Early mistakes and early wins

[Genny Li]

I flipped my own house with a REALLY massive remodel (even changed layout and added a third floor) in 2008 and cleared $50k on that after the crash. I've been on the verge of investing in rentals several times since then. But I live in an area where really the only viable markets are new construction, inherited land, house hacking, Section 8 (especially in Baltimore proper), and getting in in a gentrifying area at exactly the right time, which I'm not so sure I'm good at (see above about the house flip started in 2007 looooool). So I decided against it. (House hacking is possible and done here, but not without a new septic, and "hacking" would involve and ADU, as hubby would never give up the basement, which is 100% understandable.)

I have however both contracted out and done a lot of work myself using various materials on various houses I've lived in, and I've been reading BP since 2014 (didn't make an account for several years until I was on the verge of making a go at Section 8) and other forums for longer.  I've also listened a lot to friends who have owned properties.  But there's nothing like hands-on experience.

I finally bought my first property this summer, in Texas.  It had been owned by a real estate agent who was cashing out of the area to move to another.  Her favored city is better than this one, but this one is still really quite good and where I have family and a place to sleep and someone to watch the kids while I work!  The RE agent also was disappointed that she overspent on the property a bit and her overpriced kitchen remodel didn't pay back like she wanted, I think.  She ended up taking a bit of a bath, and I ended up overpaying a bit but not having a kitchen remodel on my plate means that I don't lose a whole summer of rent and have huge headaches trying to do it long distance, so it all works out in the end.

I settled on student renters for several reasons.  I won't go into all of them here, but the property is designed for students.  This caused some complications, since if you don't have students lined up for the unit on Aug 1, you're probably out for the semester.

Here is everything that's gone wrong or been a substantial disappointment:

1.) Bad loan. I had gotten approved for a loan specifically for a rental property. I COULD NOT get one through a local bank because no one was picking up the phone anywhere! It's some sort of COVID thing. I couldn't go in person because I was hundreds and hundreds of miles away when we made this decision. The lender I went with was massively incompetent to the point of malfeasance. Agreed to a closing date, missed it. Set *two* more closing dates themselves...that they missed! At last, we had a firm closing date...and 17 hours before closing they suddenly announce that it's a non-warrantable loan and they can't cover it. I ended up going in with cash at the last minute and will do a delayed mortgage with a local lender, but it was touch and go! I knew about certain properties being hard to finance, but not about condos with mainly investors being hard to finance. This is a STUDENT RENTAL PROPERTY. It is just under 1250 sqft and yet is 4bdrm/4ba. Literally no sane person would want to live in this as a non-student. It was built as apartments at a campus bus stop but doesn't conform to the HUD's updated standards for Fair Housing Accessibility because all the doors to every bathroom are just 24" wide and cannot be made wider, so when they did their first major remodel, they sold all the units off as condos. I told the lender this on the very first day, but they dragged me through two months of hell just for their jollies, it seems.

Solution: I now (after going to the town and sticking my chubby butt in a number of chairs) have a list of local banks that do these loans all day long. (Being a college town, lots of parents buy units for four years and then sell them again because it costs less than renting.)  I'm going to do a delayed mortgage and get the money out that I can't afford to have tied up in the place.

2.)  Started too late. Everything was in a frantic crunch because I'm renting to students, which means that I needed to have leases signed in July. I had permission from the seller after the 3rd delay to market the property (which I did with all the appropriate caveats), but as a result, I could only rent it for $1500 (plus utilities) even though I was renting by the door, and it should have easily gone for $1600 by the door even without furnishings.  I also furnished the living, dining, and kitchen for free, essentially--my son's moving in (we hope) in 2022, so I'd have to furnish it then anyway, but I'm not getting paid for it this year.  In the future, with a student rental, we should buy well before the spring semester is over--Dec through March. Any later, and I need to have my bank essentially ready to hand over the money at a moment's notice, or else do another cash-and-delayed-loan deal.

3.) Underestimated how dirty something that looks clean on camera can be.  This apartment has been "student clean" for 23 years, which is a very, very different thing than "actually clean." I think the major remodel was in 2004, and the kitchen was completely redone with quartz counters in 2018 (and the carpets replaced then, too), but the ceiling hadn't been *fully* repainted since it was built 23 years ago, and I don't think the bathroom vanity lights or the exhaust vents, etc., had been dusted since then. The PO replaced the plastic toilet lines with braided metal ones, but the toilet angle turn valves were still somehow encrusted with filth. Back in every corner of every room, there was more filth.  Part of this is that someone told the PO that she should use the ultra low resistance HVAC filters as long as they're replaced monthly, which meant that there was dust build up on weird places. Don't do this. Use good filters--not the ones with the highest possible resistance but at least those that catch dander and pollen, and change them out less often. You can get students to take a picture of the changed-out filter and send it to you. lol. If you don't have students, it's a good excuse for a quarterly inspection.

