Category: Detroit Real Estate Investing

Appraisal hell

Travis

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.

My first self-sourced deal: The Mansion

Travis

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.

And I did.

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Cracking Open the Crown Jewel

Travis

I haven’t written in awhile which sucks. I enjoy it, and it helps me think.

I’ve been busy though. We’ve had some things pop up with the McCarty house, finished up another light rehab and moved a tenant in, and had a major plumbing failure at Rutherford (I swear that house is going to kill us) that resulted in an insurance claim. We had to replace the plumbing stack and completely redo both bathrooms.

Not cheap. And of course insurance is going to screw us. The scam of all scams.

But we’re finally getting started on our Crown Jewel as I like to call it. And I’m only now realizing I have yet to write about this home.

It’s a gorgeous house we closed on back in December of last year. I’ve been itching to rehab it, but we just hadn’t gotten to it yet. We call it the Crown Jewel because, once rehab’d, it will be the nicest home we own. It’s on a strong block in a strong neighborhood and I’m just kind of in love with it.

Anyway, we’ve got a rehab budget of ~$50k which means we’ll almost definitely go over. We purchased the home for $37k, and it would appraise for somewhere in the $130k+ range.

We’re redoing the plumbing and electrical, putting on a new roof, redoing the crumbling exterior steps and brick porch, blowing out a wall to open up the kitchen and redoing that, and then all the basics like refinishing the floors, painting, recessed lighting, etc.

It’s going to be gorgeous, and I can’t wait to see it done.

Today we were able to remove the wall between the kitchen and (one of) the living areas. In the process we uncovered the original rough plumbing inspection approval from 1936. Crazy!

We’ll be rerouting the heat runs through other walls, throwing a peninsula in, and eventually creating a jaw-dropping kitchen here. We’re aiming to be done with the home by November, but that’s going to mean a pretty rigorous schedule.

Here’s to hoping!

Get Them Vacant

Travis

I went to see a home yesterday because it was kind of in my sweet spot area, but not quite. That and I’m itching to buy something. We haven’t bought a house yet this year which seems insane after buying 9 last year (and then selling one).

The home came to me through a friend that wholesales. If you know me, you know I largely despise wholesalers. But my buddy is honest and good at what he does. It was priced at $26,000 and the house looked solid and was on a solid block.

But I knew I didn’t want it as soon as I walked in. There were tenants… a lot of tenants. Now, I’ve purchased homes with tenants before, and I even still have an inherited tenant (she’s great, I love her), but the other times have been nightmares and a complete pain getting them out. I can’t imagine doing it now with COVID and the eviction moratoriums we’ve been seeing.

I told my friend that it wasn’t for me, because “I don’t want to deal with people.” That’s partly true. But the other part is that my strategy has shifted a bit.

I want them vacant because I want to get in there and do what I need to do to update the house and push rents as higher. People like to think they’re buying a producing property when they have a existing tenant, but I promise you that’s almost rarely the case.

McCarty House Rent Ready

Travis

Sigh, The McCarty house. This one has been a journey. If you want to go back and read a bit more in depth about this house and some of the highlights, most of that lives in the tag here.

This home was left for dead when we picked it up in the Wayne County Tax Auction for $43,000. We (way) overpaid.

I thought it had 3 beds and 2 baths, but it had just 2 beds and 1.5 baths. Not a big deal, right? Well, the house was also a complete disaster. For starters, there was mold EVERYWHERE. I mean, the kind that lives not just on surfaces, but in the air to the point where it hits you and makes you take a half step back when walking through the door.

The roof was failing, the upstairs bathroom was leaking, and we later discovered a pinhole leak below the main water shutoff in the basement. To make matters worse, the basement had been fully finished in the past. The genius that did the work covered every single floor drain with tile. The only exposed drain was clogged and backing up.

The previous occupant told me they’d pump the water out a basement window every time they did laundry. But the basement still held about an inch of water at most times and the floor tiles would squish and shift as you walked across them.

It took us about three months to remove the occupant. That, in itself, was a saga. And to this day, Ms. McCarty is a household name at our home and running joke.

The rehab officially began on February 6th of this year. And it officially ended today, nearly six months later. Oof.

Here are the before and after photos. If you want to see some of the in between ones, check them out here.

