The Bank of Mom and Dad

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After being shut-out on a 4-unit that has been gutted, but needs to be finished, Mr. PFL and I had a brainstorming session about how to get more cash. It is clearly a seller’s market, and we need to be in a stronger position. We really only need a bridge-type loan to get us over the hump from buying a new place to selling our current home. We need about $325,000 in cash to be able to buy a multi-family property in a neighborhood where we want to live.

Currently, we are the back-up contract for an up/down duplex with a 2.5 car garage for $325,000. We offered $319,900 cash ($10,000 over asking price). I was actually able to show proof of funds from accounts that I have direct access to, including my two retirement accounts, the two HELOCs, the LLC’s checking account, my checking account and two joint checking accounts, and an available balance on my credit card. It obviously isn’t wise to use all of these accounts to buy a house, but it is comforting to know I could. Mr. PFL confirmed that he can easily take a $50,000 401(k) loan and he has around $30,000 in a taxable stock account that he can liquidate. It is still a stretch to get us to $325k, though.

That’s why I called my mom. And then talked to my dad. My mom inherited a good chunk of change when my grandfather passed about a year and a half ago (probably around $150,000). I’ve had enough discussions with my parents over the years to understand that they are very wary of the stock market. So, I wasn’t surprised to learn that they have over $100,000 in CDs making a solid 1% interest. The last time I remember asking my dad for money was more than a decade ago for $150 so I could purchase some Christmas presents. Bringing this idea up was not as difficult as I had expected and both of my parents were incredibly open to the idea of loaning us money for the short-term. We are able to offer a higher interest rate than their CDs. I’ve been honest about having almost $200,000 in HELOC credit available. I believe they are aware of the loan we did with Mr. PFL’s parents (which is similar, but a 10-year term on $30,000). I do NOT recommend this strategy for most people, though; there are so many articles out there about not borrowing/lending with family. But, at the same time, it can work.

Part B of this plan is to get our house ready to sell and to list it. I’ve set a tentative list date of April 21st. If we are in-contract within a week (which is entirely possible in our neighborhood, as long as we price right), that means we’d probably need to move out by the end of May. Ideally, it would be to our new place; otherwise, we are prepared to put things in storage and move to short-term housing. Our debt will be substantially reduced and we should have actual cash available. And we will be making a forward step, finally.

And The Search Continues

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Well, we were in contract for all of three days. I sent the termination over just before lunch. As soon as the inspector entered the property yesterday, I received a text message from him that said: “For your safety…I can’t let you in here.” When I called to follow-up, he reported that there was so much mold, a high-quality facemask would be mandatory to even make entry. I believe he used the words “dripping down the wall” to describe the level of mold. This is hurricane flood-level mold:

Even the “new roof and gutters” that were advertised in the listing were improperly installed or never finished - the downspouts point straight down into the ground, directly at the foundation. The foundation has suffered tremendously as a result. The “new roof” was added without first installing new boards to replace the missing/rotted ones, so the inspector was able to see the underside of the shingles while in the attic.

The most unfortunate part of this failed transaction is that this property is in a great location. We were willing and able to make a sizable investment, both monetarily and with sweat equity. But, in all reality, this property should probably be demolished.

Just some brief stats about this deal: The duplex was listed for sale 46 days ago for $140,000. The current owner purchased it for $32,000 in September, 2014. The listing proclaims that the “[s]eller has installed new roof, gutters, downspouts, front and back porch overhangs in November 2015. Property has been cleaned out, trees removed and is ready to have a buyer complete the restoration.” Since September, 2014, there have been renovations and new-builds surrounding this property. The new-build single-family homes within one block of this property have been selling around $300,000 for about the last year. I first called the agent about the property about three weeks ago and he reported that it was in a multiple-offer situation over list price. Then, on Monday, I noticed that there was a price-change to $120,000. I offered $80,000, and the seller countered at $105,000 on Tuesday. We agreed, with the purchase contingent on inspection within 5 days. The inspector was there Thursday afternoon, and I cancelled the contract on Friday morning. The inspector reports that he is going to call the listing agent about his concerns. For the record, the property has not been “cleaned out;” according to the inspector, it also contains junk and feces.