Related to this, I estimated how long it would take to paint based on my previous experience painting and didn't factor in how much cleaning I'd have to do. That was a really big mistake. I also underestimated how long it would take to paint small, packed areas, like the bathrooms and the tiny kitchen. I could do four walk-in closets in a day, easy, with the time while I'm waiting for the coats to dry occupied by all the other tasks around the place, even with having to wash down parts of walls and scrub the baseboards, and painting ceiling and trim both. The four bathrooms took so long to paint that I wasn't doing anything except cleaning and painting bathrooms for a whole day, and then the next day, I still had the HVAC and exhaust vents to clean, spray paint, and replace. That's even though I did the drywall repairs the previous day and only had to do my final sand! The process looked like this: TSP wash and degrease area by switch plates, scrub baseboards, scrub angle turn valve, scrub top of vanity light bar, scrub top of door frame...then cut in ceiling of each room, then remove exhaust vent cover and vacuum around it, then paint ceiling of each room, then paint baseboards, then cut in wall color (which actually means entirely paint some tight areas), then apply first coat of wall color, then apply second coat of wall color, then hit the cut in areas again where there aren't two coats. This took a lot of time.

Stuff like cleaning the paint off every single outlet cover took forever, too.  Even though each one, individually, took only 1-5 minutes, I had 14 outlet/switch plate covers in each of the suites, 7 in the kitchen, and 11 in the main room.  That is SEVENTY-FOUR.  That's literally hours devoted to removing all the plates, scrubbing all the plates, listing the plates that are needed and buying new ones next time I'm at the hardware store, and then replacing all the plates (with outlet gaskets on outer walls).  I estimate that 4 hours of labor total was devoted to outlet/switch plate covers!!!!  Much of that labor was child labor (or rather offspring labor--he is 18 now) and mother labor (she came over for a few hours on two days to clean and do little stuff to keep me company), but it's still a lot of time!

4.)  Was disappointed about what the inspection missed.  I had only seen the unit over cell phone.  The inspector missed that there was a window pane that was entirely unsealed and that none of the smoke detectors had dates written on them and that 4 of the 7 (long story as to why there's 7--the fire code changed) were dead.  Also missed that one diverter didn't work.

5.) Super minor, but...was disappointed that the students had removed every single smoke detector battery. I know why: It started to chirp. They didn't have a spare. They took it out and forgot about it. I left behind extra batteries. I've inventoried them and am offering them to the students at cost, as a convenience.  This is the motherly disappointment in me.  I don't like kids dying in a fire for stupid reasons.

6.) Despite the number of projects I've done, was surprised by the sheer scale of all the little things I needed to do/buy to get the property properly "reset."  Now that it's reset, I will have just standard maintenance and period capex, but it still cost more than I expected.  Stuff like keys.  The PO wasn't very good at tracking the keys.  There is the key for the front door, for each of the suites, and for the mailbox. PO had only ONE mailbox key. Last tenants had actually lost the only copy of the key and had to pay for a replacement of the lock from the postal service, but that's a small nightmare to arrange, so I made copies: one for each student, plus one for me, with the original staying in town with my parents.  Same with the keys to the bedroom doors. She only had ONE copy of each...or rather 3 of the 4, because one wasn't returned.  So that's one new door knob (about $10) plus two copies of each key (one for the student, one for me, and one to stay in town).  Each key was under $3 for the mailbox to just over $5 for the door keys, but it adds up.  Each of the windows had lots of holes (patched over) from previous tenants put up and then removing curtains. I decided to put blackout curtains in each bedroom with a curtain rod that I own so they'd stop putting up various other coverings and messing up the walls around the windows, which were bad when I got there. $10 per rod, $14 for blackout curtains, times four...that's $100 easy with tax.  Two of the shower curtain tension rods were just plain missing and they had all ripped up the paint quite badly, so I decided to replace them with permanently installed shower curtain rods, and then I provided liners (in tan, not white, for longevity) that I affixed to the wall with velcro to lessen the oversplash damage, which came to about $28 per bathroom with tax, including the dollar store shower curtain rings.  Each of these will save me headaches in the future, but once you start adding these up, you've got some real expenditure going on!

Things I did right:

1) I was able to market it well for the time I had and had a list of people who wanted in if my first group didn't send in their security deposits. (I couldn't take money until I closed on the property, and I have language in the contract that I keep your security deposit if you break the lease.)

2) I think I made good choices as far as my purchases went.  I saw the problems that happened because of some of the places the PO chose to skip. Students will only use the vacuum you give them. If you give them a $75 stick vac, it's you who will be left with the absolutely filthy and horrible carpets to deal with, even though they had, in fact, vacuumed regularly.

3) I've already figured out efficiency issues and made some things a lot simpler.  Three of my rooms were booked on virtual tours as it was, and plenty of other students were willing to do them.