All Forum Posts by: Ben S.

Just some clarification on the legality of the property: I have spoken with tons of folks, including the health department and zoning department to ensure everything is grandfathered in (it was all built in the 50's). Everything is clear with everyone, except for some IPMC code violations from the building department, which I have a copy of and have discussed with the inspector. I have family who are licensed contractors in the area as well, and an excellent REIA group nearby, and so have a lot of good connections and advise on working with the county. So far everyone from the county and police have been happy that I have purchased the property and want to turn it into a nice place again.

Regarding the well and septic (it's not city, fairly rural), and the property in general, everything is grandfathered in. Very little about the setup would be allowed under zoning/building/health departments in the area today. There are no records of the property really aside from for taxes, and the building department has been out there a couple times. That's a big part of the value. Building a new home in this area is absurdly expensive due to taxes/impact fees, and even just the land with one foundation/septic/well is worth a lot more than $40k, and with everything this property has grandfathered in it adds a lot of value compared to anything else in the area. Only downside is with the lack of records I don't know a lot of details about the wells/septics, except that they are working for the 8 homes that are occupied. 

A bit of background: The former own died, leaving the property to his wife. She had no knowledge of the property/tenants, and it soon went to foreclosure when the tenants stopped paying. The foreclosure process lasted nearly two years, and the bank has never seen a lease or much information from the wife. The Sargent also spoke with the tenants about the situation and did not believe anyone has had leases for a long time. 

Distances:

15 minutes to La Plata

25 minutes to Waldorf

10 minutes to Indian Head 

30 minutes to the beltway

40 minutes to the center of DC

40 minutes to Dahlgren

I know a lot of people who live in the area who drive to all the above areas. Especially for the Indian Head and DC work commutes it's very reasonable. While certainly not as high rent as Waldorf, it's very difficult to find anything for rent under $1200 unless it's deep into nanjemoy. Waldorf generally starts at $1400, though there aren't many options for that even.

I just closed on a crazy deal. This is a 5 acre property with 10 single family homes, each about 850 sqft, 30 minutes from DC, and is a complete dump! Piles of trash on the sides of the road, two of the homes have busted in doors and windows and have been vacant for years. None of the homes have been maintained for a very long time. 

I had been following this property for about a year since it was listed on MLS, and then on Loopnet, by the owner as she was in foreclosure. It was first listed for $249k, then started dropping all the way down to $99k. It finally went to a sheriffs auction, where the bank with the mortgage was the only bidder. I started talking directly with the bank (which I found by calling local banks to ask for a loan, and when I hit this bank they told me they held the mortgage on it) to try to work out a deal as I thought they would make me a personal loan or a loan on one of my existing properties, and they were very interested as they didn't want to own the property. I shared a brief overview of my finances, including that I had $40,000 cash, and they came back the next day and said they would sell it for the $40k cash! This was a small bank and were very easy to work with. Although they lost money on the deal, they were happy to have the property off their books, and excited to see someone who wanted to buy and rehab it (though they probably think I'm a bit crazy, which is probably true :)

A bit of background for myself: I grew up working with my dad, who was a contractor, building new homes, additions, and doing major rehabs (flips and house hacks). He did almost all of his own work, and so I learned every aspect of residential construction. After high school I got into IT, and did that for a number of years, finally flipping my first home 4 years ago. It was profitable, and left me with some cash, which I lost most of trying to start a real estate business as a realtor (that sucked). So I went back to an IT job, which was very profitable fortunately. I bought a house hack 3 years ago, and then 1 year ago purchase a rehab property with two homes on 15 acres. I had intended to move in to these homes (one for my mom, one for my family), but decided neither was big enough for my family. I've slowly been rehabbing them, and will have them as my first rentals in a couple weeks. My dad has recently moved away from construction as he has been collecting rental properties (following the BRRR strategy), and currently has about 12. I also recently moved from an IT job to a facilities program management job, which I think will provide even more experience as I manage these rental properties. Over the years i've taken tons of financial risks, some of which have been good, and some which have been terrible. It's all provided tremendous learning experience though, which I hope will result in a great deal of success in my current endeavors.

