Fishtown Flip Diary with Cash for Keys drama to kick it off!!!

60 Replies

We're kicking off a new project in the next week or so and it's been pretty crazy just getting to this point. The house is a 3-story, 1550 sq ft row and it's currently 3br and 1 bath. We've owned it for almost 2 months to the day and, until this weekend, had only been inside it once, maybe twice if you count getting into the living room. 

My realtor brought this one to our attention roughly 5 months ago; it was her listing, but she couldn't put it on the MLS due to aggressive and uncooperative tenants. No one could get in to see the place. She got in once to take a few pictures and took one investor through with her at that time. The investor was interested and wanted to go back through with his contractor. No dice. The tenants wouldn't let anyone else in and the landlord wouldn't evict the tenants as she wanted their rent payment each month. I'd estimate she cost herself ~$20k on the sale price by not losing $700/month for a few months plus the cost of an eviction. Lunacy, but it worked in our favor.

I was able to sweet talk my way in and check the place out after my realtor told me about it. They wouldn't let her in but they would let me in. OOOOK. These tenants were all the "un"-adjectives you could think of. Uncooperative was the start and it gets worse from there. Asking price was $150k and we negotiated to $135k without too much trouble. We put in the contract that the property was to be vacant at closing; I knew we didn't want to deal with the tenants if we could help it. They had their heads in the sand and thought if they didn't accept certified mail and didn't let anyone in, as long as they paid their rent, they could stay indefinitely. 

I knew the landlord, who lived out of state, didn't want to deal with the tenants and she wouldn't go for delivering vacant. We didn't want to deal with them either but I knew she'd never evict and the deal would likely die. We decided to bite the bullet to move the project forward; we got the price down to $112.5k and we'd deal with the tenants. We immediately had the landlord serve them a 60 day notice terminating their lease per their existing lease requirements. That was mid-April. We closed mid-May and still hadn't been inside other than that one time I got in. They wouldn't let the appraiser through so we ended up buying in cash. They had until mid-June to be out so I waited until the first week in June to call and stop by. It went over like a fart in church.

I was hoping they'd seen the light and were packing. The opposite was true. They were more irate and indignant than ever. The matriarch claimed she'd had some serious health complications and had been hospitalized due to the stress she was under from us making her move, they had talked to public defenders and social workers and we couldn't evict them...and on and on. You get the picture. The last thing I wanted to do was end up in court with this crew. We had budgeted for cash for keys and, once I mentioned I could give them some cash for moving expenses, they were slightly more interested in talking to me.

We finally came to an agreement a week before they're supposed to be out. Part of the agreement was for more time. At this point, with the amount of stuff they had in the house and considering they had nowhere lined up to go and no transportation, I felt it was prudent to allow a couple more weeks so I gave them till the end of June. The agreement was no rent due in June (they hadn't paid last months rent when they initially rented the place, only security), return of security deposit, 6 months rent paid up front on a 10' x 20' storage unit, movers to move their stuff and $2200 upon receipt of keys. All told we spent a little over $4k to get them out. If you consider holding costs, legal costs, opportunity costs, and the unknown of taking wily tenants to court, I'm happy with the end results. Don't forget, we got a $22k discount for dealing with the tenants so, if you subtract the ~$4k it cost us, we made $18k for dealing with the problem the landlord didn't want to handle.

Does it hurt my pride a bit that we didn't "stick it to them" and evict? Nah. I actually have more pride in the way we handled it. Eviction would've been messy, cost us the same (or more) and devastated these people's lives. The best part is, by the end of the ordeal this weekend, if I saw them at the grocery store or passed them on the street after this, we'd stop and have a nice chat. I know the saying is overused but it's a true win-win. 

Up next, some photos of the as-is conditions and some projected numbers...stay tuned! 

Excellent! It ALWAYS pays off to treat people well even if it seems they don't deserve it. Not necessarily financially but in other ways.

Originally posted by @Jim Viens :

Excellent! It ALWAYS pays off to treat people well even if it seems they don't deserve it. Not necessarily financially but in other ways.

Thanks Jim, couldn't agree more! I know it sounds hokey but karma seems to treat me right when I treat others right. I'm not sure if it's the law of attraction, karma or some other thing along those lines but the more good I try and do, the more comes my way. An old friend described it this way: karma is a wheel and whatever you put on that wheel is going to come right back around at you. 

