We’ve been working through three refinances for what seems like forever. And we were almost across the finish line, ready to wrap them up… almost.
Then we realized that I didn’t have marketable title for both The McCarty House and The Grow Room Home.
Oops.
Yes, I (kind of) knew I had to do this since we purchased both homes in last year’s Wayne County Tax auction. I say “kind of” because thinking back on it, I definitely recall my loan officer telling me I’d need to do a quiet title. But now that it’s been nearly a year, it slipped my mind.
So instead of putting some cash in the bank and relieving some of our cash crunch, I’m having to spend $600 per house to get marketable title and get this refinances closed.
The money is what it is. But the title company says it can take “up to a month”, and my loan officer said he’s seen them take six months (I think I’d die).
We started the process last week on the 19th, and I did see some movement from them today. I’ll be calling Monday to check on the status and hope that it moves faster than not.
I wish I could exclaim, “DEMO DAY!!!!” with the connotation that we’re rocking and will be done quickly. But that’s not the case.
I got started knocking down plaster and tearing out lath yesterday on our latest buy, Courtship Revival. It was just me working solo, and it’s going to take a long time just to get it down to the studs. That’s ok, the whole idea with this one is to learn more, not just about different skills and trades, but about the time it takes to do things, costs, etc.
Here are some photos of the room I got started in:
The first room I’m starting on.
Getting started on the opposite wall. Notice the dark lath on the left. It’s severely water damaged from the hole in the roof.
Progress getting plaster off.
Tested out pulling lath. Ultimately I want to get all the plaster off and then start on the lath.
More progress on the second wall.
I got this ventilator on Amazon for $30. The dust from the plaster is no joke!
I watched several YouTube videos on best practices when it comes to removing plaster and lath. They were helpful, but I’m honing my own process as I work. I’ve found that using the side of a hammer to whack the lath loose is pretty effective (I’ll do a video at some point). Much of it will simply start falling off the wall.
Today I’ll be taking a hand sledgehammer to see if that improves efficiency. I’m also thinking about how to tackle the ceilings. Duct taping a sledge hammer to a broom handle and hitting it with that may work well.
Regardless, there’s a lot to do here. Between the two units there’s something like 2,300+ square feet.
On Saturday afternoon I attended a workshop for installing exterior doors and windows at the Detroit Training Center. Given Courtship Revival has no windows, I figured I could save a ton of money by learning how to install them myself.
The facility itself is impressive. They have a number of stations setup for masonry, hardwood floors, tiling, and a bunch of rough carpentry for doing things like doors, windows, siding, etc.
Our instructor talking through the basics of measuring for doors and windows.
With our rough carpentry done, it was time to shim in the door.
Different stations at DTC.
Tile backsplash station. It’s not meant to be perfect, I’m sure… just learning the basics.
Overall, the course was decent. It was nice to see someone, in person, install a door from measurement, framing, and final adjustments. It gave me new appreciation for how time consuming installing a door actually is. Doing it took most of the 3-hour long class, granted the instructor was interrupted with questions quite a bit.
That said, I wasn’t super blown away. I wish we’d spent more time on windows, even though they share many similarities. While our instructor seemed pretty knowledgeable it was clear he wasn’t an expert in doors and windows. There was a question about security doors and he admitted he had zero experience with them and was unable to answer it. So I’m sure the quality of the course is heavily dependent on the instructor.
The course was $70, and you get slight discounts for buying multiple course credits at once. I’m still on the fence in terms of whether or not it was worth it, but I’m willing to take another before making a final decision.
I do firmly believe Detroit’s future is real estate and all things related (trades), so I love seeing things like DCI. I hope they realize the opportunity they have and continue investing in the trades.
On my way out, there was a film crew with a huge camera attached to a boom on the front of a car. The crew was loitering about. They must have been filming No Sudden Move.
It was November 18th, 2019… the day I won the auction for a ratty Detroit duplex. It was ugly, I knew that from the pictures. But it wasn’t until December 19th that I was able to walk through it (a few days before I was supposed to close on it) and see how bad it really was.
