by Adam Dawson
The story behind our rental properties is very long. In truth, I never intended to really address it on this blog, or at least not for a while. I view this blog as a record of our journey to getting out of debt, not necessarily a comprehensive record of our entire financial lives. But since Emily outed me in her last post :-), I’ll open up a bit about our rental properties.
I do see why some readers would say we haven’t shared enough detail on the blog. I view us as still in an introductory stage here. We are two months into a 4 year debt journey. So, I agree with those who commented on the last post that we’ll continue to open up more over time. But we are considering the comment thread on the last post and thinking about how we can share the important, relevant details in our posts. Bear with us! We aren’t professional bloggers and we’ve had a lot of change in our lives recently. Thanks to everyone for chiming in on the conversation.
We now own 2 rental properties, as well as the guest house at our primary residence. The two standalone properties are in Indianapolis and are managed by a property manager Emily and I separately rented from and had a great experience with. The story of how I became a landlord is one that smacks of naivete, stupidity, and more than one large mistake. So here’s the deal. I’ll share the history behind our properties, and in return, I ask you to suspend judgment for decisions I made 7 years ago. Believe me, I’ve already served my sentence for my mistakes.
Rental House #1
It was summer 2006. I was 24 years old and living the dream in downtown Indianapolis. I had a good job and a cool apartment in a historic neighborhood in Indy. My high school best friend had just moved back to Indiana from a construction management gig in Florida and was temporarily crashing our couch. He brought home a DVD with some slickhaired guy in a hotel conference room talking about how to flip properties. His method had something to do with searching the ads in the newspaper and calling the sellers at 7 am before other buyers could get there. Nevertheless, people all over the country were getting rich in real estate and my buddy and I agreed to flip a property together.
Before long, we found a house for sale in the same neighborhood for $85k. It was a 5br, 3 ba house built in 1903, and had all the historic charm you’d expect. We found a contractor who bid out a complete rehab for $60k. And, we got a mortgage broker who was willing to lend us the whole amount, including closing costs, for NO MONEY DOWN, stated income, and a nice toothy smile. So in June 2006, we pulled the trigger and bought the property.
The rehab took 3-4 months. Of course the contractor underbid the job, so he cut a lot of corners at the end. Nonetheless, we were pretty happy with the finished product and put it back on the market for $220k. We had our celebratory vacations all planned out. But we failed to get any offers on the property in the first couple weeks on the market. A couple price drops later and we were in serious trouble. We had missed the rising tide and were on our way to becoming victims of the housing crash.
I moved into the house to save money. I had about 3 pieces of furniture to put in this massive home. When December rolled around and I ended up with a $400 heating bill, I had to start taking on roommates to make ends meet. By the time I moved out in 2008, we had every bedroom full with Indy’s coolest young artists and hipsters, a compost pile out back, and the occasional awesome party in the great room downstairs. It was the classic case of the unintentional landlord.
On a side note, in spite of all my mistakes and stupidity, I had one GREAT stroke of luck with this house. Emily was one of the roommates who moved in, and our relationship was born on that front porch swing and in that huge kitchen.
I continued renting the property until all the roommates moved out in late 2010, after we’d moved to Texas. It’s hard to rent a property in the winter in the Midwest, so it sat vacant for a while. We burned through our savings and missed a payment or two. So I called in the reserves and hired the property manager whom I’d rented from in Indy. He listed it and got renters in April. And since I turned over the keys, he’s kept it successfully rented and maintained for 3 years now, and we’ve saved about 6 months of expenses in a separate account that we don’t touch.
Today, this property rents for $1350 and our typical expenses are about $1000. Not the best cash flow, but again, I never intended to keep this property. Given the history, I’m pretty happy with my $350/month in cash flow. As a side note, my missed payments did have a negative effect on my credit score and caused us a 1-year delay in qualifying for a mortgage on our current residence. But we are well caught up on the payments now and hopefully don’t have any need for credit anytime soon. We should be above water now, but not by much. I’d like to keep this rented for a few more years before we consider getting rid of the property. 
So that’s the story of the first rental property! Since this ended up being so long, I’ll save the story of the other property for my next post.
