Carragee Consulting

In 2020 St Paul voters passed the most restrictive Rent Control Ordinance in the country which went into effect in 2021, capping rent increases to 3%.

Meanwhile inflation ran at 9% and my 1890’s and 1920’s houses required major repairs, a new roof, new appliances and a massive tree to be removed and the expenses overwhelmed the rent by a large margin.

As I reviewed my depleted reserve fund and disappointing financial performance and risk associated with my rental properties I decided to sell some of them that are subject to rent control.

I applied to the City for an exemption to the rent control cap to raise rent 8%, which they approved with financial documentation to show that using their calculations that my profits were down ~16% compared to the base year.

My tenant contested the rent increase, delaying my ability to apply it by roughly 4 months and casting uncertainty on the sales process because potential buyers didn’t know the allowed rent amount.

Given the cap on future rental income it was unlikely to attract a buyer for my duplex other than an owner occupant so I terminated the lease of a tenant who was on month-month.

In essence, this tenant got to live over a year at discounted rent amount that was not sustainable/profitable to her landlord/supplier. When the discount finally caused the supplier to go out of business she was livid, but the rent control had prompted this Catch-22 effect of destabilizing the housing for those it was intended to protect.

Now, imagine this situation but a manufacturer paying less than cost for input materials from their suppliers.

Often times individual customers can get away with these amazing deals for a a period because:
– the financial loss goes unnoticed by the supplier (they don’t do unit level profitability analysis, so other aspects of the portfolio mask the loss)
– they lack the pricing discipline to “fire the negative margin customers”
– supplier rationalizes a short term loss as a growth strategy (I’ll make it up on volume!)

In 2015/2016 the Dawes song Quitter was playing on repeat, including when I ran 22/26 miles of a marathon I failed to train for so I could go play pickup broomball the next day without injury.

Last year I read Annie Duke’s book Quit and I embraced quitting as not only acceptable, but something to be celebrated and undertaken intentionally and rationally as part of a broader success strategy.

Today I am celebrating the sale of my money losing duplex and embracing the fact that real estate management is neither guaranteed money nor a passive investment. “Quit wasting your time because pretty soon you’ll find
It’s the only thing of value that we own.”

Its gonna take another few years to fully quit being a landlord, but I’m on my way!