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Baltimore - a path to never-ending pain
Anyone considering investing in this town i just wanted to give my 1 year of experience and advice. Bottom line, don't do what i did.
1) Don't buy through a turnkey provider -they promise they are doing amazing renovations of quickly gentrifying neighborhoods. FALSE - No neighborhoods are quickly gentrifying in Baltimore. Everything works slow and the city govt is completely inept at a minimum and possibly worse. Further it could take MONTHS after closing for your new home to be rent ready as the city seems to slow roll any new permits for anything. I was 6 months before one home was even ready to rent.
2) Don't believe it when anyone tells you "Zillow is wrong and those photos are old" - no they are NOT. A burned out street on Zillow is still a burned out street today.
3) Dont believe it when they say your property taxes will be low for 3 years - its a luck of the draw when the city wants to reassess your home and it could be THIS YEAR and cause that $400 to skyrocket to $2,000 or maybe - if you are super unlucky like me - $5000
4) Related to #3 - BUY PRE-RENOVATION not after, so the sales price does not trigger a re-assessment and cause a 522% increase overnight in property taxes from $800 to $5000 within the first year.
5) watch out for SUPER HIGH UTILITIES AND other city FEES! Water is $150 / month! Annual rental licenses are $200, the city requires annual inspections etc. The list goes on and Baltimore knows how to stick it to you.
6) Section 8 tenants are not all roses - in one house this year i had a break-in that turned out to be the crackhead boyfriend breaking down the front door and punching holes in walls. In another home my tenant refuses to pay the $200 / mo water bill, thereby cancelling out my tiny cash flow profits and i have to pay it. I'm told she cannot walk away without paying it eventually (or risk losing her "voucher" .. but i'll have to take her to civil court for it.
7) FEAR THE EVICTION PROCESS - in my only non-section 8 house i have a professional scammer living. I blame my PM for putting him there but upon arrival he somehow conned the PM for a free month, then proceeded to NEVER PAY A PENNY IN RENT. To get someone out of your house requires you take them to court 5 TIMES before you have the right to NOT ACCEPT their measely 1 month's rent from 4 months ago, despite the fact they already owe you 3 more months. It is now September, I have been fighting since Jan to get this loser out unsuccessfully. He owes $6,000 at this point plus the water bill. I will never see it.
8) ALL YOUR CASH FLOW WILL BE EATEN UP - whether its the City taking it from you, your PM, or your renters and the courts, all you will get is pain.
bottom line - run from inner city area Baltimore. I just wish i could have told my future self this 1 year ago. Cheers
Quote from @Wendy Stclair:
Anyone considering investing in this town i just wanted to give my 1 year of experience and advice. Bottom line, don't do what i did.
1) Don't buy through a turnkey provider -they promise they are doing amazing renovations of quickly gentrifying neighborhoods. FALSE - No neighborhoods are quickly gentrifying in Baltimore. Everything works slow and the city govt is completely inept at a minimum and possibly worse. Further it could take MONTHS after closing for your new home to be rent ready as the city seems to slow roll any new permits for anything. I was 6 months before one home was even ready to rent.
2) Don't believe it when anyone tells you "Zillow is wrong and those photos are old" - no they are NOT. A burned out street on Zillow is still a burned out street today.
3) Dont believe it when they say your property taxes will be low for 3 years - its a luck of the draw when the city wants to reassess your home and it could be THIS YEAR and cause that $400 to skyrocket to $2,000 or maybe - if you are super unlucky like me - $5000
4) Related to #3 - BUY PRE-RENOVATION not after, so the sales price does not trigger a re-assessment and cause a 522% increase overnight in property taxes from $800 to $5000 within the first year.
5) watch out for SUPER HIGH UTILITIES AND other city FEES! Water is $150 / month! Annual rental licenses are $200, the city requires annual inspections etc. The list goes on and Baltimore knows how to stick it to you.
