Flooded Basement - Welcome to the Life of a PIG - DON'T BUY PIGS in OHIO

99 Replies

So, in Ohio we are experiencing torrential rains - in 12 years I've lived in Lima, I've never seen rains like this...specifically in June!

This pig is currently empty. There was a family of 3 in the house at a rent of $665. They were good tenants for about 6 months - their rent was one of the first I received every month. And then they went bad - she left, took all of the furniture, ect. Somehow, this type of thing happens a lot to people who can afford to live in a $600 rental house. Their MO is the same - they can afford $600-$700 and they want a house; not an apartment - a house...

While these did break their lease, and lost their security deposit, the good thing was that they left the house in excellent condition. He, specifically, did the right thing and really did a good job cleaning up. This was last week, and I've been taking applications...

In comes the water, and it looks like this:

And this:

As you can see, there is a sump-pump in the corner. I put it in when I bought the house 6 years ago. I braced the walls at that time as well. The pump drains into a pit in the back yard. 

The issue here is that water is backing into the basement from the city drainage lines, which are too small to handle the volume of rain water that we are getting - welcome to Ohio engineering from 1940es, through the floor drains. While the sump is working, the ground so saturated that the water that is being pushed out by the pump into the pit in the back yard has nowhere to go...

Spoke to my plumber and he hadn't had 5 minutes of rest all night. Drainage lines which are too small is a common problem in Ohio. As far as I know, the codes have been changes, but the old grand-fathered stuff is still there. This is just one characteristic of a PIG in mid-west... 

As you can see, the gas furnace is under water. I'll be having to replace HVAC, and possibly water heater. Further, I'm going to have to seal off the drains in the floor to try and prevent water back in at any point in the future, and install a secondary pump...

All and all, I can see $4,000 expense, perhaps more. That's like 2 years worth of CF for that little PIG...hahah

LESSONS

There was nothing I could do differently here. It's an old house. All of the mechanicals are working properly, just not able to keep up with the water backing up from the city line caused by mother nature.

But there are a couple of lessons here:

1. All you smart CA people buying turn-key in Ohio, Indiana, and Michigan - this is the class of asset you are buying. If you think that $600 - $700 monthly rental equates to stable tenant and therefore stable cash flow - you are freaking nuts. Apartments at $600-700have a much better chance. Houses - NO!

2. If you think that $225-$350 monthly cash flow on paper is actually going to happen over the course of your hold of 507 years - you're just stupid. I can't put it any differently...

3. I haven't actually been to this house, but I've been on the phone with my guys a lot. I cannot imagine being out of town with this stuff going on...

Fun times!

@Ben Leybovich if it's any consolation the water heater is good. It sits up on blocks and from the pictures appears to be out of the water. I've also had water heaters drowned out and get the water out and they are good to go. They are simple creatures and once the water is gone the gas drys them out and away you go.

The furnace might also be good. At worst it's the blower motor which can be replaced without purchasing and installing a whole new furnace. Get the water out, dry it out and see if it'll run. Have your guys make a mark somewhere showing the high water level so you can see what got wet.

The costly part will be fixing the drywall that came in contact with the water. It must be flood cut and the wood treated to prevent the growth of the nasty mold. Looks like the exterior walls are painted block so just wash them down good.

Given the fact that the water heater is on cinder blocks, I would say that this house has flooded before.

I wish you a quick, cheap and rapid recovery.

Originally posted by @Bill S. :

@Ben Leybovich if it's any consolation the water heater is good. It sits up on blocks and from the pictures appears to be out of the water. I've also had water heaters drowned out and get the water out and they are good to go. They are simple creatures and once the water is gone the gas drys them out and away you go.

The furnace might also be good. At worst it's the blower motor which can be replaced without purchasing and installing a whole new furnace. Get the water out, dry it out and see if it'll run. Have your guys make a mark somewhere showing the high water level so you can see what got wet.

The costly part will be fixing the drywall that came in contact with the water. It must be flood cut and the wood treated to prevent the growth of the nasty mold. Looks like the exterior walls are painted block so just wash them down good.

Given the fact that the water heater is on cinder blocks, I would say that this house has flooded before.

I wish you a quick, cheap and rapid recovery.