  • This is the entryway. You can see the bonus room with the makeshift doors on the left side of the far wall.
  • We reframed the bonus room to create the third bedroom.
  • Notice the mold on the baseboards on the left.
  • Much better!
  • There was hardwood under the carpet but it need a lot of love!
  • Here’s a shot of the bonus room after removing the makeshift doors. It’s small, but we made it work.
  • Bonus room now bedroom.
  • Here’s the dining area, or crash pad…
  • Dining area redone.
  • The kitchen was not only ugly, but a complete mess. The subfloor was completely rotted from water damage.
  • Everything new. In hindsight I don’t love the LVP color choice, but it works for now.
  • This was a nook in the kitchen (left side of previous photos but not pictured). We turned this into a laundry area.
  • The nook, now with a door and laundry hookups.
  • This is the half bath on the landing between the main level and basement. Notice the floor was collapsing here. We raised this, knocked the back wall out, and connected it to the bonus room (now bedroom) to create a full bath.
  • Here’s the new full bath. The wall you see here is the old doorway from the previous photo.
  • The sink from the half bath in the previous photos.
  • To create a shower in this new bathroom we had to shift the door to the kitchen to get the space.
  • Upstairs bedroom with junk in it, but in decent shape.
  • Nicely painted and refinished.
  • Upstairs bathroom demo’d out.
  • And all redone.
  • The subfloor needed replacing here in the upstairs bathroom as well.
  • Done with new vanity and toilet.
  • The basement was a hot mess. I’ll never forget the squishing tiles beneath my feet.
  • Here it is mostly demo’d out.
  • And all fresh, painted, and clean. What a journey!

What was originally a 2 bedroom, 1.5 bath home is now a 3 bedroom, 2 full bath house. Getting there wasn’t easy.

We turned the bonus room (off the living area when you walk in — first photo) into a bedroom (photos #7 and #8). We relocated the doorway to the kitchen to another wall and took over a small pantry to create the bedroom closet and part of the shower stall.

Finally, the half bath that originally sat off the landing on the way to the basement shared a wall with the bonus room (now bedroom), so we raised the floor and busted open the wall to adjoin it with the new bedroom and create a (small) ensuite.

That gave us the third bedroom and second full bath we were hoping for. The other big change, beyond general aesthetic updates, was sealing off the small eating area in the kitchen (photos 13 and 14 above) to create a pantry or first floor laundry. You can barely see the laundry hookups in the wall in photo 14.

The idea here was to force some equity by creating the third bedroom and full bath, obviously. But we also wanted to make the home more appealing to someone who didn’t want to climb stairs and could live on the main level if they chose to.

I think it worked out well.

Beyond that we completely rewired the entire house, did a tear off roof replacement, and updated the plumbing. Those are things you don’t really see but hurt the pocket book quite a bit.

I’m still tallying how much we spent on this rehab, but I know it was in the $50,000 ballpark. That number makes my head hurt.

We’re also still waiting on the financing and appraisal, so I don’t have those numbers yet but I will soon. I didn’t think we had a shot at getting our money out previously, but comps have come up strong in the last couple months, so you never know. At this point, I’d be happy getting most of it out. But with the way this one has gone, I’m not holding my breath.

On to the next!

When in Detroit… Steal Electricity. And Why Out of State Investors Can’t Hang.

Travis

My roofer texted me Friday making sure there was power on at the house we were scheduled to start work on today. I didn’t think too much of it. I’d set electricity up via DTE’s online portal months ago. I’d been in the home since then and mentioned to Kaitlin that the power wasn’t on.

We didn’t think too much of it though considering this happened at Algonac and they were able to switch it on with a simple phone call. Shouldn’t be an issue.

We tried calling Saturday at 2:15pm but their office apparently closes at 2:00pm. OK, Monday (yesterday) it’d have to be.

Well, turns out it wasn’t going to be a simple fix. While on the phone with DTE yesterday morning, we learned that the power line that leads to the main had been cut. I’ve discovered, through the McCarty House, that when occupants don’t pay their bill, DTE shuts them off. Then they tend to steal power and DTE comes and cuts the line.

Unfortunately this results in a major PITA for me. Usually DTE can’t get out for a couple days and they give you a four hour window for when they’ll show up. You have to be there to let them into the house to show it’s properly grounded.

Well, the earliest DTE could get out would be the 23rd of this month. Not OK.

The shingles and roofing material had already been delivered, sitting at the house. So I take off around noon, hoping to knock on a neighbor’s door and see if they’d let us borrow some electricity for today.

Knowing that it’s rare that Detroit homes have exterior outlets, I phoned my electrician on the way in and explained to him the situation. He asked for some photos when I got there to see if he’d be able to help.

Nope. The lines were too far from the main. We were definitely going to need DTE out to resolve it. But he said he’d stop by and take a look anyway and see if there’s anything he could do.

He called me an hour later, “Do you know the people next door in the grey house?”

“No. Never met them.”

