Author Topic: Baby 'Stache in Expensive City (Rental Eval/ Halp!)  (Read 962 times)

Thisironiclife

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Baby 'Stache in Expensive City (Rental Eval/ Halp!)
« on: August 31, 2018, 12:21:13 PM »
So I'm in a bit of pickle. I live and have a pet related business business in Oakland (ie: everything is crazy expensive). I've had a killer rental deal for the past 9 years so I make this work, but recently the landlord has upped their harassment and is insisting I pay $2500 for a bathroom remodel (rotting wall due to water damage due to incorrect original installation as opposed to my negligence.). I have been fighting it for six months while I get harassing emails, contractors stop by without notice, and mold and ants have gotten out of control. My rent is 25% market value and I believe they want me out. I was told by several lawyers I could sue. I am trying to run numbers with a lot of variables and struggling to not let the stress of Bay Area housing get the best of me.

Option 1: I stay in my rental. $850/ month for a three bedroom where I can use the space to run a portion of my dog training business (one service I offer is boarding and training aggressive dogs). I may lose unit unexpectedly if I don't move since the landlords have really recently stepped up the harassment. Meanwhile I cannot find a rental in this area that will allow dogs and my business is growing so I am more and more dependent on the part of the income that comes from having dogs around.

Option 2: I buy a fixer. My family flipped properties my whole life so I am moderately experienced in finishing work but this would be my first personal project. I have been looking for about 4 years and most things don't make sense in this area given the numbers, so previously I was going to invest out of state.

Fixer Property I am considering is roughly 300k and will require about 6 months to a year of work before I can start renting it out. I plan to split it into 2 units and can rent out the larger one (2/1) for about $2200. I will then live in the lower level and can continue to board and train dogs, and over time I anticipate this income will grow. Here's some numbers, please excuse my newb-ness I am trying to pull from how I've seen this done on other pages:

     Purchase Price: 300k w/ 40 down
     Market Value (if finished today): 450k (estimated at 13.4 appreciation/ year currently) Purchase price:
     Gross Rents: 26,400
     Principal: estimating $1600, likely will be PMI
     Rehab Costs: 75K, estimating high but hoping to do most of it myself.

Option 3: I leave rental and find alternate rental. I lose 2-3k monthly income as I can no longer operate that portion of my business (In this area it's almost impossible to find a rental for one small dog, let alone a rotating cast of large aggressive dogs). To stay in this area for even a small studio will be roughly $1500-2000/ mo.

What also throws a cog in this is if I leave the rental I will plan to sue. Lawyers have estimated going for 1M, but I am thinking conservatively lets call that a settlement of $0- 200K. It would be 16 month or so before I saw anything but I do have the case prepared should I choose to pursue it, so not much additional time investment there. According to the lawyer I spoke with, I can only pursue the case if I leave the property in the next four months, otherwise I cannot claim significant hardship. (If it was so bad why'd you stay?)

Thanks for anyone's feedback or even just blatantly pointing out any lack of logic! I've been saving for 5 years and I was moving slowly and carefully. This situation requires me to make some very fast decisions which is against my nature and I'm concerned the stress of it all could create some serious loss of logic.
« Last Edit: August 31, 2018, 07:20:44 PM by Thisironiclife »

JoJoP

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Re: Baby 'Stache in Expensive City (Rental Eval/ Halp!)
« Reply #1 on: August 31, 2018, 12:44:22 PM »
So, your landlords have been taking 25% of the market value for your rent for 7 years, letting you board and train aggressive dogs on their property as a home business,  and you want to sue them?    Your poor landlords!  Let no good deed go unpunished.  I agree that asking you for $2500 to fix the bathroom is not the proper (or possibly legal) approach, but you would have a new bathroom, and presumably still have rent that is 75% under market, allowing you to build your 'stache every month. Are you under rent control that keeps them from simply raising the rent to something closer to market value?  And that's why the rent has been so low for so long?  In theory, the landlord charges enough for rent to cover the expenses of the house that is rented, such as bathroom repairs.  Yes, they must provide a habitable dwelling, regardless of the money you pay. But, in practice, you've lived there for 7 years at a bargain rate.  Presumably you haven't moved because no better places for 75% under market value are available to move to.  Do you want the bad karma of suing them as a thank you? 

