Chapter 11 of my book Get Back Up finds me at a crossroads. I’ve been told by multiple doctors that I have Failed Back Syndrome, and there’s nothing they can do to fix it. Even the workers’ comp people say I’ll never work again, and they give me a lump sum payment to close my case.
Was it really over? Was I destined to follow in my father’s footsteps and end up living off of social security disability (SSD) checks? I’d already decided I wasn’t going to be addicted to painkillers like he was and had flushed all my pills. But what was I going to do? I was still in pain and I couldn’t walk very far or even stand for very long. Was there a job I could get lying down? Was there a mattress company looking for a tester? I had no idea what I was going to do until I remembered a man I’d met when I owned my sports bar.
His name was Glenn DiMauro. He was a cobbler who worked at the shoe repair shop next door to Reggie’s. He came in all the time, and after a while we became friends. Before I hurt my back, we played a lot of racquetball and we watched a lot of football on the big screen at Reggie’s. I remembered one thing Glenn told me when we were taking about how profitable draft beer was. At the time it cost 18 cents to pour a draft beer and we sold it for a dollar. Glenn said that was great, but that ladies’ heels were even better. You know those little rubber tips at the bottom of ladies’ heels? Well, at that time they cost $3.50 to repair, but the cost of the heel itself was only nine cents. Now that’s a profit margin.
A short time later, we sold Reggie’s, and I went into the liquor sales business. Glenn also started a new chapter in his life. He decided he wanted to own his own shop, and he moved back to his hometown of Cleveland and opened DiMauro’s Shoe Repair. I wondered if I could convince him to come back to Tampa and open a shop here.
My plan was simple. Glenn could fix the shoes and I would manage the business. I would write the ads, pay the bills, handle purchasing, and even wait on the customers. The best part, however, was I could do most of this lying down on a lounge chair in the back of the shop, thus saving my back. But first I had to convince Glenn.
Convincing Glenn was easier than I thought. While Glenn did love owning his own business, he didn’t love the cold winters of Cleveland, and was anxious to return to the sunshine of Tampa, Florida. So, after just a few short phone calls we were partners, and I started looking for a location for our new business. DiMauro’s Shoe Repair soon opened, with all the best shoe repair equipment we could find, and one very cheap plastic chaise lounge chair for me.
Business was very good from the start, and I was able to wait on the customers while sitting on a stool. When there were no customers to wait on I rested my back in my lounge chair while working on our ads and offers, and even shining shoes. One offer I loved to run was ladies’ heels repaired for only 99 cents. Remember I told you they only cost us nine cents, so even at that price we were making good money. No other shoe repair ran offers like that, and when we did the ladies were lined up out the door.
Like I said, business was good. So good, in fact, that we eventually expanded to three locations and had 14 employees. Even my wife, Suzie, joined the business, with Glenn teaching her how to do rip and tear work. Glenn was a great cobbler, and the quality of his work brought in a lot of business. So much business that we decided we needed to find a way to invest all the money we made.
Life was good now. My back still sucked, but we found a way to work around it. We were finally headed for the life we dreamed of, but how to invest this money? My thoughts went back to real estate. My first attempt hadn’t worked out so well, but I was smarter now. I knew what not to do.
Again, the plan was simple. Buy houses for little or no money down, and rent them out. If the rent wasn’t enough, the shoe repair could cover the shortfall. In addition, because these were rental properties, we could depreciate them and reduce our taxes. To do this legally we had to organize the shoe repair business and the real estate business as separate corporations. The shoe repair became Cobblers International Inc., and it would own the real estate business, which became Saint Mauro, Inc.
Finding houses to buy was easy. There were still plenty of non-qualifying FHA and VA mortgages out there. Our standard offer was that we would take over the existing first mortgage and get the seller to take a second mortgage for the difference between that and the purchase price. Over the next couple of years, we bought 15 houses this way. We rented them all out, but because we had both a first and second mortgage on these homes, the rent never fully covered our payments. That was okay, however, as we had a lot of cash being generated by the shoe repairs, and we thought that it was only temporary because the houses would go up in value, and soon we could start selling some of them and really start making some serious money from the appreciation of the properties’ value.
Life was really good now. Suzie and I lived in a large three-bedroom house on a corner lot with a pool. We both had great cars and we ate out a lot. This was the life I’d promised her years ago that seemed completely out of reach after I crashed my car into that tree, only to get back up long enough to get knocked back down by a case of Molson Canadian Ale. Nothing could stop us now.
And then it all came crashing down. Glenn was working a ton of hours, and while Suzie and I also worked in the shop, Glenn’s wife never really got involved in the business. Eventually she asked Glenn to reduce his hours, but he didn’t think he could do it; not now while we were building the business. They seemed to have other problems as well, but we all assumed they’d work it out. They didn’t. Things went from bad to worse, and soon they were talking divorce.
Then the lawyer showed up with papers in hand. It seemed that Glenn’s wife had hired a lawyer, and when he found out that we were using money from the shoe repairs to pay for the houses, he got an injunction to stop us. She was suing for divorce.
Soon we found ourselves in court and the judge ordered a freeze on all our financial activity. When I tried to explain to him that we needed to use the money to pay our mortgages as the rents didn’t cover them, he said that should motivate the parties to come to an agreement quickly. It didn’t, however, and soon we were falling behind on our mortgage payments.
If that wasn’t enough, one of our tenants stopped paying the rent. I thought, here we go again. Is the past about to repeat itself? I remembered the last time I was invested in real estate and a tenant stopped paying the rent. It took months to get them out of the house. This time I wasted no time and put the house up for sale. That action landed us back in court where the judge told us we couldn’t sell anything until the divorce was final. I told him that the house would probably end up in foreclosure, but again he thought that should motivate the parties.
Sadly, this went on for months and along the way a few of our houses went into foreclosure. In the end the judge gave some of the houses to Glenn’s wife, and while Glenn kept his ownership in the shoe repairs, he was ordered to pay her a percentage of his share of the profits. We could finally put the rental properties up for sale, but it was too late. Nothing sold fast enough to stop the foreclosures. Also, during the time when we couldn’t use any money from the shoe repairs, we used credit cards to pay our bills, and we were behind on those payments as well.
Soon the only recourse left to us was to file for corporate and personal bankruptcy. We lost everything. The shops were gone and the houses were gone, but I never felt lower than when I looked at Suzie’s face when the repo man came and took away her fancy new sports car. We had been on top of the world for a few years. It felt as good as I imagined it would when I dreamed about a life like this when I was growing up in the projects of South Philadelphia. When I was poor before, I dreamed of what a successful life would look like. Now that I’d tasted it and lost it, I really felt poor. I didn’t like this feeling and I knew I’d have to find a way to get back up yet again, but how could I come back from this?
Lessons:
- Don’t let an obstacle stop you. Find the workaround.
- No-money-down real estate investing is not a quick path to riches.
- Those who would forget the past are condemned to repeat it.
- Worse than being poor is being poor again after you’ve been rich.
George A. Santino helps people who want to break down barriers, including self-imposed barriers, to success. Check out his Amazon bestselling book, Get Back Up: From the Streets to Microsoft Suites.