How (not) to sell a fourplex – Part I

Need to sell a fourplex? Do the opposite of what I did

A fourplex kitchen -- look at all the things that can break!

A fourplex kitchen — look at all the things that can break!

This story really begins back in 2001. I awoke to the DJ on the clock radio saying “I don’t usually tell people to stop listening to the radio and turn on their TV, but you need to turn on the TV right now.” I sat straight up in bed and just then the phone began ringing.

“OK, OK,” I responded to the panicked voice on the other end. “I’ll be there as soon as I can.” I got dressed, grabbed a mini television and ran to my car. I saw the second tower fall in real time from my office.

I was working in a startup travel company at the time and all of us working there knew that while this was mostly a horrific attack on America, we also knew the travel industry as a whole would be in deep shit.

There was a team meeting a few days later. There was one topic on everyone’s mind: layoffs. People were canceling hotel reservations left and right and no one (and I mean no one) wanted to fly. And remember this wasn’t long after the dotcom crash. The stock market was in a shambles. How devastated would the overall economy be when it was all over? Our vice president reassured us that no one was talking layoffs. He used the analogy of another disaster and calmly walked us through how he expected the travel industry to gradually come back. The anxiety among the team members quickly eased up and we went back to doing our jobs and hoping there wouldn’t be any further terrorism.

That’s when an interesting turn of fate changed my life forever. In a move of strategic brilliance, my company moved quickly to buy up the unused hotel inventory and to lock in favorable long-term contracts with hotels. As things recovered, there my company stood, the entire travel industry’s balls in its tight grip. Our stock soared over the coming years and even mid-level workers like myself were suddenly awash in unexpected money. In a truly twisted mindfuck, we found ourselves benefiting indirectly from the attack. I don’t like to think about that too much.

Anyway, flash forward a couple years. While I was certainly wasting my share of money on stupid crap like everyone else, overall I was more careful than most of my friends. And I was committed to not losing this small fortune. I decided to place my bet on real estate. After losing out on a couple nice properties due to a slow-moving realtor, I fired her and found a new realtor, a super sharp guy who knew the area very well.

Nothing happened for quite a while until I got a sudden call. “Nick, one owner is selling a dozen fourplexes right now. We need to meet, most of them are already sold!” We met and looked over the properties that hadn’t been picked up yet. Two fourplexes were left. Both were selling for the exact same price. Rents were about the same. Both had other pros and cons. Which one should we buy? We went back and forth on it for awhile trying to decide.

Finally, I paused, flipping the papers back onto his desk. “Tell you what,” I said. “Instead of 20 percent down on one, let’s buy both of them with 10 percent down.”

He did a little “double-commission” happy-dance and begin writing up the paperwork. That was 2003.

I researched property management firms, hired one, and began doing all the needed work myself (there was a lot). Every single weekend was spent fixing buildings, hauling appliances, fixing electrical outlets, repairing drywall, etc.

Meanwhile my property manager felt it was their personal role to be sure and empty out my buildings. I went from eight units full to maybe two or three occupied. Every time I brought it up with them, they shrugged and seemed unconcerned. My stock money was spent covering mortgage payments. Disaster!

I fired the property manager and hired another one who filled the units immediately. Cash began flowing and I started to relax. But I was still doing most of the work myself. That changed when I took a week of vacation to paint a unit that was looking a little grungy. I bought some materials at Home Depot and was preparing to get started. Somehow I decided to get a price from some Russian dude I found somewhere. When I saw how low the number was, I knew my days of working on these buildings was over. From then on I hired out all my work.

I sold one of the buildings before the real estate crash and re-financed the other one down so my payment would be lower, essentially just forcing the cashflow. I wish I’d sold both of them at that point.

But I didn’t. And as the years went by, I collected decent cashflow, but I never spent the money needed to bring up the rents. Instead I collected varying amounts of money over the years as tenants moved in and out as the needs of their lives changed.

The earth continued spinning around the sun and I focused on other areas of my life. Marriage, other real estate projects, travel, career changes, a new house and a new baby. Life was good.