 Bill - I replaced the water heater a few years back, and I put all of mine on blocks, just in case :)

The water was higher than this. It receded by the time these pics were taken - only took about 45 minutes. Once the street plumbing began to drain through, the sump/drain combination got the water out of there very fast.

But then, we got more water over night. More is expected during this week...:)

There is no drywall. The walls are painted with rubberized paint, but it's all concrete. I'd never put drywall in a basement in a pig!

It's true, Bill - I might be able to replace the burn plate in the water heater and salvage the heater. The furnace, I am thinking is gone...

Ben,

Sorry to hear what happened to you! My undestanding that there is a valve you can buy and put on your drain line to prevent back up from the city.  It only allowed one way flow to flow out!. Also when I buy properties we allways check (lenders makes us Anyway , to see if house is located In the 100 year flood zone, do you guys check for similar?

@Ben Leybovich

Sorry to hear about your flooding issues, but the problem has more to do with the amount of unusual rain than the asset class. With your same logic, it won't make any sense to buy properties in TX area getting flooded with lots of rain last few weeks.

If the problem is drainage lines in OH then it won't make sense to buy anywhere in OH at all because this problem will occur in every class of properties. It would cost you lot more money in A class property to fix the problem, because chances are basement will be finished with some high end finishes.

Ben, this is why I don't have houses as buy-and-hold anymore. To me they are meant to be "slaughtered" like pigs. Make them fat and eat them. Fix-n-flip them for capital gains.

Apartments - we milk them like cows: we keep them for the cashflow! 

It's hard to milk pigs. I don't even want to visualize it.

Smart people like @Brian Burke has the same strategy. We don't want to milk pigs :-)

Having said that...if only I can buy cheaper cows nowadays...waiting for the apartment crash so I can buy more cows.

Originally posted by @Sharad M. :

@Ben Leybovich

Sorry to hear about your flooding issues, but the problem has more to do with the amount of unusual rain than the asset class. With your same logic, it won't make any sense to buy properties in TX area getting flooded with lots of rain last few weeks.

If the problem is drainage lines in OH then it won't make sense to buy anywhere in OH at all because this problem will occur in every class of properties. It would cost you lot more money in A class property to fix the problem, because chances are basement will be finished with some high end finishes.

 Sharad - newer houses were built to updated codes with much better drainage systems. While it's true that we are experiencing extreme circumstances, newer assets are coping better.

Moreover, higher priced rentals attract more stable tenants. Had someone been in the house, I would have found out sooner and place a pump. I would have had water, but not high enough to ruin the equipment.

Sharad - just say no to pigs :)

Originally posted by Account Closed:

Ben, this is why I don't have houses as buy-and-hold anymore. To me they are meant to be "slaughtered" like pigs. Make them fat and eat them. Fix-n-flip them for capital gains.

Apartments - we milk them like cows: we keep them for the cashflow! 

It's hard to milk pigs. I don't even want to visualize it.

Smart people like @Brian Burke has the same strategy. We don't want to milk pigs :-)

Having said that...if only I can buy cheaper cows nowadays...waiting for the apartment crash so I can buy more cows.

 Exactly - only apartments!!! I may have to sell this pig at a loss, which will be less expensive than holding it...

This is what @Val Csontos  was talking about:

http://m.homedepot.com/p/Oatey-4-in-PVC-Backwater-...

Originally posted by @Val Csontos :

Ben,

Sorry to hear what happened to you! My undestanding that there is a valve you can buy and put on your drain line to prevent back up from the city.  It only allowed one way flow to flow out!. Also when I buy properties we allways check (lenders makes us Anyway , to see if house is located In the 100 year flood zone, do you guys check for similar?

 Yeah - there is a valve. Too much pain in the ***. I'm sealing everything off and be done with it. This house is not in the flood zone. The amount of water we are getting is abnormal by any standards, Val.

Findlay, OH which is half way between Lima and Toledo, get's flooded all the time, but not Lima.

Ben, newer houses cost a lot more money and you will have negative cash flow on them to begin.

I agree that higher priced rentals attract better tenants but if this happened in a newer house, more expensive stuff will be damaged.

