Landlords have a bad reputation and some are even considered unethical. Most of us have heard stories of landlords that are slow to address major issues, significantly spike rent, or just poorly maintain their properties among other things. Other landlords though, make a concerted effort to provide their tenants with a well-maintained rental property at an affordable price. In this post Joe Sessel shares his perspective on ethical landlording as a path to FI (financial independence) along with his unconventional story.
1) Can you tell us a little bit about yourself?
I was raised by an educated single mom in a lower-middle class neighborhood. I had an unhappy childhood and a rebellious adolescence that led me to using and selling illegal drugs. Just three days after my 19th birthday, I was arrested in a large drug bust and spent 11 years in federal prison. I turned my life around by reading and learning about myself. I read dozens of books on real estate and figured it would be a good path for a convicted felon with no education. I was right. My mother bought my first investment house for me in 2011 and I lived in it and learned to renovate there. I managed to get a corporate job in manufacturing materials management that I was good at and as I bought other properties (with some down payment help at first), I moved through the ranks at my company. It’s an unlikely story of success.
Today I own 15 rental houses and I have 6 high-end duplexes under contract and closing next week. $24,000 in gross rents. I manage everything myself. I’ve done 3 flips of my personal residence with great success and I flipped a 24 unit apartment complex. I play tennis occasionally with the US attorney who prosecuted me as a teenager. Life is good.
2) What had your financial life and relationship to money looked like before you began to pursue financial independence?
When I first heard about FI, I had a decent amount of income, but I was spending more every month than I had coming in. I had $48,000 of credit card debt. Much of it was strategic debt from hoarding cash for down payments and using credit cards to finance renovations, but my lifestyle was out of control as well. I was not very thoughtful about money.
3) When did you first learn or start thinking about financial independence?
Like many people, I stumbled upon Mr. Money Mustache online and got interested in the FI way of thinking. This was 2015. It changed my life. I had the income side down. Once I changed my spending ways it came very fast. I retired from Goodyear early at age 38, just 8 years after I was released from Federal Custody. A few months without a job led me to find that I was not ready for the RE (retire early) part of FIRE. I’ve been back in the workplace ever since, but on my terms. FI is very empowering.
4) How are you personally pursuing a socially conscious path to financial independence?
A quote from a movie called “Ender’s Game” comes to mind. “The Way we win matters.” I don’t judge anyone for their path to wealth, but I personally eschew the stock market. This may be a very unpopular opinion, but I see workers everywhere that aren’t sharing in the wealth created by their work while that wealth is collected and funneled to the investor class. Passive investing relies on the broken system of taking from workers and giving to a class that includes the idle rich. I prefer real estate because it seems to be the most ethical path to wealth.
I directly invest in property in my community and people in my community. I make my rentals over as if I were going to live in them. Indeed I did live in one last year as my new house was being built! I use the tools of money and leverage to make income, but my tenants get real value for their money. I provide the nicest spaces available, often for lower rental rates than market. I also serve underserved tenants. Folks with good income and bad credit due to divorces and hard times, felons who have served their time and are back on a lawful path, even folks with evictions who are recovering from their problems and I judge them a good risk for a second chance. Being a good human and a good landlord is my way to earn the rents I collect that pay the bills and provide my extra income. Earning it and giving back is important to me.
5) What in your mind differentiates ethical landlording from more traditional landlording?
I will stereotype here to highlight the contrast. Traditional landlords seem to fall into two categories. There are the old school “slumlords” who own great swaths of low income housing and exploit the truth that the bottom of the real estate market provides very little except a floor for pricing. I’ve toured these places filled with roaches and in poor repair. It would shame me to offer people these living spaces.
The other category is the absentee landlord who relies on a property management company that charges the highest possible rental rates and nitpicks away the tenant’s security deposit at the end of every tenancy. That company doesn’t care at all about people. They require volume for a viable profit model. I don’t blame them for their approach, but it is by nature very cold, distant, and impersonal. Neither of these approaches provides value for the tenants. I have tenants who lived in one of my condos and when they decided to get married and they wanted a house, they waited until one I owned was available and moved into it! You won’t get that kind of loyalty without providing value in return.
6) Does this more ethical approach to landlording take a lot more effort? How do you maintain balance, boundaries, and profitability?
I am a relationship manager more than anything. I would assert that building this relationship takes less effort than cleaning up the consequences of failing to have those solid relationships. It’s hard for a human to trash someone else’s property after looking them in the eye, shaking their hand, having a few human conversations about life with them. I make a commitment to my tenants and I extract a commitment from them in return. I am able to be their friend even while still maintaining the boundary of the business relationship.