Ahhhh....Fishtown.  It's nice to see a familiar neighborhood being specifically discussed.  Im glad you were able to finally gain access and it doesn't seem like to bad of a deal considering what you MIGHT have had to go through!!!  

I would love to see the before and finished product and numbers!   

@Troy S.  This is an excellent way of handling the problem tenant. At the end of the day you took the high road and diffused the situation which ultimately saved money.

Sometimes you have to walk away from a fight and in doing so you become the victor.

Now, you can focus on the task at hand in refurbishing this property. We await the before

and after pics.

Nice Job Troy. I just went through a similar process in Point Breeze. Now that I went through the process successfully I wish I didnt turn down so many deals in the past because of a tenant issue.

Originally posted by @Troy S. :

Does it hurt my pride a bit that we didn't "stick it to them" and evict? Nah. I actually have more pride in the way we handled it. Eviction would've been messy, cost us the same (or more) and devastated these people's lives. The best part is, by the end of the ordeal this weekend, if I saw them at the grocery store or passed them on the street after this, we'd stop and have a nice chat. 

I love this. Your willing to help and make it a win win for everyone is definitely inspiring. 

This is one to learn from as problem tenants can and often do ruin a deal for investors. Glad you were quick on your feel and you used the situation to get the property at a lower cost. That was a smart move. We can all learn from what way you handled this particular situation. You did take on some discomfort but you also made sure you were paid for your effort unlike others who would have just absorbed the loss in total. 

1st floor stairs from front door.

Living room.

Dining room.

Kitchen.

2nd floor bedroom.

Forgot to take a front shot so here's street view for now. It's the one on the left. 

By the numbers:

Purchase - $112.5k and just appraised as-is for $135k  

ARV - $340k (our guesstimate) and appraisal came back at $335k for the construction loan purposes.

Rehab - Just got our contractor through this morning but we're guessing budgeting $125k. The last two estimates we've gotten have been higher than we were expecting so I wouldn't be surprised to see this go up a little. I know, I know, it's a ridiculous amount of money but if you can send me a licensed, insured, reputable, full-service GC that can do it for less, I'd love to hear from them. Our GC only uses licensed and insured subs, pulls all needed permits, etc. This guy won't cut a corner and that's how we like it. For the next year or so we plan to continue to use full-service GC's. At some point we'll transition to GC'ing our own projects and using subs, but, while we're all full-time employees, this is the way to go for us. 

Timeline - 3 months; ideally we'll have it on the market in EARLY October. More likely it'll be November. Crap time to sell a house but it is what it is.

I'll let @David Ross post scope and floor plans when he gets a chance. We got a prelim layout together for bid and loan purposes but we're having an architect friend walk it tomorrow to make sure we're not missing anything.  

Originally posted by @Nicole Clemens:

Ahhhh....Fishtown.  It's nice to see a familiar neighborhood being specifically discussed.  Im glad you were able to finally gain access and it doesn't seem like to bad of a deal considering what you MIGHT have had to go through!!!  

I would love to see the before and finished product and numbers!   

Well Nicole, if you know Fishtown, you likely have a good idea of what it took to get to this point as they are life long Fishtown residents. I can't elaborate online but I got some great stories out of this! The movers almost quit several times, one time they shut and locked the back of the truck and threatened to dump the stuff on the side of the road after they left. It got ugly a few times.

Let me know if you want to see the place in any of it's un/finished stages, I'd be glad to walk anyone through the project that's interested. 

Originally posted by @Linval T. :

@Troy S. This is an excellent way of handling the problem tenant. At the end of the day you took the high road and diffused the situation which ultimately saved money.

Sometimes you have to walk away from a fight and in doing so you become the victor.

Now, you can focus on the task at hand in refurbishing this property. We await the before

and after pics.

Thank you Linval, I appreciate the kind words and you're so right about walking away and being the victor. That's a lesson I've only learned in later years but it's a valuable one! 

Originally posted by @Tim Lees :

Nice Job Troy. I just went through a similar process in Point Breeze. Now that I went through the process successfully I wish I didnt turn down so many deals in the past because of a tenant issue.

