1st Bad Deal Gone Good

[Soniel Estime]

Hello Everyone,

I had a few people request an update on my progress with my first RE investment. For those who don’t know, of my past struggles, I’ll provide a not so quick recap.

On October 2018 I closed on my first rental property. I was so excited, I studied real estate for one year before pulling the trigger. Little did I know that no amount of reading, or podcast listening could prepare me for the real-life struggles of real estate investing. Don’t get me wrong, studying helped me mitigate some risk and learn some strategies that saved my butt. I am just saying there is no comparison to real life experiences. How does the saying go, “everyone has a plan until they get punched in the mouth.” I found myself getting hit with several jabs and an uppercut.

I acquired the property for 55k, I used an FHA 203k loan which had a rehab budget of 120K. My interest rate was 5.7%, (yeah I know, pretty high compared to now). This was a duplex in a C- area. My plan was to complete the rehab in 6 months, move into the property and rent out the top unit, having it pay for most of my mortgage. Then I would refi, drop the mortgage payment interest & PMI. I would live there for about 2 to 3 years then move out and rent my unit out. I guess you can say that I accomplished these goals, but I took one hell of a beating along the way.

I have a family member who was a real estate agent. I originally was going to invest in Michigan, but she convinced me to invest in Chicago because of her promises to help me every step of the way. She even had a contractor in line that could get the project done for super cheap. As we all know the cheapest contractor is rarely ever the best contractor. I’ll also add that I lived 2 hours away at this time and requested a transfer from my job because I was expecting the project to be completed within 6-8 months. I mean this was a full gut rehab of a building that had been vacant since 2008.

We ran into issues right out of the gate. After we closed and the check was cut to my agent (family member), the communication stopped. So much for the help through the entire process. The contactor and architect were butting heads and it took 4 months to get the plans submitted to the city. It took another 4 months for them to get approved. I wanted to drop the contactor because I noticed so many red flags, but I was afraid because I lost my lifeline. Not to mention that my HUD consultant had already released 2 draws worth over 20k to the guy. The consultant situation is a whole other story that I will have to get into later.

After plans got approved there was still no progress, so I decided to put my foot down. Unfortunately, I stepped on a rusty nail, barefoot. I let my contactor know I need to see progress, or I would have to look for someone else. After that conversation the contractor cut off all communication. He did not respond to my calls, text or emails. I tried calling him on my wife’s phone and he answered. It was at this point where I realized I was in trouble.

Here I am with a $175,000 mortgage while still having to pay rent at the apartment that I was staying at which was 2 hours away with no contractor and no plan. To make matters worse, I discovered that the contractor ripped off his sub who did the work and disappeared on him too. He ripped up the basement floor because he was stated he was going to put drain tile but never did. He also left a crap tone of debris in the back yard which caused the city to fine me $7000. The last thing you want to get is a City of Chicago fine, you would be better off with a bullet in your butt cheek instead of a Chicago property fine.

The next few months were perhaps the hardest month of my life, and I played D1 football. This situation had me sick to my stomach, I couldn’t sleep, I couldn’t eat, and I would wake up in the middle of the night in a panic. After a few days I realized that that I had to take drastic action to prevent my family from facing financial ruin.

My first step was to find a new contractor which meant driving 4 hours every weekend to the property to meet with different contractors. I had to stop double paying for housing, so I found a job in Chicago and moved in with my in-laws. Living with five family members in a two-bedroom house wasn’t the most fun experience of my life, but I made a sacrifice to achieve my goal. Finally, I had to find a way to come up with additional funds to get the project completed, meaning I had to take out a 25k loan.

After months of failed inspections and additional cost we got the project done. I won my hearing with the city, so I didn’t have to pay the $7000 fine. We moved into the 1st floor unit and rented out the top unit. As you can imagine, that first rent check felt so good, I wanted to frame it and put it on my wall. I refinanced and found out we that the had a decent amount of equity in the property. After all our hard work, and 1.5 years of struggling, we are now officially living rent free! This goes to show that you should never give up, when the deal gets tough, if it still makes sense, fight hard and make sacrifices and it will all pay off. Now its on to the next one.

Link to the before and after photos here