I have only had to evict one tenant in all of my time owning houses and condos. I’ve never had a property maliciously trashed. And because my tenants can’t find a better place, they tend to stay with me. Vacancy is the #1 killer of net profitability. I maintain a vacancy rate close to zero other than turn time between tenants. My places are rented by word of mouth, usually before they are even on the market. I have no marketing budget. I’d say that my human approach is the key to my success in maintaining very healthy ROI.
7) You emphasize strong personal relationships with your tenants so I imagine you have seen up close and personally how your ethical landlording efforts have positively benefited a number of lives. Would you like to share a story or two about how you saw people positively benefit from renting or buying from you?
My most recent story is very typical of my approach. I own a house in a very nice area that I rented to a veteran and his girlfriend. They were both juvenile corrections officers. The tenant was from California, and after a two week visit to his family he came home and found that his girlfriend had left him, trashed the house, and taken everything of value. He was worried he wouldn’t be able to pay the rent and catch up in the short term. I cut his rent by 50% for that month after asking him if it would get him back on track. He was very grateful and had recovered and is back to paying full rent. This is for me compassion for a very human story and a business decision. Instead of having a vacant, trashed house to clean up, I saved thousands of dollars in vacancy and maintenance by helping my tenant make ends meet. This is the essence of virtuous cycles of mutual benefit. It is principled entrepreneurship. And it is lacking in our big corporate world of business these days.
8) How would you advise someone who is interested in following in your footsteps, but has no experience whatsoever investing in real estate get started?
Read! And then read some more. There are excellent books on real estate investing out there. Read them until you have a model in your mind for how the business works. And when you understand the basics, buy a house and get started. If you have never owned a house, buy a fixer-upper and learn the basics of building trades by working on it and gaining some sweat equity. It’s not hard. If you can use a tape measure and make stuff from Legos you can renovate a house. It will be a journey and you will learn along the way. Trust in people, but don’t blindly trust people.
9) Are there any final thoughts you’d like to share with others, who are overcoming significant challenges in their pursuit of financial independence?
A tale of two landlords. My friend L. and I spent 18 years in federal prison between us. We both got out of prison with about $100, a few sets of sweat pants, and an FM walkman in a green duffel bag. He rode on a trash truck while I took a job as a host at Applebee’s. He was more disciplined and more frugal. While I was lucky enough to convince my mother to help me with my first ventures, L’s family refused to, so he lived on less than 50% of his income, worked insane hours doing physical labor for the trash company, and saved $2000 a month until he could afford a rental house. I also worked 2 jobs, 80+ hours a week until I got a job at a large manufacturing company where I climbed the ranks into a white-collar job by day and did physical labor renovating houses at night. I owned 4 rental houses before I moved out of my mom’s basement at age 33 to the first of three fix-and-flip residences. L owned seven rental houses before he moved out of his cheap one-bedroom apartment. He worked for the trash company for over a decade before also getting a good job at a large manufacturing company. He was privileged to have completed a college degree while incarcerated. I have a GED and an Associate’s degree from a Paralegal college that I got while in prison. If you are capable and willing to make hard decisions about your priorities, there are no challenges you cannot overcome on this path. You can succeed!
I invited Joe to submit his answers to my questions for this interview over a year ago. Then I got distracted and neglected to publish it until now. Since then we have experienced Covid-19, the pandemic, and the ensuing insane housing market. So many investors are scooping in and buying up properties driving up the cost of homes and making them inaccessible to so many would be home owners.
I now find myself wanting to encourage anyone investing in real estate to explore more socially conscious ways to do it. So if you are going to purchase a rental property consider providing a path to home ownership through some kind of rent to own or owner financing approach. My last post highlighted another inspiring option – owning and operating a sober living home.
Access to housing is a complex and nuanced topic. I’m extremely grateful to the members of the Socially Conscious FIRE Facebook group for continually being open to discussion and pushing me in my thinking on this matter. If you are reading this post you may also appreciate this article that outlines the tension between investing in real estate and affordable housing policy, which someone in that group recently shared.
On a personal note owning rental properties is not part of my investing portfolio. I do own my home and have rented a room in my previous homes out to long-term roommates as well as through Airbnb. That was enough landlording and property management for me. Those who do invest in real estate or are considering it may also want to check out the Socially Conscious Landlords Facebook group to interact with others pondering how to do it ethically.
What about you? Are you a landlord? If so, how do you try to manage your property(ies) in the most ethical or socially conscious way?
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