Dear Reader,
I finished this post in January, but I didn’t like the thought of publishing November’s happenings in a different year, let alone a different month. So, I changed the publish date. I hope that’s ok with you.
Dilly
November’s major events included:
- Improvements in Lena’s mobility (crawling!)
- Teeth!
- A visit with the Ohio family, Ben and Tara’s wedding in Pennsylvania, and Lena’s first plane ride.
- Our first Thanksgiving at home.
Admitting defeat
When we first starting getting serious about financial independence about 2 years ago, I got pretty focused on real estate investing. I researched quite a bit, networked a little, and finally pulled the trigger on a single family house in south Kansas City that needed a *small* amount of improvements.
I structured the deal so that we purchased under market values and then had a ~6 month rehab period. That allowed us to finance the purchase and the renovation with short term bridge loan, and then transition to a cash-out refinance to a long term loan. (This has been popularized as the BRRRR method, if you were interested in learning more about the process.)
For it to work right, the property value needed to increase enough to both pay off the bridge loan, and to provide a 25% equity stake in the new loan (<75% LTV).
Lots of things went wrong with this deal, and they are all things that I could have prevented. I had originally intended to manage the *light* rehab myself (new flooring, various handyman work), but I quickly realized that I didn’t have the experience nor time to do it well, so I assigned it to our property management company. They got it done, but they weren’t cheap, and they didn’t move as quickly as I would have liked. The renovation scope exploded, and we ended up paying for some of it with credit cards (including a new roof).
Once the tenant moved in, I thought everything would smooth itself out. We were plagued by maintenance issues from the beginning, which might be expected with a new house. But, the maintenance calls just didn’t stop.
It’s still a sore subject for me, but I’ll list out the issues the that best I can without going into too much detail.
- This was the first house I toured. I should have looked at others to get a better feel for how it compared.
- I heard, but I didn’t listen to what the inspector said. “The roof has a few patches that will probably need to be patched again within a year” means “you will need to replace the roof relatively soon,” but I heard “the roof works fine the way it is, nothing to worry about.”
- I didn’t trust my gut about the neighborhood. It didn’t feel right to me, but lots of other investors own properties there, so I went ahead anyway.
- I fooled myself into believing that houses’s short term under-performance would eventually work itself out. I got caught up in the excitement of RE investing. I think I was applying my philosophy for stock/index investing (which are more fluid and likely to grow) to real estate (which has much more fixed costs).
- I underestimated the renovation scope and costs, paid too much, and overlooked the costs of financing. Loan origination fees should be factored into costs.
- We bought our duplex one month after buying this house, so there was not enough time in between to apply lessons learned from the first experience. The duplex has been a much more positive experience (better structure, better neighborhood, better tenants). But, we still could have done better. Purchase price, and managing the contractor.
- The final kicker, and biggest issue, turned out to be that the leak in the basement was caused by a crack in the foundation. Any repair for that would probably be $10,000-$15,000, and we can’t afford that right now, which is irresponsible of us as landlords.
We didn’t have the cash to cover the repairs that we would probably end up needing, so we decided to sell. The sale paid off the loan, but that’s it (I actually had to bring a $700 check to closing). We still have credit card debt left over from the over-budget renovation, which is something I never thought I would have.
This house hurt us financially, but we will recover. It is still hard for me to stomach, though, because I can’t help but think how much better off we would be if we had never bought it. Here’s a chart of our net worth.
Even though we’ve already surpassed where we were before we got into real estate, that dip means we missed out on future gains due to compound interest.
Either way, I hope to use it as a “learning experience” and apply these lessons to the future. The lessons are only applicable if I continue investing in real estate, and that feels like a long way off right now…
Lena!
November turned out to be a big month for Lena. She was working on figuring out how to crawl for a while, but she couldn’t seem to figure out how to go forward. We could see it on her face that she wanted to move forward, but she kept ending up scooting backwards (much to her frustration).
She finally figured out how to crawl on November 16. Once she figured it out, it was like everything clicked and she could go anywhere she wanted.
She occasionally stands up on her own by pushing herself up using our legs, and she is getting good at holding onto the crib.
Lena is still a very happy baby, but some things will predictably put her in a bad mood, like laying her down on her back for diaper changes or to get dressed. She stops crying immediately when she gets picked up, though. She also hates it when we come anywhere near her nose…but there’s just so much snot.
Other things:
- She is mesmerized by tags. I really don’t understand this one…
- Her first tooth came in at some point. Bottom front left.
- Lena is still quite bad a sleeping and she is dependent on feeding throughout the night. It is getting sort of exhausting.
Ben and Tara’s wedding
We traveled to Pennsylvania for Ben and Tara’s wedding the week before Thanksgiving, but we actually flew into Cleveland to spend time with Matt and Kelly, Chelsea’s parents, Aunt Jeannie, Shalyn, Tanya, Tory, Taryn. It was a short visit, but good for everyone to meet Lena.
Lena did quite well on her first flight. She fell asleep pretty quickly on the first leg, and otherwise was content to look out the window or play with us. There weren’t any issues with ear pain, like we had expected.
It is always fun to meet up with Chelsea’s family because there are so many people to see, and they know how to celebrate. We hung out with the typical cousin crew, but also got to spend some time with Matt and Kelly. Grandma and Grandpa were kind enough to watch Lena while we played games in other hotel rooms.
Thanksgiving
Since we traveled to see Chelsea’s family the week before Thanksgiving, we opted to stay home for the actual week of Thanksgiving due to vacation limitation and stress. It was our first holiday at home and without parents.
We cooked a turkey that wasn’t fully thawed in the crockpot, and it turned out great.
I think that’s it. I should probably write these updates sooner.