To be honest, I thought it’d be worse.
Yes, I knew the roof had a hole in it. Yes, the water damage and general exposure to the elements for what has probably been years was bad. But it wasn’t TERRIBLE terrible.
There was a lot of work to be done. That was clear. But how much… well, I’m not good enough yet to be able to quantify it. Regardless, I knew it’d be expensive so my plan was to punt on closing as long as possible so that we wouldn’t have to get to work on it until we had some free capital.
A couple days after walking the property, I received an email to schedule the closing. I haggled with the woman over the phone, hemming and hawing about why I couldn’t close soon, and in fact, why I couldn’t close until late March.
And I did have a partial excuse. After all, we were in California visiting family early this year from mid-February through mid-March. She bought it, and the closing was scheduled for March 20th, 2020.
Well, by the time March 20th came along, the world was looking pretty different. We honestly weren’t sure if we wanted to take on the financial commitment of this rehab. I’d walked it with my general contractor and he guessed it’d be anywhere from $100k – $120k to rehab it.
Oof.
So when we returned, just before we were supposed to close, I asked to push the closing. And it was rescheduled for May 26, 2020.
So we thought about it some more. I walked it AGAIN, and we decided that it wasn’t worth it. The duplex, fully done, would likely only appraise for about $80,000. Yes, it’d be a cash cow, but leaving so much money in the deal would hurt.
But I still wasn’t SURE sure, so I let the clock run out on the closing and when it was time to pull the trigger I told them that we wouldn’t be closing on it. I received confirmation that it was cancelled and I was in “default” with the Detroit Land Bank (gosh that sounded harsh!).
But it wasn’t long before I was regretting my decision. You see, Dougie Fresh is on the SAME block, on the other side of the street a few houses down. There’s something about the area I find intoxicating. Yes, it’s a bit rough. But it feels peaceful and (mostly) safe. I get good vibes. And every time I’m in the area, I think about how I’d regret not buying the land bank one.
So on June 8th, I emailed again but saying we’d love to still close on it if possible. And it was. So on June 15th we had a new closing date of September 30th, 2020.
Well, as that date approached we’d finally decided that yes, this is something we want to do. I was going to treat it like an experiment and learning experience, trying to sub-contract out some tasks, maybe do some myself to keep costs down.
But I didn’t receive an email two days before our closing date like I was supposed to. I knew this was a sign something was wrong, and I knew I’d be able to reschedule again. At this point we were super tight on funds (still are!) and any delay was welcomed. So I waited until September 30th and emailed my Land Bank agent saying I just received a notification from my calendar that we were closing today… “is it still happening”?
Sure enough, it wasn’t properly scheduled, so we rescheduled again for October 14th. I had every intention of closing this time, and we did.
Amrock closes all Detroit Land Bank Authority purchases.
Both kitchens look like this. This is the upper unit. The roof hole is directly above in the attic.
Upstairs living room. Not in terrible shape, but needs windows!
Upstairs hallway to bathroom and bedrooms.
It’s been a long time coming, almost a year. And Kaitlin and I had gone back and forth on it at least a dozen times. Ultimately, I just couldn’t let it go. It was a heck of a courtship. Hence the nickname, Courtship Revival.
At first, I planned to demo just the kitchens and do my best to repair the plaster in the other rooms. But I’m thinking it might be best to just take it down to the studs, have access to everything, and replace all of the mechanicals.
The demo on this alone could be $6k-$10k, so if I can do a lot of it myself and/or with neighborhood hired help, that could save a lot right there.
It’s definitely going to be an interesting learning experience. Stay tuned!
My tenant at Rutherford texted me the other day. It was a picture of a floor drain in the basement. She said, “Water kept coming up” through it. I texted it to my GC, who’s also been fantastic about helping me with small service calls like this, to get his opinion.
He said it probably just needs to be snaked, so he sent his plumber over there.
But he didn’t come. And he didn’t show the next day either. Everyone is slammed.
