Author Topic: My Strategy  (Read 6421 times)

Bigsacks

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My Strategy
« on: March 12, 2016, 02:03:23 PM »
My Strategy.

Hello all, I am a total noob to this site, but am curious to see if anyone handles their rental game the way I do.

I live in a high dollar town that is 25 minutes from a low dollar town (think "fancy Detroit ghetto").  In high dollar town you could buy a $100,000 house that would appreciate some over time and you could probably rent it for $900 a month.  You could by a $200,000 house that would appreciate better and rent it for $1200-$1300 per month.  In low dollar town there is a floor as far as single occupancy rentals in cost, around $450.  Meaning, even the poorest people who need a single family residence will pay $450, but that is for the worst piece of shit you could possibly find.  You can buy, on a rare and good day, a horribly ugly POS house that is solid, functional, safe and in great need of some aesthetics for around $15,000.
I have purchase the following POS houses for the following prices over the past eight years in this order.
1.   $33,000 POS, rents for $500
2.   $20,000 POS, rents for $525 (I had to dump an additional $6,000 into this place to get it ready)
3.   $12,000 POS, rents for $475 (I had to dump an additional $5,000 into this place to get it ready)
4.   $15,000 POS, rents for $700 (I had to dump an additional $11,000 into this place to get it ready)
5.   $40,000 OK house, Rents for $825

People tell me I am a slum lord and look down on my hobby, but these POS houses, ugly as they may be, in crap/dangerous neighborhoods though they may be, all keep out the weather, all are warm and safe and solid.

And the best part is, they all make $ and have long term tenants, some of whom are section 8, even better!

I figure it is much more profitable to spend $26,000 on something that rents for $700 per month than something that cost $100,000 and rents for $800, even if the POS house will never rise in value.

Anyone else focus on POS houses that have a FAR higher rate of return?
Anyone else get accused of being a slum lord?
Anyone else not give a shit and smile every time you cash the checks?

Just curious, most landlords I know seem to focus on really nice houses……

Most of these were found on Craigslist and one even had the oozing remains of a dead guy stained on the living room floor…..floor paint works magic!  I have found the best way to buy these things is to find about 10 houses that feel like they might be a good fit, look at them all.  8 out of 10 need bulldozed.  But when you find one that will work you fist ask them what their bottom dollar is.  They always say a number lower than what they are initially asking.  Then you have to think of a price that is extremely insulting, then chop it in half and offer that.  You might get one in ten people who are desperate enough for the money or tired enough of the headache and they will agree to your price.  Once I bought one for $5,000, but sold it the next day for $7,000.  People say I have no shame…..maybe they are correct.

I have a job that pays around $75,000 a year and want to quit so desperately, but I figure I need five more houses to do it.  I don’t buy a new house until the ones I have are paid off so this snowball is finally getting to the point where it is rolling faster and getting larger….very exciting!

Bigsacks

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Re: My Strategy
« Reply #1 on: March 12, 2016, 02:11:13 PM »
As an example, I bought this place for $20,000 and don't really care that the paint job is multicolored, it keeps the rain out...

I bought this other one for $12,000, other than it not being level it works perfect.

randymarsh

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Re: My Strategy
« Reply #2 on: March 13, 2016, 01:22:16 AM »
I find this type of real estate investing fascinating and would love to learn more. You're right, most RE investment that people blog about is designed for middle income and up. You don't hear a lot about the low end.

My biggest question: Do you manage these yourself or hire a property management company?

How unsafe are the areas currently? You mentioned a dead body and I get the impression they were dead from a gunshot/drug OD/something terrible and not a 90 year old who had a heart attack.

How does Section 8 work? The government pays you directly? How do evictions work in that case?

What is you rental criteria?

Do you have any interior pictures you're willing to share? I'm trying to imagine what a 20K house looks like on the inside.

What typically needs to be done to get one of these "POSes" ready?

