Category: Real Estate

Wrecked on Rutherford

Travis

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.

Here’s how the final numbers broke out:

  • Initial purchase price: $52,500
  • Closing costs: $825.00
  • Property taxes: $1,255.33
  • Closing credits (prorated rent & security deposit): $0
  • Initial cash invested: $54,580.33

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.

I can live with that.

Rehab from afar

Travis

Here was my lunch venue for the day (aka my in-laws’ back yard).

I could get used to this.

I spent some time last night going over Royce’s quotes for the first few phases of The McCarty house rehab. We hashed out some things over text and some more details this morning. I ended up green lighting the first two phases, paid him a third of the quote, and he got started today.

Apparently we also now have power at the house, so that’s great news.

It’s an interesting experience having a rehab moving along while out of state. It’s also a great exercise, because I’d love to do more of this as we build our team and network of folks we trust.

I’m a terrible Valentine

Travis

I had plans to meet my friend (and fellow investor), an electrician he’s worked with, and Royce over at The McCarty House to go over stuff in more detail at noon today. As I was pulling up I got a call from a 313 (Detroit area code) number.

“Hi, this is Travis”

“Hi, Travis this is Donita at Algonac”

“Oh, OH… hi!”

I haven’t written about Algonac yet but it’s a home we purchased in the October tax auction. There hasn’t been a ton to say since we haven’t been able to obtain possession of the house yet. The previous owner (of 39 years) is till there, and it’s been fairly dramatic and deserves it’s own post. But this is the first time I’ve had direct contact with her, and of course, it’s coming NOW when I’m running around like with a million things to do and days before our big trip.

But I was happy nonetheless. It’s good to have a line of communication open to the person you’re trying to evict. I had to cut our conversation short and meet with Royce, but I’ll be talking with Donita more soon.

I’m nervous about starting The McCarty house rehab while I’m away. It’s a large project, definitely our largest, and I spent a couple hours last night writing all the work up into different “phases” that outline how I want it tackled.

We went over everything, shifted a few things around, and actually came up with a new potential layout for the main level bedroom and (hopeful) master suite. It’s dependent on pretty significant rearrangement to the layout.

We still have to hammer down pricing, but I’m hopeful we can make some good progress in my absence.

I did nothing for Kaitlin this year for Valentine’s day. We generally don’t make a big deal out of it, but I usually at least get a card. She was a bit pissy about it… rightfully so.

I like to think there’s just been so much going on that it’s been hard to breathe, but I’m notoriously bad with holidays, birthdays, or really anything where I’m expected to give a gift. It doesn’t help that her “love language” is gifts.

Maybe buying a new house would count?

A guy can dream…

Unreliable re-glazers

Travis

I’ve been running around like a lunatic trying to wrap up loose ends before we head out on our trip. This morning I headed down to the McCarty House to sit and wait for DTE during the 8am – 12pm window they gave us. Someone has to be there to let them in to confirm the house is properly grounded.

On my way in I got a call from the guy that has been scheduled to re-glaze our tub at Greydale for our section 8 re-inspection for the last two weeks. He cancelled literally 1.5 hours before he was supposed to show up. Lovely.

His son, who I normally hire for re-glazing, was too busy and referred me to him. The son assured me something like this would not happen and made me feel pretty silly for even insinuating it may. I wanted to call him in a rage, but realized that would accomplish absolutely nothing. Instead, I’ll just stop calling him for future work.

Kaitlin managed to handle it and contacted another re-glazing guy we’ve worked with once before. He’s coming out tomorrow at 10am. He better friggin’ show!

While waiting for DTE I planned to run around to a few more properties, snapping photos to build my case to appeal our property tax assessments that I’ll be fighting more thoroughly in March. I figured why not throw in a showing for Somerset, too? All the houses are in about a 5 – 10 min drive, and DTE was supposed to give me 30 minutes heads up.

I had the showing scheduled at 9am and DTE, of course, calls me at 8:40am and says they are 20 minutes out. So I pushed the showing to 9:15am, blaming weather and traffic, and waited for DTE to show. All went well, and he got to work putting the meter back in, but they’d have to be out again to fix the main wire. Apparently the previous occupant was stealing power after DTE shut them off. So they came out at some point and clipped the wire that runs from the house to the main. He says they’ll be out in a day or two, but we’ll see.

I got to the Somerset showing at 9:16am. The prospective tenant seemed great, and I hope she follows through on her application. Hopefully we’ll have a tenant in place for when we return.

I’m tired, stressed, and ready for a break. I can’t wait to leave simply because I won’t be able to do much from a couple thousand miles away.

