That’s what I texted Kaitlin as I entered the elevator to leave the 12th floor of 2 Woodward Ave. in Detroit at 10:27am this morning.
My Board of Review hearing for my property tax assessment appeals went fantastic. We purchase nine properties in 2019 and I appealed the taxes on eight of them. The hike on the ninth wasn’t bad at all, and I really wasn’t sure how to approach the appeal because we didn’t need to do much to the house.
At some point (hopefully soon), I plan to write a detailed post about my experience. But the end result was an average tax assessment reduction of 46% across all eight rental properties.
As the note above details, that will save us nearly $6,000 this year alone. But the savings is far greater than that because our property taxes are now capped at the rate of inflation (usually ~2% per year) up to a maximum annual increase of 5%.
So we’ll be saving that $6,000 plus the delta had we not had the reduction each year. That’s pretty amazing.
I needed this win pretty bad. I was feeling pretty down yesterday and this brought my spirits up quite a bit. My plate is suddenly feeling a lot more manageable.
The last week or so in SoCal I was telling Kaitlin that I knew I’d have a tough time getting back home. Not that I wanted to stay, I was ready to get back, but because I knew how much I’d deferred and stacked on my plate for when we returned.
We have the McCarty House rehab that I desperately need to check in on. Not just over the phone, but in person.
I need to get one of our houses rented that we weren’t able to find a tenant for before we left.
And I still have work to attend to, personal taxes to knock out, and dealing with adjusting to life with kids stuck at home and social distancing in general. The list goes on and on.
It’s a lot.
When things pile up like this I tend to get overwhelmed. When I get overwhelmed I tend to freeze.
I think it’s because the large number of tasks seem insurmountable and I don’t know where to start. I’ve found that making lists help, and I like Wunderlist for that.
I’ve never been good at organization. I’ve tried bullet journaling, Evernote, a calendar, etc. but nothing ever sticks. Wunderlist has stuck around, but I wish I could make it more of a daily habit rather than an outlet only for when I feel like I’m suffocating.
The other strategy is to obviously just take one day at a time, one thing at a time. Making the list helps me realize what that is, because I literally can’t think when I feel like this.
That “thing” happens to be the Board of Review hearing on Thursday. So I’m focusing time and energy preparing my materials to hopefully knock that out of the park.
I guess it’s because reality is setting in. While we were in SoCal I was following the news and markets insanely closely. I knew what was going on, more so than most folks, but, and although I didn’t realize it, I wasn’t internalizing it.
We had no issues getting groceries, dealing with day-to-day problems, or going insane. My wife’s side of the family decided to hold their reunion, and there were distractions galore. It didn’t feel like there was a global crisis even though I knew there was.
Now that we’re home we’re outside our bubble. The house is bare. We left essentially no food here, so Kaitlin is out fighting lines to get a few essentials. It’s not too terrible, but it will take a few days to stock up a bit.
The markets are absolutely wild. I don’t remember anything like this since 2008. It seems like a lifetime ago, but I distinctly recall watching similar insane moves with my friend Oliver while working as glorified proofreaders (they called us analysts) in the management consulting space.
I recall investing as much as I could. He did the same; we both did well in the coming years. Oliver may still be holding some of his Google stock he bought in his retirement account. I wouldn’t be surprised.
This time is different, at least for me. The only equities Kaitlin and I own are in our 401(k)’s (no, I haven’t bothered looking). Most of our money is going into Detroit real estate now. I have no idea what this will spell for that market, but if it drags on, it can’t be good. Regardless, we’ll keep doing our thing because we have a plan and we’re forming a plan to work through this challenging environment as well.
I’m not sure what bubble the market is exiting but I’m sure they’ll label it in the months and years to come.
We made it home earlier this morning/last night at 2:00am. It was an interesting trip.
LAX was quiet. Too quiet for your typical Sunday. But our flight was more booked than I’d have expected… maybe 65% capacity.
Ryder was a pain, but not as bad as he was on the way there. Oddly, the woman sitting in front of him was just as much of a pain, passive aggressively complaining under her breathe, intentionally reclining her seat toward the end of the flight, and becoming increasingly louder with her “he just keeps kicking!!!” mantra.
Apparently moving over literally one seat, to the empty one next to her, was too much to ask. Apparently, taking any number of the many empty seats on the flight was also too much to ask.
I’ll never understand people.
It was apparently near impossible getting a Lyft or Uber from DTW. One couple had been waiting almost 30 minutes. We need an ‘XL’, so I guess we got luck. Our was there in just 10 minutes.