So Close

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Mr. PFL and I apparently had the highest offer on the duplex, but the sellers went with a different offer due to financing. I spent almost the whole second quarter of Super Bowl 50 texting with the seller’s agent about becoming “pre-approved” in order for them to accept our offer. I did my best to explain that, due to our purchase through our LLC, we can’t be “pre-approved” like a traditional residential buyer. The big banks aren’t even interested in talking about a loan and our local bank treats this as a commercial transaction. The local bank wants a signed purchase contract and information about 2-3 years of profit/loss on the investment property before investigating loan terms. The seller’s agent did not even provide me with the current rent on the one unit that is occupied, so I am not surprised they went a different way.

Mr. PFL and I did see the vacant unit on Saturday afternoon. The location was perfect, but the unit needed some updating. It was small (probably 850 square feet). We could definitely envision ourselves at this property and realized just how much downsizing would be necessary.

Overall, this has been an interesting learning experience. It looks like cash will be king if we want to stay in the neighborhood. We’ll need to get creative to make that happen.

Hoping for a Year of Travel and Change

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While I had hoped and expected to be further along in the downsizing process by now, I am confident that it will happen this year. Mr. PFL’s work goal is to make it until the end of February and then retire; this deadline is rapidly approaching. It would be comforting to have a new place lined up before he is done with work. To that end, I do search for a place to live every single day. I also sent out a letter to another property owner of a duplex that we are interested in. The duplex is a block from where we live now and has been in the process of renovation (and thus vacant) for about four (4) years. I actually toured the property when it was first on the market about five (5) years ago, but at that time it was extremely overpriced and needed a complete renovation. It sold to the current investor for about 2/3 of the original asking price. Duplexes in our neighborhood (the few that have sold) are going for about $315,000 (just over $150,000/unit), so they would make money if we paid market rate. I hope to hear from him.

I’m still following up on BD’s sister buildings. It has been more than two months since I first contacted the owner. I’d give up, but I’m intrigued by the potential of adding another $50,000-$100,000 in gross rental income each year. The value of the land should continue to rise as well, which may open up some selling options in the semi-near future.

My number one goal this year is to travel more. We are off to a great start. Since Christmas, we have visited my aunt in Denver, skied in Utah, and are heading to the Florida Keys tomorrow. We have another family trip planned for Florida next month when we’ll be staying south of Tampa. We’ve talked about heading back to Hawaii (I’m hoping for a coffee farm starting in 2017) and we’ve seen some very inexpensive flights to Europe. We have also discussed a road trip through some new states on our way to hopefully watch Ohio State at Oklahoma. To help accomplish all of these dreams, I recently signed up for an IHG Rewards credit card. Intercontinental Hotels Group (IHG) is the parent company to Holiday Inn, Intercontinental, Crowne Plaza, and my personal favorite, Holiday Inn Express. With this rewards credit card, I earn one free night per year automatically, plus I get bonus points each time I use it when we stay. With the sign-up bonus, I already have enough points for at least 3 free hotel nights. I continue to use my Southwest Rapid Rewards credit card for every day purchases; I get multiple free flights every year. Mr. PFL and I also signed up for TSA Precheck after waiting in those lines at New Year’s. It was a very easy process and we were approved in about a week. We will be testing it out for the first time tomorrow.

Now if only we had won the Powerball…

Bureaucracy Strikes Again

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Oh, dear City of mine, why are you so inefficient and arbitrary sometimes? Having fully recovered from the Dumpster-flipping incident, I’m currently on hold with the Department of Public Utilities in an attempt to keep the water on at the Duplex that we are selling on a land contract. At the time the land contract was signed, the Water was transferred over into one of the purchaser’s names. This was June 2014. Yesterday, I received a panicked call from the other purchaser telling me that the City was going to turn the water off unless I paid an $854 bill. Huh? Why? Granted, I had received a bill back in October to that effect, but I called the Department and told them that I wasn’t paying it as the land contract purchasers were responsible. I thought that was the end of the story.