We are having extreme weather and that's all. Things happen and it's important to deal with them. There is no need for knee jerk reaction. 

Loook - guys, this isn't about this one house. It's not about spending money on repairs. This is a bigger conversation!

I'll spend the money and forget about it next month - that's fine. But, in that I am spending this money, I am throwing good money after bad - I'll never get it out of this PIG.

we have to look at these things past the Pro Forma numbers on the page. I'll spend $4,000 this month, and it'll barely move my gauges; it'll hurt, but not badly. But the newbies who think they are buying $300/month of cash flow in assets like this - they are ****ed and they don't even know it. There are people who plug numbers into the BP Calc and make purchase decisions off of seeing $300 of cash flow 0 I get those PDFs in my email every day! There are CA turn key buyers who buy in Cleveland and Toledo (both of which sit on a lake), thinking that $300 of monthly cash flow will do anything for them...wow!

Look - I own this ****, and I bought it before I knew anything. There is a reason I don't buy pigs any more... Make your own call, but I'd at least consider what Ben Leybovich is saying...

Account Closed - thoughts?

Originally posted by @Sharad M. :

Ben, newer houses cost a lot more money and you will have negative cash flow on them to begin.

I agree that higher priced rentals attract better tenants but if this happened in a newer house, more expensive stuff will be damaged.

We are having extreme weather and that's all. Things happen and it's important to deal with them. There is no need for knee jerk reaction. 

 Sharad  -this is not a knee jerk reaction. I've been telling anyone who will listen for 2 years now not to buy PIGS in Mid-West. I've not bought any in years - because I learned...

Cah Flow is not sustainable in a pig. And there is no appreciation. So why bother...?!

May be you and I are talking about 2 different asset classes. Most of my properties rent for $850 and above and they are in B areas.

But people who buy these properties with the idea that once they buy nothing will happen to them are in for a surprise. Same for houses and apartments.

How many apartment buildings do you own?

Originally posted by @Sharad M. :

May be you and I are talking about 2 different asset classes. Most of my properties rent for $850 and above and they are in B areas.

But people who buy these properties with the idea that once they buy nothing will happen to them are in for a surprise. Same for houses and apartments.

How many apartment buildings do you own?

 I only have 2 SFRs left. All the rest are apartments. Very different dynamic

Are these big multi units you are buying or 2-4 units?

Originally posted by @Sharad M. :

Are these big multi units you are buying or 2-4 units?

 2,3,6,10 - I am done with the small stuff, though. Only looking at big stuff now:)

Are your units in different areas from your SFH? How are these multi units different from your SFH other than the fact they are not SFH?

Thank you Ben Leybovich, My main focus is apartment buildings, but I do see myself buying some house as buy&hold. As a newbie this information is valuable to me, so I thank you for sharing.

Originally posted by @Sharad M. :

Are your units in different areas from your SFH? How are these multi units different from your SFH other than the fact they are not SFH?

 1. A $625 tenant in an apartment is a different type of tenant

2. The apartments are in different areas from SFR. I have paid between $33k and $46k per door for apartments, and that buys better areas than SFR, able to attract more stable tenants

3. Structures are younger by several decades

Originally posted by @Issa Rice :

Thank you Ben Leybovich, My main focus is apartment buildings, but I do see myself buying some house as buy&hold. As a newbie this information is valuable to me, so I thank you for sharing.

 You are very welcome, Issa!

@Ben Leybovich I agree completely and am experiencing the same thing here in Toledo. I have 36 SFR's, 35 of which are pigs. That's down from 40. I just sold a pig last week for $700...I had $37k into it. I couldn't keep the scrappers out of it when it was vacant. I view my pigs as liabilities, not assets. They are all ticking time bombs.

I am also dealing with flooded basements. However I will caution you that apartments flood too. And it can be worse because basement apartments are occupied units, unlike your unfinished basement in the pictures. When they flood you not only have to remediate the problem but you also have to put the tenants up in a hotel. I had a main sewer line back up into an apartment on Christmas day this past year. Not fun. But, I will still take apartments over houses any day. I love my apartments, hate my houses.  

Originally posted by Account Closed:

Ben, this is why I don't have houses as buy-and-hold anymore. To me they are meant to be "slaughtered" like pigs. Make them fat and eat them. Fix-n-flip them for capital gains.

