Most of my “making a difference” posts have been either practical tips or meditations on different subjects. I decided I’d like to add another type of post: interesting stories about average people who are trying to make a difference. I don’t anticipate including these stories often, but I hope this story won’t be the last of its kind.
Mark Walden lives in Chicago, Illinois. Nearly nine years ago, he and his wife established Jubilee Affordable Housing LLC as a way to invest in property that they try to manage ethically. I sat down with Mark this summer to discuss the ups and downs of his venture into property management. Full disclosure: Mark is my friend, and I have invested in a couple of his properties. Although both Mark and his wife are involved in Jubilee Affordable Housing, Mark plays the more active role, so I focused on his story for this post.
How Mark became a landlord
In 2005, Mark was working at a chamber of commerce and learning how property owners shape neighborhoods. He wasn’t a home owner at the time, and he was beginning to think about how old he would be when a 30-year mortgage was paid off. Mark and his wife couldn’t find anything appealing in their price range, but they wanted into the market, so they decided to buy a duplex and rent it out. They figured they’d sell it later and buy their own place.
A while later, another duplex two doors away became available. This one had a storefront. Mark began to see the potential of using property as a retirement plan. He envisioned buying multiple properties and then living off either the rental income or the proceeds from selling the buildings in retirement. Because there was little demand for a storefront in the neighborhood, Mark ended up adding that space to one of the duplexes.
The third building, a four-unit apartment, became available during the recession. By this time, Mark had created Jubilee Affordable Housing. His goals as a landlord were to buy property close to his own home, to keep rent affordable, and to make green updates to his buildings. He took on investors, either to help pay for properties or, as in the case of his first building, to help pay for rehab work to a property. His promise to his investors was that they could buy 1 percent shares of his properties with a 6 to 8 percent annual return on the investment.
Mark purchased his fourth property, another small apartment building, in foreclosure. Along with the investors, he and his wife now own a total of 12 units. In addition to these four buildings, Mark recently purchased a house with the help of investors. The house is being remodeled for resale.
What’s going well?
Mark and his wife are proud to be preserving affordable housing. They’ve set rent at 20-30% below the market rate for apartments in their gentrifying neighborhood. Although they are deliberately foregoing potential income, they have been able to pay the mortgages every month and have not lost any of the apartments. In addition, Mark has chosen to hire people in the neighborhood to improve and repair the buildings, which contributes toward local employment.
Overall, things are also working for the investors. Speaking as an investor in his third property, I can say that Mark has paid us the promised 8 percent interest every year. Mark had to delay interest payments to investors on his fourth property after sinking quite a bit of money into improvements, but has now paid several years of annual dividends. And as Mark invests in improving the property, the value for his investors has been increasing.
The situation with tenants has been a mixed bag. Because the apartments are rented at below-market rates, Mark has his choice of tenants. The low cost also makes the turnover rate low — about one unit every year. The average apartment turnover rate nationwide is around 50 percent. He has had to formally evict one tenant and informally evict another. That’s not bad for 12 units over nearly 10 years, but it was still hard on Mark.
Mark also noted that being a landlord has added to his skill set.
What’s not going well?
Mark and his wife had hoped to be making money off of the properties by now, but with property taxes and other expenses, they aren’t there yet. Mark also said that he’s grown grumpy since he became a landlord (this from a person I would never have described as grumpy). “People are late with their rent. A tenant might not mention a problem until Friday evening.” (Repair people generally charge more if they are called in to work at night or on a weekend.) In fact, my conversation with Mark was on a Saturday, and while we were chatting, he received a call from a tenant about a problem and had to text a repair person to see if they were available.
Mark’s advice for would-be landlords
If you’re interested in following in Mark’s footsteps and trying to become an ethical landlord, he has some advice:
- Take your time looking for property.
- Expect perpetual aggravation, but know that being a landlord can also be fun.
- As a landlord, you may end up with “frienants.” You may become friends with your tenants, and you may end up renting property to some of your friends. This can be wonderful, but beware. Becoming a friend’s landlord may ruin the friendship.
- Mark noted that what is true for “frienants” can also be true for your relationships with contractors.
- The real estate mantra is true: Repairs will be behind schedule and over budget.
Mark’s foray into ethical property ownership isn’t a glowing success story, but that may make it all the more valuable. You can become a landlord in a way that will benefit the neighborhood. Just don’t expect it to be easy.
Do you know an ordinary person who is making a difference in an interesting way? Please let me know about them!
Post updated on 11/18/20 to reflect the new series title