Today’s representative did a little digging and his story is summarized as follows: The City audited their accounts and, since this building is a duplex without separated meters, the account must stay in the record owner’s name. This change happened in Summer 2015 (one year AFTER we transferred the bill over) without any notification to me except a copy of the “Final Bill” to the land contract purchaser, I guess. No letter. No explanation. I owe $854 right now or they will turn the water off. I asked to speak with a supervisor.

To her credit, the supervisor actually went back and listened to the recording from October. She confirmed that I wasn’t told that the bill had reverted to me. After expressing my frustration, she approved payment of half the amount due today to avoid the shut-off and the other half within 30 days. Done and done.

I’m closing on the vacant lot that is right next door to the Duplex on Monday. After the house was torn down, I was contacted by the City with an offer to buy the lot for $1,410 (or $705 with proof of spending $705 to improve/maintain it). I need to confirm that all loose ends from that are tied up and then I’ll be ready to transfer the Duplex to the land contract purchaser. I’m over it.

But, Asking Takes Energy

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While I still believe that it doesn’t hurt to ask, I still haven’t really gotten any closer to a decision on BD’s sister buildings. I did end up talking to the local property manager (I had the wrong phone number initially), but he was still waiting on a signed contract and deposit from the owner. He expected it to come before Thanksgiving, but I still haven’t heard back from him. I’m planning to follow-up today. The abandoned nature of these buildings is starting to make a lot of sense…

Unfortunately for us, the other owner has or will receive notice of a zoning-change meeting. A developer is seeking some changes to start building a multi-use project of up to 95 rental units in the vacant lot directly across the street from our building. The vacant lot spans a full square block. Our building is in the background:

I hope the zoning is changed; this project would be a great investment and improvement to the area. I’m a little concerned about how parking will be affected, but we still have room on our lot for more cars. I doubt this will motivate the other owner to sell to us, though. He’d probably be wise to just wait for an offer from a developer at this point.

I’m also going to contact the owner of a duplex about a block from our current home. I had actually toured it with our real estate agent almost five years ago when it was first on the market. It was being sold as part of an estate. It was extremely overpriced and needed a full rehab. It was purchased at a discounted price almost four years ago and has been vacant ever since. There is sporadic work done, but nothing consistently. The location would be perfect, if we could get it.

Makeover Begins

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The 6-unit, BD, looks a bit different since the makeover started. So far, the exterior has been painted and the new roof has been installed.

Amazingly, the roof was finished for $950 below the quote. As I thought, the roof was only one layer; the quote included the price for two layers, so we are credited the difference. The quote also included the price to replace rotted boards which we estimated based on the leak from earlier this summer. After review, they determined that there weren’t any rotten boards (which is incredible) and we were credited the difference.

The rest of the shutters should be going on today and the new gutters are scheduled for Tuesday. Upon completion, this building will look as good on the outside as it does on the inside.

Time for a Makeover

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Our 6-unit building, BD, is finally ready for an exterior makeover. We’ve owned this building for two years, one month. Last month, we made the last payment to Lowes for the interior improvements. We’ve grossed just over $31,000 in rent so far, year to date, from this building. After keeping up with all of the expenses, there is finally enough cash to get the roof replaced, new gutters, an exterior paint job, and the rest of the shutters installed. I signed a contract with one company to take care of all of these items. This will deplete the cash reserves, but I expect a combined $3,535 in rent for November from all of the units. And, quite frankly, it needs it:

Work is scheduled to start tomorrow, weather permitting.

Shots Fired

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I just called the land-contract purchaser of our duplex to discuss a couple of items. When I asked how she was, she told me that she was grazed by a bullet last week when the house was shot up! Luckily, her son realized what was happening and pulled her out of the way or it could have been much worse.

The local paper did call it the “worst block” in the city. I don’t think I’ve ever been at that property after dark. Mr. PFL does not like for me to go over there at all. This definitely takes it to the next level.

So far, she’s paid $3,712.76 for the year. She should have paid $6,281.90 so far. We really don’t want this property, and she can benefit from it. We’ll probably never be able to sell it, especially now that it has bullet holes. It might be time to just sign it over.