Apr 12

From today’s Milwaukee Journal Schneider: Desmond’s ‘Evicted’ is a flawed masterpiece

The article misses the mark in some aspects.
 
Homes in Milwaukee’s poorest areas often can be bought for as little as $8,000, with rents running upwards of $500 a month. In virtually no time, landlords can own the properties free and clear and the rent they collect is pure profit — as long as they can collect. As succinctly put by one of the landlords featured in the book, an African-American woman named “Sherrena,” (pseudonyms are used throughout the book) “The ‘hood is good.”
 
This furthers the misperception that landlording is a “get rich quick” scheme. Sherrena made statements to Desmond that sent up red flags, at least to us in the industry,  that she was already in the throes of failure at the time of the interviews.  

Attorney Heiner Giese did the research to discover Sherrena’s identity.  She was not becoming wealthy on these properties.  Instead, Sherrena began losing her buildings to foreclosure shortly after the Desmond interviews and was out of business well before the book was published.  Many of her properties have since been razed.

However, Schneider does recognize a fact that is missed by many who look at rental housing and urban issues from the outside

 

Further, despite the book’s grim portrayal of landlords, one can only imagine how far these neighborhoods could fall if landlords weren’t there to keep at least some semblance of order. If housing laws were to squeeze the amount of money property owners could make on their rental units, they may simply abandon these homes altogether, leaving a lawless landscape devoid of structure.

 

Aug 23

We spent much of week two of our three weeks out west in the warehouse district of Los Angeles. I was shocked at how large LA’s homeless population is. I was also a bit shocked as how bad the area smelled – stale urine, extreme heat and no rain to wash it away is not very pleasant.

It is really a sad scene given the overall wealth of our country and of SoCal in particular.

An interesting real estate related concept in LA was the number of what appears to be privately owned SRO (Single Room Occupancy or rooming houses) Nice, modern buildings.

So even in this most economically, and probably socially, challenging housing environments, rental owners are able to find workable solutions by providing housing uniquely suited for a specific population.

The third thing I learned while out west for much of July is the most interesting. It has kept me busy for the past three weeks. … More to come 😉

Mar 13

The Milwaukee Journal Editorial based on Matt Desmond’s new book Evicted builds upon some misperceptions about the rental industry.

A NYT reader’s comment on Desmond’s Evicted more closely follows what typical owners see when trying to run lower income housing.

The Journal editorial echoes Desmond’s advocating for legal representation for tenants in most evictions.  If you frequent eviction court you seldom see a day without Legal Action representing tenants.  ATCP 134 provides enticement for attorneys to represent tenants  tenants tin cases where the owner is doing wrong.

Implying tenants need legal representation simply perpetuates a myth that wrongful evictions are common and owners somehow benefits from an eviction. In fact by the time it is over the owner has lost two to three months rent and often more.  Legal representation for tenants in evictions seldom does more than simply let the tenant get another month of nonpayment before leaving.
 
In an average month eviction judgments in Milwaukee County exceed $847,000 – every month.  But this is but a fraction of the losses suffered by property owners.  Of those evictions, only a third of the cases had money judgments other than the court applied fees.  Was this because the tenant did not owe rent?  No, more likely because the owner did not want to waste more time chasing a judgment they will never collect.  Those in our industry as well as those outside of the rental business will tell you that less than a quarter of uncollected rent ends up in eviction court.
 
This is money removed from housing and increases costs for the rest of the tenant population. While some tenants may use the money for real needs like shoes for kids, some use it for other things that further harm the community.
 
Then there is the comments about constructive (illegal) evictions.  While statements like this flame the fires of hatred against landlords, such acts seldom occur and when they do there is adequate remedies for the tenant.  I own two duplexes that a guy walked away from his 1/3 down and eight years of payments after he spent a weekend in jail because he threw the tenants’ belongings out on the front yard and changed the locks.  Seems the tenant did not pay rent and when he went to find out why, he also found they broke the front picture window.  His first stop after getting out of jail was my office to see if I would buy them for the remaining mortgage.  Small owners take these things too personally…
 
Desmond’s book has brought the issue to the forefront. And this is good.  Its is our industry’s job to make sure this does not turn from what it is, the bringing a real problem to light, into yet another excuse to bash the rental housing industry.
 
The part of the discussion that would be helpful to the overall community is increased housing vouchers.  Universal food stamps for people in need was a good first step many years ago. Housing and utilities vouchers for those who need them the most would be a good next step.
 