Do you think your rentals are any different than others in this space? Do you try to make yours stand out by investing in a dishwasher or maybe cheap but nicer fixtures?

Are these all cash purchases or any financing?

Do you purposefully keep them solid, but still POS? For example you could paint that multicolor house and it'd look wayyyy better. But you'd be drawing attention to it in a part of town you probably don't want to draw attention.

« Last Edit: March 13, 2016, 01:25:53 AM by thefinancialstudent »

Bigsacks

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Re: My Strategy
« Reply #3 on: March 13, 2016, 08:18:23 AM »
First let me say I am NO expert.  I have only been doing this for 8 years and only have 5 houses....if I can get enough to retire then I will consider myself a success.  But I have learned so much since starting all of this.  Had I known what I know now when I began, I would probably have around 8-9 houses, and better ones.  The ones I have acquired lately are way better overall than the ones I got at the beginning, and cheaper too.

My biggest question: Do you manage these yourself or hire a property management company?

I manage them myself.  I have tried two different management companies.  But in this kind of market, the management companies are really not that into wanting your business, and when they take on your houses they don't give two shits about them.  So now I manage them on my own and have found a repair guy to do the small stuff.  He is always available and fairly affordable, and always sober when he goes to the job.  Plus I don't have to pay the management fee anymore, which with 5 houses would be around $250-$300 per month.  I have found that since I am the ones screening the prospective tenants I can pick a good one that is likely long term.  The key to pick a tenant is don't be desperate to fill the house, wait for the right one.  But if you price it right, the wait is usually less than one week.  I just list them all on craigslist and get loads of applicants.  I don't care about credit score...I just require proof of income, that's it.  And tons of people have horrible credit and get spurned by main stream landlords so I have a huge market to work with.

How unsafe are the areas currently? You mentioned a dead body and I get the impression they were dead from a gunshot/drug OD/something terrible and not a 90 year old who had a heart attack.

They are not real safe, but if your tenant is not a criminal or drug dealer you should be fine.  I have had my houses broken into during vacant periods, one time they stole all the copper plumbing.  So I had to teach myself to plumb with pex, pretty good confidence builder really.  But never had any tenant related crime and never had any door kicked in by the cops.

The dead guy ooze was from some old guy who died and was not found for a while.....not a murder.

How does Section 8 work? The government pays you directly? How do evictions work in that case?

Section 8 is awesome!  The gov. pays me by direct deposit into my bank account on the first of every month!  Might as well take advantage of socialism and free handouts to the poor.  Evictions work the same as a regular renter, though I have never had to evict someone.

What is you rental criteria?

Proof of income and gut feeling.

Do you have any interior pictures you're willing to share? I'm trying to imagine what a 20K house looks like on the inside.

I will try to post something......

What typically needs to be done to get one of these "POSes" ready?

Sometimes tons of work.  The most recent one I had to work on in my spare time for a year.....maybe working 2-3 days a month on it on average.  Lots of sweat equity, but I enjoy the work and enjoy solving the issues on my own.  Though sometimes I do hire out the work.  On the dead guy ooze house I tore the kitchen and bathroom down to the studs (the kitchen and bathroom floors were caving in).  I rebuilt the floors but then paid some guy $11,000 to put in a new kitchen and bath (that price counts labor and material).

Do you think your rentals are any different than others in this space? Do you try to make yours stand out by investing in a dishwasher or maybe cheap but nicer fixtures?

I DO NOT give them frills.  I have learned to NOT GIVE PEARLS TO SWINE.  That is a big key. A dish washer is just something that will eventually break and they will call you and bother you about it.  Don't use carpet, pets piss all over it and ruin it.  Try to think of what the bathroom inside a Burger King looks like.  It is indestructible to water and piss.  Try to make the inside of your rental like that.....rock solid, hard wood floors and either tile or linoleum only.  Make the house indestructible.

Are these all cash purchases or any financing?

