Greg’s First Crisis: Lawsuits & Loans
“I had worked out an arrangement with my lender. The president of a community bank trusted my models and gave me a chance to fail. He personally underwrote five of my mortgages. The catch? He could call them if I ran into issues.
“My low point as an investor came when I was sued. I bought a house in foreclosure. The previous owner’s daughter put a claim on the house.
“Since I held a mortgage, not only was I being sued but so was the bank. So I was nearly in tears. Totally shaken up. I called the president of the bank literally shaking. I thought he was going to call $500k+ in mortgages.
“Instead, he laughed and said in a fatherly way, ‘Greg, congrats you’ve arrived’ I was so confused. ‘He said, don’t worry about this. You do the right thing so this will work itself out. Hang in there. You’re only being sued because you’ve arrived.’”
“The municipality where I had most of my houses did not want rental houses, they wanted homeowners. They were not shy about it.
“One way they fought rentals was with inspections. I once had a house fail an inspection (which meant the tenant couldn’t move in) because they said a pool was in the backyard. A pool wasn’t in the backyard. They said I had to dig up the backyard and prove to them there wasn’t a pool.
“I offered affidavits from neighbors or a historical google satellite image. They said no. The ground was frozen since it was winter. I asked them to say where it was so I could get a shovel and dig that spot. They replied, ‘It is in the backyard.’
“I asked what the concern was, and they responded ‘hydrostatic pressure.’ I tracked down someone that lived there 20 years earlier. He happened to work at a pool company and did install a pool a long time ago. He said there was no chance of hydrostatic pressure because the floor of the pool was made out of compressed sawdust.
“The municipality wouldn’t accept his testimony. We rented an excavator and dug up the backyard. They were satisfied. Their bullying was complete and we got our permit.
“For me, the municipality where I invested has been the biggest headache. The tenants were easy.”
Greg’s Advice for New Real Estate Investors
“The biggest advice I can give is the same advice Mark Cuban gave me before anyone really knew who he was. He had a blog in the early 2000s. I emailed him because I was in grad school not learning anything but I was interested in real estate.
“To paraphrase, he said something to the effect that ‘At some point, you need to stop wasting time and just go learn by doing. If you are thinking about buying a rental house, go buy a rental house.’ Use resources like SparkRental to help you figure it out as you go. On a long enough timeline you’ll be fine.”
What other advice do you have for novice real estate investors?
“Find a great and reliable contractor that is amazing at troubleshooting. They are a dying breed but they are your biggest partner.
“Standardize as much as possible. For example, paint the interiors the same color, that way you just touch up most of the time and you also don’t have a garage full of paint cans. It also lets you buy the paint on sale and save it for later. We keep a five-gallon bucket of “parchment paper” paint and white semi-gloss. It saved so much time.
“Lastly, tenants are people. Treat them like people. So many landlords think they are the boss or nickel and dime tenants. Don’t do that. My job as a landlord has always been customer service. Look at it that way and you’ll retain good tenants and come out ahead.”