All Forum Posts by: Michael Temple

The lawsuit was defeated and the injunction was lifted. The city can immediately begin enforcing it again and I would expect they will do so. It is supposed to go to the appeals court again, which is where it lost last time. The Ohio Supreme Court voted to NOT take the case the last time, so the appellate decision stood. I wouldn't expect this time to be any different.

Those people that have houses that won't pass should probably plan on dealing the with the problem if they want to keep the house or selling it if they don't because I really don't expect the court to offer a way out of this. I could be wrong. The attorney seems to think there is no reason it should have lost last time at the appeals court, but yet it did. I don't expect this time to yield a different outcome.

Sorry to be the bearer of bad news.

Every house is different. Some houses that have a lot of peeling paint outside on the house and/or garage plus other issues and will be more expensive than ones that don't have these issues. I would say at a minimum older homes are looking at replacing wood frame windows with vinyl replacement windows, new doors, and making sure there is no peeling paint inside or out.

I have been in contact with someone that is very close to the city on this and he believes the injunction is likely because the city has made an absolute mess of this ordinance on the inside. They have addressed none of the items in the last lawsuit. In addition, there is a new coordinator in the program that is way in over her head, hasn't done anything, hasn't held any certification classes, and is not even in the country right now! As if that wasn't bad enough there are only 50 inspectors, but they need 125 with no new certification classes even scheduled. His exact words were "The city has dropped the ball on this entire program big time!" Let's see what the judge says.

@Christopher Sandys now if we can just get them to fix all the other idiotic policies at the state level that various city councils around the state keep thinking up we will be making some real progress. These petty bureaucrats at the city council level shouldn't be allowed to have this much power over such a critical asset as housing, especially when they understand so little about it and abuse said power at every turn. However, I am not holding my breath the state will be reigning them in anytime soon. 

For those of you that brought up rent control, I have some good news for once. The state of Ohio passed a bill at the State level that keeps any municipality from enacting rent control. https://www.cincinnati.com/sto... So, when city council continues to pass these stupid ordinances that dump tons of costs on to small housing providers they can and most likely will pass them right on through to the residents. Most will simply not have a choice. A business, any business, can't go on losing money month after month for years on end and survive. So, if city council decrees we have to do these things for the "little people" they need to be reminded when the "little people" can no longer afford to live anywhere except tiny little apartments where the law largely doesn't apply that they only have themselves to blame.

I am with those of you that cited the fact that city council members are completely devoid of even a basic understanding of economics and finance. That is too bad because economics is basically a force of nature and doesn't obey the wishes of grandstanding politicians. Economics decrees if you dump huge expenses on the backs of housing providers the residents renting that housing will be one of the long list of victims of their economically devoid policies.

The title of the post suggests there WILL be a crash. I am not sure that is correct. The 2008 crash was caused because banks were giving loans to anyone that could fog a mirror, giving interest-only loans to get people into houses they couldn't possibly afford, and doing other stupid things like rolling credit card debt into the loan so it was "affordable." It was easy to see why that crash happened. This time loans are solid, in fact, they are quite difficult to get by anyone but the most qualified buyers. The places cited that are climbing the fastest are truly expanding in population and NEED more housing. Tampa is just one market I am somewhat familiar with where people are moving in and housing is needed. Finally, don't forget one of the largest demographic generations in U.S. history (Millennials) has finally hit their peak years for buying houses and starting families. All of that creates even more need for housing.

Now, one thing that is present this time and was not present last time is the huge amount of investors with LOTS of money buying up anything with 4 walls and renting it out. We see hedge funds coming in with massive piles of cash to buy and many other smaller investors buying whatever they can get their hands on. This made sense with super low-interest rates and being able to Air BNB everything that didn't make sense as a long-term rental. With rates rising and the Fed trying to pull money out of the economy this variable could change. Properties that made sense at 3% interest rates might not work at 6-8% as long-term investments, at least for traditional finance methods. If you use some creative finance you might still be able to get there. I know several "old school" investors that were used to routinely (some still are) paying 6-8% interest for investment properties as long as the other terms worked out.

If the investors, and here I am referring to the large institutional groups like hedge funds, start to back off and others that can't afford 6% rates at the given prices *maybe* we will see housing start to level off or even come back down, but I am not sure I would classify this as a "crash." Plus anyone that thinks that housing will fall off a cliff and investors can go around cherry-picking houses for pennies on the dollar like 2008-2010 is probably going to be disappointed.

I am with @Andrew Fidler and I don't think this is going away. The optics of the situation and its effect on politicians to now back off of this after all the rhetoric they whipped up is impossible. I believe the courts will eventually side with the city, BUT the question at hand is what does this look like after all that comes down. I have said all along if the city wants a law like this then EVERYBODY goes into the pot. Apartments, homeowners, etc. Not just one small select group of property owners. I have personally had issues with houses I was working on where the property next door had peeling paint but because they were an owner occupant they didn't have to address the issue. My property would have paint blowing into the yard that I had to clean up. If someone in my property were to have lead poisoning and the health department were called in I would be the only one under the microscope. The peeling paint coming off the neighbor's house wouldn't even be a factor in the investigation, discussion, and the lawsuits that would follow even if it was pointed out this could be the source of the problem. Therefore the only way to be fair is EVERYONE must comply or nobody.

I am all for improving housing, but not as an unfunded mandate that is thrown against only one group of property owners while ignoring all the other types of property owners (apartments & owner-occupants) and factors (lead pipes still in city water lines) that could go into the lead problem. Either we have an honest discussion about the problem as a whole and EVERYONE contributes to the solution or we let things stay as they are until EVERYONE is ready to be involved. Housing providers didn't create this problem over night by themselves. This has been a long time coming and it needs to be a community solution with every property involved, an efficient and effective inspection system that is fair, and most importantly A LOT of money to help property owners become compliant without bankrupting them. It is that last piece that will be the most problematic. Government is great at issuing mandates and fines to enforce, but not quite so good at providing funding to help with those mandates.

