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Fixing Up A Foreclosure
Becoming a Landlord
Published on February 14, 2012 by guest author: Adam Rust

I am hoping that I can get an answer to one of the big problems with the foreclosed property that I am buying today.

HUD was clear that something is wrong with the water. They hire people to inspect each home before they sell it and then they publish the results. HUD says that the pipes will not hold pressure. They are willing to escrow $550 against the problem. That does not help me, though, because investors can’t qualify for that money. Besides, the inspection might be optimistic. There is always the chance that water will spill out inside the walls and I will have to tear down sheetrock and replace not just pipes but wiring and insulation.

I know that there is some risk involved with what I am doing. You have to buy these houses “as is.” Some of them are a wreck. Sometimes people do awful things before they get kicked out of their home. Things like pouring gasoline down the sink drain, or putting a wrench in the disposal, or taking a sledgehammer to a few walls. This home has its appliances still intact. Most people take them before they leave. Often they rip them out of the wall.

When my wife told one of our friends that we were going to buy a home with the intent of renting it out, she said “Oh, so you want to be a slumlord?” I am afraid that her opinion is not that exceptional. Lots of people seem to think that there is something suspect about being a landlord.

“Rich Dad, Poor Dad,” a popular financial education book from a few years ago, decried the constant criticism aimed at
people who look for ways to build things that generate their own cash flows. The author, Robert Kiyosaki, wrote that some people ignore the power of choice that wealth offers, and suggested that people should strive to find a way to be their own boss rather than labor on behalf of another person. I work with people who call this “asset building,” but that tends to be the kind of language used by policy wonks and no one else.

Still, I believe that many people do not want to take the risk of making money. They would rather mountain bike on Saturdays. They are not lazy, but they lack belief in their own abilities. According to Kiyosaki, a smart dad looks around for opportunity.

What makes today particularly tough is that I have put the water on in order to satisfy the lender’s appraiser. The water is blocked from the street by the regulator, but as soon as the water goes on there is a chance that something bad will happen. Oh, one more thing: Last night it dropped down to 19 degrees. I have just cleared out my emails when my inspector calls. “Well,” he says, “we found the water. Do you have a mop?” It turns out that the water is leaking through a pipe attached to the water heater above the den.

When I get over to the house, water is dripping through the heat vents in the ceiling. My broker is pushing blue towels around the floor. There is a five gallon grout bucket catching drips. “It was gushing out!” he says. “Now it’s better, though. Really, you are lucky. This is going to be easy to fix.” I understand what he's saying. I won’t have to pay anyone to cut walls and there won’t be any guesswork about where the leak is located.

My termite inspector has a few other things to say. No, there are not any termites, but he does have some interesting things to say about fixing the wood siding, especially near the slab. He kneels to the ground. I can see where he never removed the tag on the collar of his green jump suit. He gestures at the point where the slab meets the siding. “There is water sitting too close to the house,” he says. I can see what he means. The wood is soft. I can punch through it with
the tip of my screwdriver. There is only about two inches between the ground and the wood. With even a modest rain, that wood is going to be wet for days.

"I've got a good guy, Mexican, that will do that real well," he says. "His name is Jaime. He doesn't spell it like Jamie, you know."

This is how it always is with guys from East Durham. My home inspector has a good carpenter, too. "An older black man," he says. It is a code language that persists even now, in the New South. It means that the work will be done for cash, for a good price, and probably as soon as I make a phone call. I need some tips and so I'm glad for the suggestion. Still, it is possible to be weary about the way it is communicated. Though the inspectors clearly have some respect for their carpenter and their painter, because they are recommending their work to me.

My inspectors have gotten the message about not being afraid to make money. “Right now, I’ve got forty-four houses,” says termite guy. “Angier, Drew, Elizabeth, Gurley.” These are some of the worst neighborhoods in the city. “Lately, I have been buying them for nothing. I mean, nothing. Just bought one from a lady for $1,000. I’m renting it now for $625, Section 8.”

Section 8 is one of the big landlord conversations. I guess that I am glad that Section 8 is working out for him. It did not work out for me and it has not worked out for my friend with four properties. “I bought a two-bedroom, two-bath the other day. Added 200 square feet, now I’ve got it on Section 8 as a six-bedroom. It’s pulling in $1,200 a month.”

I am not surprised. Section 8 only seems to work for guys like him. My friend just had his property fail because he installed a handrail that was 35 ¾ inches from the floor. The rules say 36 inches. Turns out they count from the top of the handrail and not from the base of its anchors. He fixed it, but he had to wait two months for another inspector to come by. In the meantime, they held back his rent. They told him it was too high. Even though his properties have beautiful appliances, new hardwoods, and energy-saving HVACs and insulation, his properties fail. Now his tenant has to move out.

But for Mr. termite guy with the six-bedroom in a drug-infested part of town, Section 8 is paying well.

At the end of the next day, my appraisal comes back. My lender calls me an hour after I get the appraisal in my email. “The loan is going to sail through,” she says. “Your house came in way over the price.”

To Be Continued ...

Adam Rust lives is a father and husband who lives in Durham, N.C. He also blogs at www.Banktalk.org

Previous Posts By This Author: When You Unlock the Front Door of a Foreclosure

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