Awkward grounding

Travis

I shot down to The Great Greydale this morning to check in with our handyman and make sure everything was on track with the fixes for our section 8 re-inspection. After that I swung over to the East side to meet Royce, a contractor I’ve worked with previously to get one of our properties rent ready. His daughter was the applicant, and he did an awesome job helping us out after another “handyman” screwed us over.

I wanted Royce to look at the McCarty house after having another contractor’s quote come in quite a bit higher than anticipated. I’ve done some work with the other guy, but he’s always come off as a bit pricey.

Well, while Royce and I were walking the house, the initial contractor showed up. We’d talked about having him ground the house so DTE could come out tomorrow and work on getting the power on. Lucky me he happened to show up when he did. It was a bit awkward, but what are you gonna do?

Royce seemed confident in the job and we’re going to talk it over in the next couple days hopefully coming up with a plan to get going while I’m gone.

You need at least one

Travis

The other day I wrote how “you only need one” when talking about our slow open house at Somerset. I thought we had a couple strong applicants, but it turns out I was wrong.

Our first applicant’s background and credit check came back. There were a number of issues that cropped up, and ultimately we couldn’t accept them.

On to number two… same thing.

So I did a private showing for a guy that just moved here to join his fiance (currently in med school). He was super nice, and I tried not holding it against him that he’s a Bernie supporter 🙂

I have no idea if they’ll be interested in the house, but it’s theirs if they want it at this point.

That said, I doubt we end up renting it before we leave on Sunday. And I’m fine with that. We’ll probably have an easier time marketing it in another month anyway.

Cleaned out McCarty

Travis

The McCarty house is fully cleaned out now. It’s a big difference, and there are some new issues we’re discovering now that we can mostly see everything.

For instance, here’s the before and after of the small bonus room that we’ll be turning into a bedroom. It looks narrow, but it’s about 10’x11′ and we’re not planning on sacrificing any of that square footage for the closet.

There’s a large chunk in the ceiling that’s caving in. I didn’t think it was leaking any longer, but clearly the carpet was hiding that.

The wood floors downstairs are a bit rough, but they should look pretty good with a fresh refinish.

Unfortunately, the once beautifully finished basement had to be completely torn out due to water damage and mold. We’ll be scraping up the thinset, but there’s no power in the house yet.

Besides some damage to the walls, upstairs is in pretty decent shape. The floors will look pretty damn good after a full refinish.

There’s a ton of work to do here, and this doesn’t even include exterior stuff like roof repair, brick work to save some areas that are failing, etc.

We’ll probably have our demo crew back to rip out some stuff we were undecided about, like the kitchen tile. Initially, I thought we could lay new flooring over the top, but that’s not looking like it’d be feasible.

Now we need to keep hounding DTE until they come back out to get the power on. The previous occupant wasn’t paying their bill, so DTE finally came out, removed their electric meter, and locked the box down.

You only need one

Travis

We held our open house for our Somerset rental today. We’ve only been marketing it for a few days, but inquiries have been slow. I’m not sure if it’s the time of the year, month, or the fact that we’re priced aggressively for the area.

I imagine it’s a combination of all the above.

We know it’s a long shot trying to get it rented before we leave for California. And honestly, I won’t be too bent out of shape if we don’t. That means I wouldn’t have to scramble getting a lease signed, getting a furnace and water heater back in the house, and having appliances delivered.

I would welcome less on my plate right now.

We only had four people show up, but they all seemed qualified. You only need one.

Here’s to hoping we rent it before we leave… or don’t.

Assessment overload

Travis

I’m feeling pretty stressed right now. We’re working on getting our Somerset house rented, started the rehab on The McCarty House, need to knock out the section 8 inspection checklist, it’s tax season, and now Detroit property tax assessments came out.

With all this happening right now, we’re preparing to head to California for a month. I’m not looking forward to flying across the country with a three-and-a-half, one-and-a-half, and dog but it will be worth it. At least that’s what Kaitlin keeps telling me.

So on top of everything else I’m now scrambling to figure out everything I need to do to appeal our tax assessments which all were adjusted significantly higher.

And while Mike Duggan & Co. tout this as a win, it’s not all it’s not feeling like it.

Yes, real estate prices in Detroit are on the rise. Yes, I’m happy to see the city collecting increasingly more tax dollars. It will only fuel more progress.

But most of our properties are in dire need of significant repairs. Significantly bumping the property taxes isn’t exactly an incentive for people like me that are trying to improve the city.

That said, I’m thankful there’s a process in place to appeal the assessments, even if it is all a bit foreign for me right now. I’ll have to take a trip or two down to the assessors office, but I’m hopeful I’ll be successful getting these lowered.