My first house was $15k and I paid too much.
$7k in materials and another $8k charged to the business for my labor and my partner and I were $30k all-in and off to conquer the world in short order.
Rented it for $750 and when I didn't factor in cap-ex, routine repairs and vacancy, the return was like 23%. Sooo impressive right?
When I did factor in all that stuff well...because I was ignoring:
$25k of foundation work that was only a matter of time (never buy a house with a finished basement folks and if you do, it's $30k off the top of the price - no exceptions)
$10k in concrete driveway, service walks and garage slab that all have buckles and is a lawsuit waiting to happen
$2-3k to take down the tree in the back yard growing into the garage through the power lines and fences (damaged the foundation and ruined the slab)
$3k to install AC to combat the leaking foundation that causes the house to mold up or, go back to number 1
$3-4k for a roof on it's last legs, but not leaking yet!!! Lets add a couple gutters too.
$??? to re-wire the entire house, the existing is that cloth/tar type that deteriorates when you look at it sideways and threatens to burn it all down any day. It's not just the electrician expense here, were talking plenty of demo, drywall and paint too.
$6k or so for siding, there is three layers now and somehow it still leaks.
How much we at now? How many years of rent will it take to break even on that? Every bit of that is coming. And the kicker, the house I bought was still in better shape than plenty of others.
O yea, let's not forget the routine re-paints, re-floors, repairing fixtures, replacing doors and windows, etc that somehow happen at an accelerated rate as compared to an owner-occupied home. Don't want to bother with all that? Then the rent goes from $750 to $500, and only the worst tenants will move in. How about that? Everyone has standards as it turns out. The truth of the numbers is that it will take a lot longer to actually break even and get to that glorious cash flow than the initial $30k price tag suggests. Reminds me of the guy on here who only invests in new-construction rentals, so he can make the most out of depreciation along the way. He is probably the smart one in the room.
Bullet hole count at purchase? 3 Bullet hole count at sale? 5
First tenants decided to move back south after they witnessed a murder in broad daylight on the next block over. I guess they decided we really are all nuts up here.
The day before showing to my second tenants, I had a bullet lodged in the interior wall of the living room, right through the exterior wall, right through the area where the couch would go and stopped on a stud. Called the cops, they pulled it out of the wall without using gloves, took a look at it and said, "O, that's one of ours".
PS - Do not tell my wife any of this. It was hard enough to convince her on RE in the first place.
My block was a bit of an oasis. A couple of us all interested in keeping the peace and deterring the riff raff. Drug house down the next block (you're violating the zoning man!). Those Milwaukee riots that made the national news a few years back were a few blocks away. And let me tell you folks, the neighborhood LOOKS better than sooooo many others. A person simply can't look at the surface and expect to understand all they ought to know.
But after all that, I think it could have still worked out had I held it. (I would have band-aided it and crossed my fingers.) And, it was certainly a way for a guy like me to break into doing this stuff. I ended up selling to my renter for a whopping $40k, split two ways and after taxes I made like $2-3k on the deal (I made some on the rent along the way). I was lucky to get the $40k really. Full rehabs, really nice stuff, all new, struggled to get $50-$60k at that time. Buy and hold only around there. My renter quickly dropped $12K in improvements, convinced he was going to rent it for $1000 a month. I need to call him and see how its going.
I loved that house and for a time thought I would never sell it, just for the sentiment of it. The final kicker, which ends up being the biggest lesson learned too, was that I thought I was buying into an area getting better, and actually it started to get worse. I'm an appraiser mind you, have lived here most of my life, study everything I can, and I still couldn't predict the trend as accurately as I should have. I'm getting much better at it, but I had to get slapped in the face to start looking at the sorts of little things I need to be looking at. And even that said, I still don't think I could have predicted that one - it was one of those which way the wind blows sorts of things. That's Milwaukee for ya. Maybe the wind will blow back in that ones favor some day. 4215 W Fairmount Ave.