“I don’t think anyone is there,” he said. “The power is on. I could tap into their…”

“Do it!”, I said.

“OK. I’ll do it tomorrow before they start.”

“Sounds good. And we can just disconnect it when we’re done. They’ll never know.”

“Yep.”

And so we did. He got it hooked up this morning just before the roofers got to work. They knocked the roof out today, and we’ll be disconnecting it tomorrow.

It cost me $275. But it’s cheaper than eating the dumpster that we already had schedule, and potentially losing our roofing materials to rain and/or theft. So that’s a win.

This is just one of the many reasons why out of state investors get eaten alive in Detroit. First, how could you possibly react to this situation from afar?

You couldn’t. You’d be left trying to cancel the dumpster, likely losing some or all of your roofing materials. Having to re-purchase everything, and waiting multiple weeks to get the roof done.

Ouch.

Maybe you could rent a generator? I have no idea, honestly. Maybe that’s the easiest solution, but it may not be. And renting anything right now in the midst of a statewide lock down can’t be too incredibly easy.

The other side of the coin… how many out of state folks have an electrician that’s bad ass enough to do something like this for them? I’m guessing not many.

And how many have the balls to do it?

Even less.

Detroit is such a unique beast. I love it.

Fire House Sold

Travis

Last October I purchased three houses from the Detroit tax auction. One I never intended on keeping but I did have a buyer already lined up… or so I thought.

When it became clear that buyer wasn’t going to come through, I got to talking with my buddy Jamiel about what we could do. He hooked me up with his partner Jamila and we listed it on the MLS.

To our surprise, it wasn’t long before we had an interested buyer. Apparently the guy owned a good sized apartment complex nearby. And, unlike me, he liked the area.

Awesome!

We wrote up a purchase agreement for $13,000 and got to work.

For such a cheap house you’d think this transaction would be quick and easy. Given the purchase price, it’s a cash deal, and those generally move fast.

Nope.

This one took forever for several reasons. First, we owned the house on a quit claim deed (QCD) and the buyer wanted to go through title, meaning he wanted title insurance. Apparently that process is a bit more complex with a QCD and involves a Freedom of Information Act (FOIA) request.

When that was finally done we hit another snag. There was an $8,000 balance on the previous owner’s water account. Obviously, this wasn’t ours and it’s common knowledge in Detroit that utility bills follow previous owners and tenants, but title was insisting we had to get it cleared before proceeding.

That took some back and forth with DWSD via phone and email and having them state in writing that it wasn’t on us was eventually enough to satisfy the title agency. We ended up closing yesterday after having the initial purchase agreement signed on February 13th. Almost two months!

We paid $10,032 for the Fire House at auction and another $1,162 in property taxes for a total of $11,194.

Although we sold it for $13,000, after commissions, fees, title insurance, etc. we only walked away with a check for $10,520.27 resulting in a loss of $673.73.

As far as lessons go, that’s a cheap one. I’ve lost far more money doing far smarter things. I’m just glad to be done with it and focusing on more important projects. At the end of the day, I’m super thankful that Jamila stuck it out and got this sold for us. It’s obviously not a huge win or big money maker for her.

Now we can dump the money into putting a new roof on the McCarty House.

Going Broke Buying Roofs

Travis

My friend, Keyonte, texted me some photos yesterday of a garage he had re-sided. It looked fantastic, and he mentioned the guy does roofs too.

Great, I thought… I need some of those!

I gave him a call and we decided to go out looking at our house on Algonac that we just recently gained possession of and the McCarty House. I’d already had one person out to quote Algonac the other day. He said it has three layers of shingles on it and would be about $7,000 to get it done.

That’s a bit higher than I was expecting, but after seeing it today, I get it. The roof is in terrible shape and it’s bigger than I remembered. So when Keyonte’s guy Sam looked it over and quoted it at $8,000 I knew we were in the ballpark. That’s not terrible news.

That came when Sam took a look at the McCarty House. The flashing is failing on the chimney, which is not uncommon in Detroit. Most of these roofs were done by inexperienced crews that were more concerned with making a buck than doing it right. You can almost always bet on flashing issues and be right.

But beyond that, the shingles in the valleys are failing and essentially disintegrated. The wood siding on the left and right portions of the house is rotting, especially near the roof line, allowing a path for water to enter the home. And to top it all off, it seems the front of the house was re-roofed at one point. The shingles on the back are clearly different and older.

Oof. I was not expecting to have to re-roof McCarty. I knew it likely needed some repair, but not this.

I was pretty sure Kaitlin was going to kill me, because this house has been an absolute nightmare and money pit. And we’re nowhere near the finish line.