So his plumber recommended another that DID show up the next day. He spent three hours trying to snake it, cam it, etc. to find the issue only to conclude that the pipe is collapsed.
He said he’d be able to dig it out with his excavator but we’d need to rip out the back deck(!) to get to the main plumbing line in the back of the house.
WHAT?!?
I was a bit overwhelmed having to make a decision like that in 45 seconds, so we (my GC and I) told him to hold off while we talked to the original plumber, that we know and trust, to get a second opinion.
Well, we spoke to him and he said it sounded legit. So I gave the greenlight go have at it, stressing that I REALLY didn’t want to have to rip the deck out if we didn’t need to.
Friday I get a call from my GC saying he had “some good news and… well, some good news”. Apparently, the crushed part of the pipe was behind the garage, so it was unlikely we’d have to rip out the deck (awesome!). The other good news was that the initial quote ($2,500 — not bad actually) sounded like it’d be for the entire job, including the initial 3 hours the guy had spent trying to diagnose and solve the issue.
They were supposed to come back today and do it, but decided to wait until tomorrow because it was supposed to rain. For what it’s worth, it just started raining about 8 second ago (it’s 9pm at night). Whatever…
How did the pipe collapse? It’s not entirely clear (to me at least), but it seems that the neighbor’s tree that fell over in a storm in August not only damaged our garage roof, but was the culprit in the main plumbing line collapse.
This house, Rutherford, has been an absolutely nightmare, and I haven’t even written about the $25,000 insurance claim we had to make on it the other month.
I learned a lot with this one, and I’m definitely still paying that tuition off. If I thought I could sell it and get my money out at this point, I’m pretty sure I would.
We’re currently working our way through three much needed cash out refinances. As I outlined the other week, we’re pretty stretched in terms of finances right now. And a big part of taking some of that pressure off is pulling out capital from our latest rehabs, The McCarty House, The Grow Room Home (haven’t written about this one yet), and Somerset.
We have about $160,000 tied up, combined, in The McCarty House and The Grow Room Home since we’ve been dumping money into them and haven’t put a mortgage on them yet. Unfortunately, the appraisals for those didn’t come in much higher than that total sum.
Oh well, we can at least get 75% of the value out yet.
But a big surprise was Somerset where the appraisal came in at just $54,000.
Now, we purchased the home last year for just $40,000 and put about $15,000 of improvements into it. So the appraised value at least isn’t (much) lower than that. But I expected it to be around $100,000 due to two houses on the block, similar square footage and updates, that sold for $112,500 each. Things have really gone crazy in that neighborhood since April, with prices rising rapidly.
We contested the appraisal but heard back today that they aren’t budging.
Sweet.
I was really banking on pulling out some decent cash to invest in our next projects.
Why did the appraisal come in so low? Am I wildly out of touch with the home’s value?
For what it’s worth, I had two realtor friends pull comps for me. Both said they expected the home to appraise for $100,000 – $120,000 and they presented the comps to back it up.
Why it didn’t appraise very high likely boils down to two reasons. First, Detroit is notoriously tough for appraisals because the market is so erratic. You can have a home sell on the block for $100,000 and another sell for $20,000.
And lenders will lean conservative. So if they can point to enough comps that skew to the lower end of the market, that’s what they’re going to use. It makes it tough to pull off a true BRRRR in Detroit, especially when you usually have to dump a bunch of money into mechanicals.
So, will we still go through with the refinance on Somerset given our current mortgage was last done at an appraised value of $44,000?
Probably, even though it doesn’t seem worth it on paper. I’ll talk more about it later, but we’ve likely already spent most of the fixed costs to get to this point, our rate will drop, and so our monthly payment only goes up $2 while we’ll pull out something like $4,000 (woohoo…).
We’ll see how The Crown Jewel fares. I have higher hopes for that home simply because it’s located in a better part of the neighborhood and it will be a top-to-bottom (very nice) rehab.
But if that one doesn’t come out strong, we’ll definitely be doing some flips. I know if we listed Somerset on the open market we’d get at least $90,000 for it. And that’s what really drives me nuts.