But the ride to DTW on our way to LAX a month ago that cost us ~$80 cost us $115 today. Ouch!
All Clyde, our driver, could talk about was COVID-19. Nobody was driving, and apparently the only reason he was out was because he heard a rumor they’d be shutting down “the apps” in the next few days. He was trying to make some money before they did.
His mask sat idle in the drink holder.
It was nice to get home to a familiar, toasty house. We kicked the heat on via our Nest app before wheels up in LAX. And it looks like we’ll be spending the foreseable future cooped up inside.
We’re still hanging out in California, just outside of LA. We’ve had the trip planned for nearly a year and have been here now almost a full month. It’s amazing to look back to when we flew out, on a fully booked flight, to now.
Also planned, for quite some time, was a family reunion for my wife’s side. We had people coming from San Francisco, New York, and Kansas City. If it was up to me, I’d have cancelled it. But it’s not my call.
For weeks I have been preaching that we’ll get home to school closures and empty groceries stores… that is, if we get out at all! People have been essentially laughing at me. Now it’s reality.
My newest concern this morning, after watching Trump speak and taking particular note of the nugget that the Department of Defense has banned travel for service members, I started calculating the odds of full-blown domestic travel ban being announced Monday. I figured our flight, scheduled for Tuesday, had a 50/50 shot at happening.
That’s not good enough for me.
While the idea of being stranded in SoCal is appealing, I’m ready to get home. I have a ton of work to catch up on and get done. Somehow, my sister in-law was able to get through to Delta (she was scheduled to head back to New York on Monday) and we all moved our flights up to tomorrow.
I’m not looking forward to the flight. But hopefully this one will be a bit less painful with few people on the flight. Hauling two (very) young kids and a dog across the country is no joke!
The Fed showed they are ready to fight today with a 50bps cut to interest rates. There’s going to be a lot of talk about what this means for markets, the economy, the housing market, etc. Most of the folks talking have no clue what they’re blabbing about. And most will be wrong.
The truth is nobody knows what it will mean. Mortgage rates will go lower, sure. But will that continue to spur demand for housing? It’s not a guarantee.
Here’s what we do know: The Fed is ready to fight. And there’s an old saying, “don’t fight the fed”.
The trickier pundits will tell you that with interest rates so low the Fed doesn’t “have any bullets left”. This is usually followed with something along the lines of, “should we go into a recession”.
This sounds smart, and it’s attractive because it will make you sound smart when you regurgitate it.
But the depth of the Fed’s pockets is literally unlimited, and they’ve shown that at any slight hint of trouble or standard correction in asset prices, they’re willing to step in. They’ve proven that in the past, and today’s move only reiterates that agenda holds true still.
Today it was an aggressive “emergency” rate cut. Next time it could be any number of things. What it is doesn’t matter as much as the fact that they’re willing to do whatever it takes to keep markets stable and grinding higher.
Don’t fight it. Enjoy the easy money, lower mortgage rates, and ballooning 401(k)’s. Eventually it will get ugly, but I have a feeling this goes on much, much longer.
I’ve previously written about two of our Detroit rental properties, breaking down the acquisition process, numbers, and general experience. Both of those turned out pretty decent. This one, however, was pretty much a disaster.
Our house on Rutherford St. was the third home we purchased. Like the two before it, this one was an MLS listing. The house looked to be in fantastic shape, and my agent was pretty into it. We knew they already had multiple offers and they were making a decision the next day.
Honestly, that was my first mistake.
I was already antsy to make another acquisition. Kaitlin and I have set an aggressive timeline for our immediate goals. With the added pressure to make a decision on this one, it was a recipe for disaster.
When I walked the house it definitely looked good. Not as good as the photos (do they ever?), but decent. I do remember seeing small things that bugged me. Things like the tub surround seam that wasn’t properly calked. It’s hard to recall them all now, but there were enough, in hindsight, to be a red flag.
But again, I was antsy, and my agent was more than encouraging about making an offer. He also knew the listing agent, so he felt him out to get an idea of what would get it done. We offered it, and they confirmed it was ours.
But the house, already being our most expensive acquisition to date, would wind up costing us far more than anticipated to get it rent ready. Let’s just say we paid some tuition with this one. Here’s a look at the numbers:
By the numbers
The house was initially listed for $55,000 on the MLS. We got it for $52,500 which was (and still is) the most we’ve spent upfront to acquire a house. This was also the first ever home we purchased vacant, so there’s nothing recouped during the purchase in terms of prorated rent or security deposit.