But she was pretty cool about it. In fact, while we’re doing those two we figured we mine as well do Farmbrook. That one is small and straightforward, so hopefully a bit cheaper.

I’m trying to find a skilled roofer that isn’t going to break the bank. I’m not the type to do things half-ass, and we plan on keeping these houses for a long time. So I want them done right.

But we’re definitely pushing the limits in terms of what’s left in our bank account. Hopefully we can sell the Fire House and get some cash there. I’m also hoping we see a tax refund this year to add a little more dry powder.

You know you’re scraping the bottom when you’re banking on a tax refund. Woof!

Essential Tenant Move-Ins

Travis

We’re moving in a tenant tonight, and it’s been a bit of an interesting experience amidst the COVID-19 and stay-at-home order. The move in date has been planned for weeks, and the tenant is flying in and relocating from Louisiana tonight.

We’ve never physically met.

Now, that’s not entirely strange for me. We placed a tenant in January that was moving up from North Carolina. We did a Facetime walk through of the house just like we did this time, but I ended up meeting him at the home to give him the keys when he got in.

This time I simply left a lock box on the house and our new tenant let herself in. Honestly, it was pretty cool.

That said, it’s been a bit stressful. This home, Somerset, was the one we had the furnace and water heater stolen from not long ago. So we had to finally put new ones back in. I trusted a guy I’d never worked with before to put them in this morning, again with just a lock box on the house.

I was nervous he’d flake or something would go wrong, because I would have been left without a backup. I’m happy to report everything went smooth.

It’s been a long road getting Somerset back rented after having to evict our inherited tenants. We’ve dumped more money into the house than I’d have liked, but I’m glad we now have it rented and producing again. I’ll have to do a write up about what we did, how much we spent, and what we’re hoping to see in terms payback period.

McCarty House Movement and Playing Handyman

Travis

I did a virtual showing for our Somerset house, stopped by the McCarty House to meet with our electrician, and swung by the Dougie Fresh Duplex to look at getting the Ring doorbell properly setup for one of the tenants.

It felt good to be on the ground doing real estate related stuff again.

The virtual tour went well. If this pans out, it will be the second time I’ve Facetimed a prospective tenant and have them move in without stepping foot in the home before. She seems great, and her background and credit check both came back positive. Promising.

The (no longer moldy) McCarty House is coming along. We’re definitely not as far along as I’d hoped, but I’m happy that we’ve made some progress while I was away. And we hit some speed bumps, too.

We’ve been mostly focused on the main level, because we’re doing some serious changes there. Here is a shot as you enter the home, looking in the the living room. There was a “bonus” room with an arched doorway to the left. Ms. McCarty was using this as a makeshift bedroom.

We blew out the arch and framed it with a real door so we could turn this into a real bedroom. The problem is it’s a small room with not much squarefootage to add a closet. So, after lots of back and forth, we decided to close up the doorway you see on the right hand side (in the photo on the left), blow the wall back all the way into a half bathroom that sits a few feet lower than the main level.

Here’s a better shot at the make shift door that led to the “bedroom”:

The half bath is accessible from a landing on your way to the basement. So we’ve raised the floor of that bathroom to accommodate a small master suite. Here’s a shot from the landing on the way to the basement. You can see how we raised the floor to be level with the first floor:

Also notice the rotted out floor of the old bathroom. This has been an ongoing theme in the house.

Here’s a shot from the opposite side, standing in the new bedroom:


We decided to put a pocket door in to save space. The bathroom is quite small, and I think I’m going to try putting in a wall hung toilet to make it more comfortable.

The basement is also coming along nicely. We’ve at least got it mostly removed. Getting this done cleared up 90% of the stench throughout the house. All the mold is now gone:

Don’t mind our electrician, Gene, relieving himself in that last photo. We don’t have a working bathroom in the house yet. I kid.

It’s definitely some progress, but I want to move faster. We likely have a tenant that’s already going to jump on this house, and I’d like to get her in sooner rather than later.

After leaving the McCarty House I headed to the Dougie Fresh Duplex. I haven’t written about that one yet, but it’s one of my favorites. The tenant that lives in the lower unit is also one of my favorite tenants. She cracks me up.

I looked at her Ring doorbell that isn’t set up, and it turns out I need to call customer service to get it transferred to me since I’m not on great terms with the previous owner (long story). She also had a light fixture that wasn’t working that I managed to fix.

All told, I was home by 1pm and it was only about three hours out of my day. But I enjoyed it. Funny how people think being a landlord sucks. Or maybe I’m still too green.