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By Jay Gershman, Retirement Visions LLC, West Hartford
I often sit across the table from young, bright-eyed clients asking my opinion on investing in income property. I can’t help but want to deter them but I know that they are destined to learn from their own mistakes and not mine.
My 27-year-old self was much the same as the people who sit across from me today. I was the owner of a landscape construction company and despite warnings from my parents, investing in not one but two multi-family houses within two years seemed like a great idea – the start of a real estate empire in fact!
The first house was famously featured on the news, but not because of its beautiful design or historical significance. Its previous owner was an off the charts hoarder with junk piled so high that the rats came from far and wide to indulge in what lurked below the layers. The second house was thankfully better and the proximity seemed convenient, so I cleaned and beautified and was excited to welcome my first tenants.
The excitement quickly wore off when I realized that I was being consumed by chasing payments and evicting tenants. At the same time, the property market was crashing, slicing and dicing my investment by 50 percent. I fought back and worked hard, and in 2006, I finally sold both properties for a 30 percent profit on paper. When I sat down and really looked at my numbers, I realized that I had actually turned a 1.5 percent annual profit not including over 5,000 hours of labor.
My trials and tribulations of multi-family property ownership didn’t deter me from my next venture: vacation rentals. In 2002, a found a mold-ridden shack on a lake in the Berkshires that could be rented both summer and winter and I negotiated a great price. I tore the place apart and recreated a beautiful cottage that my family could enjoy while bringing renters in from online. My excitement for quiet weekends in the country led me to buy another place down the road and flip that one too. While the first one sold successfully, the second one was still in my hands when the recession hit in 2008. My flip became a flop, resulting in another 5,000 hours of labor and no net profit.
You would hope that my final experience, a cottage on the Connecticut shore, would be a different story. Third time lucky, right? Not quite. After restoring the beautiful house just 50 yards from the water, renters seemed to flow easily. Sadly profit did not. When I decided to sell and handed the keys to the excited new owners, I shrugged my shoulders and vowed that this time would be my last.
I can’t help but wonder what would have happened if I put the money in the market and saved myself all the hard work. What about the success stories of the people who buy, renovate and flip for huge profits?
The reality of real estate is that it’s a tough game. Being lucky enough to buy low, do the work yourself, and have great tenants is only half the battle. Unpredictable market dips, changes in tax law, increases in property taxes, and interest rate fluctuations are unforeseen and can put a hacksaw into your investment.
So before you take the plunge into what might seem like a sure thing, listen to those who have done it, think twice and then think again.
Jay Gershman is the Owner and Founder of Retirement Visions LLC, a West Hartford-based financial planning firm that focuses on comprehensive life planning and financial management. For more information, visit www.allset2retire.com. Information and advice are for guidance only and opinions expressed belong solely to the author. Securities offered through Securities Service Network, LLC. Member FINRA/SIPC. Fee based services are offered through SSN Advisory, Inc., a registered investment advisor.
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