And yes, we could change lenders, have it re-appraised, and hope for a better outcome. But on this end of the market it’s really not worth doing. I’d rather not spend the time and move forward.
I was chatting with a guy that lives in a Detroit neighborhood I invest in. He’s been in the community for 30+ years and teaches urban planning and development. He’s highly involved in the community and city in general. Very cool guy, but we’ve yet to meet in person.
We’ve chatted on the phone several times though, trade texts and sometimes emails.
We were chatting the other day and I was explaining to him how my investing philosophy has evolved. I used to buy occupied homes until I realized the inherited tenants are usually headaches.
When we bought Wrecked on Rutherford I learned that rehabs really aren’t all that scary, so we started doing more of those because you can go in, knock out what needs to be done, and know things are fixed and updated correctly, and then place a tenant you vet yourself.
Now that we have a handful of producing properties, I still want to buy them empty, but for other reasons as well. I want to be able to make an impact, even if it’s small for now.
I want to take that vacant, rundown house and make it nice, put a tenant in there, and hopefully inspire others to do the same. House by house, the neighborhood gets better… Detroit gets better.
That’s rewarding.
But it’s risky to do out of the gate when you have limited funds. The McCarty House went drastically over budget. I’ve avoided looking at the numbers until our appraisal comes back, but I’m pretty sure we spent ~$65,000 on the renovation.
We initially thought it’d be about $40,000.
Yeah…
That can wreck people, mentally and financially.
So buying the “turnkey” tenant occupied house is the safe way to start.
And safe can be smart, but it’s also boring. Boring is why people end up hating their careers and feeling void of purpose.
We’ve got some decent projects coming up, but we also have some refinances that will be coming through soon. That means more cash to spend. And I’m looking for a bigger project I can sink my teeth into and have even more of an impact with.
I’ve been really slacking when it comes to writing about our initial purchases, refinances, and breaking down all the numbers on that. I’ve only done them for three properties:
We now own nine properties, representing ten units (8 SFH’s and one duplex). Of those nine properties, six are currently rehab’d and tenanted. So I have at least three more of these reports to knock out (this being one).
The “Dougie Fresh Duplex” was the fourth property we purchased, and represented a couple firsts for us. It was our first non-single family home and first off-market deal. It’s nickname is derived from the previous owner who had rehab’d the lower unit and was living in it himself. He told me that if I ever needed a plumber, his guy was fantastic, gave me his number, and said, “Tell him ‘Dougie Fresh sent you”.
Yeah, he considers himself pretty fly (for a white guy… literally).
Anyway…
Off-market deals (aka “wholesale”) really aren’t my jam. My experience is, more often than not, they’re terrible “deals” to begin with and they’re mostly pushed by fly-by-night wholesalers trying to rip you off for a quick buck. I’ve now found it’s far better, and easier, to go track down the seller and negotiate directly yourself because few people will actually do the uncomfortable work of making cold calls.
But this deal wasn’t like that. In fact, it came across a real estate investing group I’m in on Facebook through an agent I personally know that works with another very reputable agent. In short, I trusted these guys.
I messaged him at 10:30pm, went to see it literally the next day, walked it with him, and decided we’d buy it standing outside on the street afterward. This was back in late July last year, and we ended up closing on it on August 9th, 2019.
By the numbers
So now that we have some background, let’s get into the numbers. The duplex was purchased for $64,000 with $7,000 of that being an assignment fee. So the MLS will show that it was sold for $57,000. Did I love the fact I was paying a $7k assignment fee? Absolutely not, but the deal was pretty solid so it made sense. Here’s how the numbers broke out:
Initial purchase price: $57,000
Assignment fee: $7,000
DWSD deposit: $150
Closing costs: $198 (this seems super low, but, and without checking, it seems the seller may have been responsible for most closing costs. Honestly, this is the first time I’m really noticing it.)
