A Three-Way Conflict
By: Tree Langdon
Tags: Robber Baron, Series, Investing, Writing, Fiction

For some reason, we decided more would be better.

I starting scouring the papers for real estate deals. When we saw a listing in our price range (low), the one question to answer was ‘does it cash flow?’

The rents had to be high enough and our down payment had to be high enough to allow the rents to pay the mortgage, as well as taxes, with a little bit of money left over. We weren’t trying to live on the rents, just find something where the tenant would be paying for the place.

Then I had a great conversation with an investor friend of ours.

He suggested we up our budget and look at multiple units. A duplex wasn’t quite double the cost of a single-family dwelling, but there would be two sets of renters, paying almost double what you could get for a house.

Thinking in higher numbers took a bit of getting used to, but I could see the logic in the advice. It was easier to find a deal that would cash flow as well.

Expanding on that concept, we found a fourplex in a complex with several buildings for sale. Of course, a fourplex costs a lot more than a single home so we had to figure out the financing first.

The developer had built them and held them as rentals for years. He decided to sell all of them.

He hadn’t done a lot of maintenance over the years, but the buildings were in fairly good shape overall. They needed new roofs, but the deal included a large contingency fund to take care of replacing them.

We put in an offer on a building in the back of the complex, I liked it the best because of the location. It was away from the street and backed onto a park.

Then we discovered a shady realtor was involved.

He was in a serious conflict of interest. He represented the seller, he represented all of the buyers AND he had put in an offer as well.

Talk about a three way conflict.

Of course, he took the best one for himself. He ended up taking the fourplex we wanted. Our offer was shifted to another building in the complex and we had to swallow our frustration and accept the change or pull the offer entirely. We were fairly happy when the deal closed even though he’d pulled the switch.

When one person owns a bunch of strata-titled units, they don’t have to consult with anyone else. The developer made all the decisions himself.

There was no strata council. We realized we had to create one from scratch. That meant meetings, maintenance, financials, contingency funds, and best of all, management by committee.

I volunteered to be treasurer, mainly because I knew that if I did the books, I could trust that they were right. I sure didn’t trust the shady realtor guy to take care of the money.

The other members of the strata consisted of the realtor who couldn’t keep his private and client business separate, an owner who worked hard in the strata but was always stressing about minor things, and various absentee landlords who either wouldn’t answer emails or who would send emails telling us what we ‘should’ be doing for them.

We were happy to discover that our tenants were pretty good ones, responsible and they paid their rent on time. The finances from the building cash flowed and so we were happy with our purchase.

When you’re a landlord, sometimes it’s not the tenants that are the problem. Sometimes it’s everyone else in the group.

Then came the mold problem.

Someone discovered mold in the attic of one of their buildings. Sure enough, it was in all of them. It had to be taken care of. Our shady realtor stepped in and hired a family member to do the fix on the cheap.

Then there were few other problems.

The quote to replace the roofs was higher than the amount in the contingency fund. There were other unexpected repairs coming up. We could see the writing on the wall. It wasn’t going to cash flow.

We were tired of being told what to do by the other owners, especially since they weren’t contributing to the conversations. They liked to complain.

The shady realtor guy was always going to be a problem. He was a user.

We held the building for a year and then we decided to sell.

A golden rule in business is when you divide something into smaller pieces, and sell them, you can charge more. People do it all the time. One good thing about the fourplex was that consisted of four separate strata titles so we could split the building up.

It’s the opposite of buying bulk.

We listed, and sold all four units separately, within a few months of each other. There was a profit, so there were taxes to be paid, but all in all, we made a bit of money on it.

The best thing about selling was getting away from the shady realtor guy.