Apartments - we milk them like cows: we keep them for the cashflow! 

It's hard to milk pigs. I don't even want to visualize it.

Smart people like @Brian Burke has the same strategy. We don't want to milk pigs :-)

Having said that...if only I can buy cheaper cows nowadays...waiting for the apartment crash so I can buy more cows.

 Funny and oh so true!  I don't try to milk pigs either.  

@Ryan Pyle - I have no doubt that all of Toledo is under water, as well as Cleveland. Thank you for being willing to stand up for the truth about PIGS in Ohio. I wish those CA investors started to look past the turn-key pro-forma of these Ohio operators...

One of the defining characteristics of apartments - NO BASEMENT. I'll buy a slab; I'll by a crawl - NO FREAKING BASEMENTS!

I'm sorry that happened!  It's a mess to deal with.  I'm located north of Metro Detroit.  Last August, thousands of homes in several cities were flooded.  We're nowhere near the great lakes - or even the small lakes.  It was a "100 year" rain that the various cities drainage systems couldn't keep up with.  Within 15 minutes, basements were filling with water.  In some cases, the water was high enough that it was pouring out the basement windows.  

I live in a neighborhood with homes that range from $200,000 - 500,000.  The area that was hit hardest has many homes worth $500,000+.  The basements in many homes have tens of thousands of dollars in finishes.  Home theaters, work out spaces, etc.  Of course, even if you were using the basement primarily for storage it was a disaster.  I was seven months pregnant and all of our baby gear was destroyed among so many other things :-(  We had about 10k in damages, overall. 

The cities in this region are old and so are the sewage lines.  They couldn't handle the amount of water.  But it doesn't matter what the age of the home is.  A few years back, an old elementary school was torn down two blocks from my house.  All new construction was put in on the property- beautiful homes in the 500K range.  They flooded just like the homes built in the 20's and 30's - and the cost to repair damage was much higher.  So you can't avoid this type of problem by buying a new home or an expensive home.  

Because this is not a flood zone, very few people had insurance.  Here's a tip for anyone reading this thread.  It turns out that there is a very specific rider called the Sewage Backup rider that is the only type of insurance that protects against this type of flooding.  It costs around $50 per year, for us.  We have it now!  However, we can only get the rider on our primary residence.  We closed on a property a mile away yesterday and are very sorry we can't get the rider.  My husbands grandmother has lived here for 70 years - this has never happened before.  So I recommend the rider even if it seems impossible that you'll flood.

Here's another important tip - CLEAN UP THOROUGHLY!  We very evidently had raw sewage that had back flowed into the house.  Everything it touched was trash.  First, remove everything from the basement and throw it away.  We did our own tear down.  We lined the path out of the house with dropcloths and wore protective gear.  The quote for someone else to do the removal was $5K.  Scavengers (people) were picking this disgusting garbage, so we used spray paint on the trash to prevent someone from buying brand new sewage infested baby swings off ebay.  It was bizarre - the whole street was lined with mountains of trash.  Garbage pickup was running 7 days a week.

Next, every surface needs to be cleaned with soap and water and then bleach.  We used a professional cleaning crew ($2K).  There was some debate among neighbors about the need for a crew, but at least some people who did not, now have mold problems.  

Air scrubbers need to run in the house - the big industrial ones.  You also need industrial fans.  Again, some people skipped this step and are now seeing mold or foundation damage.

Don't run the HVAC (if you still have one) until all of these steps are completed or you may have mold spores in your duct work and throughout the house.  Before turning your heat or air on, have your ducts professionally cleaned.

We have looked at a couple of houses this spring that were DIY cleaning jobs and there are random patches of mold throughout the house.  They skipped cleaning the ducts. 

One more tip - check to see if FEMA can help out. FEMA came through this region and we had money in our bank account within hours of our appointment. Only $1200 - but every bit helps.

We're early in our real estate investing careers, so I don't have a lot of expertise.  But I know water back up damage inside and out.  I hope this info helps someone out!

Create Lasting Wealth Through Real Estate

Join the millions of people achieving financial freedom through the power of real estate investing

Start here