Andrew brings up another good point about the unintended consequences of this law if it is allowed to stand exactly as it is right now. This law was modeled after Rochester New York, where today the blighted housing stock stands at 35% and rising. Property owners have simply thrown up their hands and walked away and now you have a decreased supply of rentals and an increase in blighted and abandoned properties that are turning into eye sores and problems. That will likely happen in Toledo because as Andrew pointed out, putting in a $30K investment into a $20K house and renting it for $400 per month simply won't work. So, one of two things will happen. The property will become abandoned and eventually have to torn down or an investor will put the $30K in, but now it will rent for double or more and push all the people that can't afford that rent away. Where they will go is anyone's guess. It has happened in other cities and progrssives have a name for it, they call it gentrfying and say the word with venom as if the people investing caused the problem. Nope, laws like this are what will eventually create it assuming it doesn't go the other way and just stay an abandoned, blighted, and crime ridden mess.

I know of several areas in Columbus that gentrifying has occured and some of those previously blighted and run down neighborhoods are now posh upper middle class areas. Where the people that used to live there went I am not sure of, but they couldn't afford to stay there. Unfortunately I am not sure Toledo will go that route. We don't have a dynamic and growing economy as Columbus does, we arent the state capital, and we don't have any modern industries coming in to provide jobs and higher incomes that would push up the need for housing to improve in those poorer areas of Toledo. I could be wrong and I hope I am. I would love to see the entire city improve, but I am just not convinced that is where this will go.

This is a big problem that will involve everyone if we want to find a true solution. Time will tell if we get there. 

@James Boehm The person that was previously doing that job transferred to another department. I heard they got a new person, sort of, but other investors have said the same thing as you, that they haven't been able to reach anyone. In addition, the last count I heard was that there are 32 inspectors responsible for inspecting THOUSANDS of houses. According to some of my friends, there are inspectors listed on the website that are no longer credentialed because their license expired and they never renewed it. I think someone said at this point those people need to start over again and go through the classes all over again to get re-certified. I wonder how many of them will even bother.

Of course, the first area is supposed to be fully inspected and certified by the end of June. I am not sure how many houses are in there, but I am going to guess it is a lot. With 32 inspectors and nobody picking up the phone and answering questions, I am not sure how the city expects people to become compliant in 30 days.

Investment Info:

Single-family residence fix & flip investment.

Purchase price: $54,000
Cash invested: $34,000
Sale price: $140,000

This was a great off-market deal. Nice two-story brick house with a basement. We updated the windows, kitchen, bathroom, flooring, cleaned, and painted the entire house. In addition, we updated the garage and put a new roof on it. The deal worked out great and was easy to sell when finished.

What made you interested in investing in this type of deal?

The house was a well-built house in a decent area for the right price. It needed updating and cleaning for the most part, but the "bones" of the house were good. It was off-market and the owner was easy to work with to create a win/win deal for everyone.

How did you find this deal and how did you negotiate it?

It was brought to us through a referral

How did you finance this deal?

Cash

How did you add value to the deal?

Massive cleaning, painting, and updating of the key items such as kitchen, bath, and flooring.

What was the outcome?

Easily sold once the rehab was completed. Had several above asking price offers from well-qualified buyers.

Lessons learned? Challenges?

The main challenges were trying to source materials with the supply lines messed up from the pandemic and erratic pricing when items were available. In addition, skilled labor was very tight and difficult to locate.

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

We used an agent when selling.

@Andrew Fidler I am on the same page with you when it comes to deferred maintenance. It is a good thing for ALL property owners to keep up with their maintenance, but therein lies the problem. I had a house I was flipping back in the fall and the neighbor had a garage one foot from the property line. My fence was exactly 12" from his garage wall. His entire garage wall was peeling paint, BUT he was a homeowner and therefore not subjected to the lead law requirements. All his paint was falling on MY property.

When an inspector comes out one of the things they are supposed to test is the soil outside. If they tested this soil I am not sure what they would have found. I was flipping the house so I didn't have to do anything with testing, but if I had decided to keep it as a rental this could have been a real problem. I would have been held liable for HIS poor maintenance habits. He has zero incentive, outside of wanting to do it, to address the problem. I can't do anything to fix his property. Even if he wouldn't object to me painting HIS garage, why should I have to do that if he won't do it? I have my own property to maintain without having to deal with his just to pass a poorly implemented law from the city.

If this law were universally applied to EVERYONE equally and I could get an exemption if I proved my neighbor's house had paint peeling that was blowing onto and contaminating my soil and not be responsible for his property as well then fine. If I was responsible for the inside and outside of MY property only and keep it free of peeling paint, no problem at all. This is what property owners that care about their investments should be doing.

I still think if the city were serious about preventing lead poisoning in children they would be replacing all the water lines city-wide as there are still pipes with lead in them. They would also make this law apply to every single rental unit, including apartments, AND homeowners. Unfortunately, 2 of those groups are exempt. It is only applied to property owners of 1-4 units. I get that our housing stock in that range is old and needs updating, but I can't believe there aren't ANY apartments in the city that have lead paint in them. Plus, last time I checked kids that get lead poisoning from a house where the people own the house is just as bad as those that are renting a house, but again the former is exempt while the latter is not.

I just want a fair law that is applied to everyone equally and has commonsense exemptions for neighbors that don't maintain their property. Combine that with the city taking responsibility for replacing lead water lines and we could probably have a workable solution here. It would force bad property owners to fix up obvious problems, but not fall on only one group while pretending you are addressing the issue for everyone. The current law still doesn't do that