All Forum Posts by: Eddy Dumire

@Joel Owens

Thanks for your thoughts.  I think you're probably correct with most of what you've said here.

I should probably let everyone know that in lots of ways, I'm looking at this as a relatively low risk experiment.  You're right that I've bought nice properties in nice areas before and I'm dealing with an entirely different class of tenant now.  I think I needed this experience to help round out my real estate education.

No matter what happens, I'm pretty sure I can get out with a very small loss in the worst case scenario.

It's also worth mentioning that in some ways I think I may have made it easier on myself to evict them later if they don't pay.  If I understand correctly, if I wanted them out on day 1, I'd have to give them a 30 day notice to vacate, then filed for unlawful detainer (the bank states in its docs that it won't cooperate with the UD) then waited for a court date, then waited for the eviction a few days later.  This way, if they don't pay, I give them a 5 day notice to vacate and after 5 days file the unlawful detainer.

Obviously I still need a little more legal direction here.  I do know that Virginia is relatively landlord friendly and the whole process could take as little as 45 days or so here.

I guess it's pretty obvious that I tend to jump in with both feet and figure out the details later.

@Jim Brown

I honestly don't know enough about lease options to know the answer for sure, but it seems like it's something I should look into.

So to my surprise, the occupants initiated a call to me on Thursday to set up a time to sign the lease and give me the first month's rent.  We arranged a meeting time for Friday and they gave me cash and signed the lease.  We walked through the property together and noted the things that needed to be addressed.  Overall they seem like very nice people.

@Joshua Dorkin often mentions on the podcast how real estate investors often have a poor reputation and how we're actually providing a service to communities.  The occupants -- now "tenants" -- thanked us many times for giving them a chance.  They also asked if we would ever entertain the idea of selling the house to them.  They seem like very nice people and maybe I'm being naïve but it feels good to help people and give them a second chance.  I'm certain they meet the demographic that most investors -- myself included -- would flat out reject under normal circumstances.

At any rate, I think I'm still way ahead on this investment.  If they stay and continue to pay, then I've collected rent on a distressed property from basically day 1 of ownership.  If they leave in the middle of he night, I'm really not out much.

I love how our law enforcement system has turned into guilty until proven innocent.  They couldn't prove you had done any thing illegal, yet forced you to jump through hoops to prove your innocence?

Of course, if you had refused, they'd take you to court, where they'd continue to make their salary, but do nothing for you but cost you money to prove you're not a crook.

Sounds like a bit of a mess.  I've bought two occupied properties.  The first I offered cash for keys.  My offer was for basically one month's rent.  I went in with hopes of having the occupant out in a week or two.  She asked for 3 months!  I told her that wasn't going to happen and the most I could possibly do was 30 days.

I've always understood the rules to mean that you couldn't contact the occupant at all until after closing.  I believe this would amount to denying them "Quiet Enjoyment" which is one of the property rights that a tenant has when they sign a lease.  I'm not a lawyer though and this is only what I've interpreted, so may not be 100% correct.

Incidentally, my 2nd occupied property is currently inhabited by squatters and I'm working through options to either sign a lease with them or get them out.  You can read up on that in my posting "Diary of a PIG".

Eddy

@Randy E.

I'm pretty sure you're right about them being squatters.  They both claimed to be working though.  I also agree with you totally about the risk of them running off with materials.  I think that I've already committed to offering them a lease though. 

At this point, my plan is to see if they come up with the first month's rent and security deposit.  If so, then I'll meter my spending very conservatively and start by repairing things that are either required for habitability or buried so deep in walls that it will take a whole lot of effort to remove.  As long as they keep paying and keep the unit in decent condition, I'll continue to pay to make improvements.

Of course, if I don't have a good check in my hand on Friday then I'll start the eviction process.

I've found that my county does unlawful detainers every 2nd Monday of each month at 8:30 AM.  I thought I'd go on the 10th and watch and see how it works. 

Does anyone know if a squatter needs a 30 day notice to quit or can I just start unlawful detainer proceedings immediately?

The other avenue I'm really curious about is if I can take over the bank's unlawful detainer case.  The bank won an unlawful detainer case against them 3 days before I closed on the house.  They were supposed to vacate per that judgement on 8/7 (Friday) anyway.

I just noticed "in a trust"... is it still in the trust or does she and her brother have title in joint tenancy?

@Jessie Huffey

 Maybe I'm missing something, but why not just do a cash out refi?