Both....when I started I had to get loans because my snowball was non existent.  So I started with like $3,000 cash and started to roll it in the snow with the help of a few loads.  I hope to never have to get a loan again, but if the right opportunity came my way I would probably get another loan.  If only I was a banker!  Now that is who makes the real $$

Do you purposefully keep them solid, but still POS? For example you could paint that multicolor house and it'd look wayyyy better. But you'd be drawing attention to it in a part of town you probably don't want to draw attention.

I don't keep them looking like a POS on purpose.  I just do a cost benefit analysis in my mind to see if work should be done.  Trust me, I want them as nice as possible, but I ain't using my resources that are not necessary (time/sweat/$$).  Like that paint for instance.  I had to paint it to keep it weather proof so I got some recycled paint to use for free.  but I ran out and had to get more, which is why the colors don't match.  If I were to make it all one color that would take me a few days work, and yes the tenant would be happier, but I couldn't get more rent out of him.  He will stay no matter what color it is.  If I could retire I would probably take better care of their appearance.
« Last Edit: March 13, 2016, 08:24:25 AM by Bigsacks »

Bigsacks

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Re: My Strategy
« Reply #4 on: March 13, 2016, 08:32:59 AM »
Here are some pics of my most recent purchase/remodel/rent..... (Dead guy ooze house)

The first is the outside.  This house had good windows and a good roof.... And the best part?  Vinyl siding!  Woohoo!

The second shows where the dead body ooze was, now covered with floor paint (way easier and cheaper than resanding and staining).

The third is the new kitchen, the floor is not level though.

The fourth is just the stairway.... I had to use 35 gallons of primer on the inside to cover the smoke residue walls!

randymarsh

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Re: My Strategy
« Reply #5 on: March 13, 2016, 03:38:19 PM »
Thanks for the info. The interior pics aren't nearly as bad as I thought they'd be. Reminds me slightly of some houses I went to for parties in college.

Another Reader

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Re: My Strategy
« Reply #6 on: March 13, 2016, 06:08:33 PM »
I think you might have a case for a depreciation period of less than 27.5 years on some of these....

I'm surprised that the city governments in these towns aren't all over you.  I'm really surprised that the Section 8 inspectors would approve them for occupancy.  They scream peeling lead paint and a lot of other inadequacies.

However, there are a lot of other folks out there doing what you do.  In your shoes, I would spend a few dollars here and there to improve the appearance and the habitability.  The communities will improve, as will your reputation as a landlord.

randymarsh

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Re: My Strategy
« Reply #7 on: March 13, 2016, 07:48:46 PM »
I'm surprised that the city governments in these towns aren't all over you.  I'm really surprised that the Section 8 inspectors would approve them for occupancy.  They scream peeling lead paint and a lot of other inadequacies.

I don't think there's much city government left where these houses are!

But I agree, I thought section 8 was somewhat tough code wise? Then again it's hard for me to tell from the pictures if these houses are truly unsafe or just ugly.

PadAdventure

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Re: My Strategy
« Reply #8 on: March 13, 2016, 09:04:08 PM »
this is hilarious!!!  I can definitely relate to much of this!

I have a POS duplex, paid cash 33k, 2k reno, rents for 1000/mo total.
have another duplex, paid 45k, 5k reno, rents 1350/mo total.
third duplex, overpaid by my standards, 68k, rents 1500/mo.

I’m in the same boat.  accused of the same, but when people see my properties and what I do, they think different.  for the area they are really good.

I intend to post all the pics, stories, and numbers on my blog, padadventure.com

I have tried unsuccessfully to buy a murder duplex. 

Have had a drug raid at my nicer duplex....go figure.

have had two near evictions from inherited tenants...cash for keys works...cheaper than evicting for sure.
« Last Edit: March 13, 2016, 09:09:47 PM by ssamson51 »

humbleMouse

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Re: My Strategy
« Reply #9 on: March 13, 2016, 09:09:55 PM »
This is a pretty funny thread.  I enjoy hearing about your low cost rentals, very interesting.

