Hi Everyone -
I wanted to share my recent experience with the community. Just thinking about writing this post is making me sick but I'm hoping others can learn from our mistakes...
One of our flips has a driveway that is supported by a retaining wall 125 ft. long, with the lowest point of 1 ft. high and highest point of 12 ft.. Imagine a right triangle of sorts.
After buying the property in the fall of 2013 and completing the rehab Dec 2013, our neighbor noticed that the wall was bulging and didn't look structurally sound. Worried for his own safety (the wall separates our house and his), he approached our contractor and asked what was being done about the wall. Our contractor replied "Nothing, it's not part of our scope". We never heard about this conversation...
A month later we get a violation letter from the township stating that our wall was not structurally sound and we needed to get an engineer to evaluate its soundness and if needed, remediate it. That was January 2014...
We hired an engineer to take a look at the wall and write up plans. $1,500 later, we had plans (which were approved by the township) that required demo'ing the existing wall, demo'g some of the driveway and building a new wall including creating a 10 ft. footer to support the wall. When I first heard this, it sounded like a lot of work...boy we had no clue...
We hired a contractor to execute the plan for $15,000. We paid him 1/3 up front and he got started. A week in, we get a call from the township inspector stating that our contractor never took a copy of the plans and that the footer he created was 2 ft. (not 10 ft. like the plans required). Upon learning this fun fact, we questioned our contractor "Did you read the plans...Did you notice it called for a 10 ft. footer?" to which we never got a straight answer. We ended up letting him go and losing $5,000 in the mix...
What followed was a 6 month miserable attempt in identifying an engineer that could draft up plans for a wall that didn't require a 10 ft. footer (b/c doing a footer required digging up our neighbor's property) and a contractor that could execute. We went through a handful of contractors and engineers resulting in some empty promises (no call backs) to getting bids ranging from $32,500 to $52,000! Meanwhile, our neighbor got his lawyer involved and we were then talking w/ an attorney about what an easement may entail and asking about when the work would be done. Hell on earth...
We finally identified a contractor and engineer (referred from the neighbor's daughter, who is also a rehabber, but past on our house because she knew about the wall issue...). We ended up spending $25,000 more to complete this wall by September 2014, 9 months since receiving the violation letter.
We have now held this God forsaken house for 14 months and will be putting back on the market sometime in the next week or so. Oh by the way, this house is very close to a highway...it doesn't get any better than this folks...
There are so many lessons that we learned here, I don't know where to start. But here are the ones that really stick out to me:
1. Be friendly with your neighbors from day 1. Introduce yourself, hand out business cards and let them know to contact you if anything ever happens while you own your flip. If we would have done that from the beginning, the township's involvement could have been avoided. If you can, talk to neighbors as you are inspecting the property for the 1st time. (before you buy). They could have that nugget of information that could save you $$$$ or in my case, would have caused to run as far as possible form this house!!!
2. Take a step back when walking through a property and try not to get too excited about the prospect of buying your next flip. We might have identified the problem with the wall if we weren't so excited about getting our next flip.
3. Manage your contractors, have definitive deadlines to address the renovation in short order and be in regular communication with them. If you can't devote the time, hire a project manager. This is huge! Because we are were all part time, we heavily relied on our contractors to take responsibility of getting the plans and executing and we went on our Mary way. We should have been significantly more involved earlier and more often.
4. Don't assume anything; question everything. Just because the professional engineer drafted up plans and the township approved them, doesn't mean they are right! The 1st set of plans called for work to be completed 10 feet into the neighbor's property but no one seemed to worry about whether the neighbor was ok with it! People more experienced than us (and you) make mistakes. This goes for anybody else you work with that influence your decision making process.
5. Hiring an inspector isn't a guarantee. We hired a home inspector and the wall wasn't mentioned once. Contemplating lawsuit against the inspector required us to review our contract w/ him which stated that at most, the inspector was liable up to 2x his fee (a whopping $700!). Having an inspector is good b/c it is another set of eyes, but have realistic expectations.
6. Involve a public adjuster before getting your insurance involved. As soon as we received the violation letter, we should have taken pictures of the existing wall and reached out to a public adjuster. Instead we didn't really think about it until months down the road. On top of that, we involved our insurance co. before we got a public adjuster which significantly reduced the probability of getting a claim paid. Public adjusters are your advocate in working with your insurance company.
I hope you enjoyed this forum post as much as I did. I hope to be posting about a success story to offset this learning experience.
@Account Closed Wow! Thanks for sharing. I've had my share of mistakes, too, including one that took me over a year to finish and on which I lost $25K! You're right about taking a step back and not being too eager.
Got any pics? And how did you fair overall?
Thanks for sharing even though it's painful. I'm sure your next one will be better and one day you can tell this story without that pain in the gut feeling.
I think if you do enough of these houses, the simple fact is you're going to run into your one money pit. I'm convinced its just a law of averages.
I don't care how diligent you are about walk throughs and contracts with your contractors, etc, etc, etc. You are going to hit on a money pit at some point.
I'm at 32 houses. I'm dealing with my one money pit right now. Its been one thing after another. And there were definitely some lessons learned there as well. But in looking back, there are some things you just aren't going to catch or even think about.
