Real Estate News and Market Moves Week 21

Retired marines, 25% management fees, and why roofs matter…

My investment career would have one more sharp detour before I had to deal with the aftermath of 2008. My partner Jeff and I had decided our inter-state enterprise lacked efficiency, along with profitability. He wanted to focus on wholesaling and I wanted to learn how to act like a responsible investor—something that would take another 10 years for me to really figure out. 

I stopped looking in Orangeburg, Irmo, and Greenwood, SC and narrowed the scope of my search to Augusta and the greater CSRA (Central Savannah River Area). Unfortunately, geography was the only thing narrowed in my search for investment real estate. I still didn’t know how to find or buy investment real estate, but I found a partner named Scott who was known to be able to do both. We threw our initials together, formed an LLC, partnered with my dad who provided seed capital, and were off to the races. 

It was not hard for us to find properties, which is usually the case when your buy box is everything. Unfortunately, it was also not hard for us to buy properties, as the beginnings of the distress in the market began to show in the seller’s willingness to offer attractive prices, creative terms, and owner-financing. This environment of creative deal structuring became manna from heaven for Scott and I, and we went on a dizzying spree accumulating “assets” with little thought of how we would renovate, reposition and sell them. 

Here is just some of what we bought: 

• A building in downtown Augusta without a roof. I would buy back the same building (with a roof!) over 15 years later for over a million dollars more than I spent the first time
• 8 duplexes in Belvedere, SC the seller so badly wanted rid of, he paid us to buy them 
• An assemblage of properties in downtown Grovetown, GA, so we could try our hand at land development
• A small mobile home park in Grovetown, GA 
• A couple of houses and townhomes we could assume mortgages on 

Scott and I were great at buying. 

However, we failed to really discuss what happened next. Like most partnerships which don’t fully form, our passions, pursuits, and activity were not complementary. We both wanted to do the same thing. And neither of us wanted to run the operations–which would prove to be more than a small problem. We also found that just because we could buy the asset, did not mean banks wanted to lend money on the asset. In one meeting with a banker, I remember the bank representative, feet on his desk clipping his fingernails into a trashcan, staring past me as if I wasn’t in the room.

The loose lending bacchanalia of 2006 was gone. We were not in a promising place. We had accidentally become the worst type of investors: Collectors. And we had to figure something out, fast. Every day the market was changing. But we didn’t pay attention–lacking discipline and focus, we accumulated a lot of property and really had no plan. Up until that point, the market was so unstoppable, a plan was borderline irrelevant.

We set out to stabilize and sell, not knowing the world around us would soon be collapsing. Still not sure how to manage what we owned, we hired a retired marine who went by the handle Dragon6 to door-knock-collect rent in our mobile home park. He proved more effective than us but was likely not the poster child for fair housing. He charged a 25% management fee for his services and collections increased dramatically.

I remember thinking how I missed this portion of real estate investment training. I also remember again thinking that being broke in the music business was a hell of a lot more fun. Check back next week for more stories from the streets. 

Also make sure to check out all of Auben’s upcoming educational events so hopefully you can take a smoother path in your investment career!