Equity

I was chatting a bit with a friend about the joys of property management - repairs, late rents, vacancy, etc. Some call it sweat equity, but he called it swear equity. Yes. Yes it is.

Just thought I'd share that with you. It makes me smile as I scrub crud off the walls of vacant suites.

Swear equity. :)

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The Next Level

Ready to head for the next level, we began looking for properties. The plan was to own as many multi-family units as we could buy. The plan was financial freedom. I could just picture it – neither of us would need a job, we could travel, be debt-free, and enjoy this residual passive income for the rest of our lives. It was a good plan. Or, so I thought.

Last year it became very clear that it was fine for me to proceed with Real Estate, as long as I was doing it for God. I searched my motives, convincing myself that I could do it for Him. ‘I’ll build this empire and then I’ll have more to give’ I told myself ‘I’ll have all this freedom to go on mission trips’ and of course, ‘This is how I can be an excellent steward’. While each of these is true and even sound somewhat noble, my real motive was to amass wealth to depend on – so that I wouldn’t ever have to work or worry. I would be taken care of.

As we searched for properties and worked the numbers, neither of us had peace about it. We were both uncomfortable for some reason. This time, willing to hear the truth even if it meant I had to give up everything, I went to God and asked what I’m supposed to do. Real Estate was not on the list. When I pointed to the Proverbs 31 woman who does Real Estate investing and business, I asked if I can do these things too. His kind response was ‘in the right order’. ‘Seek first the kingdom of God, and all these things will be added unto you’. (Luke 12:31)

“And don’t worry about food – what to eat and drink. Don’t worry whether God will provide it for you. These things dominate the thoughts of most people, but your Father already knows your needs. He will give you all you need from day to day if you make the Kingdom of God your primary concern. So don’t be afraid, little flock. For it gives your Father great happiness to give you the Kingdom. … “Wherever your treasure is, there your heart and thoughts will also be.”

Motive revealed. The plan to ‘amass wealth to depend on’ suddenly doesn’t sound so good. Don’t get me wrong – I’m not saying wealth, business or real estate investing is wrong. “God gives us all things richly to enjoy”, and even the Proverbs 31 woman does these things. My motives have simply been called into question, and revealed to be selfish and lacking in faith. Rather than trusting God to provide for my needs, I’ve sought to build up wealth to take care of me – in sickness, old age, desperate economic times … in all situations I could trust my wealth to protect me. Oops! Way off base.

Change is necessary. I don’t know what the plan is except to ‘make the Kingdom of God my primary concern’. Teach my kids, manage my household, and know my King. Refocus is the order of the day. So we’ll be reigning back our investing for now and refocusing our ‘heart and thoughts’. Maybe one day ‘all these things will be added’ to us but it can’t be our focus at this point.

Tenants Are People

Now the proud owners of our first revenue property, we were ready to begin life as landlords. Our decision to manage the property ourselves was based, in part, on our desire to gain experience in property management. How hard could it be?

I happily page through my files, reviewing expenses, and calculating income. I admired the rent checks in my file folder, fascinated that people I don’t know are paying me to live in a place I own. With the property fully rented, expenses are covered, all is well.

The next time I visit tenants to collect rent checks, I find myself standing in an entrance listening to a laundry list of reasons that rent will not be paid. I struggle to maintain eye contact, and it takes all I have not to drum my fingers, tap my toes or roll my eyes. I fume and don’t want to hear anything but the sound of a check sliding into my wallet.

As I drive off empty handed, I realize my faulty attitude towards tenants. From the beginning I’ve viewed tenants solely as a source of income – a line on my balance sheet. I didn’t anticipate such human problems as unemployment or heart attacks. Here, my bottom line meets compassion and I am perplexed to say the least. My responsibilities to my banker must be balanced with my compassion to my tenant. Hmm. What to do.

I wondered what I would want from my landlord? I would hope for understanding, patience, leniency, and caring. I would hope my landlord would care about my problems, and help me to solve them. I would hope that my landlord would not make things harder for me by demanding what I could not give.

