In the last six months, the bad debt side of real estate has taken up far more of my time than the more traditional forms of real estate – rentals, land contracts, flips etc. The regular stuff is still amazing, but due to some luck in finding the right people, the bad debt side is particularly profitable right now.
Here is a recap of what has been going on:
I had my tenant move out of 23103 Avon. She was a webcam girl who made $85,000 worth of “tokens” on whatever porn site she was affiliated in 2011. I figured it was an even trade, a stable income for a stable mind. She ended up moving out because she landed in the crazyhouse – surprise, surprise. She paid for 12 months and moved our right away, so it worked well. Perhaps, a more prudent landlord would have passed on a porn star, but I enjoy the stories and there were quit a few of those. I had another tenant move out of 23430 Allor, and he stiffed me for about $2000 total. He was an old man getting all his money from social security, and the IRS started garnishing his wages, leaving me high and dry. He was on the borderline of income/rent ratio, I probably should have passed on him as a tenant. In the end, even getting stiffed $2000, I still cleared a 10% ROI easily. All the other rentals and land contracts are going really well. The land contracts especially have been care-free and bringing huge returns. As far as appreciation, I would say my properties across the board are worth on average 25% more than I paid for them. The Detroit market is steadily climbing and wouldn’t be surprised to see that number hit 100% in 5 years. As I’ve said before, while land contracts have a higher return and are very little work, they will eventually result in a pile of money after a few years. I want to be in this business for a long time, so I am trying for a 50/50 split of rentals vs land contracts. Also, if the Detroit market goes nuts, I will miss out with land contracts, but not with rentals.
I have one property at 20901 Hawthorne that was pretty much butchered and should be a cautionary tale on what not to do. I was planning on renting it, but then I decided I wanted to stay more liquid for personal reasons and just threw it up on the market. The place wasn’t particularly clean, it wasn’t finished remodeled, and it shouldn’t have been listed. There is a saying in real estate that, “you only get one shot at being just listed.” I blew my shot and now its been listed for 120 days and selling is much tougher now that I am sure I want to sell. I will end up making a few thousand when I do sell, but it won’t be a great return or worth the hassle. Overall my handling of that property was sloppy, lazy real estate. I normally preach being extremely conscious of the details when listing a house. The property should be immaculate, staging and curb appeal being absolutely crucial. Taking care of the cosmetics and aesthetics is very cheap and pays off many times over. So do as I say, not as I do. The property was intended as a rental originally and the goal posts moved so I’m not that hard on myself about it.
As for long term goals, I definitely plan to buy more rentals. If our lake house sells, it will probably be sooner than later. I will be getting a full-time property manager soon, so I don’t have to spend anytime dealing with them. Also, I have a few low-ball offers into the banks for short sales that would be very good flips. Only time will tell if any of those offers stick.
justinsadauskas 