6) Section 8 tenants are not all roses - in one house this year i had a break-in that turned out to be the crackhead boyfriend breaking down the front door and punching holes in walls. In another home my tenant refuses to pay the $200 / mo water bill, thereby cancelling out my tiny cash flow profits and i have to pay it. I'm told she cannot walk away without paying it eventually (or risk losing her "voucher" .. but i'll have to take her to civil court for it.
7) FEAR THE EVICTION PROCESS - in my only non-section 8 house i have a professional scammer living. I blame my PM for putting him there but upon arrival he somehow conned the PM for a free month, then proceeded to NEVER PAY A PENNY IN RENT. To get someone out of your house requires you take them to court 5 TIMES before you have the right to NOT ACCEPT their measely 1 month's rent from 4 months ago, despite the fact they already owe you 3 more months. It is now September, I have been fighting since Jan to get this loser out unsuccessfully. He owes $6,000 at this point plus the water bill. I will never see it.
8) ALL YOUR CASH FLOW WILL BE EATEN UP - whether its the City taking it from you, your PM, or your renters and the courts, all you will get is pain.
bottom line - run from inner city area Baltimore. I just wish i could have told my future self this 1 year ago. Cheers
Thanks for sharing, Unfortunately a lot of new investors find this out the hard way, there are some decent areas of Baltimore but then the prices are higher and the returns not as good, all these out of state investors don’t realize Baltimore is extremely cheap for reason. I always advise people to invest in Baltimore county instead of the city for all of the above reasons you mentioned.
Sorry you had to go through this and this is not just baltimore but any major metro area where inveesting in C rentals. For those reading this:
1. If you are renovating a property, you MUST go visit the property. IF not what Wendy has written will occur.
2. See #1 prior to purchasing.
3. Taxes and insurance in all markets is increasing significantly. Why? Look where tax money comes from - commercial and residentail real estate. what is happenning with commercial properties? If its a zero sum game and commercial goes down where will $ come from?
6. This is more about your location, if yuo invest in a bad area, bad things will happen. What you model on paper is always to conservative. Thus which leads to#8
Again sorry you had to go through this but thank you for being brave to share your story - too many people make it seem like its super easy.
Baltimore is a tough market for sure, and you list some good "lessons learned", but I definitely wouldn't suggest running away entirely. Potential investors should be skeptical and make sure to surround themselves with a team that they trust.
Sorry to hear about these kind of losses. I appreciate you putting your story out there to warn others.
Quote from @Wendy Stclair:
Anyone considering investing in this town i just wanted to give my 1 year of experience and advice. Bottom line, don't do what i did.
1) Don't buy through a turnkey provider -they promise they are doing amazing renovations of quickly gentrifying neighborhoods. FALSE - No neighborhoods are quickly gentrifying in Baltimore. Everything works slow and the city govt is completely inept at a minimum and possibly worse. Further it could take MONTHS after closing for your new home to be rent ready as the city seems to slow roll any new permits for anything. I was 6 months before one home was even ready to rent.
2) Don't believe it when anyone tells you "Zillow is wrong and those photos are old" - no they are NOT. A burned out street on Zillow is still a burned out street today.
3) Dont believe it when they say your property taxes will be low for 3 years - its a luck of the draw when the city wants to reassess your home and it could be THIS YEAR and cause that $400 to skyrocket to $2,000 or maybe - if you are super unlucky like me - $5000
4) Related to #3 - BUY PRE-RENOVATION not after, so the sales price does not trigger a re-assessment and cause a 522% increase overnight in property taxes from $800 to $5000 within the first year.
5) watch out for SUPER HIGH UTILITIES AND other city FEES! Water is $150 / month! Annual rental licenses are $200, the city requires annual inspections etc. The list goes on and Baltimore knows how to stick it to you.
6) Section 8 tenants are not all roses - in one house this year i had a break-in that turned out to be the crackhead boyfriend breaking down the front door and punching holes in walls. In another home my tenant refuses to pay the $200 / mo water bill, thereby cancelling out my tiny cash flow profits and i have to pay it. I'm told she cannot walk away without paying it eventually (or risk losing her "voucher" .. but i'll have to take her to civil court for it.