I decided to treat our tenants the way I would want to be treated. With practice, I’m learning to listen. I’m learning to pay attention to the said and unsaid. I’m learning to notice and use opportunities to demonstrate care and respect.

Some practical ways I show my tenants I care include:

· Conversation. Asking them if everything is still working well, and following up on anything they might have mentioned before. (medical conditions, travel plans, etc)
· Thoughtful gestures. Emptying cigarette butt tins, weeding flower beds, picking up garbage and cigarette butts from the yard.
· Gifts. Free or discounted rent for special circumstances, gift certificates as ‘welcome home’ gifts to new tenants, etc.

Some other practical ways I would like to show tenants I care include:
· monthly communication in the form of a newsletter which contains interesting articles, comic, and maybe some freebies. Maybe tenants can even feature their own business in the letter.
· Gifts. Christmas, Birthdays, Anniversaries, and other special occasions in their lives – I would like to acknowledge those events in any number of ways. Cards, gifts or cash. Mix it up.
· Provide resources and information on home ownership or real estate investing. Tenants are sometimes tenants for lack of options. I believe real estate investing is sound, and is an excellent way to save for the future. Why should our tenants not have the same benefits?

I would love to hear your suggestions about how to treat tenants like gold … Uh , I mean like people ;)

Best Laid Plans

It was perfect. Before we even bought our first duplex, the plan was solid – buy, subdivide, sell off each side separately, pay off subdivision debt with proceeds, and walk away with enough to invest in the next one. And it would all happen in 3-6 months, worst case scenario was a year.

Subdivision flew by without a hitch and on schedule. Both sides were listed for sale. One month passed, two months … no offers. The price was reduced … no offers. We presented it as Rent-To-Own or at a discount for both sides … no offers. One year later we’re holding it as a long term rental. Buy and hold is a great strategy … if that’s the intention, and there's cashflow. One should really have cashflow. The minimal cashflow from this duplex would not pay for debts accumulated by legal fees, subdivision, surveys, and property improvements. Suddenly this business debt became our personal debt, to be paid from our own pocket. Huh... didn’t see that coming.

Things were starting to look bleak. 'Plan A' fell through (selling), 'Plan B' (a home equity line of credit) bombed … we were down to our last option – holding our hand out to banks and hoping for the best. Finally we were able to consolidate these debts for a lower monthly payment, something our cashflow can sustain. Not a goldmine, but holding its own and gaining in value each year.

I once believed ‘planning’ to be synonymous with ‘dictating the future’. Plans equal control, right? Not exactly. My best laid plans are subject to circumstances that will forever remain out of my control – media, market conditions, emergencies, disaster. Of course, my best laid plans are also subject to circumstances that my ignorance and inexperience create.

Planning is vital, but I now view it as a more fluid entity – a guidance system, not a stance. My plans simply represent my best cognitive efforts at a particular moment in time, given the current information I possess. Each of these elements can change in a moment. Plans need to be fluid, quick to adjust to what is best for the new situation. My advice to myself now is, ‘Keep planning, but don’t sacrifice common sense and good judgement for what was, at one time, a sound plan’.

Reflective Pause

I enjoy Real Estate investing - the hunt, the growing of wealth, the opportunities to create passive income. I can hardly wait to enjoy our financial freedom!

Our summer yielded many learning experiences:

