I didn’t announce it on the blog because we know that nothing is a “done deal” until the check is deposited in the bank. But I did mention on Twitter that we had recently accepted a purchase offer on our 8-unit apartment complex. The property wasn’t even on the market – so the offer was somewhat of a surprise. And closing was set for the end of this month.
We listed it last summer for a few months and even though we had many showings, it didn’t sell. The main reason was that even though we’ve had almost 100% occupancy for the last five years, potential buyers thought the rents were too low. Most were convinced that the rents could be raised by at least 10-15%, but they weren’t willing to pay for that “potential” either.
When we bought the property in 2012, we planned to manage it ourselves – even though we could afford management. We weren’t new to landlording (remember – we had another tenant for over 22 years!)
But since we’ve reached FI (financial independence), we decided that it might be time to start selling some of our properties. We sold our house and moved into one of our rentals (post and pictures coming soon!) And this would have been the next step in the property purge!
One of the biggest reasons we considered selling last summer was because we couldn’t find a property management company. And we thought that even if we could find one – would they really take good care of our property? Would they be focused on finding good tenants quickly? How much would we have to pay a vendor to deal with a repair? And can you honestly trust others to take care of one of your largest assets?
But believing that you can’t trust or rely on others is a middle-class mindset, not a millionaire one.
And I was reminded of that when I read an article this week about my two favorite Buffett’s – Warren and Jimmy. The article mentioned that Warren and Jimmy took a DNA test for fun just to see if they might be related. And even though they found out they weren’t, we certainly related to a lot of what the article talked about.
Early in his career, Warren offered Jimmy three words of advice – management in place. Warren told Jimmy that to build a successful business, he should hire good people and stop trying to do everything himself.
The millionaire mindset focuses on finding smart people who can run your business as well, or maybe even better than you – so you have time to do different things. Build new businesses. Make more money. Or go off and have more fun.
Believing that no one can do things as well as you is a limiting point of view. And it’s often just plain untrue. This middle-class mindset can restrict your financial success and enjoyment of life. If you have to put all of your energy into one area, how can you grow others? And if you’ve reached FI, why keep doing the work yourself when you have other priorities?
So we’re going to work hard now – but we’re working to ditch our middle class mindset.
The buyer has backed out of the contract to buy our property. The “all cash” deal may have been derailed by the madness of the markets in the last two weeks. It’s time for us to focus on the millionaire mindset.
We won’t be using the sale proceeds to pay off our last mortgage (like Fritz at the Retirement Manifesto recently did), but our tenants will continue to provide us a nice monthly income while paying down our mortgage and helping us build equity.
And we are going to trust that the smart and professional property management team we’ve found will be just as good, if not better “landlords” than we were. (They also happen to be the realtors we used to market the property last summer.) They’ve already raised all the rents more than 10% since they took over the property in August. They are the “go to” people now, not us.
Will we have to answer an email or a call about the property? Sure. Will we still mow the lawn or turn over an apartment when we are in town. Probably. Because we have time to and we still want to be involved and “know” our property. But we also know that it is in good hands and that when we’re gone or if we don’t want to do the work – someone else will do it and do it well. And their rates will be in line with what we would expect because our property manager manages the vendors too.
So you might wonder why we even entertained the purchase offer last month since we’ve found a good property manager? A manager who has already increased the rents enough to almost cover the monthly management fees!
Because we think a property is always for sale. (And that might not be the best thing…)
Days before we got the offer, we had moved into our lake house remodel. We were excited to head south and start our snowbirding plan. We had already started a refinance on this property so if we sold it, we’d just pay off the mortgage. It was an easy switch!
The cash offer came in with no contingencies. No inspections. Nothing. They had looked at the property last summer and knew what the quality they were getting. No negotiations – because we weren’t even trying to sell it.
And to be honest, we were tired of thinking and making decisions. DECISION FATIGUE IS REAL. And taking this offer was an easy decision.
If the deal had gone through – we would have been happy and moved on. But since it hasn’t – we’ll be fine too. We are going through with the refinance and we’ll have about $500/month greater cash flow. And this is on top of the rent increases the management company has put into place.
We’ve also gone back and read more about the “right time” to sell investment properties. The Financial Samurai’s “When to Sell An Investment Property” gives 15 reasons to consider selling. We really didn’t fit any of them. At the end of the post, Sam says – “Owning real estate is like a war of attrition. The longer you can last, the wealthier you will likely be.” We’d like to think he is right!
This property also provides us with an important stream of income. Until I can collect my pension in just over four years, diversification of income streams is probably a smart decision too. Physician on Fire just had a post that suggested you have seven streams of income. We only have six, but we’re close!
So we’ll let the management company do their job and we’ll hop on our bikes and ride to the beach today. And we’ll take a phone call if we need to. Life is good and adopting a millionaire mindset might make it even better. We’re ready to give it a try!