7) FEAR THE EVICTION PROCESS - in my only non-section 8 house i have a professional scammer living. I blame my PM for putting him there but upon arrival he somehow conned the PM for a free month, then proceeded to NEVER PAY A PENNY IN RENT. To get someone out of your house requires you take them to court 5 TIMES before you have the right to NOT ACCEPT their measely 1 month's rent from 4 months ago, despite the fact they already owe you 3 more months. It is now September, I have been fighting since Jan to get this loser out unsuccessfully. He owes $6,000 at this point plus the water bill. I will never see it.
8) ALL YOUR CASH FLOW WILL BE EATEN UP - whether its the City taking it from you, your PM, or your renters and the courts, all you will get is pain.
bottom line - run from inner city area Baltimore. I just wish i could have told my future self this 1 year ago. Cheers
Quote from @Wendy Stclair:
Anyone considering investing in this town i just wanted to give my 1 year of experience and advice. Bottom line, don't do what i did.
1) Don't buy through a turnkey provider -they promise they are doing amazing renovations of quickly gentrifying neighborhoods. FALSE - No neighborhoods are quickly gentrifying in Baltimore. Everything works slow and the city govt is completely inept at a minimum and possibly worse. Further it could take MONTHS after closing for your new home to be rent ready as the city seems to slow roll any new permits for anything. I was 6 months before one home was even ready to rent.
2) Don't believe it when anyone tells you "Zillow is wrong and those photos are old" - no they are NOT. A burned out street on Zillow is still a burned out street today.
3) Dont believe it when they say your property taxes will be low for 3 years - its a luck of the draw when the city wants to reassess your home and it could be THIS YEAR and cause that $400 to skyrocket to $2,000 or maybe - if you are super unlucky like me - $5000
4) Related to #3 - BUY PRE-RENOVATION not after, so the sales price does not trigger a re-assessment and cause a 522% increase overnight in property taxes from $800 to $5000 within the first year.
5) watch out for SUPER HIGH UTILITIES AND other city FEES! Water is $150 / month! Annual rental licenses are $200, the city requires annual inspections etc. The list goes on and Baltimore knows how to stick it to you.
6) Section 8 tenants are not all roses - in one house this year i had a break-in that turned out to be the crackhead boyfriend breaking down the front door and punching holes in walls. In another home my tenant refuses to pay the $200 / mo water bill, thereby cancelling out my tiny cash flow profits and i have to pay it. I'm told she cannot walk away without paying it eventually (or risk losing her "voucher" .. but i'll have to take her to civil court for it.
7) FEAR THE EVICTION PROCESS - in my only non-section 8 house i have a professional scammer living. I blame my PM for putting him there but upon arrival he somehow conned the PM for a free month, then proceeded to NEVER PAY A PENNY IN RENT. To get someone out of your house requires you take them to court 5 TIMES before you have the right to NOT ACCEPT their measely 1 month's rent from 4 months ago, despite the fact they already owe you 3 more months. It is now September, I have been fighting since Jan to get this loser out unsuccessfully. He owes $6,000 at this point plus the water bill. I will never see it.
8) ALL YOUR CASH FLOW WILL BE EATEN UP - whether its the City taking it from you, your PM, or your renters and the courts, all you will get is pain.
bottom line - run from inner city area Baltimore. I just wish i could have told my future self this 1 year ago. Cheers
Thank you for sharing, that sounds awful I'm sorry you had to go through that. Luckily not the whole city is this way, and with a good team I believe it can be a fine place to invest. But you're right, the more information you can gather beforehand the better, and be sure to see the property with your own eyes (or the eyes of your agent if you're out of state)
Wendy, this is a perfect example of why “cheap” properties that look great on paper often become the most expensive and least profitable to own. Too many California investors think they will make more money by buying cheap, crappy homes in the midwest and unfortunately they soon learn the reality of high maintenance, high vacancy, low life tenants etc. Sorry you’re experiencing this.