Per Freddie Mac:

Benefits

Pay off junior liens, including HELOCs. Pay off a purchase money junior lien or a leasehold interest, pay for home improvements or buy out the equity of an ex-spouse, joint heir or joint devisee.

http://www.freddiemac.com/singlefamily/factsheets/sell/cashoutrefi.htm

@Drew Purvis

It seems like a lot of your renovation costs are materials only (like the painting).  I assume you're doing this yourself.  For analysis purposes, I wouldn't do this.  I would cost it out as though you are hiring someone to do it for you.  If the deal still works, then by all means, go ahead and do the work yourself if you can.  The point is that your time is worth something, and don't give it away for free when you're making calculations to see if a deal is worthwhile. 

So I had an interesting weekend.

I went to the house on Friday evening and knocked on the door.  Keep in mind that until now I haven't seen the inside of the house or spoken with the occupants.

There are apparently 4 people living in the house.  They were very friendly, but I'm assuming that almost nothing that they tell me is true.  I was speaking pretty much exclusively with two of them, a woman and her fiancé.  The other two are supposed to be leaving.

They told me that they had been to court just 3 days prior because the foreclosing lender had filed for unlawful detainer.  I really couldn't make out what the outcome of the court date from them, but looking in the court records online, I now see that the order was to vacate on 8/7/15.  Part of the terms of the auction were that I don't get to pick up any of the pre-existing eviction process from the bank.

Here's where I think I made my first bad decision.  When I introduced myself, I asked if they had a lease in place, told them that if they did I would honor it, and also told them that if they didn't have a lease they could stay by signing a new one with me.  Of course I did all of that without first finding out who they are and running background or credit checks.

They stated that they would only be interested in renting if the property were repaired.  According to the occupants, the property was determined to be unlivable by social services and that caused the last tenant to move out.  They claim that they rented the property from a property manager for $700, though they never signed a lease.  I personally think that odds are pretty good they broke in and are squatters. 

The condition of the property is pretty bad.  They were very polite the whole time and let me walk through the entire house and take pictures.  What I found was: front door lock set loose, like maybe not changed very well.  Rear door glass broken and covered with cardboard.  Char on back burner of stove extending up to cabinets from fire on stovetop.  Kitchen cabinets falling apart.  Water heater not working (yes they're staying there without hot water -- gas isn't turned on either). All flooring needs replaced (though there are hardwoods beneath the filthy carpet).  Furnace not working and appears to be about 40+ years old.  Rot around multiple windows.  Water from kitchen backing up into tub.  Lots of junk laying around the yard (couches, etc).  Minor wall damage.

Here's my spitball repair cost estimates:

Plumbing backs up in shower 300
Entry Doors (2 doors) 1000
Replace windows (9 windows) 3000
Replace water heater 700
Replace HVAC/Install Ducts 5000
Replace Cabinets 1500
Replace Countertops 500
Replace Stove 300
Encapsulate crawlspace 2000
Replace flooring 1400
Paint/Drywall repair 2000
Total 17700

I'm pretty confident in most of the costs here, but if anyone has any additional feedback on the cost of new HVAC duct installation and the crawlspace encapsulation I'd appreciate it.

Sidebar: I'm thinking it would be better to encapsulate the crawlspace and then run the HVAC duct work through that area rather than through the attic.  It seems like I'd have less heat/cooling loss through the crawlspace than the attic.  I'll have to check with HVAC guys unless someone here knows.

My theory was that there is already a whole lot wrong with this house and there are people already there who are ready to sign a lease.  I figured if they would pay me close to market rent ($800/month). Then I could fix the major items first, and gradually keep making improvements as long as they continued to keep paying rent.  This would save me at least 2 months rent while I get a new unlawful detainer process through the court and another month's rent during vacancy, and probably at least one more while on the market.

4 months vacancy or about $3200 lost revenue vs. keeping it occupied by tenants who may trash it further (if even possible).  I thought keeping it occupied would be my best choice and that I would start by fixing the most pressing issues like the lack of hot water and trash removal.  Each new $800 rent check would suitably encourage me to fix another major item, leaving the most decorative (like flooring and painting) for the end.

We agreed to meet on Monday (today) to sign the lease. Last night I texted the tenant to set up a time.  She stated that her fiancé was in the hospital and that she wouldn't be able to meet me to sign and pay before Friday.  Hmmmm.... going downhill already.  I told her that this was not a good start and that I either need a signed lease and a check on Friday or they will need to vacate.

Oh almost forgot... one said she had a criminal past -- just found a felony case for petit larceny - 3rd offence and the other said something about getting out of rehab.

Oh my.