That’s what someone who was very close to me said when I was making a decision about a tenant… “Karma’s a bitch.”
They also said, “You’re a slumlord” and “You’re taking advantage of him.”
These are some really strong words, and, as you can imagine, it really made me second guess my decisions.
I almost waffled on the decision but I stuck with my gut instinct… and I’m sure glad I did.
Because, after all, karma’s a bitch.
Here’s the story how Karma earned me $50,000 and a lifetime of extra passive income because I made the decision I thought was right even in the face of major opposition.
Setting the Stage
To understand the story, you need to have some background.
It was sometime around May or June and a 2-family house came up for sale on a street that I like to buy on (I already owned 3 other buildings there). I looked at it and ran it through my deal analyzer but it was priced way too high so I passed. A few weeks later it went under agreement.
Oh well, deals come and go.
A few weeks pass and I was in the area inspecting my properties. Strangely, the tenant of that building came up to me and begged me to buy the house he was living in.
This has literally never happened to me.
Coincidentally, the deal fell through so I tossed out a low offer at a price I would buy it…
…and it was accepted!
My New Two Family!
Here’s part of the problem though. The tenant on the first floor was locked into an 18-month lease at $425 per month for a 2 bedroom. Doing a quick market analysis, it should rent for at least $850 – $900.
You have to run a business, but, at the same time, you have to be able sleep at night. – Eric Bowlin
To make things worse, it was a 70+ year-old man with a fixed income less than $900/month. There was literally no way he could afford the rent. So, I was stuck deciding on if I should make a man homeless or having a property that can’t cash flow.
Not a good situation to be in…
The “smart” decision is to evict him. Afterall, the market is the market, right? People can’t expect to get locked into rent prices from 1987.
But, I think people get so caught up in business and making money that sometimes we forget the human impact of those decisions.
Finding a win-win
I asked him to apply for section-8, which he promptly did. Unfortunately, he found out he was qualified but there was a 1-2 year waitlist. Also, he was on an 18-month lease that expires in September 2018.
Hmm. The easy solution is gone, so what can I do now? I can’t force him to move, obviously, especially since he was on a lease.
You have to run a business, but, at the same time, you have to be able to sleep at night. Personally, putting him on the street was not an option but there was no way I could lose $500/month. For a 2 family deal, that’s literally all of its profit.
Time to get creative.
I needed a third option. My first two options – wait a year and kick him out vs leave him there forever were both bad options.
How I could I solve everyone’s problems and how could everyone get out ahead?
After some thinking, I figured I could move him up the street to a 1 bedroom apartment that usually rents for $600-$650. He’s a single man with just a dog and there’s no reason he couldn’t fit in a smaller apartment. I’d still lose around $200/month, but I could keep his rent the same until he got his voucher.
After it the voucher came through, I could probably get above-market rent (section-8 often allows above market rates) and make up the losses! It would take 2 years and I’d lose about $2,400 in the process, but knowing I didn’t make a man homeless is worth $2,400.
I’d be keeping an elderly man in an apartment, he’d ultimately save money (once his voucher goes through), and I’d hopefully make more money in a few years once the voucher comes through.
I would lock him into a lease at the same rent for the same length so I could completely honor his previous agreements. Also, I promised to extend the agreement until he got his section-8 voucher.
I thought it was an overall fair solution.
Asking the manager to tell the tenant
I reached out my family member who was managing the rentals for me and told him the plan. (On a side note, try to never do business with family.) He wasn’t enthusiastic about it but said he’d contact the tenant and make it happen.
A week went by and I didn’t hear anything.
Then another week.
The manager said the tenant was not enthusiastic about it but he was working on him to convince him.
So, I decided to go chat with the tenant and see what was going on.
I spoke to him and pitched my idea. He said he was so happy I was willing to work with him but he just couldn’t afford to move and he couldn’t do it all by himself because he was too old.
So, I offered him a month free and an extra $100 to pay some friends to help him move. He accepted and began to move almost immediately.
I also spoke to another tenant on the street to see if I could get some background information since everyone on the street knows everyone else. A few days later I heard from my contact on the street and found out that he was VERY happy about this arrangement.
He also said the manager never actually asked him to move. Wait, what?
I reached back out to the manager to let him know I solved the issue and he blew up on me. He said it was completely wrong to move the tenant and we were taking advantage of an elderly person. He said we’d be slumlords if we did what we were planning. Also, he said I shouldn’t go and make arrangements with my tenants before consulting him first.
Wow! Strong words, right? Since this was a close family member and the words were so strong, I really questioned what I was doing.
Things with management turn sour
The tenant contacted me a few days later. The manager said that he was the ONLY authority and agreements with anyone else were not valid and were liars. The manager said DO NOT MOVE. He felt so strongly about what I was doing that he was actively trying to sabotage my plans.
This was a huge red flag but it also made me question myself. The manager was clearly way out of line but, was I really doing the right thing?
It shows some very strong beliefs when a person actively works against you undermines your rights as an owner, and destroys your relationship or business arrangements with the tenants but also with himself. If they felt that strongly, perhaps I misjudged?
The tenant clearly disagreed with the manager and brushed him off and listened to me rather than the manager. Within the week he had completely moved. But in the back of my head I still questioned myself.
Then the nasty texts started to come. The manager was calling us slum lords, bad people, and even threatened to call the state because he believed we were financially exploiting an old man.
In one cryptic message, he said:
“Karma’s a bitch”
…and suggested we’d somehow suffer because of this choice.
Ultimately, the management arrangement broke down and he no longer works with us, but not before costing us over $10,000 in damages (A topic I’m working on and can’t wait to publish!) because I didn’t follow basic principles of finding a property manager. Regardless of that, I must say these comments weighed heavily in the back of my head.
Karma Balances The Universe
Several weeks go by and I’m not really thinking about the whole situation anymore. A woman contacts me – she does direct mail marketing with me to try to find properties off-market – and tells me someone wants to sell me their property.
He reached out to her and said that I’m a real gentleman because of what I did for this tenant and he wanted to sell his property to me and only me.
Apparently, my tenant was so happy with the arrangement, he told everyone and every owner on the street.
The neighbor had tried to sell his property 3 years ago but all the buyers wanted to empty the building out. The owner valued his tenants too much and chose not to sell rather than evict them all.
A few years later he hears this story and realizes I’m exactly the person he wants to sell to. He contacted me because he trusted me based on how I treated the tenant in the story I just told.
The great thing – he offered to sell it at the same price he had offers at 3 years ago.
The market has gone up at least 20-30% over the last 3 years which is equity I earn day 1. Since I’m putting 25% as a down payment, I’m roughly doubling my investment day one and will earn a lifetime of cash flow.
…and I’m earning it simply because of how I treated an old man with respect and found a solution we all could live with.
So my manager was wrong…
Karma isn’t a bitch.
Karma is a crazy mistress and you don’t even know why you’re in bed with her or how you got there. She’s a mistress we all have and you never know if your evening will be great or if she’ll stab you in the back.
Be careful before flirting with her because I assure you, she will change your life and you can never predict how.