I'm sure that's not the reaction you're hoping for, but perhaps you can take a less aggressive approach.   Do you have the down payment for the fixer upper?  (or is that coming from the settlement you're hoping for?)  Regardless of the source of funds, owning your own place seems like a good plan. Sweat equity is great if you have those skills.  You can build a future with a home of your own and a rental unit upstairs.   
There are lots of threads on MMM about landlording, as many people find this to be a decent path to wealth building.   Others find the hassle of being a landlord not worth the trouble.  After all, you might get sued...

waltworks

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Re: Baby 'Stache in Expensive City (Rental Eval/ Halp!)
« Reply #2 on: August 31, 2018, 01:44:06 PM »
Were you the one that told the LL about the water damage/mold/ants/etc, or did they find it themselves?

Nothing about this story makes sense to me. Why is your rent 25% of market rate? Why do the LLs allow lots of aggressive dogs? What on earth sort of lease do you have here?

It also makes no sense for the LL to charge you for the bathroom fixes/remodel, unless they think it's your fault. Which, if you let the situation deteriorate for 7 years without informing them... it is. Every lease I've ever signed with a tenant specifies that it's the tenants responsibility to report major problems ASAP.

More background would be helpful here, but from the LLs perspective you are basically a nightmare tenant and if I were them I'd be looking for any possible way to get you out of there. But then again, nothing about this makes sense (*why* would you be suing them, again? You have to show that you've been harmed somehow...)

-W

Thisironiclife

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Re: Baby 'Stache in Expensive City (Rental Eval/ Halp!)
« Reply #3 on: August 31, 2018, 07:18:38 PM »
Thanks guys! I may have been too brief and not given enough info here. There is the possibility I am being a ungrateful and crappy tenant and I need to humbly tuck my tail. However, let me give a little more history. I really appreciate you calling me out or giving any thoughts.

I found this unit 9 years ago when I was looking at another rental through a Property Management company. The owner is absentee and sadly I think if she knew about how her property was handled she would want to do things differently but I have no way of contacting her. The PM company was not listing the rental in any way and it had been sitting empty for a year and a half in what was at the time a run down and undesirable neighborhood. The unit was a mess, with mold, peeling floors and paint, and the yard was over grown. I had to really do a lot of legwork and fighting a denial of my application that made no sense (perfect credit, good job history/ income) to get in. For whatever reason they were not keen to rent it (possibly because it is an illegal basement unit). I painted, replaced appliances, helped with cost of flooring, re-landscaped the overgrown yard with flagstone, repaired the fence, and have always reported issues I couldn't fix right away. As a general rule I never ask for more than one repair a year, and I do everything else myself and only ask for electrical or plumbing type work. I've lived here for almost 10 years, and always paid rent on time and the property is in much better shape then when I moved in. Several times the property management company has forgotten to charge my account for rent and I have called to remind them. I paid double the security deposit as well as the largest pet deposit (I had my own dog when I move in).

During the time I've been here the rent in the Bay Area has skyrocketed- we are currently one of the most expensive rental markets in the US. Because my unit is rent controlled they have raised the rent every year but I am now far behind what this unit would rent for in it's current condition. I have a month to month lease but from what I understand from the Oakland tenant law cannot be evicted unless the owner plans to move in family, or sell.

I started my business 4 years ago (we do dog walking, pet sitting, and training) and only recently (in the last year) began offering Board and Trains (where the dogs come stay with me for a few weeks). Not all these dogs are aggressive but was trying to state this in simplest terms- they are here for various behavioral issues. I crate these dogs unless they are actively handled by me and I muzzle any dog with history of aggression. I build a second gate to double gate my yard, and reinforced the current fence and *Knock on wood* Ive never had an issue. While the other tenants in this triplex are all aware and okay with this activity my PM is not (*hangs head in admitted tenant shame). I did not expect the B&T service to grow at the speed with which it has in the past few months and I am trying to decide if I should just let the Board and Trains part of the business go or possibly I need to move to make it work.