I do a ton in Detroit and my partner and I have been watching the Baltimore market for years now. People ask me about it all the time.
Our response is always the same... "it's not there yet".
Sorry you went through all this and learned some hard lessons. Hopefully it doesn't deter you and your investing journey though.
Thank you for sharing, Wendy! I am sorry to hear that you've had such a difficult experience.
Would you be so kind as to share the neighborhoods that your rentals are located? I am curious.
- Anna
@Wendy Stclair unfortunately, have heard similar stories to yours, in many cities.
Wish investors would spend more time educating themselves and asking more questions!
See below for our advice (copy & paste) and let us know how we can improve it:)
We think the Midwest is a GREAT place for OOS investors to consider!
YES, we may be a little biased, but check out our blog here on BP comparing Detroit to other cities and Deep Dives on Metro Detroit cities & neighborhoods:
https://www.biggerpockets.com/...
(BP search feature can be problematic, so we’ve also added links @ our website under View Cities & Neighborhoods We Service)
Your biggest question shouldn't be WHERE to invest, but HOW you will invest!
Many OOS investors set themselves up for failure because they don't invest the time to ACTUALLY understand:
1) The Class of the NEIGHBORHOOD they are buying in - which is relative to the overall area.
2) The Class of the PROPERTY they are buying - which is relative to the overall area.
3) The Class of the TENANT POOL the Neighborhood & Property will attract - which is relative to the overall area.
4) The Class of the CONTRACTORS that will work on their Property, given the Neighborhood location - which is relative to the overall area.
5) The Class of the PROPERTY MANAGEMENT COMPANIES (PMC) that will manage their Property, given the Neighborhood location and the Tenants it will attract - which is relative to the overall area.
6) That a Class X NEIGHBORHOOD will have mostly Class X PROPERTIES, which will only attract Class X TENANTS, CONTRACTORS AND PMCs and deliver Class X RESULTS.
7) That OOS property Class rankings are often different than the Class ranking of the local market they live.
8) Class A is relatively easy to manage, can even be DIY remote managed from another state. Can usually allot 5-10% vacancy factor and same for maintenance.
9) Class B usually also okay, but needs more attention from owner and/or PMC. Vacancy and maintenance factors should be higher than for Class A as homes will be older, have more deferred maintenance and tenants will be harder on them.
10) Class C can be relatively successful with a great PMC (do NOT hire the cheapest!), but very difficult to DIY remote manage. Vacancy and maintenance factors should be higher than for Class A or B. Homes will have even more deferred maintenance and tenants will be even harder on them.
11) Class D pretty much requires an OWNER to be on location and at the property 3-4 times/week. Most quality PMCs will not manage these properties as they understand most owners won’t pay them enough for the time required and even then it’s too difficult successfully manage them.
***Only exception is if an owner has plan & funds to reposition Class D to Class C or higher.
Also, SERIOUSLY consider - do you really have the time to be a DIY landlord or should you hire a PMC?
Let us know if we can help in any other way.😊
Owner should pay the water bill.
@Chris Seveney "If you invest in a bad area, bad things will happen." That's my quote of the week.
I'm sorry this happened to you. It's quit common. However, I would not through in the towel nor would I advise others not to do it. You have those valuable lessons learned that others don't have. REI has a very high failure rate because they are not receptive to the things you have so eloquently outlined. So many, all over the world believe they are supposed invest in Baltimore. They know absolutely nothing and in conjunction with the generalize notion, they believe its easy. Many hear there are 10k houses and its impossible to lose no matter what they do. Also, no one really assesses the notion that if it were so easy there would be millions of wealthy millionaire investors all over the city. There are tons of horror stories, forums, testimonies and every other form of information illustrating what you have here. Still, they think you buy a turn key and get a manager and its done. Others think if you buy a 5k home, hire people from home depot lot to fix it in a month, then sell for 100k profit. The hundreds of scenarios and moving parts are never pondered. I cant even count the number of people who are unskilled, advising me to go buy a block or go pick up 15 10k houses at once. I inform them that its so so so much more than just repeating that simplistic notion. Look, I get what you are saying but you have a much greater chance of success if you continue. There are many people making tons of money there but they understand the community and what they are up against. Whatever decision you make at least you went out there and no matter what, you are better prepared for the next venture.
