“There is a time for everything, and a season for every activity under heaven: a time to be born and a time to die, a time to plant and a time to uproot…”
(Ecclesiastes 3:1-2)
As a long time Charlotte property
manager, the growth of the city and its real estate here has been
amazing. I guess when you’ve been doing
something for so long, you wind up telling stories about how things “used to
be” which makes you sound old. And maybe
I am old as younger guys on the basketball court say (“you guard ‘old head’
(me) over there”) and my younger self would also have said “if you are doing
something for 15-20 years, you’re probably old”.
Well, I’ll own it, so as an old man I might as well tell an
old story. I remember when I started
investing in real estate back in the early 2000’s, there were these smaller,
antiquated homes that people were always trying to get the public to buy. The prices and stories were great- $10-$20K
homes which would rent for $500-$600/month, great cash flow, and the
possibility of great capital appreciation if the area became gentrified. You could buy one on your credit card.
But they were Cinderella homes before she met her fairy Godmother. Many houses like this had been perpetually on
the market for 10 years. No one was
taking them to the ball to dance the night way.
They were small, in bad/dangerous areas, and in serious need of major
repairs. The windows were boarded up and
the feeling that your life expectancy was about to take a major dip was on your
mind when you went to do a walk-through.
A friend of mine (much tougher then me) told me his strategy on owning a
bunch of them:
I show up at my renters’
doorsteps each Friday evening when I knew they had been paid earlier in the
day. They would hand me cash for the
rent and then I’d go on to the next house.
One time, I got ripped off when someone pulled a gun and took a few
thousand dollars of rent from me. Since
then, I’ve been packing and I haven’t had a problem since.
Well, I haven’t spoken to this friend in several years, so
I’m not sure if he is still among us.
But he sounded like a real man; my “smarts” (or arguably, my lack of
courage) never allowed me to get too involved in buying many houses in that
price range. But I did succumb to allure
of buying a few which led to some challenging situations throughout the years.
Fast forward to 2019…
I’m getting letters, robo-calls, and text messages from random investors
saying they want to buy these old houses with all-cash (no loans needed) and
“as-is” (no repairs asked for). Cinderella
homes now seem to be the rage. And they
sell in the $100K range with no repairs.
So what to do? The
no-brainer answer seems to be to take the money and run. An opportunity to unload these rental homes
easily at a profit seems to be a gift horse that shouldn’t be looked at
directly in the mouth area.
But then, on the other hand, you have that FOMO (Fear of Missing
Out). Values and rents in Charlotte keep
rising as 66 people on average move into the region every day and that only
seems to be growing, not abating.
Holding costs for these types of houses are relatively minimal with
smaller mortgages (if applicable), low property taxes and insurance, and
usually no HOA fees. And most of these
houses are located near Uptown which might mean they are primed for further
future price and rent appreciation. In
this economy and market, the outlook for these homes looks pretty rosy.
At the time, it was not so obvious that the Prince should
have chosen and married Cinderella. He
could have bypassed Cinderella and her difficult stepfamily and had his pick of
the other princesses with less baggage and/or simply enjoyed a few more years
of his bachelorhood. And who knew that a
momentary infatuation would last forever?
I guess the decision depends on one’s investment outlook. A bird in the hand is worth two in the bush
or more risk equals more reward? The Charlotte market can’t
keep going up indefinitely, can it?
Sometimes it’s not clear on how to get to what “happily ever
after” looks like in the rental home game.
Cash out, hold, or double-down?
Happy Landlording!
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