or company he could have found it quicker. And the list goes on. Even with my zen filing methods I am better organized than this.

Sometimes when he sends me an e-mail asking for what I know I have given him I just reforward the last e-mail with the information once again. At first, he was humble and contrite, thanking me and acknowledging that he probably should have looked on his own. Lately however, he doesn't respond. Which is ok. I don't take it personally. It gives me blog fodder, no matter how mundane.

When I was writing our dissolution agreement, Mr. Ex Partner wanted me to put in the document about how I would be of "assistance" to the Ex-Partners in perpetuity. I promise, that clause isn't in there because I am not crazy.