As real estate investors, we’ve all heard the horror stories of what could go wrong with owning any sort of real estate property. Vacancies, severe disrepair, creditors knocking, hoarding, death on the property—things that would make a leaky toilet seem like a walk in the park!
Some of us even choose to deal with these issues as part of our business model and value-add proposition to get great deals (a nod to you my fellow BRRRR investors).
But what would you do if you were thrown into the blender with all of those real estate nightmares… at once…
How would you respond? Where would you even begin?
One Day in April
One morning this past April, something was off. (You know something is off when you put on your jacket inside the house, only to be stung by a yellow jacket multiple times!)
To put this morning into context, a few weeks earlier my husband had been in a fairly severe mountain biking accident, and it had been a few weeks since my mother and I had talked.
I picked up the phone to dial my mother on her landline. Disconnected.
I knew she hadn’t been paying the bill since Harvey had hit last August, claiming ATT hadn’t reconnected her phone.
Thinking little of it, I hung up and tried her cell phone. Disconnected. WTH!
I dialed the police to do another welfare check. Yes, I had them on speed dial, as welfare checks had become a regular part of our relationship dance for the past few months as my mother was becoming more and more reclusive in her older age.
The officer went by the house and quickly determined he needed to gain entry into the home (never a good sign). He said he would call me back once he had found my mom.
The officer called me back quickly. Too quickly.
And he said the words any child dreads to hear: “Your mother is gone.”
My New Reality
The next few hours were a complete whirlwind, answering the detective’s and medical examiner’s questions in complete shock.
Later that afternoon, the officer let me know that the house would be turned back over to me as next of kin, but I should know a couple of things:
- “Don’t enter until it’s cleaned.”
- “The back door is shattered from the officer kicking it in.”
And then he hung up.
Reality started sinking in.
The fears I held for my mother and our family came crashing down on us in an instant.
My husband and I sat at the kitchen table too dumbfounded to know what to do next. We lived over 1,000 miles away in Colorado. And I was now due to inherit a 4,000-square-foot property that was:
- In a serious state of disrepair
- A hoarding situation
- Now vacant (and the whole neighborhood knew it!)
- With a death on the premise
And I had to deal from a distance (unfortunately, these wouldn’t be all of the surprises headed my way!).
When anyone dies, there is an array of arrangements, emotions, and grieving to work through (which I’ll set aside for the purposes of this article). I also had to face the reality of the financial turmoil staring me right in the face. I knew my mom’s home, if not handled swiftly and properly, could quickly sink the estate.
After a good long cry and the brutal realization that, due to circumstances, I would have to start dealing with the house first before my mother’s funeral arrangements, I started making list of people I knew I would need on our team:
- Real Estate Agent
A couple of years ago, I had reached out to all of my mother’s neighbors and introduced myself. I had lived in the house only during the summers in college, so I never got to really know them. But now, with an aging mother, I kindly asked them to reach out to me if they saw anything out of the ordinary, such as:
- An unkempt yard
- Mail not picked up
- Car not moving for days
- Weird people around the house
- Trash cans left at the curb
We also started to do this with many of our rentals as a way to introduce ourselves, to establish trust in the neighborhood as an investor, and to encourage everyone to talk to each other.
In this case, the neighbors were invaluable! That night, my husband found a neighbor to drill boards into the backdoor to secure it until we got there (bless him!). The neighbor connection would again prove invaluable as the house sat empty for weeks while I navigated various court proceedings—and later when the master valve on the sprinkler system blew and poured water into the street.
I knew I needed contractors immediately, and several different kinds. My husband found a local company to go in and do the initial clean on the house. They ensured us they would be discreet and not draw additional attention to the home since it was on a busy street. He also noted they could handle most hoarding situations as well. You never know if you’ll need someone like this, but I now consider this a must contractor to get to know—they are highly specialized, and this is where most people in a rush situation will get taken to the cleaners for tons of money.
We also knew that we would need a general contractor that we could trust. If we decided to flip the house ourselves, it was a no-brainer to have a GC. If we didn’t flip it but wanted to sell it as is, we would need to make some basic repairs and still required great boots on the ground support to coordinate repairs on the:
- Plumbing (only one sink and one toilet in the home worked due to galvanized pipes)
- HVAC (one AC had failed an the second was about to collapse), water heater (it had leaked over Christmas and flooded the first floor. Why people put water heaters in an attic is beyond me!)
- Construction work we were expecting to find
And, if we sold to an investor, we needed someone who could go over and keep things limping along until the house closed (like sourcing an HVAC repairman to keep the main AC running so things didn’t melt in the summer Houston heat!).
I also needed someone to clean out the house and, preferably, auction off the belongings that the family didn’t take. My parents had accumulated a lifetime of art, books, records, and antique furniture and packed it end to end in a 4,000-square-foot, two-story home.
Most investors I spoke with walked through the house and said, “Oh, I’ll take care of this for you. No problem!” When I pressed what they were going to do with the belonging, they would say, “Get dumpsters and toss it.” My stomach turned, and in my head I was screaming, “NO!” Who would do such a thing? Trash someone’s memories and belongings. Then it hit me—I’m sure I had made the same comment to a prospective seller myself at some point.
It was at this very moment that I understood why investors sometimes get a really bad rap, and I vowed to never let anyone I work with feel like they (or their belongings) were disposable.