Can you tell us a little more about your situation, I'd love to hear it? While I won't be looking for more of these situations in the near future, if it comes up again, I wouldn't hesitate to take it on as long as it's budgeted for financially and time-wise in case things go bad. We took the precaution of getting the rental license for this property and were ready to file for eviction the minute this thing turned so we'd lose as little time as possible. That said, it's entirely possible this could've dragged out for many months even though we had our bases covered. You hear a lot of horror stories! 

Originally posted by @Mark Redmann :
Originally posted by @Troy S.:

Does it hurt my pride a bit that we didn't "stick it to them" and evict? Nah. I actually have more pride in the way we handled it. Eviction would've been messy, cost us the same (or more) and devastated these people's lives. The best part is, by the end of the ordeal this weekend, if I saw them at the grocery store or passed them on the street after this, we'd stop and have a nice chat. 

I love this. Your willing to help and make it a win win for everyone is definitely inspiring. 

 Thanks Mark! 

Originally posted by @Gilbert Dominguez :

This is one to learn from as problem tenants can and often do ruin a deal for investors. Glad you were quick on your feel and you used the situation to get the property at a lower cost. That was a smart move. We can all learn from what way you handled this particular situation. You did take on some discomfort but you also made sure you were paid for your effort unlike others who would have just absorbed the loss in total. 

 Thank you Gilbert, it was brutal during but very rewarding once it was over. 

Troy, 

I work in Fishtown.  Right off of York Street.  I would love to be able to physically see the before and after!   Let me know.  :)

Thanks for kicking this conversation off @Troy S.

Here's a little info about the project and our plans:

  • Existing 1450SF structure. 3 bedrooms, 1 bath
  • Center stair Layout, cutting building in half
  • Rear room on first floor was added after original building, seems stable enough to build on.
  • Basmement 7' height, clean but don't see the value in digging out and finishing
  • Condition is rough - floorplan doesn't work. Doing a complete interior gut

Our plan is to do a complete interior gut, move and stack the stairs to one side, and add on the rear room to add space on second floor. This length will make our stair runs and bedrooms on the second floor more desirable.

Scope:

  • Clean out remaining items - lots of garbage items left behind. Gut interior of the house
  • Move the stairs to the side
  • First floor: Open up the floorplan, adding a 1/2 bath
  • Second floor: Two bedrooms with bathroom and laundry in core
  • Third floor: Large master suite with bathroom, space for a desk, and access to roof deck on top of second floor rear bedroom.

Anticipated timeline: 3 months
Budget: $125k
ARV est: $340k

My EARLY ROUGH drawings from Sketchup (pre-architect assistance for permit needs) below:

@Troy S. and @David Ross

Great project!  How difficult do you find the permitting process for a project like this in Philly?

Originally posted by @Kurt Kwart :

@Troy S. and @David Ross

Great project!  How difficult do you find the permitting process for a project like this in Philly?

We haven't done anything out of the box yet so it's hard to say how that would go. For the plain vanilla flips it's easy enough although our GC is dealing with it, not us, so it's really easy on our end! Permits are pretty quick and easy to get from what I understand, a few things might require a drawing from an architect but that can still be turned around pretty quickly (2 weeks or so). 

I've been talking with other investors about new construction and/or projects that require variances...it doesn't sound fun. 

Demo kicked off this morning, I'll try and swing by for some pictures this afternoon.

Our guesstimate for construction was $125k based on one brief walk through many months ago without the benefit of our GC tagging along. We knew it'd balloon after we got in and got design-y by opening up structural brick walls front and back, adding square footage on the 2nd floor and an awesome roof deck off the 3rd floor. We have all our quotes back and we're looking at $121k. We're also working with an architect and his package is $5k (ouch, I think we could've had a whole house designed for that price or less, lesson learned regarding being in a hurry, not asking for pricing up front and not shopping around). 