Property taxes: $1,312.37
Prorated rent and security deposits: $2,612.91
Total cash invested: $63,047.46
OK, so we paid about $31,500/unit and there was very little work to do. At the closing table, the seller gave me his notice to vacate for the end of September. He’d be paying $850/mo until then (one more month). The upstairs tenant was only paying $650, which honestly was pretty strong for the area. Many people are still paying $400-$500 because these buildings have been owned for YEARS by the same people and were bought for next to nothing.
But the first thing we decided to do was delayed financing to pull out as much money as possible right away. I had high hopes that the home would appraise a fair bit more than we purchased it for given the condition, but I was a bit disappointed.
The appraisal came in at $68,000. Higher than we paid, but still… not what I was hoping for. The other surprise was the 70% LTV. I was expecting we’d be able to pull out 75% but didn’t know that 70% is standard on multi-family units.
Oh well.
So after closing costs we received $43,560.66 leaving us with still a little over $18,000 invested in the building.
Turn over time
We completed our cash out refi on September 26th. And that’s the benefit to delayed financing. Less than two months from the day we closed we’d already ripped out a good chunk of change.
Our lower-unit tenant (previous owner) had already moved out the day before and left a TON of his crap behind. Long story short, I threw up a “Free for Haul” on Facebook marketplace, people swarmed the house one morning (literally showing up with U-Hauls), and most of it was gone. I kept the security deposit for my troubles.
He (previous owner) was livid.
We spent $300 re-glazing the tub, and $100 cleaning the apartment for the turnover. Unfortunately, being in October it was a bit tougher finding a tenant. We didn’t end up filling the unit until late November and had to decrease our asking rent from $850/mo to $800.
But, we signed an 18-month lease and the tenant has been fantastic. We gave the choice of a 6 or 18-month lease to get the unit on the Spring/Summer cycle for the next time it turns over.
While I was cleaning out ol’ Dougie Fresh’s stuff, my upstairs tenant notified me she’d be moving out to take care of her parents. That was a bummer because I absolutely loved here. It also meant more turn work.
So while we were looking for a tenant downstairs, we were pulling carpet, refinishing hardwood, painting, and re-glazing the tub upstairs. We ended up spending $5,204.91 cleaning up the upper unit which included purchasing appliances from the previous tenant.
We finished this all up on December 15th and really debated whether or not to list the unit for rent due to the upcoming holidays. Ultimately, we figured we had little to lose, and I’m glad we did.
We found a tenant that was moving from North Carolina to work at Quicken Loans. We did a virtual walk through, they loved it, and everything ended up checking out. We signed a six month lease so if they didn’t end up liking the area, they could leave, but also because that would get the unit on a spring/summer rent cycle.
The lease was at $850/mo so we were now getting $1,650/mo for the building.
The upstairs tenant’s lease started January 1st, and at that point we had just shy of $21,000 invested in the deal.
Our upstairs tenant ended up leaving after their six-month lease and moving to the suburbs. I wasn’t surprised by this. The good news? They completely moved out two-weeks prior to the end of their lease and left the place spotless. We had zero issue re-renting the unit BEFORE the initial tenant’s lease was up. So we double-dipped a bit there. Again, the unit was rented at $850/mo with zero issue in terms of demand.
Cash flow numbers
As of this writing, we now just have $11,166.30 cash left in the building, so we’ve pulled about $10,000 out via cash flow since January this year. Not bad! Dougie Fresh Duplex is an absolute cash cow.
Here are our monthly numbers:
Gross rents: $1,650/mo
Principle and interest: $251.25/mo
Insurance: $67.07/mo
Property taxes: $157.02/mo
Reserves: $495/mo at 30% gross rents
Total monthly cash flow: $679.66/mo
In reality though, I don’t put money aside for reserves. I need to write about this in another post, but my logic can be boiled down to two things. First, I now have $5,500/mo in gross rents coming through the door each month. That will tick up to $7,000 in about two months. There are very few things that will come up that $7,000 can’t fix. Second, I usually have SOME cash on hand or accessible, so I just don’t worry about stashing part of the rent away each month for each property.
We’ve had a few small repairs pop up at the property, but nothing more than a couple hundred dollars. So it’s been pretty hands off thus far. I estimate that by this time next year we’ll have all of our cash out.