The only good news about this house is that it ended up having more square footage than was listed on the MLS. So the appraisal came in at $58,000.
We were able to take out 75% of that value “immediately” (in quotes here because it ended up being delayed quite a bit… more on this later), up to our total purchase price plus closing costs on a 30-year mortgage at 4.99% interest. Here are the quick numbers on the mortgage:
Loan amount: $43,500
Closing costs: -$2,182.13
Total cash received at closing: $41,317.87
Now, if that was the end of the story and we rented this house out and chipped away at the ~$13,200 cash left in the deal it wouldn’t be so bad. But things did not work out that way. Not at all.
Instead, we spent about $14,000 rehabbing the home, and finally placing a tenant in November 2019 at $950/month.
Here are those numbers:
Rent collected: +$4,750
Total rehab expenses: -$14,100
Mortgage payments: $233.25
So as of today we have a total of $ $26,272.46 locked up in this house (ouch!). Here’s a look at all the above data in chart form:
Conned
The house clearly needed some touch up work. And the more we got into it, the more we found. In hindsight, that really wasn’t the problem. The issue was the guy I hired to knock it out.
At this point we’d done essentially no rehab work on our two previous buys. We fixed a crushed pipe in one house and put a washer and dryer in the other. So we hadn’t been through the process of sourcing good contractors.
The guy we hired had a decent reputation in a Facebook group I’m part of. That said, he was newer to the group and, in hindsight, didn’t have enough history. To make a long story short, he made a bunch of promises, got very little accomplished, and we ended up finally firing him after pissing away about $3,100 with little to show for it.
Theft
While I was still figuring out this “handyman” was really a conman, he showed up to work one morning and called me saying the house had been broken into. The furnace and water heater were stolen.
This was an extremely frustrating moment for Kaitlin and me. We were struggling with the handyman already, had debated firing him but felt we were in too deep already, and it just came at a terrible time. I remember Kaitlin being so upset she wanted to sell everything and be done.
That wasn’t going to happen.
At the time I had no idea what it cost to replace a furnace and water heater. I figured it was anywhere from $6,000 – $8,000. Turns out it was “only” $2,100 to have new ones installed. Not bad, but I’d have been much happier with that money in my pocket.
Furthermore, the lack of a furnace and water heater derailed our delayed financing. The appraiser couldn’t sign off on the house until it was installed, and we weren’t about to install them until we had a tenant in the house.
To this day I don’t know if our sketchy handyman stole them or if the house was legitimately broken into. I used to think he did it, but after our second theft occurred the other month, I just don’t know. I wouldn’t be surprised by either.
So between the shitty handyman and the stolen goods, we were already $5,200 in the hole with very little to show for it.
Open house and rehab attempt #2
At this point we decided to simply hold an open house, find a tenant, and complete the repairs before they moved in. I’m glad we did.
We ended up choosing a tenant who’s dad was also a contractor. He was friendly, clearly knowledgeable, and capable. We ended up hiring him to fix up the house before her move in which included replacing 13 windows (about $4,000), replacing the kitchen cabinets and counter tops, and a lot of other work I can’t even remember at this point.
It ended up working out really well, and Royce is now working on the McCarty house for me while I’m out here in California. His daughter moved in on November 1st and has been a great tenant.
Conclusion
There were so many lessons with this house. As much as I resent buying it, even though I know it will work out in the end, I’m so happy we did. It completely changed our investing approach.
All in on full rehabs
I always told myself I didn’t have time to do full rehabs. Wrecked Rutherford proved that hypothesis completely invalid. Getting this home rented was a huge time sink, and it made me realize it would have been easier to start from scratch rather than working behind someone else’s crappy rehab work.
Since this house, we’ve only purchased one home from the MLS and it’s far from “turnkey” at a $14,000 purchase price that will need $25,000 – $30,000 in work.
Trust your gut
We should have never purchased this house in the first place. There were far too many small things that should have signaled a big red flag to me. I saw it, I just chose to ignore it. As much as that was a huge mistake, I’m also happy I did. Again, the lessons and change in our investing approach was more than worth the mistake we made buying this house.
But now, when I get a similar feeling from a home I either don’t buy it or adjust my offer accordingly.
Don’t give people a chance
I know this sucks, and I hate to say it… but taking a chance on contractors isn’t worth it. The handyman we hired didn’t have a very long track record. He caught my attention because he was clearly hustling and looking like he was doing solid work. I like to give people a shot that seem to be busting their ass.