Best of luck!
Excellent post. I'm sorry that you have had such a rough experience, but I want to genuinely thank you for sharing.
Literally the last post I made here was talking about how I am currently studying other markets as I plan to start investing out of state by the end of the year. Baltimore wasn't high on my list, but it was on my list as a market to consider.
Your post has single handedly convinced me to look elsewhere. Thank you.
Quote from @Jeremy Anan:
@Chris Seveney "If you invest in a bad area, bad things will happen." That's my quote of the week.
In theory this holds some weight in a very basic or general sense. However, its very misleading. For one, the term bad areas has so many variations for so many people. It's open to some interpretation. There is a guy in here who was horrified by a puddle of water in his class B neighborhood and the stress was making him ready to sell. Second, if the person understands their asset, the community, the culture and the tenants they are able to operate and make tons of cash which is very much a good thing. On one hand investors who don't understand the community think its easy and don't examine or research anything else aside a cheap price. On the other hand we have people telling them all to say away. It all depends on the individual and how effective they are. A person who does have a natural knack for Bmore may miss out by being influenced not to go. My point is, ALL investors need to understand what they are doing and what they are up against. If they know all that up front and wish to deal with it, then they can make intelligent decisions. Remember, there are many who are dominating the game in these so called bad areas.
I love the transparency and have experienced everything you laid out for newer investors building our 50 unit portfolio. I agree it is definitely not all cash flow and sunshine and often the numbers don't tell the whole story with a lot of hidden fee's, high utilities, that you end up finding out later. Some things investors can do to be proactive and mitigate risks of investing in the city are
- Have a great local team
- During rehabs place curtains up, do leave trash outside as it attracts criminals and more trash
- 7.) For eviction - check out mdrentcourt.com we have been finding it takes 3 months
-3.) MDtaxappeals might be able to help you bring down your tax bill if you appeal. It is about a 10 month process though
- Walk and drive the streets prior to purchase to really get a feel of what is going on around the property
Sorry you have dealt with the stress and glad you have shared your experience with others
Dave
@Wendy Stclair
I use a software called rentfaxpro it gives violent crime rates, school test results, income and education levels etc. helps when you are investing out of town. Sorry to hear about your experience there. Markets are still high if you can sell them tenant occupied and move on.
Quote from @Wendy Stclair:
Anyone considering investing in this town i just wanted to give my 1 year of experience and advice. Bottom line, don't do what i did.
1) Don't buy through a turnkey provider -they promise they are doing amazing renovations of quickly gentrifying neighborhoods. FALSE - No neighborhoods are quickly gentrifying in Baltimore. Everything works slow and the city govt is completely inept at a minimum and possibly worse. Further it could take MONTHS after closing for your new home to be rent ready as the city seems to slow roll any new permits for anything. I was 6 months before one home was even ready to rent.
2) Don't believe it when anyone tells you "Zillow is wrong and those photos are old" - no they are NOT. A burned out street on Zillow is still a burned out street today.
3) Dont believe it when they say your property taxes will be low for 3 years - its a luck of the draw when the city wants to reassess your home and it could be THIS YEAR and cause that $400 to skyrocket to $2,000 or maybe - if you are super unlucky like me - $5000
4) Related to #3 - BUY PRE-RENOVATION not after, so the sales price does not trigger a re-assessment and cause a 522% increase overnight in property taxes from $800 to $5000 within the first year.
5) watch out for SUPER HIGH UTILITIES AND other city FEES! Water is $150 / month! Annual rental licenses are $200, the city requires annual inspections etc. The list goes on and Baltimore knows how to stick it to you.