• ALWAYS GET A SECOND OPINION - learning the hard way seems to be our forte. We attempted to privately sell our subdivided duplex (both sides), and our realtor of 2 years told us what price we could expect. She also advised us on what kind of rent we could expect. Little did we know those numbers were too high. The duplex was empty for 2 months (one month on each side) until we reduced the asking rent. Any interest expressed in purchasing the property fizzled instantly when we told people our asking price. In fall, at the end of our patience, we decided to list with the realtor who exclaimed that our prices were 'way too high!'. Hmm. We'll be switching agents.
• TENANTS ARE PEOPLE - this one is personally embarassing for me to admit, but it's important to talk about. Naturally, I'm all business. I easily make decisions and prefer to get to the point. I viewed our tenants as the source of our funds. They were simply numbers. Real Estate is a people business though, and I'm thankful I've had the summer to learn how to mix relationships and business. I'm anything but proficient at it, but I'm learning that tenants are people. It's an interesting mix for me. I'm learning to listen, understand, and have compassion for our tenants. They are people in my life who my words and actions impact. I think this realization has made me a better landlord, business person, and human.
• BACK UP FUNDS ARE PARAMOUNT!! - Thankfully we're not learning this one as a result of being destitute and facing bankruptcy, but I can see how that would easily happen. We conitinue to gain more access to funds for back up capital, and it's a good thing we have. Our first purchase was intended as a flip. (it doesn't cashflow, but profit on a flip is expected to be good) That was almost a year ago. We're hoping to sell in the spring. In the meantime, legal fees, subdivision costs, property upgrades, vacancy and maintenance are all costs we've had to cover. If we didn't have the back up capital we would have been desperate sellers, and would have had to face damaged credit, selling while still having debt, and who knows what else. Our second purchase is one we intend to move into in the spring (it is currently rented but doesn't cashflow), so maintenance of that property is another cost we must bear until then. We're not alone. These are common in real estate investing - make sure you have back up funds!

Those have been the biggest things I've learned through Real Estate investing this summer. We continue to work on our primary residence, renovating in time for a spring sale. Our plan is to have 3 of the 5 doors for sale in spring, and we'll move into one of the remaining 2 doors. That should clean up debt, increase personal cashflow, and provide some extra funding for future endeavors. I'm adept at counting our chickens before they've hatched, so we'll see what actually happens. Those are simply the plans we've laid out.

Back to the Drawing Board

Funny how we can convince ourselves we’re proficient at something we’ve really just begun. Our first investment property is, thus far, a relative success. More importantly, we’ve learned much – about making money on the buy, closing costs, land transfer taxes, the subdivision process, property management and more. Armed with this new and wonderful knowledge I’m ready to take on the world and buy 3 properties in the next 2 months and generate some immediate cash flow.

Yeah right.

The first 5-plex I offer on, I run the deal by an experienced investor friend of mine whose first reply is “oooh, I don’t think you want to do that.” He fired questions at the deal I hadn’t even contemplated and informed me that the neighborhood would likely yield gang members for tenants. “That’s just part of due diligence” he said.

Oops.

So I picked my burst bubble off the floor, and slinked back to square one to conduct all the initial research that will guide an educated decision. Vacancy rates, neighborhood stats, market comparables, rules and guidelines for multi-family units, and whatever else I don’t yet know.

While I dislike being sent back to the drawing board and much prefer to plunge headlong into the glorious fray, I must admit that it is humbling to realize that this will likely happen repeatedly. As I learn more, adventure into new markets and types of real estate, I’ll be required to learn – to start back at the beginning. I don’t like starting over, but back at t the drawing board though is where I find patience, humility, and the knowledge that will guide what will hopefully be wise decisions.

Time Management - Cutting Out Waste

Though often a challenge, time management is crucial to maintain efficiency and professionalism. Managing your time means being on time, making deadlines, and getting rid of wasteful projects and tasks.
Cutting those wasteful projects and tasks is easy to say, but many people have a hard time even identifying them. I’ve compiled a list of tips to identify wasteful tasks to help with that. Once you’ve identified them, the actual cutting is up to you.

A pretty good clue that the task at hand is wasteful may be that …
1. the task is done 2 or more times daily when once should suffice.
time spent outweighs money earned. Count your time. It’s worth something. (Especially if you use time to create residual passive income)
2. the task drains mental, emotional, spiritual and physical energy beyond what it promises to replenish. Your tasks should bring you some degree of satisfaction. If they don’t, there may be something wrong with that picture
3. no one benefits. Who is it helping? If the answer is no one, you may be wasting your time.

These are just a few ways to measure how effective you are with time management. None of this is to say, of course, that every moment must produce dollars or even be efficient. Entertainment, relaxation and relationships are important aspects of life, and time should be set aside for these things. The problem arises when we give too much time to these areas. Priorities and balance – always important.