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Monday, July 21, 2008

Rental #1 Has Been Sold

Well, in a rather depressing turn of events, Rental #1 closed escrow last Monday and I sold it for a loss. I haven't run the exact numbers yet, but it looks like I lost about $30,000 on the deal. As always, the last day of escrow was not without its drama. This time, I got a call saying the escrow company had not received my funds that I had to wire to them to make up the difference between what was owed and what I sold it for. Those funds were wired the previous Friday. At the time, I was in Las Vegas, so I had none of my paperwork with me. I called my bank and was told the wire did indeed go out on Friday. I then called the escrow company back and before I could give them my news, they told me they did in fact, have my funds. I guess the escrow officer who was handling my case was gone that day, so someone else had to step in.

Some final items still remain to be taken care of: I called my insurance agent today and told him I sold the property. My insurance coverage will be canceled effective last Monday and I'll be getting a refund of the unused premium. I also contacted my management company. To date, I have not received any kind of statement or receipts for charges incurred. I sent them $3,000 to handle some repairs and management fees two months ago. I asked them for an accounting of all expenses and a refund of the unused funds. They said they are working on that and need to wait to make sure all the bills are paid. Truthfully, I should have been asking for this after the first month, but I knew I was selling the place soon, so I let it slide for a month.

So, what lessons did I learn from all this? Several.

  1. The adage is true: Real estate is all about location, location, location. I did not make a trip out to visit this property before I bought it. I relied on another person's opinion and since that person was the seller, there was an obvious bias. Because she got it rented quickly, I assumed I would be able to do the same when it came time for the next tenant. I did not know the property was in gang territory and would be difficult to rent.
  2. I assumed the seller, who rehabbed this property and several others, worked the same way I worked - namely, that she had a professional inspection performed in order to see what needed to be repaired. This is what I have done on all the properties I rehabbed. I looked back through all the documentation the seller provided to me and I did not get an inspection report. Nor did I have one performed before or after I bought the place. Shame on me. Again, I assumed the seller did this and her rehab would have fixed whatever turned up on the report, especially since her husband is a contractor. The problem with the roof would have either been fixed or at least brought to my attention had this been the case. I did find the seller's disclosure statement and she indicated she knew of no problems with the roof and no repairs to it had been done under her ownership.
  3. Property management companies are a mixed blessing. On the one hand, they free up your time by managing your property for you. On the other hand, they won't do anywhere near as good a job as you would. Obviously, each company is different, but it seems property management companies don't work too hard to find tenants for your property, especially if you only have one single family home listed with them. Nor do they seem to care about the condition of your property. Of course, I am sure there are exceptions to these trends, but they are probably hard companies to find.
  4. The declining real estate market hurt the resale value. While the property location is likely the main cause for my loss, the collapse of the real estate market did not help me when I needed to sell quickly.
I think this will be my last investment in single family homes. Not because I lost money - if you invest enough, that's bound to happen at some time. Several months ago, I decided that multi-units are the way to go with REI. You don't have to worry about the income dropping to zero when a tenant moves out. You'll get better service from a property management company. You can get into bigger deals if you partner with others and can leverage their experience and learn from it. The benefits of multi-units are too great to overlook. And in related news, I just got the first month's financials from my investment in Multi #1. More details on that later.

But just to end things on a positive note, while I was in Las Vegas, I did do some winning. About 15 minutes after I sat down on my first day, I got this:




The rest of the day, I kept getting screens like this:



At the end of the first day, I was up about $1,600. Of course, I gave it all back, but it sure was fun!

6 comments:

Anonymous said...

Sorry to hear you lost money on this deal but on another note, I completely agree with the economics of the multi-unit property approach. Good luck ahead. I've learned a lot from your posts/experiences. Thanks.

Starsky said...

Shaun,
Congrats on finally selling that dog of a property. Losing 30K is a tough lesson to learn. A few things I noticed is that the "seller" has been no where to be found on your blog since this started to go downhill, why is that? That link to the "sellers" blog that used to be here is also MIA?? Doug O is also MIA? All the cheerleaders of that great deal are all gone or refusing to comment.

Initially when I first read of that deal, I was just trying give a different opinion that everyone else's rah rah rah go team go support. Looking at those numbers reflected a loser. But you shot me down like i was insulting you personally-which i was not.

Oh well, thats water under the bridge. Hopefully your future endeavors will cover that 30K loss.

Later
Starky

Shaun said...

The link was removed because of her relationship to my old property manager, whom I told about my blog. The PM did not know she also had a blog and I was attempting to respect her privacy. As for where everyone else went, I can't speak for them. I still think the deal was worth doing provided I could have kept the place rented. The problem was the location prevented keeping the property rented out. I was and still am perfectly happy with the cashflow and ROI it generated while rented. If another deal came up with the same numbers, I would do it again, provided it was in a good area.

Steve said...

That bites, Shaun. But at least its over and done with. I agree in your next post about MF's. Unfortunately, in my area they are few and far between, and if you can find one it's usually well overpriced. Instead, I'm focused on some other endeavors that have taken me off blogging for some time now. I still have House #1 as it is still providing some decent CF, but looking more into creating web-based businesses as well as some other side projects. As the old adage says, nobody has gotten and stayed rich without enduring failure.

Kenric said...

That sucks Shaun, hopefully we'll have better luck in the MF's. The numbers look pretty good, in fact they look almost unbelievable if you do a CAP rate calc. We probably can't believe the 1st month's numbers.

Where did you find those 96 video poker games?

Shaun said...

Yeah, the first month's numbers are misleading. Not many bills coming in yet.

The 9/6 machines were the progressive machines at the Wynn. Actually, most of the poker machines at the Wynn were pretty good. We played (and stayed) there the whole trip except for one brief foray across the street to the Palazzo. We were unimpressed with the Palazzo - it seemed unfinished. Very boring architecture. And everyone we dealt with there was either unfriendly, disinterested, or flat out rude. We played blackjack there and had two dealers, both of whom didn't say a word and were more interested at looking around the casino than at the table. It's very hard to find a nicer casino than the Wynn, in my opinion.

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