All Forum Posts by: Greg Scott

I'd talk to more contractors on how to solve the problem. The easiest solution is typically keeping water away from the wall.  Improving grading or having downspouts drain into pipes that move the water away from the house often solve the majority of issues.  Fixing the inside of the house is usually the last resort.

Regarding disclosures, it wasn't like the sellers were able to pull one over on you. You found it during inspection and got a $5K discount. You KNEW about the problem, got compensation, and bought anyway. I'm no attorney, but I don't think you have a leg to stand on regarding disclosures.

That is an added layer of complexity.

You should do all the same level of due diligence you otherwise would to buy the property.  On top of that you have to conduct due diligence on the leasee.  Also, because you are at risk if the leasee fails to execute properly, you had best have a great lease and the ability to check on their performance.  I would say that is not a great way to start.

The problem with trying to invest $500,000 is you really can't use the same strategies you use with $50,000 and be effective.

When I was buying SF houses I could buy them (using hard money) for $25K out of pocket.  Those deals still exist, I see them every day.  That means to deploy $500,000 you are going to have to find 20 houses like that, rehab them, put a tenant in them, and then manage them afterward.  That takes a lot of effort.

I'd encourage you to start thinking bigger. In an apartment complex or other commercial property it is much easier to deploy larger chunks of money and get it working faster.  On the other hand, you had best know what you are doing because you are putting in larger chunks of money.

I agree with your comments on climate change and I am bullish on the Midwest, particularly the Great Lakes area.  Just a word of caution about Metro Detroit, it still has a large portion of its economic activity related to automotive.  (I worked for Ford for 26 years) Real estate values will track the health of the auto industry.

If you are brand new, I wouldn't self manage from OoS. There are too many pitfalls.

It sounds like the reason you wanted to do this was to achieve Real Estate Professional Status. To achieve REPS status you need to be actively involved in your rentals.  "Active" doesn't necessarily mean you are self-managing.  Talk to a competent CPA.

BTW, the real value is not derived from saving a management fee.  The real value is on the buy side.  If you buy turnkey rentals, you will make money slowly.  If you buy junkers and fix them up, you can make much larger returns.  The harder part is managing a rehab from afar.

LOL   That is exactly what I would expect from the Detroit City Government.

If you go there, they are likely going to say you first need a license from a different office on the other side of town and when you drive there, they will say you need an appointment with them, but they only have appointments the third Thursday of each month.  

@Drew Sygit  Any suggestions?

What has led you to the conclusion that it is malicious?  Have you run to ground all the more common issues?

I'd start by giving all residents the required notice (usually 24 hours) and go inspect the units as quickly as you can.  There is a decent chance you will find a toilet with a busted flapper. 

If that isn't the issue, the next most likely issue is an underground leak.  On older properties, this is very common.  You would need to hire a leak detection company to find out.  The easiest ones to find are hot water leaks because usually the resident complains that their floor is hot.

If you eliminate those, just have your PM stop by the property randomly to listen for running water. You should be able to narrow it down quickly.

You are definitely going to want to get a lawyer and as soon as possible.

This will sound harsh.

In your story, you have made a number of very poor decisions about how you purchased and managed this property. Hopefully you haven't made equally poor decisions when you created and how you managed your LLC. If you have, you have put yourself at great personal risk.

Again, I recommend you get a lawyer as soon as possible.

In many ways, you got lucky because she told you she left.  You now have possession of the apartment. 

The worst is when they don't tell you they are moving out and leave behind enough stuff that you are not sure if they are coming back for it, and they ghost you.  In those cases, you have to go through the courts to get possession back.

Here is the short of it.

Does this look like a good deal?  Possibly. The rents are way below market.  If there aren't any massive physical problems with the property, it appears you can grow income and equity.

You might be able to buy this with little cash out of pocket if the seller owns it free and clear and was willing to finance nearly all of it.  However, driving rents higher will likely take a significant amount of cash to upgrade the units.  Given California's hostility towards landlords, you would also need enough cash to weather some long evictions.  In addition, you would need enough working capital to pay for insurance (which will be going up a LOT in Los Angeles) and to pay for property taxes.

Don't buy this unless you have substantial resources and a cash cushion to keep yourself safe.

"but based on my pre-approval"  This is the most important phrase of your post.

Where did you get that pre-approval?  If you walked into a bank, your pre-approval would likely never qualify for a house hack duplex.

Did they count 75% of the expected rent towards your DTI? An investor-oriented lender would have done that. Most banks only deal with SF owner-occupants. They don't know how to properly qualify an investor.

Check around before making a decision.