PadAdventure

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Re: My Strategy
« Reply #10 on: March 13, 2016, 09:26:05 PM »
you have a gift my friend. 

I cannot stop laughing reading this.  Can relate to much of it. 

Great post.

jinga nation

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Re: My Strategy
« Reply #11 on: March 14, 2016, 10:02:03 AM »
Bigsacks... you're my hero.
There's plenty of RE around me just like what you've bought. Very reasonable prices. Guaranteed rents, people need a place to dwell. (My neighbor has Section 8 properties, is always happy and has never had an issue in over 6 years. His brother manages the family RE investments.)
My only issue from jumping on that category of RE is time. I have a Fed Contractor full-time job, wife is a CPA, have two toddlers. Ain't no time even to catch up on technical reading and continuing education and certifications.
The market is hot here, over-valued. Perhaps a correction may occur, so Jinga Nation can buy 5 working professional rentals or 10 working class rentals.
Still I keep on looking, sometimes a gem turns up like in 2015, where seller was desperate for cash and a quick close.
« Last Edit: March 15, 2016, 09:34:12 AM by jinga nation »

dhlogic

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Re: My Strategy
« Reply #12 on: March 14, 2016, 08:54:19 PM »
Bigsacks, thank you. I love this thread.

Quote
Try to think of what the bathroom inside a Burger King looks like.  It is indestructible to water and piss.  Try to make the inside of your rental like that....

I've had this same mindset on what I want to do and you described it perfectly haha.

zephyr911

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Re: My Strategy
« Reply #13 on: March 15, 2016, 06:06:06 AM »
Next week we're closing on a package of three duplexes and two SFH for $235k total. As you can imagine, they're not very nice. But they're mostly occupied with fairly reliable tenants and an experienced management/maintenance team in place, and 3/5 are in an area with rising interest, surrounded by more valuable property. Over time, we actually plan to gentrify. For now, it's just a big fat bag of cash flow to build equity and establish financial strength.

Funds: $204K owner-financed at 3%, ~$17K cash on hand, $9K from a LOC and $5K private loan. Forecasting 25% equity by year end, which will be cashed out one by one for upgrades.

We've never tried Section 8 but have discussed it and are open to the possibility. There's no shame in catering to the low-end market, as long as you treat people with dignity and respect. Affordable housing is a huge need in many places, and the more you try to upgrade, the more you have to charge to make it worthwhile.

Embok

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Re: My Strategy
« Reply #14 on: March 16, 2016, 04:43:32 AM »
We have a four plex in a So Cal beach town.  Bought it at short sale.  It had tons of deferred maintenance. 

We are slowly fixing it up, starting from the inside as tenants turn over.  It's an old but well built building with good hardwood floors buried under crappy dirty carpet. 

Yanking out filthy carpet, pad and staples, then sanding and polyurethaning the floors, painting all walls and woodwork, replacing all electric switch plates with matching metal ones and putting in decent, well designed light fixtures, retiling the kitchen counters and deep cleaning the bathrooms is essentially what we've done to two of the four.  (Can only make those changes when a tenant moves out.)   I would have been happy to live in an apartment like them when I was single.

One of our tenants is Section 8 due to age and poverty.  She will likely stay in her apartment til she dies.  She pays a small amount of her rent, and the government pays the rest every month, on time.

I am pleased to provide a good product -- decent, basic housing -- to our tenants.

Bigsacks

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Re: My Strategy
« Reply #15 on: March 19, 2016, 10:41:41 AM »
I think you might have a case for a depreciation period of less than 27.5 years on some of these....

Im not sure what this means, can anyone explain the significance of this to me?  I am still learning!

I'm surprised that the city governments in these towns aren't all over you.  I'm really surprised that the Section 8 inspectors would approve them for occupancy.  They scream peeling lead paint and a lot of other inadequacies.