6) Section 8 tenants are not all roses - in one house this year i had a break-in that turned out to be the crackhead boyfriend breaking down the front door and punching holes in walls. In another home my tenant refuses to pay the $200 / mo water bill, thereby cancelling out my tiny cash flow profits and i have to pay it. I'm told she cannot walk away without paying it eventually (or risk losing her "voucher" .. but i'll have to take her to civil court for it.
7) FEAR THE EVICTION PROCESS - in my only non-section 8 house i have a professional scammer living. I blame my PM for putting him there but upon arrival he somehow conned the PM for a free month, then proceeded to NEVER PAY A PENNY IN RENT. To get someone out of your house requires you take them to court 5 TIMES before you have the right to NOT ACCEPT their measely 1 month's rent from 4 months ago, despite the fact they already owe you 3 more months. It is now September, I have been fighting since Jan to get this loser out unsuccessfully. He owes $6,000 at this point plus the water bill. I will never see it.
8) ALL YOUR CASH FLOW WILL BE EATEN UP - whether its the City taking it from you, your PM, or your renters and the courts, all you will get is pain.
bottom line - run from inner city area Baltimore. I just wish i could have told my future self this 1 year ago. Cheers
I appreciate your candid sharing of your experiences in Baltimore's real estate market. Your insights are valuable cautionary tales for potential investors, and it's commendable that you're sharing your challenges to help others make informed decisions.
It's clear that investing in certain areas can be fraught with issues like slow permitting, property taxes, high utilities, and tenant-related problems. Your points about property assessment and the eviction process highlight the need for investors to thoroughly research their chosen markets and understand the potential risks involved.
Your advice to buy pre-renovation to avoid property tax reassessment is especially noteworthy, as this is a significant factor that can affect an investor's bottom line. Also, your comments on Section 8 tenants and the eviction process emphasize the importance of effective property management and tenant screening.
While Baltimore may present challenges, it's crucial to remember that every market has its unique characteristics and risks. Investors should consider their own risk tolerance, investment goals, and ability to navigate these challenges before entering any market.
Thank you for sharing your experiences, and I hope that your insights can help others make informed decisions when considering real estate investments in Baltimore or similar markets." 🏡💼 #RealEstateInvesting #BaltimoreRealEstate
Quote from @Michael Smythe:
@Wendy Stclair unfortunately, have heard similar stories to yours, in many cities.
Wish investors would spend more time educating themselves and asking more questions!
See below for our advice (copy & paste) and let us know how we can improve it:)
We think the Midwest is a GREAT place for OOS investors to consider!
YES, we may be a little biased, but check out our blog here on BP comparing Detroit to other cities and Deep Dives on Metro Detroit cities & neighborhoods:
https://www.biggerpockets.com/...
(BP search feature can be problematic, so we’ve also added links @ our website under View Cities & Neighborhoods We Service)
Your biggest question shouldn't be WHERE to invest, but HOW you will invest!
Many OOS investors set themselves up for failure because they don't invest the time to ACTUALLY understand:
1) The Class of the NEIGHBORHOOD they are buying in - which is relative to the overall area.
2) The Class of the PROPERTY they are buying - which is relative to the overall area.
3) The Class of the TENANT POOL the Neighborhood & Property will attract - which is relative to the overall area.
4) The Class of the CONTRACTORS that will work on their Property, given the Neighborhood location - which is relative to the overall area.
5) The Class of the PROPERTY MANAGEMENT COMPANIES (PMC) that will manage their Property, given the Neighborhood location and the Tenants it will attract - which is relative to the overall area.
6) That a Class X NEIGHBORHOOD will have mostly Class X PROPERTIES, which will only attract Class X TENANTS, CONTRACTORS AND PMCs and deliver Class X RESULTS.
7) That OOS property Class rankings are often different than the Class ranking of the local market they live.