This is the other single I did - 6615 N 85th St - turned out nice - went from worst to best house on the block - looks like HGTV - lol. There you go flippers, there's a nugget for you. Paid too much for that one too - lol. Should have paid $25-30k, paid $50k. Whoops. Then again, would have been tough to get it for less. At least I can say I have never lost a dime and always made money...unless you count opportunity cost, and then I am a complete failure, just like everyone who's name is not Gates or Buffet - lol. PS - this one is not the hood, but it is pretty close to some rough spots. It's a transitional neighborhood between pretty nice and pretty bad.
Today I get a little better each day at figuring it all out. There is no way a person can take a quick birds-eye and figure it out like they can in the burbs. Might even say it takes a lifetime to truly wrap around all of it. I get in the truck and drive it. I take the side streets instead of the main roads. I drive alleys. Sooo much to take note of and consider up and above price points and the physical condition of the house.
I got a couple things figured out. Enough for now. I doubt I'll ever have it all figured out. Nor do I suppose I need to.
I'm no vet, I'm just a minnow still starting out. After a couple single families I've started in with the duplex space. Pros and cons between the singles and two's. I have one in a tried and true "good" neighborhood - bullet hole count on that one is 2 and I've already called the cops for shots fired twice. Paid too much for that one too - damn it (will I ever dig up a nugget?). It'll be fine though. Silver is ok too. My partner is pleased with the numbers and projections (I figure if I can make it work with silver and bronze, then the gold will be that much more sweet). The other is more of a gamble on the location, but I think it is going to be a winner long-term. That one came with inherited tenants and instead of evicting to do repairs (I prefer to fix up front to make it easy going forward), I've decided to make it my band-aid house, and will be nickel and diming it forever. It's got good bones though and if nothing else, it's good enough for now. Got that one from an out of towner who used a PM and just couldn't make it work (he paid $30k...hmm...). The tenants went through absentee landlord hell, one unit did not have heat for over a month in January. The plumbing sprung a leak and they set up a make-shift sump pump to address the flooded basement - didn't bother to fix the leak for months. The back entry door was hanging by a thread, like a kids baby tooth. Stuff like that. The story was the PM died, but from my eyes it seems the problem was way more than that. And here's the kicker for you raise-the-rent/numbers folks - I took a hard look at the long-term tenants, observed how they were keeping up their units despite of it all, not wanting to move, and decided to lower their rent. And, because I require payment on the 1st without grace or late fees, I gave them 1/2 off the second month, so they could re-align their money routine to mine. What the? Well, they were paying too damn much for what it was and I liked them - wanted them to stay. I've made some progress on repairs (gearing up to hit it harder this year) and my tenants love me (well...like me anyways). I've been forward and honest about what I am going to fix, what I am not going to fix and when I intend on doing it. I've followed through. I've found happy tenants have tangible value, though I have not quite figured out the exact formula on it yet. Let's just start with respect goes both ways. The one tenant always pays early and the other always late. I've come so close to eviction so many times already, breaking my own "rules" on the subject. But I get it. I've been there too. I see how hard they are trying. They just never had anyone help them, ever. So, I help with things like understanding how to budget and spending habits. I help with navigating creditors who they are behind with. One month I went down and filled out paperwork so she could get emergency assistance that month, because she couldn't figure if she should pay her rent or make a large payment on the massive energy bill she was behind on, which after I personally looked into discovered it was likely an accounting error from "budgeting" and not from energy use (pay less in winter, more in summer thing) - energy co don't care and won't talk to me about it - she does not have the smarts to prove her case - has no idea of even how to begin, let alone the time or money it might take. She was almost in tears explaining how she had never had a landlord care about her ever. In return, she qualifies for energy assistance and I might end up getting free windows and furnaces out of the deal. That sort of opportunity follows the tenant, not the property. Doesn't matter. Because I have been able to work with them a bit, I have lost zero in vacancy, collected rent the day I closed, and the truth of it is, probably will over-improve it anyways, because it is almost impossible not to sometimes, so keeping them in there helps me. Aww crap, I might be a slumlord.
That's my story. A little more involved than buy a $30k house and start collecting worry-free money. I would be very interested to hear from PM's in this space.