Photos (because who doesn’t love those?!)
Again, we did very little to this building, so I don’t have a lot of jaw-dropping before and afters to show. But to give you an idea of the units and everything I’ve detailed above, here are some photos:
The Dougie Fresh Duplex on a gorgeous day.
Living room of lower unit with entry off to the right.
Dining room with fireplace in the living room.
We did nothing to the kitchen.
First bedroom. Again, nothing was done in this unit except re-glazing the tub.
Second bedroom.
Third bedroom.
Retro bathroom with original tile in fantastic shape.
The basement was finished.
Among MANY things, the previous owner abandoned his washer and dryer. We kept them 🙂
Upstairs unit living room initial.
Upstairs living room after.
Upstairs dining area initial.
Dining room (again) before.
Upstairs dining room after.
We debated updating the kitchen but ultimately decided to wait.
It’s functional and rents wouldn’t justify the updates yet.
Hallway to the bedrooms and bathroom.
Again, the upstairs bathroom tile is in fantastic shape (and not so retro here).
Upstairs bedroom before.
First bedroom after.
Second bedroom. The goal was to lighten and brighten up the entire space.
And the final upstairs bedroom.
Both units have the exact same layout, with three beds, one bath in each. Our goal with the top unit was to make it light and bright, and I think we achieved that.
In the future we’ll update the windows and the kitchen. The lower unit has all new vinyl windows courtesy the previous owner, while upstairs are original yet. The kitchen is in great shape and functional, but dated. It’s had zero impact on demand though.
Also note, although the upper unit’s basement isn’t pictured (it’s not finished, either), the basement is partitioned so that each unit has their own side and their own washer and dryer. Tenants tend to LOVE that.
Final thoughts
The Dougie Fresh Duplex has been a great income producer for us. Here’s a graph of our cash invested and debt on the property since we’ve owned it:
Knowing what I know now, and had I known our upstairs tenant was also planning to vacate, I’d have waited to refinance after updating the top unit. Overall, this seems to be a theme in my “lessons learned” for properties we’ve purchased. I always seem to regret doing delayed financing.
There’s not much else I wish we’d done differently. Our mortgage is currently at a 5.25% interest rate, so we could definitely improve that on a refi, but I’m not sure it’d be entirely worth it yet given closing costs. Comps are pushing higher though, so if we’re confident it’d appraise for $100k+ next year we may end up doing it.
There’s a house across my current rehab that’s in pretty rough shape. It’s an all out eyesore and I’d love to buy and rehab it just to get the block looking better. So I tracked down the owner of the LLC that holds it and, after some extremely light Googling, discovered that it’s owned by one of Detroit’s most notorious alleged slumlords.
This individual was literally sued, along with a few others, by the city of Detroit the other year. The lawsuit has since been dropped.
This was a disheartening discovery. I mean, the guy owns hundreds of properties all over the city. Selling this one would surely be small potatoes, and I’d probably have zero luck getting a response from any outreach, right?
Wrong.
That’s exactly what goes through EVERYONE’s mind. And they give up. Right. There.
So, last night, at about 7:30pm I decided to start calling some potential phone numbers I thought might have a shot at being his.
I called the first one and someone immediately picked up.
Him: “Hello?
Me: “Hi, Mr. X?”
Him: “Yeah?”
Me: “Hi, my name is Travis. I’m an investor in Detroit and interested in buying one of your properties.”
Him: “Which one?”
That’s it. That’s all it took the get the conversation going.
Kaitlin and I had a “date night” last night. Our babysitter has been working out gloriously since July. She’s been an absolute lifesaver. And so we ask her to do a few hours on the weekend once in awhile, usually a Sunday.
We don’t do anything glamorous. Usually we’re off to check on a rehab and grab a quick bite afterward. Yesterday was no different.
A couple months ago I decided to wholesale my own deal because inventory is low where I want to buy, competitive, and… well, wholesalers suck. I was confident I could do a better job myself.