8) Class A is relatively easy to manage, can even be DIY remote managed from another state. Can usually allot 5-10% vacancy factor and same for maintenance.
9) Class B usually also okay, but needs more attention from owner and/or PMC. Vacancy and maintenance factors should be higher than for Class A as homes will be older, have more deferred maintenance and tenants will be harder on them.
10) Class C can be relatively successful with a great PMC (do NOT hire the cheapest!), but very difficult to DIY remote manage. Vacancy and maintenance factors should be higher than for Class A or B. Homes will have even more deferred maintenance and tenants will be even harder on them.
11) Class D pretty much requires an OWNER to be on location and at the property 3-4 times/week. Most quality PMCs will not manage these properties as they understand most owners won’t pay them enough for the time required and even then it’s too difficult successfully manage them.
***Only exception is if an owner has plan & funds to reposition Class D to Class C or higher.
Also, SERIOUSLY consider - do you really have the time to be a DIY landlord or should you hire a PMC?
Let us know if we can help in any other way.😊
Thank you for sharing your insights and resources for out-of-state investors, it's evident that you're passionate about helping others make informed decisions. Education is indeed a crucial aspect of real estate investing, and your detailed breakdown of different property classes and neighborhoods is a valuable guide for newcomers.
Your emphasis on understanding the local market's dynamics and class distinctions is spot on. This knowledge can make or break an investment, especially when investing from a distance. Your points about property management companies (PMCs) are particularly noteworthy. They play a vital role in the success of an out-of-state investment, and selecting the right one can save investors a lot of headaches.
The links you provided to your blog posts and resources on BiggerPockets are also appreciated, as they offer more in-depth information for those interested in specific markets.
Additionally, your reminder about the importance of assessing whether one has the time and capacity to be a DIY landlord or should hire a PMC is crucial. It's a decision that can greatly impact the investor's experience and success.
Thank you for contributing to the community and offering assistance to fellow investors. Your knowledge and willingness to help are much appreciated!" 🏡💼 #RealEstateInvesting #EducationMatters
Quote from @Wendy Stclair:
Anyone considering investing in this town i just wanted to give my 1 year of experience and advice. Bottom line, don't do what i did.
1) Don't buy through a turnkey provider -they promise they are doing amazing renovations of quickly gentrifying neighborhoods. FALSE - No neighborhoods are quickly gentrifying in Baltimore. Everything works slow and the city govt is completely inept at a minimum and possibly worse. Further it could take MONTHS after closing for your new home to be rent ready as the city seems to slow roll any new permits for anything. I was 6 months before one home was even ready to rent.
2) Don't believe it when anyone tells you "Zillow is wrong and those photos are old" - no they are NOT. A burned out street on Zillow is still a burned out street today.
3) Dont believe it when they say your property taxes will be low for 3 years - its a luck of the draw when the city wants to reassess your home and it could be THIS YEAR and cause that $400 to skyrocket to $2,000 or maybe - if you are super unlucky like me - $5000
4) Related to #3 - BUY PRE-RENOVATION not after, so the sales price does not trigger a re-assessment and cause a 522% increase overnight in property taxes from $800 to $5000 within the first year.
5) watch out for SUPER HIGH UTILITIES AND other city FEES! Water is $150 / month! Annual rental licenses are $200, the city requires annual inspections etc. The list goes on and Baltimore knows how to stick it to you.
6) Section 8 tenants are not all roses - in one house this year i had a break-in that turned out to be the crackhead boyfriend breaking down the front door and punching holes in walls. In another home my tenant refuses to pay the $200 / mo water bill, thereby cancelling out my tiny cash flow profits and i have to pay it. I'm told she cannot walk away without paying it eventually (or risk losing her "voucher" .. but i'll have to take her to civil court for it.