But that little building was always there in the background, threatening to disrupt everything. What would be the next big surprise? A fire? A lawsuit? A new expensive repair? I’d cringe whenever the local news began a story with “an incident at a local apartment building left two dead this morning…”. Crossing my fingers, I’d chant “don’tbemybuilding-don’tbemybuilding-don’tbemybuilding” until the details came out.

Then the real estate crash happened and I was stuck. When the market came back a little bit, I tried to sell it. Year after year. No. Offers.

Things finally came to life last year when I finally got a few offers, but the buyers weren’t that serious and walked. Mostly it was bottom feeders and people looking for brand new inventory at rock bottom prices. A few of the offers got to the inspection phase and there was always something scaring people away. A roof that seemed soft, a mildewy windowframe, older electrical panels. If it wasn’t one thing, it was another. Since the building made money and I didn’t need to sell it, I just held it.

So this year, seeing a much better market and in particular a much better credit market, I tried again. And guess what? I got an offer almost immediately! That was in mid-May. Ten years after I first bought it.

And that’s when the story really begins.

My next post will continue the story of how I finally sold my fourplex and all my lessons learned!

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30 Thoughts on “How (not) to sell a fourplex – Part I

  1. Thanks for sharing your story. I always thought that it would be great to be a property owner and collect rent. I’m sure it’s not all rainbows and puppies. Can’t wait for part 2. How was it being a landlord though…did you have to deal with crazy tenants or did the management company deal with most of those issues?
    Andrew@LivingRichCheaply recently posted…When Being Cheap and Lazy is BetterMy Profile

    • Pretired Nick on August 29, 2013 at 11:32 am said:

      You name it, I’ve dealt with it over the years. I might do a separate post just on landlording one of these days. Fortunately in these plexes, the management firm took care of all of that so even though it’s expensive, it was worth it. I’ve self-managed some other property over the years and there really is nothing worse.

  2. That’s great! I’m looking forward to part 2. What are you going to do with the money? I’m still going to try it for a few more years. I guess selling when the market is up is the way to go. Portland is starting to come back, but it’s still a bit behind CA and Seattle.
    retirebyforty recently posted…Is Retirement Saving a Sprint or a Marathon?My Profile

  3. What was your cash flow like on the property? Just wondering why you’d want to sell it if it was cash flowing well. Repairs you can set money aside for from cash flow, fire or lawsuits you can insure for…
    Mrs. Pop @ Planting Our Pennies recently posted…When We Knowingly “Overpay”My Profile

    • Pretired Nick on August 29, 2013 at 5:43 pm said:

      Ah, Mrs. Pop, you are one very smart woman! As you noticed, there was some foreshadowing in there about that. I’ll get into this in my next post, but the short answer is it was 50% thinking I could get a better return elsewhere and 50% emotional thinking. You’ll love my next post!

  4. PTNick! This sounds so un-fun! I’d rather play Bach Inventions while standing on my head juggling flaming torches suspended above a crocodile pond. What was it like to fire the prop manager. I cannot imagine hiring or firing anyone, ever!

    • Pretired Nick on August 29, 2013 at 7:39 pm said:

      It was a lot easier than some evictions I’ve had to do, I’ll tell you that! You have to have a bit of a rough edge and a cold heart to be a landlord. Not for the soft-hearted!

  5. These real estate posts are great because it’s not something I know much about. Whenever someone pimps real estate as this golden ideal of passive income it makes me want to run away. This kind of story, with ups and downs, feels a lot more genuine to me. I’m looking forward to hearing why you want to sell even when it’s making you money.
    Matt Becker recently posted…Accomplish the Important Things in Life by Holding Yourself AccountableMy Profile

    • Pretired Nick on August 30, 2013 at 6:11 am said:

      Yeah, it’s not some laid-back passive income game, that’s for sure. I know it’s taken years off my life!

