My Worst Investment Ever -- Part I

     I've made some bad investments in my life. But the worst? It was one I made in the 1980s, soon after my daughter was born.

     A friend of mine at work had what we now call a side hustle. He invested in condominiums. He owned a rental unit in New York, and he bought and sold a couple of condos in Florida. He purchased one when it was still on the drawing boards, then sold at a profit even before it was built.

     It sounded pretty simple to me. I asked him for advice, and he gave me some tips. He told me to buy a one-bedroom unit, because they are the easiest to rent.

     I found a condominium complex in Connecticut, which to me seemed a better idea than buying in New York. Condos in Connecticut were less expensive. And at the time there was no income tax in Connecticut, so when I sold (at my big profit) I wouldn't have to pay any state tax. I thought: this should be a great investment; it'll pay for my daughter's college education when the time comes.

     So I bought a one-bedroom unit. An older woman rented it from me right away. She paid her rent on time, and aside from calling me up now and then to come and fix something, she was a perfect tenant.

     The year after I'd bought the condo, units like mine were selling for $15,000 or $20,000 more than what I'd paid. This is great, I thought. Easy money. It'll take care of my daughter's tuition, just like I figured.

     The problem was (looking back), the year after I bought my condo was the peak of the local real-estate market. Prices flattened out, then went down, not to fully recover until the late '90s. By then I had the place rented to someone else -- a divorced mom with a young daughter who, it turned out, had trouble collecting her child support, which meant I had trouble collecting the rent.

     I tried to sell the condo in the early 2000s; but with no takers I ended up renting it again -- but not before sinking several thousand dollars into new carpeting, a new dishwasher, and fresh paint.

     My new tenants were Philip and Deborah, a nice married couple. What I didn't know was that she hadn't exactly told me the truth about her job, and they were soon to be getting divorced, and so whenever the rent was late, and I talked to Deborah, she told me to talk to Philip. And whenever I talked to Philip, he told me to talk to Deborah.

     They went three months without paying rent, just making all kinds of excuses. They finally came up with most of the back rent, only to fall behind again. I ended up driving over to the condo every month to collect the rent, sometimes in cash, sometimes a hundred or two short, because I knew if I left it up to them to send me a check, it would never arrive.

     But what was I going to do? It's a long and expensive process to evict a tenant. And besides, I'd feel like a real heel trying to do that to someone.

     To add insult to injury, it was about this time that the condo complex voted through an assessment for a major renovation project. So even as my tenants were stiffing me for rent, I had to raid my savings account to pay the special assessment.

     Meanwhile, Philip had the temerity to complain about the upstairs neighbors making too much noise. There was a dispute that ended up with me having to attend a disciplinary meeting of the condo board. Finally, Deborah moved out. A friend of Philip's moved in. They did better on the rent. But when I told them I wanted to put the condo up for sale, they left in a huff. Which was, actually, a relief.

The heart of my condo

     I had the unit on the market for three months. No sale. By this time, despite the new windows that came with the renovation, the place looked pretty shop-worn. But I was able to rent it again, on a one-year lease. Then the next year, in 2016, B and I moved in. We spent $20,000 fixing up the bathroom and kitchen, and installing a washer/dryer. And then, finally, last year we sold the place.

     It went for $148,000. After I paid the lawyer and real-estate agent and the transfer taxes, and deducted the special assessment I'd paid and the $20,000 I'd just put into it, I ended up with $100,000. I'd paid $90,000 for it back in the 1980s. So I had a $10,000 profit to show for my 30 years of effort.

     And now (this is why it's on my mind) I'm paying $8,000 in Connecticut state tax. (Yes, of course, Connecticut instituted an income tax in the intervening years.) And I also owe a little over $20,000 in Federal tax on the sale. So after taxes, I'm really taking a loss.

     To be honest, when I bought the place I took out a mortgage, which I paid off over the years from the rent I received. And the reason I owe so much tax is because I depreciated the unit over 20 years, saving myself probably about $1,000 a year in taxes.

     Still, $10,000 for 30 years of work? For the time and trouble it took me, I was making less than minimum wage.

     I know other people who have made good money in real estate -- my old friend, for example, who last I heard is living in a luxury condo in Chicago. I have a golfing buddy who bought a house in Florida during the 2009 recession. It's now worth twice what he paid for it -- and more importantly, it's only because he grabbed a bargain back in 2009 that he's now able to afford to spend his winters in Fort Myers.

     But me? Maybe I just don't have the savvy to buy and sell at the right time. Maybe I don't have the temperament to be a landlord. My real-estate adventure was . . . well, it wasn't a complete bust, but it sure wasn't worth the time and aggravation.

     The lesson? Investing in real estate may be for some people -- people who are smart, and perhaps lucky, and who have the mind-set to be a landlord. But it's not for everyone.

     So was my daughter able to go to college? That's a topic for my next post.