The Accidental Slumlord

I ask Johnston what I could sell my property for today. He suggests listing it at $74,900—nearly 20 percent more than I'd paid for it. I'm skeptical. He explains his rationale: rents on my property have risen since I bought it, and it would still be one of the cheapest multifamilies on the market. "You have no competition when you get into that price range," he says. Still, he says I'd be smarter to hold onto it, since demand should get stronger as credit markets calm.

His assessment seems extremely optimistic, but as I ask around town, other pros suggest I'm not in as bad shape as I'd assumed. Unlike speculators who were intent on flipping properties in Miami or Phoenix, nearly everyone who invested in Pocatello was focused on "cash flow": renting the property for more than its carrying costs and hoping the property appreciates over time. While there have been some foreclosures, they've often been caused by divorce, a bad business partnership or other circumstances unrelated to the housing bust. "Clients I sold to who bought and held, nobody has lost money," says broker Todd Bohn. "If they'd put that money in the stock market, they'd be stuck." Like my property manager, Bohn figures if I was forced to sell quickly, I'd take a big loss. However, he outlines a scheme in which I could offer financing to a prospective buyer and conceivably ask $75,000 for it. Paul Smith, who's been appraising Pocatello homes for 46 years, agrees with the brokers that prices here have hardly dipped and offers reassurance. "You might have experienced a little decline from what you paid for it, but if you're in no hurry to sell it, you're going to get it back," he says.

The next morning at 6:30 I'm at Lowe's, haggling over the price of carpet remnants. By 7 a.m. I'm securing 12-foot rolls of carpet and linoleum to the top of a rented Hyundai. At 10 a.m. I knock on the door of my property. Dogs bark, and after a few minutes Bill comes to the door, rubbing his eyes. "Didn't I tell you I'd be here?" I ask. Yes, he says, but for years land--lords had making promises they didn't keep, so he didn't expect me to show up. After he dresses, we haul the flooring onto the porch.

Financially speaking, this $213 purchase is pure stupidity: it doesn't add to the property value and will hurt this month's cash flow. But it seems a small price to pay to improve the life of a rock-solid, longtime tenant—and, of course, to assuage my guilt over owning such a run-down property. My discomfort grows stronger as I spend the morning with Bill, Sarah, Will and Rose. It's easier being a landlord from 2,450 miles away, delegating to my property manager all the tough decisions about rent increases, late-payment penalties and potential evictions, and relating to the tenants only as faceless names on leases.

Standing in Will and Rose's living room, I hold their baby as Will plays the song they'll dance to at their wedding this summer. Standing on the front lawn, Bill outlines all the time and expense he's put into repairs over 15 years—and subtly suggests that, on the basis of this sweat equity, he should be the owner by now. (Before my visit I'd actually thought about trying to sell the place to Bill, particularly in light of the current $8,000 tax credit for first-time home buyers, but this idea ended when he said he thought the place was only worth $40,000 or so; he also lacks a down payment.) I change the subject and ask him why he's stayed here so long. He shrugs. "It's home," he says.

Taking a final look around, I can't help but compare the dingy bathrooms to mine at home, with dual sinks in a granite counter and a deep whirlpool tub. Earlier I'd joked to a friend that my visit to Pocatello felt a bit like Robert Kennedy's tour of impoverished Appalachia. But after watching Will and Rose's son crawl across the foul carpet, I'm reminded instead of a JFK quote: life is unfair.

As I drive out of Pocatello, I'm still not exactly sure what my property is worth. I am relieved that, for the moment, it seems a less disastrous purchase than so many made during a decade of speculation. I still hope to make money here, but I'm more aware that no matter how much I try to be the benevolent landlord, my profits are based partly on exploitation; what I've thought of as "cash flow" comes by allowing some discomfort in the lives of others. Having met Will and Rose, I hope they can move into a trailer-park home with a separate bedroom for their son—but as a landlord, I have to hope they get caught up on their rent and stay right where they are, sending their checks to me. Likewise, I hope Bill keeps on making minor repairs that are really my responsibility. And when these current tenants move out, I'll be relying on Ryan Olsen to find another set whose lack of savings, poor credit or crummy jobs prevent them from living someplace nicer. It's a set of concerns I gave little thought to back at the height of the property boom. But this deal, like so many can't-miss propositions struck in better times, is turning out to be more complicated than I'd imagined.

© 2009