Rentals are like crops, there comes a time to harvest them
I bought this townhouse back in 2010 off a wholesaler. He paid $120,000 and I paid him $5,000. I was able to secure a hard money loan for $100,000, which actually kind of sucked because I don't like writing big checks to buy real estate. I prefer to write no checks, and even better is to cash checks when I buy real estate. The upside was the lender promised to refinance me out with a new loan and give me the $125,000 once I had the house cleaned up and rented, which happened just a few months later.
It is a crazy story because the seller said she didn't like being a home owner. It was too much hassle. A year after she sold it, she called me up and asked if it happened to be vacant because she wanted to rent it from me and move back in!
Once I got possession, all I had to do was clean the carpets and the place was good to go. It had a granite counters, tile floors and all kinds of other upgrades. The place was really nice. The main problem for me was the ridiculously high Mello-Roos taxes. After owning the property a few years, I realized they were destroying the cash flow. It was clearly the poorest performer in my portfolio and it was time to harvest the equity.
I gave the tenant the boot and put it on the market. I had a first position loan of $125,000. I sold the property for $276,000. It was a nice check, but it is December and my property taxes were due so I had to take $40,109.75 of it down to the County Assessor's office and pay my government rent.
I love buying and holding rentals. In the beginning, do your best to get the properties under contract, finance them as well as you can, dig your nails in, and hang on. I had lots of rough nights and long days, especially when I really needed the money and that was the month one or two of my tenants smelled desperation and decided they were going to pay the rent really late or not at all. It won't be smooth sailing all the time. You'll have to learn to weather the storms. One of my favorite landlord sayings is, "Don't open a candy store if you don't think the kids will steal from you once in a while." I promise you that the day will come when it will be well worth your time, sweat and energy. Cashing 6 figure checks on properties I have almost no money into are the best deals.
We are equity farmers. We plant seeds that need nurturing and take time to grow. There will be pests. There will be storms. Then one day the sun will come out and that equity will be all grown up. The job of tenants is to pay the loans off. Appreciation is the desert after a well prepared meal. Are you planting saplings so there will be shade to sit under 20 years from now?
Please share with those you think may benefit and leave any comments down below.