Wrecked On Rutherford Rental Performance

Our house on Rutherford St. was the third Detroit rental property we purchased. This one was a bit of a deviation from our first two. 

Up until this point, we had focused on purchasing tenant-occupied homes including the First Buy Bungalow and The Great Greydale.

The Rutherford house, however, was vacant. That said, it was seemingly rent ready, and it would be quick and easy to place a tenant.

Oh how naive I was!

What resulted was a very difficult time that had my wife in tears demanding that we, “sell everything”. This is why I affectionately dubbed the home “Wrecked On Rutherford”. 

But before I get into the entire story, let’s look at how this home has performed for us since we purchased it in July of 2019:

We paid $52,500 for the house and then ended up having to put about $17,500 into renovating it. So much for rent ready!

After finally doing our cash out refinance, we had $28,761 still left in the deal.

Ouch!

But today that number has shrunk considerably. Over the course of the next 53 months we’ve managed to net a tad more than $32,000 leaving us now with negative $3,243 in the deal.

That means we’ve managed to get all of our capital out and then some. 

And it’s appreciated, too! Today the home is worth about $100,000 – $110,000 today.

That’s pretty good for what was a bad deal! But it wasn’t at all smooth sailing. 

Ignoring Red Flags

When I first saw Wrecked On Rutherford, it looked to be in fantastic shape. And my agent was pretty into it. We knew the sellers already had multiple offers and they were making a decision the next day.

This is where I made my first mistake.

Kaitlin and I had an aggressive real estate investing goal (link). We were aiming to create $15,000 in passive income so we could move back to California.

As a result, I was antsy.

I knew I needed to keep buying houses as quickly as possible if we were going to make it happen in our 3 – 5 year timeframe.

When I walked the house for the first time I remember feeling underwhelmed.

It didn’t look nearly as good as the photos. But I guess they never do. Beyond that, though, there were a lot of small things that bugged me.

It’s hard to recall them all now but I distinctly remember a lot of things that seemed like the workmanship wasn’t great.

But I went with it anyway. We made our cash offer on the spot, had it accepted the next day, and closed shortly after.

Contractor Struggles & Getting Conned

Wrecked On Rutherford clearly needed a little touching up. It wasn’t anything serious, but the more we got into it the more we found. 

The work really wasn’t the problem. It was the handyman we hired to do it.

Remember, this was our first unoccupied house. We had never done any actual rehab work previously. Which means we had zero experience sourcing contractors.

Well, it turned out the guy we hired was a complete dud. In fact, I’d go as far as to call him a conman. 

He was extremely confident, sounded knowledgeable, was super nice, and made a lot of promises. In the end, he delivered on none of them.

Unfortunately, it took us a while to really figure this out. And I gave him far too many chances.

And I REALLY wish I’d figured it out before we took another big blow.

Our First Theft

I still hadn’t figured out our handyman was essentially a conman. 

Then, one morning as I was getting ready to leave for a long weekend, he called.

“Travis!! Someone broke in. They broke in, man, it’s bad!”

Ugh! This hit hard.

I had never dealt with a breakin and theft before and I didn’t know what to do. We were leaving for vacation and I had zero options. 

Ian asked if I wanted him to board the house. I said yes, and I tried my best to put it out of my mind while we were away.

But I had no clue what a new furnace and water heater would cost us. We were already into the house for far more than we’d planned on.

I figured this was going to set us back at least another $6,000 – $8,000 (it ended up being much less). We’d probably be ok but it was far from ideal.

And Kaitlin was hysterical. This was the last straw on this property and she was in tears. I remember her crying and saying to “sell everything… WE’RE DONE!”.

Luckily, cooler heads prevailed. 

We fired Ian. 

I had major suspicions that it was an inside job. But ultimately, to this day, I still have no clue. 

And we decided to push on with an open house and start figuring out how to get the rest of the items done while we screened tenants.

Open House And Rehab Attempt #2

The home was in decent enough shape where we could hold an open house. We were also closing in on winter and I wanted it rented before the holidays. 

So I figured we’d just get the ball rolling. And I explained the handful of fixes we’d be making to prospective tenants before they moved in.

We had a lot of options for solid tenants. But we ended up offering it to a Section 8 applicant whose parents were with her at the open house. Her dad was a contractor and was picking up on things that needed fixing.

I figured this could be our saving grace. Who else would be more motivated to get the job done and do it right than the tenant’s dad?!

So we moved forward, and it actually worked out pretty well. We decided to replace the kitchen cabinets and countertop, replace 13 windows, and a bunch of other odds and ends.

We were then able to pass our Section 8 inspection and have our tenant move in on November 1st of 2019. 