I simply chalk these money pit deals up as a cost of doing business in investing.
1 out of 32 isn't bad. And mine is going to ding me a good 20k over budget too if you add the rehab overruns and additional holding costs. And I bet your numbers are probably pretty similar.
That being said, its a great share with some good lessons. Thanks. Its an expensive lesson for you and a free one for the rest of us. But a great lesson for all of nonetheless.
Beauty of BP. By everyone sharing, we learn these lessons that much faster and avoid that many more mistakes. I for one will never buy a house with a retaining wall now. :-)
Some money pit issues are hard to determine up front--hidden wiring issues, hidden mold, etc. Retaining walls are in plain sight, even if the problems are not immediately obvious. I once listed a house for sale that had a 10-foot retaining wall holding up the backyard, which was failing, and we got a bid of $26,000 to fix it. I swore then never to buy a house that had a retaining wall that was more than a foot high. It's a running joke with my wife and Me.
I'm sorry to hear about your tribulations with this particular property, but thank you for sharing it with BP so that others might beware.
Greg Powers, Keller Williams Metropolitan | http://www.gregpowershomes.com
@Larry T. , thanks for sharing. The verdict is still out on how we will do since we haven't sold it, but needless to say, there will be a very large variance between budget vs. actual! We will try listing it and selling it straight up. But we've been thinking about rent to buy. Haven't done it before but it might be a way to salvage something out of the deal.
@Mark Del Grosso , I sure hope so!
@Mike H. , I agree 100% and thanks for sharing. I'm hoping I can get some free lessons along the way as well!!!
@Account Closed Thanks for the pics. Excuse my ignorance but is that second one a before or after photo.
Regarding RTO, don't think you have to make your money back on THIS property. Think about what is going to get you the best bang for you buck. Would you buy that property from yourself to hold as an RTO? I decided to take that $25K loss rather than hold the property because I could do better things with the money.
- It is funny (and ironic) that it was plain sight but I remember going back and forth with the previous owner about how the back steps didn't have a railing and it wasn't up to code...talk about picking the wrong battle.
- the 1st picture is the "Before" picture which shows the wall torn down and the driveway damaged. The 2nd picture is the "After" (from a different angle) picture that shows the block wall up. I was thinking about RTO b/c we might be able to get some $ up front and additional cash flow every month towards the down payment, which could cover our PITI but we're definitely not sold on the idea. We have a week or so to make up our minds.
wow that was a lot of money for that small of wall... I just put a 8 foot 2 course of 24 by 60 blocks that weight a bunch behind 5 of my houses it cost 3k a house installed.
Jay Hinrichs, TurnKey-Reviews.com | Podcast Guest on Show #222
@Jay Hinrichs - What do you mean by "8 foot 2 course of 24 by 60 blocks that weight a bunch"?
What we ended up paying was the lowest we could find but I'm sure if we had the right relationships, we could have done it cheaper. I might have to get your input next time I run into a retaining wall issue :)
Enlighten me on the insurance talk. How could this be a claim? Would certainly like to understand that in case I have a similar issue. I have almost bought some properties with retaining walls like this. Never would have thought insurance someone might chip in on repairs. I am used to the typical hail damaged roof, busted pipes claims....never heard about retaining wall claims before.
"5. Hiring an inspector isn't a guarantee. We hired a home inspector and the wall wasn't mentioned once. Contemplating lawsuit against the inspector required us to review our contract w/ him which stated that at most, the inspector was liable up to 2x his fee (a whopping $700!). Having an inspector is good b/c it is another set of eyes, but have realistic expectations."
I wanted to put this out there so that people understand. INSPECTORS are not a get out of a property free card if extra expenses are found.
In some states inspectors do not even have to be licensed! It's very important when talking to an inspector to see any additional certifications they have and how many inspections they have performed ( not their company but THEIR individual knowledge and experience ).
Example my company has performed 3,000 inspections ( who cares??).
Instead they say ( I have been inspecting myself for 15 years and have performed 2,000 inspections personally and I will be coming out to do the inspection.) Sounds better for you.
The first option above they are inflating the company and can send any newbie flunkie out there who will miss all kinds of things.
Inspectors are also generalists in that they do not specialize in anything. So they point out certain things and it's up to you to get a specialist to look into further. Like the retaining wall issue even if they noticed it they couldn't give advice and usually would say consult a specialist to learn more about what it would take to fix it etc.
The fine print usually says something about certain items may be missed or not open for inspection and that the report is not all encompassing etc.
No legal advice.
@Joel Owens - great points and thanks for your input. I believe we are saying the same thing. I still use an inspector, but now I know what to expect from them.
Yes. I just wanted to expand on it for others on here. Many investors have no clue inspectors aren't licensed in some cases and that you will not have full recourse against them.
They are jack of all trades and master of none............ : )
Thanks George for the lessons, I am going to go and introduce myself to my new neighbors.
you could hire an inspector that belongs to http://www.nahi.org/
they need to maintain their "licensing", purchase continuing education classes, perform X amount of inspections a year to get that. at least those folks seem to take their profession more seriously.
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