Yes I was the one who reported the water damage back when it started 6 months ago. The PM does an assessment every year but they missed it. Since that time the PM has sent out a plumber to fix the small part of the job (an adjacent leaking pipe under a sink). They charged my checking account as they have the routine/ account number on file for auto withdrawing my rent. It took them 4 months to get a contractor to look at the bathroom (I emailed weekly to remind them). After the contractor gave an estimate for the water damage ($5200) the PM sent me the bill and said I was responsible for the entirety. Their claim was that I didn't have a shower curtain. When I pointed out I do, and that their contractor had photographed it while he was here they said it was the wrong type (I have a sustainable launder-able curtain and they wanted me to have a plastic curtain- this is not stated in the lease) I had my own contractor out to look at the damage and he pointed out the shower/ tub was never installed correctly to begin with, and slowly allowed moisture to seep into the wall. Additionally the PM had the caulking of the shower redone several time since I've been here and each time I expressed concern the cracking had allowed water into the wall they simply sealed it back up again. My contractor also pointed out if water had been cascading and caused the damage it would have puddled and caused buckling of the floor, but the lino is spotless. I presented them with this information and then several of their contractors returned without notice causing me to be late for work a few times. These guys came in and took a bunch of photos but didn't say why they were here.

The PM reminded me the lease gave the option of mediation so I arranged this through a local non profit tenant group so we could discuss. A few days before they backed out stating the $75 mediation cost was too high and they would take me to court if I didn't pay.

The PM wasn't returning my emails for up to a month at a time at this point so I contacted a few lawyers to see what my rights were. I heard consistently this company is known for being sort of shady characters and they have been sued quite a number of times.

The PM asked if I would pay $2500. I countered with $1500 on the condition I could have a 2 years lease and they would not charge me rent for the days I was without a bathroom (which is CA law). They came back with the same original $2500 offer and said they would split the rent with me on the days the unit was uninhabitable. During the course of all this progressing (6 months) the mold in the unit has gotten way out of control again causing me to have a variety of health issues. The PM is now sending me the same email everyday repeatedly. They insist I pay $2500 and that they will take me to court if I refuse.

I am not counting on the court case winning, and if it did I know that would take 16 months minimum. The lawyers I have spoken to are salivating and seem to think it's a sure deal. I am hesitant to move since I have put a lot into this rental but wonder if as repairs come up now every one will be escalating bullying and I will keep sinking money into a property I don't own. I also realize running my business out of this rental is not sustainable despite having paid a $900 pet deposit/ keeping the place spotless and dogs quiet.

I have 50K saved for a downpayment on a property. Properties in this area rarely sell for under 400K (even 1/1 fixers) and I am trying to build my 'stache and don't really care about living in a home unless the number make sense. I could move out of the city but then I would not be able to offer the Bard and Trains as my clientele and staff are in this area. The property I have found is 300K and a 100 years old. Its a total fixer and I would live in pretty shotty conditions (much worse than my rental) for at least a year in order to do the work if that makes sense monetarily. I would finish the bigger unit, rent it, and live in the smaller unit until that was done as well. At that point I could maybe stay or see what my business looked like then. Property has a large fenced lot and would work well for dogs.

Whew thanks if you've taken the time to read this, feedback or verbal spankings encouraged. Possibly I should just appreciate my cheap rent and deal with a little shady behavior? Or maybe this is a time to fight back against the type of activity that has caused rents to rise so rapidly in the first place?

« Last Edit: August 31, 2018, 07:26:50 PM by Thisironiclife »

waltworks

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Re: Baby 'Stache in Expensive City (Rental Eval/ Halp!)
« Reply #4 on: August 31, 2018, 07:50:15 PM »
To clarify - the lawsuit would be on the grounds that the PM company harmed you in what way? Harassment? Contractors coming by unannounced isn't harassment. Nor is demanding money for a disputed issue involving damage to the property.

I still don't really understand the whole situation (The place is illegal, presumably it's also illegal to keep people's dogs as a business in your illegal apartment?) , but my instinct is that for a variety of reasons you would probably lose in court (or get only token damages) so forget that. You need to decide if keeping your sweet deal is worth paying for some damage you didn't cause, or whether you want out of the place ASAP. From there you can come up with a plan.

I guess I would vote for "cough up some money and keep piling up savings in your hilariously cheap place". $2500 is, according to you, less than 1 month of market-rate rent, right? So you can think of it as losing 1 month of 'stache. If further problems present themselves, you can revisit this. But if you have $50k to your name, you're in no shape to go buying a $300k fixer-upper. Keep building 'stache/FU money and play for time.

