Here are a few possibilities: I want to help people. I had an idea that I thought would be interesting and motivational. I wanted to show people that I could write. I wanted to have proof of being a thought leader in an area. All these are true, but want to know the real reason?
In short: because I had to. Sleepless nights and nervousness. Worry and fear. That’s why.
The Long Story
I am a syndicator, which means that I put together real estate deals with investors. I put in a large chunk of my own money and take a lot of risk, but I never do a deal that I don’t think is likely to succeed. Everyone has to do their first deal with no experience. Well, I did have experience running my own multifamily projects, but never being trusted with investors’ money before. This was a new thing for me.
I had purchased my first 16-unit apartment building about 4 months prior to beginning to write. It was owned by a nonprofit company whose mission was to provide rental assistance to people who were down on their luck. They functioned by receiving charitable gifts but most of their income was through government grants. They would do a background check and regularly make sure that a tenant’s income was below their threshold to get assistance. There was a sliding scale from a few dollars up to the entire rent. They would pay this subsidy monthly directly to landlords where the tenant chose to live. A commendable mission, in my opinion. I think they just lost their way a little bit.
This non-profit at some point decided that they could do more good by cutting out the middle-man and simply owning apartments themselves. They could keep rents low, thereby having to pay less each month. They would essentially pay money from one hand to other one, reimbursing themselves with the subsidies they were paying. Maybe they realized that this wasn’t their mission. Maybe the government stepped in and stopped them. Maybe it was something else. Either way, they decided to sell their apartments.
The numbers worked. 7% cap rate, low rents, no vacancies, and a corporate payer, what wasn’t to love? Better yet, the building had a large garage they were using as a thrift shop. This could be converted into 4 rentable garage spaces. They were using one unit of the 16 as an office. This could be converted back for an extra monthly income. Both of these would significantly increase the property’s value.
It was a fantastic deal on paper. I followed the due diligence checklist in detail. I got my inspections back. I reviewed all the leases. They were all there and they all checked out. Even better, they had the background checks for all the tenants for my review. I gathered investors and collected their money. I raised an extra $80,000 to convert the office and garage. We got the deal closed in late spring.
That’s When Problems Started Appearing
About 75% of the monthly income of the building came in a single direct deposit from the non-profit. This didn’t occur to me to be a problem. I never had to knock on doors for rent because it just showed up. I was self-managing, so I was over there a lot to do cleaning and repairs. I got to know many of the tenants by first name. Most were just trying to make ends meet. They had the subsidy and wanted to work to make more money, but those that did were dropped off the program. From my perspective, it was a system that locked them in. But the money came in each month and I busied myself with management.
It was so easy until 4 months in, when the non-profit determined that two of their clients (now my tenants) were making too much money in their jobs and dropped them from the program. Now, I was knocking on doors for the rent and they weren’t accustomed to paying it. The next month, 3 more were dropped from the program. Next month, 3 more. It was now a monthly occurrence. The non-profit always cited some reason the tenant violated their rules. I had no recourse with the nonprofit. They didn’t have any leases with us. The tenants did, and our only option was to evict them. I felt terrible going around to each door and telling them that they would need to pay or leave. It seemed to me like exactly the thing the worst type of landlord would do. But I knew that without income, we wouldn’t be able to pay bills, and the place would become unlivable for the tenants anyway.
At this point, I started waking up at 3AM every morning. Each time my first thoughts were about losing the apartment building, not being able to provide a home for the tenants, and losing investors’ money. I kept cycling around these thoughts and the worry and fear about what would happen kept me awake. I’m aware that my situation wasn’t anything like those people who were forced to move out. They had it worse than me, to be sure. I just kept thinking about where I screwed up, what things I had missed in my due diligence. Could I have required an agreement with the non-profit to keep paying? Could I have found some red flag in the leases that I missed?
By fall, we got down to 25% occupancy. Of the 16 units, only 4 had tenants in them. This is a situation a short way from foreclosure. The only thing saving us was all that extra money I had raised to convert the garage and office. It was now being burned in monthly mortgage payments. I felt paralyzed. I was advertising units at below-market rent and giving concessions just to get anybody in the door, but winter was coming, and people don’t like moving in the snow.
I continued to wake at 3 AM, always with thoughts of how much of a failure I was for doing this crazy syndication deal. I felt imposter syndrome – “only the big syndicator guys should be doing these.” Who was I to just come from nowhere and pretend to do it? I avoided talking to investors. Sure, I always answered the phone when they called, but I didn’t go out of my way to call them up with details. I told them about the situation in my quarterly reports and not one gave me an angry call, but I knew they were thinking how much of an idiot I was.
I kept focusing on those negative thoughts and kept waking up in the middle of the night. The problems sleeping meant that I was almost useless during the day. I was grouchy with my family and with my tenants. I started to avoid going over to the property and this seemed to help. I realized that if I forced it out of my mind, it would make me feel better. I concocted this mental scheme that I really thought would work: I associated each distinct negative thought with some good thing bout myself, such as an award I had received. I would think about these over and over during the day to associate them together in my mind. Whenever I would wake at 3AM with a negative thought, a positive corresponding through would pop in directly after. I felt like a mental genius.
But it was all smoke and mirrors. Everything I was doing was running away from the problem. I could put it out of my mind, but I was still waking up at 3AM, still having negative thoughts. Sure, I could suppress them, but that was not making me any more rested during the day, and not making any more money for the apartment building. This thing was destroying my ability to get anything done and my relationships were suffering. I needed to do something else. That’s when I discovered Authority.
My Authority Problem
My type of Authority is with a capital ‘A’. It is something we all have inside us and we either keep it or give it to other people. If we give it away, we then perceive their judgment of us and we internalize it. We allow them to judge us and that judgement becomes our judgement of ourselves. The cruel part is that they may not even know we are doing it. We only perceive their judgement but still react the same way. My investors may not even know or care about what 25% occupancy means. They might not be worried in the slightest about it. They may have complete faith in me. In my mind, it didn’t matter; I’d already given them Authority to judge me and that judgement was that I was a terrible person. I imagined what others thought of me and it became my reality. All because I gave away that Authority.
It’s the same way when we are driving our car and speeding a little bit. We might speed past a parked police cruiser and suddenly slam on the brakes, getting extremely nervous about being pulled over. We might not even know that the officer in the cruiser was looking down at their cellphone and didn’t even see us. Yet we gave them Authority anyway. It is in our mind.
It was that critical thought about the police officer that somehow popped into my head one morning at 3AM that saved me. I was so worried about what other people would think of me (the investors in this case) that I couldn’t focus on anything else. When I woke up in those mornings I started to ask myself, “Is there anything I can do about this, right now?” If there was something, I would do it, because I was awake anyway. If there wasn’t anything, I would write it down and address it during the day. Many thoughts were checklist-like things. I wrote them down whenever they popped in my head, and getting them on paper helped me forget about them in the early mornings. This freed up time to think about other things, such as how I would actually fix my apartment problem. Also, the ideas that made up my book. I kept everything in a notebook by the bed and it helped me immensely. I rarely wake up at 3AM anymore. If I do, I take out my notebook and write it down by the light of my cellphone, and then peacefully go back to sleep.
It’s those thoughts that came to me that I had to get out there so other people could benefit. And I’m so happy I did. If you want to know how the apartment building turned out, I wrote that in my book, Your Authority Problem. Have a look and see you next week.