Is That Deductible? The End Of A 20 Year Odyssey

Twenty years ago, my wife and I celebrated a significant milestone: we paid off our mortgage and became entirely debt-free. As we surveyed our options for growing our net worth, we believed that real estate presented a promising avenue. However, we wanted our investments to reflect our values—not just to make money, but to do good in our community. This dual objective led us to embark on an ambitious journey to develop affordable housing in our city.

The Beginnings of a Bold Venture

In the early stages, our vision materialized through a partnership that included two other individuals: a retired accountant who owned 40% of the venture, myself with another 40%, and a realtor who contributed sweat equity and held a 20% stake. The project gained momentum with the support of a city partnership and a state grant, and initially, homes began to sell, offering a glimmer of promise.

Our excitement was palpable as we saw families moving into their new homes, fulfilling our goal of making a positive impact in the community. The early successes affirmed our belief that real estate could indeed be a vehicle for social good.

The Housing Crisis and Its Fallout

However, our optimism was soon overshadowed by the banking, mortgage, and housing crisis of 2007-2010. The downturn brought our project to an abrupt halt, with home sales plummeting and our financial obligations mounting. The accountant and I had to inject more capital into the development to cover monthly business loans, a necessity that strained our personal finances.

During this tumultuous period, our realtor partner's behavior turned unscrupulous. He mismanaged relationships with contractors, city officials, and the state, causing significant damage to our project's reputation. His actions forced the accountant and me to legally oust him from the partnership, a move that was both necessary and painful. The public fallout from his mismanagement gave our project a "black eye," making it even more challenging to move forward.

Taking the Helm

With the realtor out, the accountant and I transitioned from silent partners to managing partners. Given that the accountant resided in Arizona, I became the point person for developing a recovery plan. This role required me to navigate a complex web of responsibilities, from filing grant reports to the state of Indiana to personally guaranteeing business loans.

The challenge was immense. The community's trust had been eroded, and I had to rebuild bridges that had been burned. This involved not only negotiating with realtors and prospective builders but also maintaining the property, which included mowing 5-6 acres—an effort I undertook with the help of my children.

One of the most daunting tasks was fulfilling the grant requirements for infrastructure improvements. Meeting the specifications for curbs, sidewalks, city lights, and utilities was both costly and laden with bureaucratic red tape. Yet, despite these obstacles, we persevered, selling lots and spec houses one at a time.

A Turning Point

About five years ago, I sensed that enough time had passed since the "black eye" incident to re-engage with the city. I proposed revisiting our original vision for affordable housing on the remaining land. This effort led to a connection with a reputable builder who partnered with the city to secure a new grant. Three years later, a multi-unit affordable housing project was completed, marking a significant milestone in our journey.

The final step involved partnering with a national building company that gradually purchased the remaining 15 lots. Last Thursday, the sale of the final three parcels officially concluded our long and painful real estate investment. To say the least, my wife and I were doing a happy dance over this final sale! This was even more significant since it resolved one of the “financial clouds” that was hanging over us prior to my retirement.

With all of our loans completely eliminated, every property fully owned by us, and now this venture behind us, we are in a great position to move forward on a clean slate. Mentally that feels fantastic!

Reflections and Lessons Learned

Reflecting on this 20-year journey, several key lessons stand out:

1. Resilience is Crucial

Our venture was marred by numerous setbacks, from the housing crisis to our partner's mismanagement. Yet, we remained resilient, adapting our strategy and pushing forward despite the challenges. Resilience, it turns out, is not just about enduring hardships but also about learning and evolving through them.

2. Due Diligence in Partnerships

Our experience with the unscrupulous realtor underscores the importance of thorough vetting in partnerships. Trusting the wrong individual can have far-reaching negative consequences. It's essential to choose partners who not only bring value to the table but also share your vision and ethics.

3. Community and Communication

Maintaining open lines of communication with the community and stakeholders is vital. After the fallout, rebuilding trust required consistent and transparent engagement with city officials, contractors, and potential buyers. Effective communication can help mitigate the impact of negative incidents and pave the way for recovery.

4. Financial Preparedness

The financial strain of covering business loans during the housing crisis was a significant burden. This experience highlighted the importance of having a robust financial plan and contingency reserves to weather unforeseen economic downturns.

5. Adaptability and Long-term Vision

Our ability to pivot, particularly in revisiting the affordable housing idea, was crucial. Flexibility in our approach allowed us to align with new opportunities and grants, ultimately leading to the project's completion. Keeping a long-term vision while being adaptable in the short term can guide a project through turbulent times.

6. Personal Involvement and Sacrifice

The personal involvement in maintaining the property and managing day-to-day operations, though taxing, was necessary. This hands-on approach ensured that we remained intimately connected to the project's progress and challenges. Personal sacrifice often accompanies meaningful endeavors, and recognizing this can prepare one for the demands of such investments.

A Postscript of Closure and New Beginnings

As I reflect on the end of this chapter, I'm struck by the juxtaposition of our journey's highs and lows. The unscrupulous realtor met a tragic end as he was murdered in Florida while driving for Uber, while the accountant, now 95, continues to thrive and serves as the corporate accountant, having seen the project through to its conclusion. Our partnership endured, and we witnessed the fruits of our labor come to fruition before his passing and my retirement.

While we ultimately lost money on the venture, the experience imparted invaluable lessons. We learned how to mitigate losses and pivot to safer real estate investments.

For instance, our beautiful short-term rental Simpli SoHa in South Haven, Michigan, where my family is spending this Memorial Day weekend, stands as a testament to wiser investment choices informed by past experiences.

Conclusion

The triumph of selling the last three parcels of land in our residential development for affordable housing is a story of resilience, learning, and ultimately, success in a broader sense. Though financially challenging, the journey reinforced the importance of community, ethical partnerships, and adaptability in the face of adversity.

Our journey underscores that real estate, when approached with a vision for social good, can be a powerful tool for community impact. Despite the ups and downs, the fulfillment of seeing families benefit from affordable housing reaffirms the value of aligning profit with purpose. As we close this chapter, we carry forward the lessons learned, ready to embrace new opportunities with a deeper understanding and a stronger foundation.

Is That Deductible?

• Riverside Meadows Housing Development: The business expenses associated maintaining, marketing, and selling this development property are deductible. The income associated with selling the land parcels will be distributed equally between the two owners—after expenses are paid-as we wrap up the business and close it down.

• Simpli SoHa: There were some deductible expenses over the weekend associated with the maintenance work of preparing the unit for the peak season. Since we own the unit, there was no rental fee, saving us around $4000 compared to renting it. However, we have to pay for the cleaning service after using it for the extended weekend, which the company will cover. The rest of the weekend's food and activity expenses were personally covered as non-business expenses. The beach is free and just a short walk away, but the famous beachside Sherman's ice cream at sunset was a personal expense. There's nothing like enjoying a beautiful sunset over Lake Michigan while eating yummy ice cream with my family—I love and savor it every time!

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