-W




lhamo

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Re: Baby 'Stache in Expensive City (Rental Eval/ Halp!)
« Reply #5 on: August 31, 2018, 08:34:19 PM »
I am guessing that any SFH in the bay area (even the roughest parts of Oakland) that is available for $300k is not easily re-habable -- if it was, it would have been snapped up by investors by now. Here in a rough-ish zip code of north Seattle, something like that at that price would most likely be a tear-down.  And it would be snapped up at that price. 

I think you will probably attempt this, given your desperation to find someplace for your dog business (hope you are insured to the gills...), but it sounds like a very risky proposition to me.

Thisironiclife

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Re: Baby 'Stache in Expensive City (Rental Eval/ Halp!)
« Reply #6 on: August 31, 2018, 09:05:36 PM »
Yup I have loads of insurance for my business. ;) It is a risky type of work but I do get to see many happy clients and dogs they almost gave up on go on to live happy full lives. Additionally the dog walking and pet sitting isn't quite so risky a business, and most of our dogs stick with us for a lifetime of services after behavioral rehabilitation so we get to handle many many very well trained animals.

So true in this market, anything for 300 is a mess! This is the property:

https://www.zillow.com/homedetails/5242-Wentworth-Ave-Oakland-CA-94601/24781593_zpid/

They are only accepting offers until Sept 5 (offered for less than 2 weeks), its a sudden death with no will. I know they have other offers pushing 300, all from investors. I have been under the place and the foundation looks good. The roof may last 5 more years and the electrical and plumbing works currently. Everything else will need to be redone.

lhamo

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Re: Baby 'Stache in Expensive City (Rental Eval/ Halp!)
« Reply #7 on: August 31, 2018, 09:19:19 PM »
Are you sure the roof is ok?  Looks like a fair amount of water damage in various places.

So, if you could get it for 300k (which I doubt if there are multiple investors looking at it), putting 50k down, Zillow estimates your monthly carry would be $1600.  How are you going to pay for the renovations? 

Thisironiclife

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Re: Baby 'Stache in Expensive City (Rental Eval/ Halp!)
« Reply #8 on: August 31, 2018, 09:27:38 PM »
All good points!

I donít think I can be 100% sure on anything I do have an inspector coming tomorrow to take a look at everything and give me a more professional opinion.

My income fluctuates but living frugally like I have been to save most months I have a surplus of roughly 5k. I plan to do as much as possible with friends that have also rehabbed properties, and save for contractors for more major work and do things one job at a time. Estimating a year for me to get one unit done to rent.

Thanks for all the feedback so far, extremely helpful as I know I have a lot to learn!

waltworks

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Re: Baby 'Stache in Expensive City (Rental Eval/ Halp!)
« Reply #9 on: August 31, 2018, 09:29:37 PM »
Point 1: That's a scrape. You can't afford what it'll cost to fix it. Period.

Point 2: If you're saving $5k/mo, why do you only have $50k?

-W

Thisironiclife

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Re: Baby 'Stache in Expensive City (Rental Eval/ Halp!)
« Reply #10 on: September 01, 2018, 01:18:24 AM »
My income fluctuates as my business has been growing (between 25-35% per year) so the current level of monthly surplus I have has not always been the case.

I am not putting every dime I have down, the 50K down is my downpayment. I agree lhamo, itís a long shot I can make a competetive enough offer. I will see what I can get approved given the condition and go from there. And will defiitley ask the inspector to take a very solid look at the roof!


cloudsail

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Re: Baby 'Stache in Expensive City (Rental Eval/ Halp!)
« Reply #11 on: September 01, 2018, 01:38:33 AM »
Can I ask why you have to live in SF Bay Area? It's not like you work for a company based there, or even leased office space, etc. If you run your own small business, surely you can find a lower cost of living city that still yields enough dog owners for your client base?

Although with the gentrification everywhere investing in property in Oakland might be a great move, I dunno. East Palo Alto prices have certainly shot way up.

electriceagle

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Re: Baby 'Stache in Expensive City (Rental Eval/ Halp!)
« Reply #12 on: September 03, 2018, 11:13:27 PM »
So, your landlords have been taking 25% of the market value for your rent for 7 years, letting you board and train aggressive dogs on their property as a home business,  and you want to sue them?    Your poor landlords!  Let no good deed go unpunished.