My steps to making money on this deal are:

1. Finalize liability insurance. Yes, I should have had this 100% in place at closing, but it's been a bit difficult to get insurance on a tenant filled dump. I'm not announcing anything to the tenants until I have insurance in place. What I have found is expensive and does not provide any coverage for the structures. This is more risk than I was hoping (such as if the tenants torch the place before they leave), but it doesn't seem I have any other options. Let me know if you have any better suggestions for this.

2. Give 60 days notice to the current tenants living in 8 of the homes. The Sargent who worked with everyone during the auction was willing to talk to me and provided tons of great advice (he has lived his whole life in the area). Although Maryland only requires 30 days notice, he suggested giving 60 days notice since some of the tenants have lived in the homes for over 15 years now. He said this would likely make for a smooth eviction process with the judge since I am showing move concern for the tenants. That's fine since I am just finishing up my first two rentals and also trying to buy a new house and sell my current house (which is a house hack I can pull profit from).

3. In 60 to 90 days I will begin construction. I plan to start with the exteriors of the homes and property. Once it looks nice from the outside, I can fix up a couple interiors at a time, and immediately rent those when finished while moving on to the next couple, until they are all completed. If I can get enough rehab money I can get a big enough crew to complete everything quickly and all at once. I've spoken with one contractor, but also may be my own GC and do a lot of my own work (though i have a full time job and large family, so this may be a terrible idea). I am also not sure if I will get an equity loan on the homes I have and manage the money myself, or get a rehab loan and have all the work go directly through a GC. Lots of options here. I'm open to suggests and additional lending options.

4. Hopefully about 120-150 days after purchase I can start renting out the first units. Based on area rents they should go for $1200 each (yes, rents are crazy high here). Considering that I will have about $500/month in taxes/insurance, and at least a few hundred grand invested before I get a penny back, this money will be significant. 

5. My goal is to have all the units rented out in 6-8 months. I'll probably rent them myself initially so i can be picky about my first tenants here, though I may change my mind and hire this out. Since I am replacing everything in the rehab, my capex and repairs will be fairly low. I'm also renting them all at about the same time, so hopefully I won't have vacancies for a bit. 

I'm excited about this opportunity for myself, but also as my kids get older so I can teach them this process and get them started on building up their own business as young as possible. Please share any advice and suggestions you have, and i'll keep regular updates until this project is complete.

Who are you to know what is best for everyone? That's the problem with government in general: a few people who believe they know better than everyone else and want to impose their will upon their neighbor. Let people make their own decisions and take responsibility for their own actions. Many of the problems you see in real estate are due to government regulation, not because of a lack of it.

Sounds like a good plan. I ran similar numbers for where i'm from (NW Ohio). It would probably be easier to manage to get 5 quads than 20 SFH (assuming you want to diversify a bit and not go commercial). In the end I feel better about having rentals closer to where I live to be more hands on. Do you have friends/family in the area you can partner up with a bit to keep a closer eye on the properties?

You may want to move into a licensed trade (plumbing, electrical, hvac). Lots of money to be made, though it can take a few years. Otherwise try to manage others. If you are interested in and good at managing projects you can work your way into more of a business role and depending on the industry get a PMP certification (coming from IT and government management you can definitely make over $100k). Where do you live? If you are single I would rent out the rest of the bedrooms on your house for income and to learn to deal with tenants. Then start buying rentals that are dirt cheap and need a lot of work (since you can do the work yourself). If you manage your money well you will do very well.

When you gave them 60 days notice, did you do so officially in writing?

I don't know that much about evicting tenants, but from everything I've read, and my limited experience (once) you do not want to try to make their lives difficult. That seems to be the number one weapon a tenant has to sue a landlord. I wouldn't even raise rents, as that can be considered retaliatory. Just give them official 30 day notice to leave as allowed by your state (send USPS first class where they have to sign to receive it). Wait until day 31, if they are still there immediately follow the next steps to go to court, and if they still don't move out, the sheriff will do it. It'll probably take 2-3 months, but I think that's your only option. If they damage the home you will have to sue them then for that. It will be very annoying, and cost a few hundred in court fees, but it'll end and you can  move on. If the tenants don't bring up the rental license issue, i'm not sure that the court will go to the county and ask, though it's possible. If you have to pay a fine for that then suck it up and pay it, not much you can do there. It isn't the tenants responsibility to make sure you have a rental license, so if you claim the lease if void because of it, I would assume they can sue you. Also pull together every email or picture you have about other issues (late rent, growing pot, etc) in case it's needed in court.