First Big Mistake in Real Estate Investing - What to Do?

Question

Hello all.Since first getting involved and educated in real estate investing, I have consistently heard that mistakes will be made, well we made our first one and I wanted to put it out to BP and get suggestions of how best to dig out of this mess.We have been investing in Southeast, MI.I know, I know, insert jokes here.Recently, we cash purchased a 2/1.5 home with a garage for 22.5K, about half of what the seller was asking.The seller was an estate of a family member that lived in the home and recently passed away.We were aware the front concreate porch, was pulling away the home and the design of the roof connected to the front porch.We knew we would need to repair/replace the front porch and we set about 20K for repairs.We were also aware that the home had lead based paint.

We got quotes for the porch (15K) for the porch and getting the lead paint removed and repainting the home (4.2K).We also got a quote for siding which was 19K.This was obviously over our anticipated budget.

We realize now that we made a mistake buying the house because the area we bought the home in is flat or slightly above flat growth.If you were in this position what would you do?We don't have the money to conduct all the repairs and honestly don't think it would be worth doing. I look forward to your advice. Feel free to send a priviate email.

Jacob

Derreck Wells · Answer

Lead paint laws are different in every state. Google "MI Lead Paint Laws" and read them. Some states you need a licensed lead abatement company, some you just need an RRP certified firm.

In MA you only need to delead a rental unit if you have a family with a child under 7 living there. And at that, if you have a 4 family with a child under 7 in only 1 unit, you only have to delead that one unit and the common areas that child will regularly use. If the child is on the 1st floor, then the exterior, 1st fl common areas, & 1st fl unit need to be done. If the child on the second floor, exterior, 1st and 2nd floor common & 2nd floor unit. If in either or those situations, you have the 3rd floor common done.

DO NOT DO THIS: "Hey Mr Deleader, since your in the stairway anyway, can you just do all the way up and get that 3rd floor hall too? That way there'll be less work when I have to do that floor." That would be bad when the inspector comes to inspect the 3rd floor when it actually needs to be done. They'll flag it as unauthorized deleading on fl 3 and you'll never get a lead cert for it. It's silly, but that's the way law is written in MA. You can only do the floors that you're getting a lead cert for.

Again, in MA (I can't speak for MI laws) lead paint doesn't have to be removed, just made safe. Depending on the surface and location there are different techniques we can use to "delead". I'll use the exterior for an example. Lead paint on your porch posts needs to be covered if it's a square post. (Sharp corners a child could bite.) If it's a round post over 8" in diameter, the paint can stay exposed, just can't be loose or peeling. Under 8" in diameter needs to be covered. Paint on flat surfaces needs to be made intact (can't be loose, peeling, or chalking) but on corners and window sills below 5' the paint needs to be covered with metal, vinyl, or wood. Now let's say that we made the paint intact by repainting the flat surface. That paint needs to stay intact to keep kids safe and limit your liability.

There's no law that says how often you need to repaint to keep it intact. I'm pretty sure if ten years after you got your lead cert some kid gets lead poisoning, the Judge would say that was an unreasonable amount of time between paint jobs and you're screwed. But there's nothing in law to say would the Judge would consider "reasonable". I always recommend people get a PCAD (post compliance assessment determination) done by a licensed inspector at every tenant turnover or every 5 years, whichever comes first. A PCAD is basically a full lead inspection that checks for loose paint and makes sure that the unit complies with CURRENT lead laws as they do change and what was once good enough might not be anymore. If the law change since you had the unit deleaded and you don't change with it, you're probably going to be liable for damages. The good thing is that after a PCAD, the owner has 30 days to do the work themselves, they don't need to hire a licensed deleader.

Again, I'm only versed in the MA lead laws which are pretty strict, your state may be different.

Joe Splitrock · Answer

@Jacob Tudor have you looked at the option of vinyl siding that could install over the other siding? That seems like a way to avoid the lead paint removal and can be lower cost than ripping everything off. Also on the porch, is there a way to brace the structure to prevent movement and then fill the gap where it is pulling away? I am not arguing that tearing off the porch is the best way to do it, but sometimes there is a less expensive option that works too. The problem is I don't see all these improvements increasing your rent value. It is all just cutting into your return.

Paul Amegatcher · Answer

Why do you need to remove the lead based paint?  I ask because any home built before 1978 has lead based paint in it.  Most of us paint over the old paint and give a disclosure stating that homes built before 1978 have lead based paint.  Also the quote for the siding is way to high.  I remember getting three quotes for siding on one of my first flips.  The numbers were 14K, 6K and 1.8K.  I went with the middle quote.  The last guy did not know what he was talking about.  Also siding is easy to install.  I would get more quotes or talk to other investors about who to use for siding.  Hope this helps.

Carol Palmer · Answer

You should have checked for the siding . Now the otion left with you is to fix it. There are many services which provide all kinds of solutions. Check out for more details online. I happened to read a very useful article on mistakes we often make while investing in real estate.

25-biggest-real-estate-mistakes

Joe Villeneuve · Answer

Where in SE Mi is this house?

Jacob Tudor · Answer

Wow you all are awesome! So I didn’t mention that we planned on buying and holding. Buy and hold is our normal criteria.James, we paid 22.5K and the zestimate for what is worth is 57K and $850 rent but $775-$825 PM seems more realistic.The cash on cash is 12.5 considering the price we paid and 20K in repairs.

I mentioned the siding because from what we were told by one of the contractors, they will strip off the lead and repaint but because the house is old and the insulation is inconsistent, the paint job will only last three years, so we considered siding the home for long term stability.Dawn, we are getting more quotes before deciding anything.

Robert, thanks for the advice, we are not opposed at all to some sweat equity!

I also thought the siding was really high.For a long term rental, I would like to get siding done at a reasonable cost and not have to worry about painting every so often.

Do any of you think turning around and selling it would be a good idea, just to get out from the home issues?

Jay Orlauski · Answer

Hi there  @Jacob Tudor  -Have you considered removing the porch entirely? Remove it and support the roof with beams maybe? Also are you replacing it with concrete or rebuilding it as wooden porch?   perhaps you can can sell it for 5K - 10k more than you paid for it without any repairs as a contractors special or something. I've resold a house before that ended up being more trouble than it was worth and still made 35K profit on it without ever rehabbing it. Another idea - you can seller carry it back to someone who would otherwise not qualify for a loan - or perhaps they would qualify , but the house doesn't - either way, you can collect some income from it while not being responsible for the upkeep or repairs.  Those are some of the things that come to mind  - Let us know how it works out for you - Have a great day!

Samantha Klein · Answer

19K for siding sounds really high especially for a 2/1.5 home. I'm assuming it's around 1000-1200 sq ft based on that and if you were doing vinyl siding, I couldn't see it costing more than 6-8k. I just had a 1600 square foot duplex quoted out for vinyl siding at $6700.

James Syed · Answer

Welcome to BP!

Were you aware of siding needing replacement?

You can fix the porch and paint it and rent it instead of flipping. How much rent could you get it for? What is the ARV?

Hope it helps.

First Big Mistake in Real Estate Investing - What to Do?

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