Mar 24

In the past few months I have had nearly a dozen of conversations with other rental property owners that have turned to some variation on the question ‘What do you attribute your success to’ My story is simply not that interesting.

It is a story of working hard at generally boring things. Yes, I have lived well off landlording for three decades. Yes, I now have time to walk  thirty-five to fifty miles a week, often barefoot on wet sand. Yes, I have the time to travel around the country to help my wife with her business.  I still work remotely when I am away form the office, just not the insane hours I did as a kid.

But the truth is mine is just not an exciting story.  Seems most people want to know how to be independent and wealthy by July.  They do not want to hear about the multi year, multi decade journey it took me.

I used to say ‘Everyone says they want to be me, but none of them are willing to do what it takes.’ That was too egotistical sounding and I only used it in private conversations with folks who pushed me to tell them “the secret.”

A couple of years ago I read a quote by Hugh MacLoed which I like better.  In fact I liked it so much I bought a numbered MacLoed print for my office wall.  At least it was there before my staff redecorated the offices … I haven’t checked in a while.

“What people say they want and what they’re willing to work their ass off to get are two different things. ” – Hugh MacLeod

I simply focused on one thing most of my life,  pursued boring fundamentals with dogged persistence and took the time to learn the laws that affect my business.  For me this worked well.

Focus. Today the buzzword in business start ups is ‘pivot’ and the mantra is ‘pivot early and pivot often’, meaning a complete change in direction when things get tough.  Tough seems to mean in their terms that you aren’t ready for a one hundred million  dollar IPO and it’s already been six months so it must be time to do something else. I wonder how many of these young entrepreneurs  give up just before success.

As I criticize the pivot I must admit I too had a major pivot in the very early days. When I was in my early twenties I wanted to own a state of the art contract computerized manufacturing (CNC/CAD) company.  My background was in manufacturing and CNC machining. I loved the challenges and logic of making things.  I started buying rentals with the goal of using them to finance the machine shop.  That dream hit a bump in the road.  My potential business partner had some legal problems that I was unaware of until we went for financing.  I stayed with the rentals and grew that business.  So on some level this was a pivot, but not in the sense it is used today.

Instead of the pivot I went for incremental improvement.  For thirty years I did little else for income that did not involve rental housing. Every day I try to do this better than we did yesterday.

It was only in the last few years that I diversified a bit from Milwaukee rentals by helping my wife with her business and began exploring Southeastern Florida real estate as well as some angel funding stuff. You will not create the next PayPal, eBay or Google through incremental improvement, but it is a path to a decent sustainable lifestyle.  I see it as a fault of mine that my dreams were not larger, but I am fairly content where I’m at.

Persistence is still being there when everyone else gets tired and goes home.  Persistence is when you still show up and giving it your all even though you’ve had  three bad months in a row. Persistence is eating Kraft instant macaroni four times a week for months on end to finance a rehab. Persistence is leaving for work at 6 AM and not arriving home until 10 PM every day for weeks on end.  (See my follow up post on ten things I should have done differently) Persistence is staying the course when everyone around you says it is a no win game.

Despite how it is spelled, there is no fun in the fundamentals. Once the adrenaline rush of buying a building wears off so does the enthusiasm of many.  Rental real estate is a tough business.  When my son said he wanted to follow me into the business I told him to find something better to do with his life.  And landlording is a business, not an investment, at least not at the levels we are dealing with.

Bookkeeping, taxes, employees/HR, purchasing, collections, filling vacancies, evictions, customer service and dealing with bureaucrats are all part of the unfun fundamentals.

To succeed at landlording you have to focus on these fundamentals and pay attention to a myriad of laws and rules that affect us. I’m pretty sure that must every business out there is similar in this regard.

I’ve done all of those, others who are successful today have shared similar stories.  Then there are those who seemed to hold such promise at the beginning but suddenly were washed out.  Most of them looked for a shortcut, ignoring the fundamentals and then gave up when it got a wee bit hard.

May 11

Wolf Richter writes:

 

Steps in the Fed, and trillions of dollars get printed and handed to Wall Street, and asset prices become airborne, and Wall Street jumps into the housing market and buys up hundreds of thousands of vacant single-family homes, drives up prices, and armed with free money, shoves aside first-time buyers and others who would actually live in these homes, and turned them instead into rental units. Now in over 1,000 cities, prices are, or soon will be, as high as they were at the peak of the last housing bubble.

The difference? Last time, all that craziness was called a “bubble” with hindsight. This time, it’s called a “housing recovery.”

If you are planning to buy now and catch the rising market you should read this and think 2006…


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