The Beauty — and The Beast — of real estate investing

It is over. Finally. Blessedly. Wonderfully over. The close – my third attempt at it – alas actually closed, on the date it was supposed to close. Remarkable thing, really.

My first foray into real estate has seen its first successful exit. Sort of. It wasn’t the massive wealth generator it might appear to be on paper: I bought the house, a three bed, one bath fixer-upper in Memphis, Tennessee for $27,000, fixed it up, rented it out, and sold it for $60,050. It wasn’t as easy as Robert Kiyosaki made it seem in his book, Rich Dad, Poor Dad, in which he sums up real estate investing as, more or less: buy the asset, collect the rent, repeat.

There was some of that, to be sure. And that is the case of my other house, another cheap property in Memphis which I also bought for less than $30,000. A little less than two years ago, while COVID hampered my ability to do my job of writing about beach volleyball, seeing as there was no beach volleyball about which to write, I plunged into the waters of personal finance, researching at length how to begin building passive income streams.

Real estate was a unanimous theme.

After structuring a somewhat amicable buyout with one of my long-term freelance contracts, I had more money than I really knew what to do with. Money that I could invest that could theoretically, in return, begin making me money.

Passive income.  

To real estate I went.

This is the dichotomous story of two houses, one we’ll name Beauty, one we’ll name the Beast, for reasons that will quickly become obvious.

It was easy at first. Pretty much exactly what Kiyosaki mentioned: Buy the house, rent it out, collect the rent. Passive income, baby. With the help of a good friend and mentor who prefers to remain anonymous, I had bought the houses cash, so there was no mortgage on the properties. Investors are torn on the cash vs. finance purchases, but I like, at the moment anyway, the all-cash deals. You stay free of debt. They make for faster closing, and the only liabilities are the property taxes and insurance, which came in handy during COVID, when tenants struggled to pay rent, and when I had a several-month turnover in the Beast after we had to evict The Beast Tenant.   

I say “we” here because, after just one month of attempting to landlord the property myself, from thousands of miles away, I decided to retire early in my career of landlording and pass the onus onto a property management company. It was the best decision – and best 10 percent – I’ve made in investing yet.

Prior to passing the landlording burden over to my property manager, I was getting at least one call a day from The Beast Tenant, asking to fix this or that, asking for a delay on rent payments, asking for something. I’ve come to learn that this is relatively common when investing in new properties: the tenant sees an opportunity to squeeze as much as he or she can out of the new owner; the new owner generally complies to keep tenants happy. They say happy wife, happy life, but happy tenants make for a pretty happy life, too. It’s smart, honestly, and I can’t blame them for it. And, to Beast Tenant’s credit, I complied, fixing everything that was requested, even when it wasn’t on me to do so, and giving Tenant a wide berth for rent, an enormous no-no.

Alas, the calls became too much, especially when the beach volleyball season picked up again and I began traveling internationally. I hired a property manager, agreed to pay them 10 percent of the rent payments for both Beauty and the Beast, and never fielded another call again.

It was beautiful.

What was not beautiful, however, is what happened over the ensuing seven months. After evicting the first tenant for missing several months of rent, we placed a new tenant in The Beast, though it wasn’t much of an improvement. After pouring in $14,000 of rehab, the tenant still found a way to break something or other in the property. There was not a single month that didn’t require some type of repair. By December, the repairs ballooned north of $26,000 – nearly as much as I paid for the property itself!

Meanwhile, rent typically came in late, and when it did, it usually wasn’t for the full amount.

As for the Beauty? What a Beaut she is. Sometimes I go to look at the spreadsheet just to make my heart happy, for there is only ever two lines every month: $735 rent coming in, $73.5 going out to the property manager.

Every. Single. Month.

It’s wonderful.

With the direction The Beast was going, I didn’t see any light at the end of the proverbial tunnel. It would never transition into a Beauty. Things only continued to worsen. So I called my real estate agent, asked what kind of price it could fetch. With the amount of rehab we had put into the property, he estimated it could go for around $70,000. Even with all the issues, that would still make for a decent profit, and if there’s an excellent way to learn — that was also largely the intent, as well as making money — it’s by going all in on an investment and still come out ahead. Minimal profits, sure, but manifold lessons learned.

On the market it went.

Within four days, we had The Beast under contract for just a tiny less than asking price. Cash buyer. Easy close, set for mid-October, while I was in Bulgaria.

He backed out. Saw the way the tenant was treating the property and ghosted. Smart man.

Within a week, though, we had another offer. This came in a little less than the first but still enough to make a profit and rid me of The Beast.

When the inspection came in, he spooked, noticing that there was no heat in the house, that the tenant – I kid you not – was attempting to heat it with a blow dryer. Why was Tenant heating the house with a blow dryer, you ask? Why hadn’t Tenant called it into the property management company to fix it, as Tenant had with so many other issues?

I’ll never know, but when we did send someone in to fix the problem, there was no problem at all. The heat was simply set to vacation mode. Tenant hadn’t turned it on.

This was enough to spook our second buyer as well.

Alas came buyer No. 3, with an offer well below asking — $60,000 – but still enough to make a profit. We countered at $63,000 and they took it. The house that was initially set to close on October 15 was now scheduled for January 13, nearly $10,000 below our initial contract.

But, after a few more fixes, it closed.

It closed, for heaven’s sake, it closed.

Elation.

After closing costs and taxes, the profit on the sale amounted to a whopping $238.19 – less than half of the income generated every month from the Beauty.

You might think, after all that mess – and, honestly, you don’t know the half of it, what with the eviction, the rehab, and everything in between – that I’d regret ever buying the Beast. I don’t. You could take a bunch of real estate classes or read a bunch of books – I have – or listen to dozens of real estate podcasts – done that, too, and I cannot recommend Bigger Pockets enough – but there is no amount of education that will teach you like doing it yourself, and still coming out a tiny bit ahead.

You learn the language. Begin running numbers automatically. Discovering what types of deals and properties you like, where to invest and where not to invest, what potential issues lay on the horizon and how to solve them, or at least prepare for them. You get a realistic depiction of what real estate investing is like, and, let me assure you, it’s not the easy road Kiyosaki laid out in Rich Dad, Poor Dad, although I must admit that the Beauty sure does meet his description.

You also might think that, given that mess, I’d stay out of the game for a bit. Maybe get into less volatile investments.

Not at all.

I just put in an offer on another.