We hadn't planned on needing drawings for a lot of this work but...we do. This is an expensive miss on our part but we're still doing fine budget-wise. When we initially looked at the place our GC said he wouldn't need drawings to move the stairs. City says ya do. We also went ahead and had the architect do rough electrical and mechanical plans in case the city wants those. We're really pushing to get this on the market in September (probably late September and more realistically early-mid October) so we're not wanting to get tripped up with permit problems and waiting on drawings.  I'd love to hear what others are paying for this type of work. Here's the architects scope of work:

  • Lintel work details (includes dining room to kitchen with a roughly 8' opening, front window opening goes to 7', second and third floor exterior doors)
  • Rear second floor addition
  • Roof deck off 3rd floor (fiberglass membrane, not lumber, but still needs drawings for permit)
  • Addition - Stair details
  • Addition - Rough mechanical and electrical

Extra items not on quotes that we're loosely budgeting for:

  • Landscaping (fence, rear yard maintenance): $2,000
  • Soffits, downspouts, misc $1,500
  • Misc. higher quality fixtures and appliances. We're seeing higher end stuff in comparable sales so we're going to splurge a bit: $3,000 extra
  • Front sidewalk replacement $3000

So at this point, we're all in for ~$136k on the construction side. If you subtract the $5k for the architect, we weren't too far off. Of course, none of this matters as it's all made up numbers till the work is finished and all the bills are paid. Thanks for tagging along and I'll have some pictures for you tonight!

Nice project! I have a few in the area. My first duplex is right around the corner at Norris and Tulip.

Originally posted by @Max Tanenbaum :

Nice project! I have a few in the area. My first duplex is right around the corner at Norris and Tulip.

 Thanks Max, this is right at that intersection as well. 

Not bad for a days work, especially considering the house was still relatively full of junk too. They cleaned up the side yard as well which was full of trash, bikes, etc. I'm guessing demo will be done by Wednesday at this rate. 


Demo crew completed their work yesterday, 3 days to clean out the whole house and yard and demo an entire house. Amazing!

Below, our awesome GC, Gerald, is digging down to inspect the footer on the shed kitchen addition to make sure it meets code and, luckily for us, it did. The little shed kitchen addition off the back is well built and salvageable. You get lucky once in while! 

Below picture is standing in front door looking into living room and dining room. The wall in the back will mostly be demoed but it needs a lintel installed first as it's supporting two stories of brick above. With the stairs turned against the right hand wall, you'll be able to see all the way through into the kitchen and out the back sliding (or French, not sure which yet) doors into the back yard. 

Better view of dining room and kitchen wall that is coming out. Demo of old chimney started but won't progress until lintel is in. 

Interior of shed kitchen. Ceiling will be raised and a 2nd floor added on top of it for a bedroom. On top of bedroom addition will be the fiberglass roof deck. 

We have some odds and ends we can do in the meantime but we're mostly on hold for permits for the next couple weeks. We need drawings to apply for permits but, since we couldn't get into the house to take measurements and check out structure until a week or so ago, we're a little behind. Once the architect submits drawings we have 2-3 weeks til we get approved. We're going to scope the sewer line out to the street to make sure it doesn't need replacement and our GC can start on some of the odds and ends like repairing some termite damage we found.  

I'm happy to say that we at Argo are rule followers. We feel the risks of skipping permits and using uninsured and/or unlicensed labor aren't worth the "savings" over the long run. This leads me to an interesting story about permits and such. 

I pulled up to the project Wednesday afternoon and there's a middle-aged lady taking pictures of our permits in the window. I ask if I can help her with anything and I introduce myself. She happens to be the neighbors daughter and she mentioned that her brother, the neighbors son, works for L&I (Licenses and Inspections) in the city. When he found out there was a renovation going on next door he wanted all the info so he could check up on us. 

I had a nice chat with the lady, gave her my card, assured her we only use licensed and insured contractors and have (or are in the process of) getting all required permits. I'd already made friends with her elderly mother and asked her to keep an eye on the place if she sees anything and, if she has any complaints, to let me know. 

The daughter was really nice and I don't foresee any issues; she's happy the tenants are gone and the house is being fixed up. Her mother's house is immaculate but she's had roaches for years due to the tenants that just left. She has to get the house treated regularly for them.

Point being, how quickly would we have gotten shut down if we didn't have our ducks in a row? I watched a project across the street from my house progress nicely for a few weeks until it got shut down for no permits. It took them several months to get the project going again. I can also tell you, after speaking with the GC on the job, L&I was up their *** on every inspection thereafter. 

Do yourselves a favor and operate your REI business like a business.

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