The city does get on me occasionally.  Every once in a while I get a letter from the city and I dread opening it, it usually means I have to go mow a lawn or fix something minor.  but once, on the multi colored house I had to scrape, caulk and paint the entire thing and I had one year to get it done.  This was a tall task because it was indeed a lead paint chip factory.  And at the time I was dead broke.  Which is why I scrounged up the paint I did.  And once I got a long term renter who didn't care about the color...well......

But I agree, I thought section 8 was somewhat tough code wise? Then again it's hard for me to tell from the pictures if these houses are truly unsafe or just ugly.

That's exactly what I thought at first!  The un-level house is on section 8.  I was a bit scared when they qualified but I only had to upgrade a few minor things.  As long as the house is solid, safe and has railings in the right places you are in the clear.  And like I said, section 8 is the best!  Cash straight into your account on the 1st of the month.

Very reasonable prices. Guaranteed rents, people need a place to dwell.   

Man you said a mouthful.  People do need a place to dwell, I believe there is plenty of cash to be made based on that need.  If you are willing to get your hands dirty.

My only issue from jumping on that category of RE is time. I have a Fed Contractor full-time job, wife is a CPA, have two toddlers. Ain't no time even to catch up on technical reading and continuing education and certifications. 

Luckily the job that I have and hate, has 3 day weekends and I can basically take vacation whenever I want (I get 24 days a year plus 5 family sick days plus 10 sick days for myself)......yes, obviously I work for the government:)  So I have plenty of time to work on this hobby of mine.

There's no shame in catering to the low-end market, as long as you treat people with dignity and respect. Affordable housing is a huge need in many places, and the more you try to upgrade, the more you have to charge to make it worthwhile.

Absolutely no shame, if you are shameless.  I am always surprised how people are afraid to make a lowball offer, even on something like a couch on craigslist.  And you can absolutely have dignity and respect in these settings.  Once I was in Egypt and I was in a ghetto of tin shantys as far as the eye could see, and a guy came out of one wearing a suit and he had a briefcase and was on his way to work.  he was smiling!

Good to know I am not the only one out there!!  Love the replies, they make me feel good about my strategy.......  I want to hear more!

I have looked as a few multi housing units but I am still too much of a baby landlord to get into that market, I am aiming for slow, stable ascent into the stars.

Ad Astra Per Aspera baby!
« Last Edit: March 19, 2016, 11:04:36 AM by Bigsacks »

Pancake

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Re: My Strategy
« Reply #16 on: March 19, 2016, 10:51:45 AM »
You don't really need to go that ghetto to get good rents. I invest in the 30-45k range and get rents from 900-1100/mo and they are in nice suburban areas. I have a couple section 8 properties, but I am finding those more annoying because any surprise cost and the tenant has zero money. One they ran into the garage door and it cost $500 to fix and they are still paying it off 6 months later. Or they fall behind on the water bill and in the end if they don't pay you are financially responsible and these water bills can get big fast. It is nice to get the steady rent check, but there are downsides too. I'm going to stick with cash renters from here on out.

Bigsacks

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Re: My Strategy
« Reply #17 on: March 19, 2016, 11:06:06 AM »
Pancake- I am looking for that kind of neighborhood/cost area.......I need a tad more cash though to jump into it, all in good time.

Muahahahaha

Bigsacks

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Re: My Strategy
« Reply #18 on: March 20, 2016, 07:25:56 AM »
Oh! I almost forgot to ask......

Does anyone else try this strategy for buying properties that have been on the market for a long time?

1.  First you make a very insulting and disgusting low ball offer that gets refused.

2.  Have a few friends make even far more insulting and more despicable low ball offers that get refused.  These offers have to be off the charts insulting.

3.  Come back in a few weeks and make another disgusting low ball offer that is just slightly more insulting than your first horrific offer. Now it doesn't seem so unrealistic as it did the first time to the sellers.....

Anyone try this one before?

