My Brief and Tempestuous Love Affair With Real Estate

I first got into real estate because I moved to Detroit right after college and back then it was impossible to live there and not think about real estate all the time. This was just before the city’s 2013 bankruptcy, and it felt, especially to a 22-year-old, like a wild place: when I arrived, most of the streetlights didn’t work, average ambulance response time was 45 minutes, and there were so few young professionals in the city that I was on a listserv whose sole theme was “people in their twenties and thirties who recently moved to Detroit.” People would email the listserv saying things like “party at my house tonight,” and we’d go to strangers’ addresses and actually make friends that way.

Most of Detroit’s problems were connected to real estate in one way or another. The city had invented the car and the highway and then watched as its residents used both to flee to the suburbs, to the point where the population was down 60% from its high in the 1950’s. The 2008 crash and foreclosure crisis that followed had hollowed the city out even further: even in the center of downtown, where I lived when I first arrived, the landscape was dotted with empty lots and abandoned buildings.

Into this environment sprung a motley collection of weirdo landlords and rehabbers who were either fixing up abandoned houses or caring for the ones that were still standing. These men, and the occasional woman, weren’t like the stereotype I had of the kind of boring person who normally gets into real estate; they were actually getting their hands dirty, teaching themselves basic contracting skills through YouTube tutorials and trial and error, and they’d all had other lives before being drawn, for one reason or another, into the DIY rehabber world. Some seemed lured by the economic opportunity; some were Michiganders clinging to hometown pride; some seemed to like the idea of providing shelter for others. But they all seemed drawn by the allure of spotting an opportunity others couldn’t see, and by the faded beauty of Detroit’s housing stock. And it was beautiful: in many neighborhoods, grand homes built at the height of American craftsmanship in what had once been some of the country’s wealthiest neighborhoods could be bought for a song.

My friends and I admired these rehabbers because they made it seem like anyone could do what they’d done. Detroit had that kind of DIY energy to it then; all around us there were people operating grey-area businesses or throwing underground warehouse raves or starting community gardens in abandoned lots they didn’t own. One of our neighbors even built his own streetlight, wired to an outlet in his basement, to keep the neighborhood bright back when most of the actual streetlights were broken. So when those same friends and I got the idea to buy an abandoned mansion and restore it ourselves, despite not having any money or knowing much about home renovations, not a single person we asked suggested it was anything other than a great idea, even though it objectively wasn’t.

Over the next two years, as we painstakingly—and with a lot of help—actually did end up buying and restoring that mansion, we got even more deeply embedded in the local real estate scene, and we met more and more people in it who were motivated by the best of intentions—people who may have been landlords and real estate developers by some technical definition of the terms, but who didn’t seem like it at all. These were guys like Alex, who created a house that looked like something out of a Dr. Seuss book just for the hell of it, or our neighbor Jeff, who despite being a difficult landlord at times had restored his properties with a level of care and attention to detail that far exceeded what was economically rational, or our friend Jon, who got to know all of his renters personally and intertwined his life with theirs in ways that went far beyond the traditional landlord-tenant relationship.

So when those friends and I decided to start a company, it was only natural that we’d turn to building a product for small, independent landlords. This was a market we now knew intimately—by this point, we were technically landlords ourselves, since we had renters joining us in the mansion’s extra bedrooms. But more importantly, this “market” represented a group of people we were genuinely eager to help. We knew that small mom-and-pop landlords weren’t perfect, but making their lives—and by extension, the lives of their tenants—better seemed like a worthwhile project.

There was no one single moment when I became disillusioned. It was death by a thousand small cuts, an aching, gradual realization that most real estate investors—even the “indie” ones—were nothing like the people we had befriended in Detroit. Most weren’t outright assholes, though I certainly encountered my fair share of people in the industry who were mercenary beyond reason, or who would casually say racist things to me even though we’d just met.

But mostly I saw how operating inside a messy and unjust system warped people over time. When a customer of ours refused to give a struggling tenant a few extra weeks to catch up on back rent, my initial instinct was always to judge them harshly for their greed. But for every landlord who refused to extend that compassion out of sheer avarice, there’d be another with a story of how they’d done something nice like that once, when they’d been greener, and gotten screwed: the person who overlooked an infraction on a background check and ended up with their house trashed, or who let someone live rent-free for a month and ended up not receiving a single rent payment over years. Hearing these kinds of stories over and over, I understood how landlords’ hearts harden over time. Real estate is an industry that will beat the compassion out of you.

The situation was complicated further by the fact that, contrary to the stereotype, the median American landlord is not actually that wealthy. Of course, the landlords we served were in general richer (and whiter) than most of our tenants. But we’re not talking about the 1% here: the typical landlord in our customer base, like the typical landlord in America, was solidly middle-class, owned only one or two heavily-mortgaged properties, and was just a missed payment away from watching the whole edifice crumble around them. On top of that, Detroit was full of naïve, inexperienced investors who’d been sold a false promise of quick riches and were slowly discovering that owning a rental property—anywhere, but in Detroit especially—was far more difficult, and far more expensive, than they had expected. I empathized with them, even as I empathized more with the tenants who bore the brunt of these schemes.

By the time the company went under, four years after we’d started, it had been a long time since I’d woken up excited about helping small landlords. That wasn’t the main reason the company failed, of course; there were other problems with the business model and with our ability to bear the operational demands of managing almost a thousand homes. But it was definitely a contributing factor. I no longer felt like what we were building just had to exist in the world, and that lack of conviction made dealing with every other problem a hundred times harder.

Following the standard startup advice, when we started the company as 24-year-olds, we had gone to great lengths to understand our market. And in a traditional sense, we understood it well. The business opportunity we identified was sound: I’m still proud of the fact that we were the first tech-powered property management startup, ahead of the curve in space that’s now crowded with new entrants and VC funding.

But in a broader, more abstract sense, we didn’t understand our market at all. We understood what the market looked like on a spreadsheet, but we didn’t understand how operating inside it for years would make us feel. This is now the advice I give to young startup founders: knowing your market isn’t just about understanding the customer need or the revenue opportunity. It’s about understanding how working within that market will change you.

I have a lot of regrets about the final days of our startup, but in the years since we shut down I’ve never once found myself wishing we hadn’t failed. I’m pretty sure I made it through my half a decade in the bowels of the real estate world with my soul intact, but I have some doubts as to whether that would’ve held through five or ten years more.

My friends and I still own that mansion in Detroit, so I’m still technically a landlord. I still keep ties with some of that original rehabber circle, and even though I haven’t lived there in years, I still stay on top of the latest real estate news out of Detroit. And I’m almost certain I’ll buy another fixer-upper someday, if I can find the opportunity.

But I don’t think I’ll ever own another rental property. And I’ll sure as hell never work in the property management industry again. Now I regard the real estate world like an ex from a long time ago: I can’t believe we ever thought we were right for each other, but if I dig deep down, I can still feel a little bit of that early spark.

Yours in having just removed a section of this piece that called out some of the worst real estate people I dealt with by name,

Max


Read of the week: Speaking of Detroit, this NYT article about how cities lost control of police discipline traces it all back there, just after the 1967 riots, where a perfect storm of racism, fear of crime, and a union-friendly culture combined to create the first of a long line of police union contracts that are still interfering with justice today.