But it cost us here. And we simply can’t afford to take chances on people at this point.
Overall, I’m happy we purchased Wrecked Rutherford. It’s hard to even read those words, because my brain has such a visceral reaction to this house. But if I put my emotions aside, the lessons we learned and the pivot in strategy are worth far more than this house cost us.
And the reality is real estate is forgiving. While we have a lot of money tied up in this house, we’re pulling it out a little bit each month. In three to four years it will all be out and we’ll have another little cash cow on our hands.
Kaitlin and I stopped by her childhood home today. Her parents upgraded literally months before she left for college, and it’s only a few minutes from where her parents live now. For years she’s wanted to go knock on the door, hoping the current owners would be welcoming enough to invite her to walk down memory lane.
It happened today.
As luck would have it their kids were off school for some reason, and the mom was home. I waited in the car, smiling with pride because I’m not sure I’d have the courage to do it. Even Kaitlin needed some pushing as she came running back to the car after briefly knocking. I gave her a hard time she went back; they answered.
The value of a house can never account for the value of a home.
It’s easy to forget this if you’re heavily involved in real estate. It’s easy to forget that tenants can develop emotional connections, memories, and affection for where they live.
Of course the opposite can also be true.
I believe there’s non-quantitative value in offering the best, most attractive house possible so people develop a positive emotional connection with it. The idea is they take better care of it, stay there longer, and hopefully feel some sense of pride.
I’m happy Kaitlin got the chance to relive some memories today. If someone comes knocking on your door, hoping to reminisce, I hope we all choose to be human.
It was February 4th when our oldest son, Tucker, came down with something. This isn’t uncommon for him, especially during winter months in Michigan. He’s just 3.5 years old but goes to preschool three mornings a week and Kaitlin has been taking him and Ryder (1.5 years old) to indoor play infestations places somewhat regularly.
Two days into this new illness we noticed he had a very difficult time sleeping largely due to a chronic cough. He also seemed to be struggling to breath.
Kaitlin took him in to see our pediatrician the next morning.
They took his temperature (we’d also done this at home, obviously). Nothing.
They tested him for the flu. Also nothing.
But they found his blood oxygen saturation level was at 92%. They were pretty considered about this. They prescribed him albuterol to open up his airways and we coaxed him into using the inhaler later that day. They wanted to see him back within 24 hours.
The next day, Tucker’s oxygen saturation was back up to 97%. Much better. We continued him on the albuterol treatments until his cough went away and he seemed better.
But of course, that didn’t stop the rest of us (Ryder included) from coming down with whatever Tucker had. We all had varying degrees of it, but none as bad as Tucker’s.
Looking back, both Kaitlin and I have considered it could have been the Corona virus. I’ve of the belief that it’s been circulating the US for at least a month. We just haven’t been aware of it or testing for it.
Take a look at this Twitter thread and the corresponding comments:
We learned last night from @trvrb that COVID-19 may have been circulating in the Seattle area for several weeks. This thread details some possible implications if that finding is confirmed. 1/
Healthcare workers have been reporting cases they haven’t been able to explain for awhile now. I still remember asking Kaitlin, “Well, did they figure out what it was?”, and being baffled when she replied, “no”.
Personally, this gives me some relief. I wrote about what could go right the other day, and this certainly falls in that category. If COVID-19 has been here far longer than we expected, the hope is that it won’t be as damaging as it has been in other parts of the world.
I guess we’ll find out soon enough. In the meantime, I’m enjoying convincing my mother in-law that I DEFINITELY had COVID-19 and I’m certainly still contagious.
I visited Disney Land yesterday with Kaitlin and Tucker. We left Ryder home with the grandparents because he’s an absolute animal with no interest in staying still for more than three minutes.
It would have been a nightmare, and at just 1.5 years old, there’s no point in ruining the trip for everyone else.
Tucker was in heaven, his first time there. Kaitlin is a Disney fanatic. I was more taken aback by how expensive everything is rather than the “magic”.
I believe the last time Kaitlin and I visited Disney Land was for her 30th birthday some five years ago. That was actually quite a bit of fun, albeit exhausting. My perfect visit is about six hours. Kaitlin’s is literally all day. Then again the next. Rinse and repeat until forever.
Back then, we managed to hit every ride multiple times, leaning heavily on the FastPass implementation that allowed us to feel like we were gaming the system. It’s amazing how much more you can do without kids.