J Boogie

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Re: My Strategy
« Reply #19 on: March 21, 2016, 10:12:57 AM »
Oh! I almost forgot to ask......

Does anyone else try this strategy for buying properties that have been on the market for a long time?

1.  First you make a very insulting and disgusting low ball offer that gets refused.

2.  Have a few friends make even far more insulting and more despicable low ball offers that get refused.  These offers have to be off the charts insulting.

3.  Come back in a few weeks and make another disgusting low ball offer that is just slightly more insulting than your first horrific offer. Now it doesn't seem so unrealistic as it did the first time to the sellers.....

Anyone try this one before?

I think the reason you might have encountered criticism regarding your business practices isn't that you break the law flagrantly, its that you seem to need the law to keep you from pursuing unethical practices.  This one, for instance, may or may not be illegal, but it is in my opinion unethical because it is deceptive and predatory.

I have no problem with landlords having low-income rentals.  People with low incomes have to live somewhere.  But those people might be better off with landlords who have higher ethical standards. 

zephyr911

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Re: My Strategy
« Reply #20 on: March 21, 2016, 01:55:29 PM »
Quote
There's no shame in catering to the low-end market, as long as you treat people with dignity and respect. Affordable housing is a huge need in many places, and the more you try to upgrade, the more you have to charge to make it worthwhile.

Absolutely no shame, if you are shameless.  I am always surprised how people are afraid to make a lowball offer, even on something like a couch on craigslist.  And you can absolutely have dignity and respect in these settings.  Once I was in Egypt and I was in a ghetto of tin shantys as far as the eye could see, and a guy came out of one wearing a suit and he had a briefcase and was on his way to work.  he was smiling!
I don't consider myself shameless. I think if there is a demand for it, and you provide it without looking down your nose at those people, you should feel not just OK but good about it.
Quote
I have looked as a few multi housing units but I am still too much of a baby landlord to get into that market, I am aiming for slow, stable ascent into the stars.
I don't think there's anything more sophisticated about multifamily owners. My first 3 rentals were previous personal residences, so they were SFH, but as soon as I founded a company and started buying for the express purpose of rental cash flow, multifams ended up as the obvious choice from day 1.
Quote
Ad Astra Per Aspera baby!
Per Aspera Ad Inferii.... xD

Blindsquirrel

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Re: My Strategy
« Reply #21 on: March 23, 2016, 07:04:19 PM »
   I refer to myself as a slum page, maybe one day I will be a slum knight but probably not.  You need a couple hundred units at a minimum to be a slum Lord! :)

Bigsacks

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Re: My Strategy
« Reply #22 on: April 03, 2016, 07:26:35 AM »
No one else does low income??

I need some more experiences shared, I want to learn dag nabbit!

alsoknownasDean

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Re: My Strategy
« Reply #23 on: April 09, 2016, 04:25:39 AM »
Interesting how some of those houses don't actually look that bad (the last place I lived in was probably no better than those and it would have been worth $400K+).

That said, with such cheap houses, how do you deal with major maintenance issues that pop up? If the roof needs replacing and it's a $5-10k job, etc.

Bigsacks

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Re: My Strategy
« Reply #24 on: April 10, 2016, 07:03:48 AM »
If I had time I do repairs myself, if it is something I enjoy.  If not, I have a maintenance guy I use or just pay the money to have the roof done....same as anyone else.

Man if these babies were worth 400k apiece I would sell out and live like a king!

PadAdventure

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Re: My Strategy
« Reply #25 on: April 10, 2016, 04:40:41 PM »
Interesting how some of those houses don't actually look that bad (the last place I lived in was probably no better than those and it would have been worth $400K+).

That said, with such cheap houses, how do you deal with major maintenance issues that pop up? If the roof needs replacing and it's a $5-10k job, etc.

I was thinking the same thing...the places don’t look horrible.  I’m not beaming with joy when I pass by most of mine...  but the numbers work....so....