This is why there is no rental housing in the bay area. Who wants to accept ever-decreasing (in real terms) rent for years, have someone open up a dog-boarding business on their property (likely invalidating their insurance) and get sued for it all in the end?

Thisironiclife

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Re: Baby 'Stache in Expensive City (Rental Eval/ Halp!)
« Reply #13 on: September 05, 2018, 10:05:16 PM »
This is why there is no rental housing in the bay area. Who wants to accept ever-decreasing (in real terms) rent for years, have someone open up a dog-boarding business on their property (likely invalidating their insurance) and get sued for it all in the end?

Good point. I think I have failed to appreciate the amazingness of my rental situation. While there is mold/ it is an illegal basement unit/ the electricity blows all the time/ I do 75% of the repair work myself... it is STILL a smokin' good deal in the Bay. In my defense, I am not running an entire business on the property, I might have one dog here every other month for a few weeks. However- point taken and I appreciate the reminder.

Can I ask why you have to live in SF Bay Area? It's not like you work for a company based there, or even leased office space, etc. If you run your own small business, surely you can find a lower cost of living city that still yields enough dog owners for your client base?
Another good question... One I need to continually evaluate. I often wonder how much earlier I could reach FI if I was not living in such an expensive area. Of course I would have to start over with this business or another one. I don't have a degree and was previously a bartender for a number of years before this business started doing well so the idea of starting over gets me a little sweaty at times. Right now my cost of living is pretty low given my crazy cheap rental situation, but of course it would be lower in another area.

Are you sure the roof is ok?  Looks like a fair amount of water damage in various places. So, if you could get it for 300k (which I doubt if there are multiple investors looking at it), putting 50k down, Zillow estimates your monthly carry would be $1600.  How are you going to pay for the renovations? 
I went and checked it out with an inspector and you were spot on, the water damage was pretty extensive. I am passing on this property but I consider it a good learning experience and a great intro into how helpful it is to get a litle feedback before rushing head first into things.

lhamo

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Re: Baby 'Stache in Expensive City (Rental Eval/ Halp!)
« Reply #14 on: September 05, 2018, 10:16:04 PM »
Glad you didn't get in over your head.

This one also needs some work, but seems to have good bones:

https://www.redfin.com/CA/Oakland/8007-Iris-St-94605/home/1477560

If zoning allows, maybe the garage could be converted to a studio?  Not as much yard, but changing the fencing to include the front yard and driveway would give dogs some space to run around.

Thisironiclife

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Re: Baby 'Stache in Expensive City (Rental Eval/ Halp!)
« Reply #15 on: September 05, 2018, 11:27:06 PM »
https://www.redfin.com/CA/Oakland/8007-Iris-St-94605/home/1477560

If zoning allows, maybe the garage could be converted to a studio?  Not as much yard, but changing the fencing to include the front yard and driveway would give dogs some space to run around.

This looks great I asked to schedule a look-see. It is cash offers only- any thoughts on private loans? Iíve been wondering if this is anti-Mustachian since the interest rates would be so high until you could refi.

Thisironiclife

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Re: Baby 'Stache in Expensive City (Rental Eval/ Halp!)
« Reply #16 on: October 09, 2018, 10:16:38 AM »
Glad you didn't get in over your head.

This one also needs some work, but seems to have good bones:

https://www.redfin.com/CA/Oakland/8007-Iris-St-94605/home/1477560

If zoning allows, maybe the garage could be converted to a studio?  Not as much yard, but changing the fencing to include the front yard and driveway would give dogs some space to run around.

Thanks SO much! I ended up getting this property with a conventional loan over asking against a handful of all cash offers. Very grateful for the help! I'm pretty excited about how valuable this community is!

lhamo

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Re: Baby 'Stache in Expensive City (Rental Eval/ Halp!)
« Reply #17 on: October 09, 2018, 11:54:45 AM »
Thanks SO much! I ended up getting this property with a conventional loan over asking against a handful of all cash offers. Very grateful for the help! I'm pretty excited about how valuable this community is!

That's great!  I've been having Redfin listings for Oakland pop up in the emails they send to me and was going to check in and see how things were going.  So glad things worked out for you.  Good luck with the renovations and and the business development!