And as we stood in line for our first ride yesterday, Mr. Toad’s Wild Ride, I furiously downloaded apps in an attempt to locate the FastPass system.
Me: “What the heck, they want me to sign up. I don’t want to sign up!”
Kaitlin: “For what?”
Me: “The FastPasses! I just want to know where the stations are. Where are the stations?!”
Kaitlin: “I think they do that all online now. I don’t think there are stations.”
Me: “There have to be stations! I liked the stations!!”
Kaitlin: “We’re those old people, talking about stations when everything is on your phone now. You know that, right?”
Me: *seeing a nearby teen ripping my ‘stations’ soundbite, remixing it, and using the audio to make fun of me on TikTok*… “Shit.”
After I begrudgingly signed up, I learned Kaitlin was right. FastPass access was through the app… for $20 per ticket!
Five years ago it was free, at THE STATIONS! You ran up, grabbed a (wait for it) PAPER ticket from the dispenser in front of the ride you wanted the FastPass for with a printed time for when you could return. You could do something like one per hour. It was glorious.
That same luxury today costs you $20 per person. Yeah… no.
Most people think this is Disney flexing their power, that they raise prices because they can. But Disney raises prices because they must.
They must satisfy shareholder demand by pushing revenue ever higher. That means pushing prices increasingly higher and monetizing everything (no free FastPasses). But it goes beyond that.
If Disney were to get too congested, fewer people would go. That hurts the bottom line. As I walked the park I realized there’s no place to grow. There’s no surrounding land to annex and expand capacity. As the ride wait times get ever longer, the natives get restless. Raising prices mitigates this to an acceptable level by throttling demand.
I don’t know if the FastPass was initially designed as a test for potential monetization or if it was simply an attempt to decrease wait times that Disney eventually had no choice to monetize. But if everyone’s using it, it losses its utility. And that can only be remedied by throttling demand (monetizing).
Increasing prices is both good and necessary for shareholders and Disney goers that are still willing to pay up the nose. We just don’t really see it that way when we’re shelling out $25 to drop our car and another $104 to step foot into the park.
$DIS could easily lose another 10% – 15% of its value and still be a constructive pullback from the previous multi-year consolidation:
There’s plenty of opportunity to do that with current CoVID-19 fears, but it’s a great buy IMO. I should know, I’ve been a shareholder since something like 1992 when my parents bought each of us kids something like 5 shares that have since split (multiple times) into 60. I still have the original stock certificates; they’re cool as hell.
Square crushed earnings yesterday after the bell and finished the day up 3.55%, flexing on a bloody general market. At one point $SQ was trading up over 11% but it was dragged down with the indices, so I’ll take it.
I wrote about $SQ the other week, noting that I would not be surprised if the stock moves up 50% – 100% in the coming 3 – 6 months as long as “earnings don’t throw a wrench in things”. They definitely didn’t, and here’s the updated chart:
All we’re really seeing right now is the stock consolidate above it’s break out zone. If we see any recovery or good news for the broader market, I believe we’ll see $SQ absolutely scream higher.
It’s starting to feel like the time to consider what can go right rather than what can/will go wrong. Three weeks ago was the time to think about what can go wrong in terms of CoVID-19. If you’re reacting to what’s going wrong now, you’re reacting too late IMO, and the risk for whiplash is high.
So what could go right?
We could start to see evidence of containment, a vaccine, really anything that would equate to less disruption to the global or domestic economy than what people are expecting now.
And don’t discount government intervention. While that may not be “right”, markets surely would view it as such. This Tweet caught my attention today:
Fed response to S&P 500 corrections since ’09… 2010: -17%. Rates @ 0%, QE2. 2011: -21%. Rates @ 0%, Operation Twist. 2012: -11%. Rates @ 0%, QE3. 2016: -15%. Rates @ 0.25%, stopped hiking plan. 2018: -20%. Cut rates 3x in ’19. Today: -12%. 3 more cuts priced in, 1st in March.
If you haven’t already panicked, I think it’s a mistake to do so right now. Surely, plenty of tech companies believe things could go right no matter what.
Holed up in our homes, with no commutes, we’ll all be spending more of our attention furiously researching CoVID-19 (Google), staying in touch with friends (Facebook), binge watching more TV (Roku & Netflix), and avoiding unnecessary trips outdoors (Amazon & GrubHub). As time permits maybe we’ll get some work done (Slack and Zoom).
If I didn’t know better I might believe the above companies colluded to create CoVID-19.