7) FEAR THE EVICTION PROCESS - in my only non-section 8 house i have a professional scammer living. I blame my PM for putting him there but upon arrival he somehow conned the PM for a free month, then proceeded to NEVER PAY A PENNY IN RENT. To get someone out of your house requires you take them to court 5 TIMES before you have the right to NOT ACCEPT their measely 1 month's rent from 4 months ago, despite the fact they already owe you 3 more months. It is now September, I have been fighting since Jan to get this loser out unsuccessfully. He owes $6,000 at this point plus the water bill. I will never see it.
8) ALL YOUR CASH FLOW WILL BE EATEN UP - whether its the City taking it from you, your PM, or your renters and the courts, all you will get is pain.
bottom line - run from inner city area Baltimore. I just wish i could have told my future self this 1 year ago. Cheers
Your post should be required reading for newbies who foam at the mouth with anticipation at the prospect of buying cheap, crappy homes in crappy neighborhoods that look great on paper. Cheap houses are cheap for a reason.
Speaking especially to fellow California-based investors, viewing this excellent post as exposing "Baltimore specific" problems would be inaccurate. Based on my personal experience in other areas (Rochester NY, Toledo OH), you will find similar problems if you buy without adequate, on the ground personal research and/or simply rely on the standard out of state turnkey model on which to build your REI dreams.
It seems that people living in LA or SF or Orange County etc. see what appears to them to be ridiculous low housing prices and ridiculously high rents relative to those low prices and think that playing this arbitrage opportunity will be easy.
There are four facts that should not be overlooked.
One: The fact is that for every buyer who is blinded by $$$$$, there is a repeat seller who knows the market better than you do and who is not buying, but is selling to you. Who is going to win?
Two: The city leaders in these places do not represent you - the out of state investor - and do not care about your interests. They see you as an easy source of tax revenue and/or as a bucket of ready cash that's needed to bring its derelict stock of housing into some semblance of shape (e.g., lead paint laws).
Three: There is no such thing as a "landlord-friendly" state. Evictions are universally handled at the local level an, again, as an out of state investor, you have no friends in those local courts whose usually elected judges will need the votes of your tenants at some point in their tenures. Trust me. As an out of state investor, with a name that appears on court papers as "I make money off the locals LLC" you will get repeatedly home-towned no matter how good your local lawyer happens to be.
Four: In my personal experience, fewer than half the tenants in class B-/C+ and lower areas pay their "share" of the section 8 rent and seldom cover the utilities. If you are eager to go section 8 expect to receive the government's portion of the rent as full rent and to have to cover the utilities out of pocket even in the case of SFR's (in multi-units you end up paying water in almost all cases anyway). You might be pleasantly surprised by the occasional $100 coming your way from the tenant but I have found that to be the exception rather than the rule.
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#4 All Forums Contributor
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Quote from @Scott E.:
Excellent post. I'm sorry that you have had such a rough experience, but I want to genuinely thank you for sharing.
Literally the last post I made here was talking about how I am currently studying other markets as I plan to start investing out of state by the end of the year. Baltimore wasn't high on my list, but it was on my list as a market to consider.
Your post has single handedly convinced me to look elsewhere. Thank you.
Scott don't let this one post dissuade you. I am pretty active in Baltimore funded well over a hundred deals there .. if you want to hit me off line I can give you my 2 cents on the market.
Quote from @Jay Hinrichs:
Quote from @Scott E.:
Excellent post. I'm sorry that you have had such a rough experience, but I want to genuinely thank you for sharing.
Literally the last post I made here was talking about how I am currently studying other markets as I plan to start investing out of state by the end of the year. Baltimore wasn't high on my list, but it was on my list as a market to consider.
Your post has single handedly convinced me to look elsewhere. Thank you.
Scott don't let this one post dissuade you. I am pretty active in Baltimore funded well over a hundred deals there .. if you want to hit me off line I can give you my 2 cents on the market.
Sounds good Jay. Sent you a message.
Was this a sight unseen purchase @Wendy Stclair? If not...how long were you been in Baltimore before making this acquisition? I think your experience can be a learning experience for those newer investors who don't understand the importance of having boots on the ground for their first purchase. I think that's a very important part of the investing process.