Back in 2004, my wife and I purchased a 4-family apartment building right across the alley from our house. It has proven to be a wise investment (so far), and I expect we will own the place until we croak. I wasn’t even deterred by a $7,500 plumbing stack replacement. I expect the building to provide retirement income, possibly money for college if I happen to need it, and a nice asset to pass on to my kids. By the time the building is paid off (less than 24 years to go, woo-hoo!), I expect it will be generating at least $3,000 a month in revenue. But based on today’s turbulent times, who knows how much rents will be in 2034?
The difference between investing in rental real estate and the stock market is people. You really don’t have to deal with people when investing in the stock market. Unless you pay a management company (who will skim 10% at least off the top) to manage your building, you will be dealing with people when you own an apartment building. And dealing with people is an art form.
Here are the top 10 things I’ve heard in the 6+ years we’ve owned the building – it’s a sampling of prospective tenants and actual tenants. Note that we run a no smoking, no pets building. NO EXCEPTIONS! (By the way, as a property owner, do not weaken in your principles – if you do not want pets, do not accept them! See below.)
Prospective tenants:
1. (via email) “Hello, I was searching for a new apartment and noticed your ad in craigslist.org. I also noticed that you prefer to not have pets. I was wondering if there was anyway you could bend the rules. I have a small 6 lb., short hair, declawed cat. I am an incredibly neat person and have impeccable credit. If you could bend the rules a little, I would really like to view the apartment.” Hmmm, where did you get “prefer” out of my NO PETS policy?
2. (over the phone) I told a lady I didn’t accept pets. “Sir, would you like to meet my cat?” Tempting, but no.
3. (in person) I showed a nice lady one of the apartments, and after we’re done, she reveals she has a dog. I told her NO PETS. She said, “Here’s the deal. I was just at the vet last week, and he gave me some very sad news. He told me that Scruffles has maybe one or two months to live. He isn’t doing well. I really want to move in to your place, and don’t want to be separated from my dog during his last months.” Yes, this tugs at the heart, but NO PETS.
4. (over the phone) “Would you allow me to run a small telemarketing company out of the apartment?” Please, no.
5. (over the phone) A guy saw the yard sign, and called me while sitting outside the building. This often happens, and since it’s right across the alley, either my wife or I can run across and show the place immediately. It’s a real competitive advantage we have over many of the other building owners. Anyway, I’m talking with the guy, who had a heavy Bosnian accent. I hear at least two small kids in the background, making noise. He’s speaking very slowly, asking alot of bizarre questions. Finally, we get around to business – he wants to see the place, and I tell him I can’t come show him tonight because the unit is currently occupied. The current occupant was graciously allowing me to show the place when he wasn’t around. I told this guy on the phone that I’d have to call him to arrange a good time. He goes, “Oh no, I’m sorry, we’re looking for a place to stay tonight.” Yo, that doesn’t give me much time to run a credit check!
Actual tenants:
6. As I was painting one of the vacant units, I heard a rather loud argument in progress across the hall. It was an engaged couple that I inherited when I bought the place. These people argued about everything. I heard her yell, in a shrieky voice that you cannot imagine, “I HATE YOUUUUU!” This was like two weeks before they were supposed to get married.
7. Same arguing couple – again, when I was painting a vacant unit, I heard them yelling at each other. The phone rang, and the guy said something about his mom calling, and the girl goes, “Well, tell your mom not to call when I’m taking a sh*t.” Classy.
8. Same arguing couple – I went in their place to allow a city inspector to view the place, and their dog left a brown pile of defecation right on the hardwood floors. The inspector grabbed a paper towel and cleaned it up for me! Above and beyond the call of duty!
9. Same arguing couple – “We need to get out of our lease early. My husband has been diagnosed with a brain disorder, a tumor of some sort. We’re going to be moving in with his parents.” These people sucked so bad, I let them go. I wanted them and that mangy dog out of there. Come to find out, they were buying a house and just wanted out of their lease. I had to go move all of their stuff to the basement because they were too lazy to come get it. Then they accused me of scuffing up all their furniture. This included a brown La-Z-Boy recliner that smelled pretty awful. The girl was pre-law (she wasn’t going to make a good attorney, trust me), so she wrote this dreadful legalistic letter that basically was a shot across the bow that I should not come after them for breaking the lease. I wasn’t planning on it, but I did confiscate their entire security deposit!
10. When I was buying the place, I spoke with one of the tenants. She informed me that the current owner of the building, who also owned a famous Italian restaurant right in our neighborhood, was likely in the Mob. And to think I negotiated hard with this guy – for months after that, I was expecting my car to blow up every time I started it.
Needless to say, the building is a gold mine for stories.