Real Estate Agent
We also knew we were on the hunt for an agent to work with. Even though I had a gut feeling I would work investor first, great real estate agents are amazingly important to know. First, they can help establish a value range of the subject property. Second, they know the neighborhood and can help you understand what to expect. Next, they are well connected and can help you fill in the holes in your team (title, lawyers, GC, auctioneers, etc). Lastly, great real estate agents are generally found by word of mouth. Just like any relationship, make sure you make it worth their time to help you!
With our team list in hand (and the home safe for us to enter), I reached out to a family friend who was getting ready to list her home. She gave us her shortlist of agents (and GCs). I also pinged all of my investing network including my real estate agents and contract providers in other states and asked who they might know in NW Houston.
Now, insurance isn’t one of those things you can pick up after the fact. So make sure you have a great policy beforehand. Since this was my mother’s property, I had to deal with the carrier she had chosen. After making initial calls to the insurance provider, my husband discovered they would actually cover parts of the interior damage caused to the home.
The insurance company approved the bill, I paid the $2,800 deductible, and the adjuster gave us another $4,300 (adjusted for depreciation) to put towards making other necessary repairs.
Within a few days, I had arranged meetings with our shortlist of two real estate agents, two GCs, two auctioneers, and four investors. My husband and I divided and conquered based on our strengths. He took the contractors and auctioneers, and I took the investor and real estate agent meetings.
At the end of our first visit, I had a fairly clear picture of my options.
Although the ARV on the home was $250–270K (fully updated), both real estate agents I met with said I could sell between $180–$200K with only making a few repairs. However, there were few downsides:
- The market was showing signs of cooling off and the home was on a busy street, so the discount would probably put it on the lower range and I should budget 3–6 months to get it under contract.
- Also, I would have to get the property cleared out and minimally repaired. Estimate $22K.
- While trying to locate important paperwork in a 4,000-square-foot house, I determined that ~$75K was owed on the property and it was in already in foreclosure (SURPRISE!!!). So our holding costs would high. Estimate $1,800 a month.
- The wild card was, there had been a death on the premise. While it wasn’t a murder or suicide, and technically, I didn’t have to disclose it in the state of Texas, neighbors talk. I had no idea if or how this would impact the sale.
So my net to sell “as is” would conservatively be:
$180K – $75K (loan payoff) – $2K (back utilities) – $2800 (insurance deductible) – $22K (repairs) – $5,400 (holding costs) – $2500 (closing costs) = $70,300K to the estate
Both GCs came in with $65-80K in repairs (depending on the finishes) and $11K of that to just clean out the house.
So our net to flip would conservatively be:
$250K – $80K (repairs) – $75K (loan payoff) – $2K (back utilities) – $2800 (insurance deductible) – $10,800 (holding costs) – $2500 (closing costs) = $76,900K to the estate
Fortunately, I also had several cash offers from investors to consider:
- Offer 1: $150K as is, all closing paid and the investor would clean out the house (ie. put everything in a dumpster… GRRRR!).
- Offer 2: $155K as is, all closing paid and I would clean out the entire house.
- Offer 3: $156K as is, all closing paid, and I would clean out what I could get sold, and the investor would donate the rest of what was left.
- Offer 4: $150K as is, split closing costs, with a 3-day option to assign
- Offer 5: $105K as is, closing to me, and 14 days to close. (This investor spent hours trying to convince me why their offer was best, saying everyone else couldn’t deliver on the price. My husband ended up escorting them off the property.)
After a few days of debate, I ended up taking investor offer 3:
$156K – $75K (loan payoff) – $2K (back utilities) – $2,800 (insurance deductible) – $2,500 (closing time) – $500 (holding costs for utilities only) = $73,200 for the estate
So, why did I go for the investor offer when my husband and I clearly had the skills to flip house and could have generated more money for the estate?
The reason I went with offer 3 is that investor really listened to my needs and understood that for me to feel good about selling the house to them, I needed them to RESPECT my need to take care of my parents’ assets and let me have the space to do that. If they could meet me there, we would hit it off. Additionally, I had to weigh all the unknowns with flipping the home and having a potential stigma to deal with versus being able to move on quickly. The investor didn’t try to take advantage of the situation, again making it such an easy decision.
First, I do not wish this situation on anyone: family, friend, or tenant. And please know that there is much more to repairing and selling an inherited property than I shared here. (Reach out to me and I’d be happy to fill you in on how I survived the court system!)
But if you do find yourself in a situation remotely like this, here are a few tips and tricks to make it through:
- Leverage your network. Talk to neighbors, family, and friends in the area for their contacts for real estate agents, GCs, etc.
- Gather your team. Interview at least two people for each spot you have. Not only are you evaluating the cost of doing business with them, but how they will work with others and how they will respond to YOUR needs in possibly one of the most trying times of your life.
- Know what you can handle and when to ask for help. Help can come from a friend, and it can also be paid.
- Don’t act like you HAVE to make it all happen right this second. Take a breath and keep a clear head. I can’t even tell you how many walks around the block I went on to keep grounded!
- Surrender. I don’t mean be passive or a passenger, but know that things take time to work themselves out. While you may want to bulldoze through, certain steps have to occur when dealing with an inherited property.
And if you are one of my fellow BRRRR investors, take heart: There is a person on the other end of every transaction who is dealing with what could be one of the most devastating physical, emotional, or financial losses of their life.
Be a compassionate problem-solver, and you will succeed.
Have you ever been in a situation like this?
How did you get through it all? Share your experience below!