  6. Oh Nicholas, when will I ever learn. Had I listened to you when we first met, my house would be paid for, or close to it. Live and learn, and now I have your wisdom brought to me in my inbox. Maybe I’ll actually pay attention this time. Look forward to your next installment.
    Tom | Tall Clover Farm recently posted…Plum Crazy for a Cake Called BuckleMy Profile

    • Pretired Nick on August 30, 2013 at 7:34 am said:

      Heh, I don’t know if I had much wisdom back then. I was just trying to figure things out like everybody else!

  7. Way to hook the reader, Nick! I’m excited to see how this pans out…
    Done by Forty recently posted…How We Negotiate, Part IMy Profile

  8. What’s really nice here is how your company turned the crash into real profits – that’s great business!

    Regarding your fourplex, I am also curious to read the rest of the story!
    C. the Romanian recently posted…Eating Healthy Is NOT More Expensive than Eating UnhealthyMy Profile

    • Pretired Nick on September 3, 2013 at 9:44 am said:

      Yeah, it was lucky for me, C! Still rather weird to me that an old farmboy like myself can happen upon such a fortune.

  9. Nick,

    Glad to hear you offloaded the fourplex. I know you’ve been interested in selling it for quite a while now. Congratulations!

    Looking forward to Part 2!

    Best wishes.

  10. “That’s when an interesting turn of fate changed my life forever. In a move of strategic brilliance, my company moved quickly to buy up the unused hotel inventory and to lock in favorable long-term contracts with hotels. As things recovered, there my company stood, the entire travel industry’s balls in its tight grip. Our stock soared over the coming years and even mid-level workers like myself were suddenly awash in unexpected money. In a truly twisted mindfuck, we found ourselves benefiting indirectly from the attack. I don’t like to think about that too much.”

    Very interesting and wise. It seems that smart folks make money whether the chips are up and down.

    I went to the Warren Buffett meeting this spring and he mentioned that they did great when the markets were in turmoil around 2008-2009. He was able to lend money to companies like Harley Davidson (15%/annual interest on that deal) and make out like a bandit. Everyone else was too scared to lend.

    Any idiot can make money when the markets are flying, but it takes some a good brain to be able to do it in the bad times.

    Can’t wait for part 2!
    Mr. 1500 recently posted…Sex and Limes ReduxMy Profile

    • Pretired Nick on September 5, 2013 at 2:19 pm said:

      It’s so true, Mr. 1500! It’s very easy to see what an obvious move that was in retrospect, but in reality the bravery it must have taken to make such a bold move is mind-blowing.

  11. Great story! I have some pretty funny adventures in real estate – maybe I should turn that into a post someday on my blog.
    Troy recently posted…Invest in a GuitarMy Profile

  12. Oh the suspense, Nick! Sounds like a nightmare though. Would you ever have owned local rentals if you’d known what it took?
    Jacob @ Cash Cow Couple recently posted…Understanding How the Stock Market WorksMy Profile

    • Pretired Nick on September 5, 2013 at 5:57 pm said:

      Wow, that’s a really good question, Jacob. The hard work and the stress wouldn’t really scare me off even today. But looking back at where I’d be simply investing in the market, I do wish I’d done things differently. But there is something to be said for having control over your own destiny…

  13. rustymetty on September 6, 2013 at 10:39 am said:

    Great post! As you know, my rental property is only two blocks away from my house and makes the life of a landlord substantially more palatable. Being a landlord is still–and will remain–a very good option for anyone interested in building long term wealth. At least IMO. Though I agree its not for everyone. Evictions, lawyers, sheriffs, cat pee and huge piles of hard earned cash associated with a flushing sound, are a part of the landscape. My rental has left me teetering on the edge of financial ruin, and yet I survived to see a day where I reached positive cash flow and six figure equity. I feel strongly real estate is an excellent hedge against inflation and that inflation will be back. When those days arrive, my fixed rate mortgage will remain…well fixed.

    • Pretired Nick on September 6, 2013 at 1:02 pm said:

      Oh yeah, Rusty! For sure the one thing about real estate is that it’s pretty hard to lose money with it. You can have good years and bad years but generally speaking if you can stay solvent through the bad times you’ll nearly always make money. For me it was more of a matter of whether I could make more money putting the funds elsewhere. That plus the dread every time the phone rang made my decision clear enough.

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