While this was only a bit more than 3 months after closing on the sale, it felt like an eternity.

Finally, the home was rented for $950 per month.

All said, throughout this process we spent about $17,500 rehabbing a house that we thought was rent ready.

Lol 🙃

But hey, we kept our heads up and moved onto refinancing out.

Going With Delayed Financing

For some reason, we decided to do delayed financing on this deal.

Looking back, I have no idea why. It didn’t make any sense given the amount of cash we had to sink into the rehab.

Related: How to use delayed financing the right way.

And, oddly enough, I’m just realizing we had MORE money into this deal than it appraised for.

The appraisal came back at just $58,000 and, including the extra rehab money, we were into the home for a total of about $70,000.

I’m sitting here, typing this, trying to figure out why that didn’t sink in way back in 2019. Perhaps I just ignored it and tacked it up as a lesson. 

Maybe I was so over this house I didn’t even think about it. I have no idea.

Regardless, we were able to get some cash back out and keep moving. And things went pretty smooth for the next 9 months.

Yep, only 9 months…

Our First (and only) Insurance Claim

Right when I thought we couldn’t hate this house any more than we did, we got a call from the tenant.

She said there was “water coming down the pipe” in the basement.

Probably not a huge deal, right? 

We sent over our plumber to check it out. 

It wasn’t water. It was sewage. And it was coming down the plumbing stack.

The tenant had noticed it while doing laundry. And, as far as we could tell, the sewage was coming from the SECOND floor bathroom.

Yes, unlike most Detroit bungalows, little Wrecked On Rutherford was blessed with two bathrooms. One on the main level, and one on the upper bungalow level.

While this makes it attractive from a tenant perspective, essentially creating an ensuite for the primary, upstairs bedroom… it was not ideal now.

I’ll spare you the details, but we ended up having to get an insurance adjuster to help us make our first (and only) insurance claim.

Seeing as this was sewage we had to gut the bathrooms and replace everything for health and safety.

Oh, and we had to move the tenant out to one of those extended stay places and pay for it out of our pocket because we didn’t have loss of rent coverage.

So that cash invested spike of ~$20,000 that you see on the chart between August and September 2020… yeah, that was fun!

Luckily, we’d learned a thing or two about contractors by this point. We were able to get in and out of there within about a month. And we were able to fight insurance to recover ~$15,000 of the $20,000 we spent.

Honestly, while this was a MAJOR pain in the ass, we came out alright. We got two brand new bathrooms out of the deal which definitely improved the overall value of the home

Still, we absolutely HATED this house. 

For years, even after it was stabilized and performing fine, we debated selling it. But it was all emotional and we’ve been able to largely forget the trauma.

Which brings us to today.

Wrecked On Rutherford Performance Up To April 2024

Since the insurance claim, I’m happy to report that things have been largely smooth sailing. That’s almost four years ago now.

We have incrementally increased the rent nearly every year. The initial Section 8 tenant that we placed in November 2019 is still there and we’ve managed to get the rent from $950 to $1,400/month.

As a result, we’ve managed to pull ALL of our capital out of this house.

That’s incredible to me, largely because it felt like it’d never happen.

Even better? I rarely think about this home now. I used to absolutely detest it, as did my wife. But we kept moving forward, trusting the process.

Wrecked On Rutherford taught me a lot.

How This Deal Changed Me

By now, you might believe I regret purchasing this home. Yes, it’s worked out fine all said and one, but what a headache!

And while part of me certainly regretted it, the optimist in me looks at all the value this home created for us.

Value doesn’t always come from financial gain, but lessons learned and how that shapes you going forward.

Learning To Trust My Gut

It is easy to argue that I should have never purchased this home. And, after reading all of this, if you fall in that camp, it would have been easy to avoid.

I saw plenty of red flags in the home. And I chose to ignore them.

My realtor was a bit pushy, but ultimately I can’t blame that. It definitely didn’t help though!

If your gut is telling you something is off, listen to it! It’s not always easy to do but you rarely regret it.

I’ve often evaluated these deals, had similar gut feelings with small red flags, and remembered this home. I listened to it, and I probably avoided what would have been a similar fate.

There is always another deal.

Learning We Are Capable Of Doing More

Before Wrecked On Rutherford my focus was primarily on purchasing occupied homes or rent-ready ones.

I told myself I didn’t have time to oversee a rehab, even cosmetic ones.

It’s amazing what you find the time to accomplish when you’re forced to do so!

This experience, as difficult as it was, completely changed my perspective. I started looking at doing cosmetic rehabs, then more involved ones, and eventually full-gut renovations.

I don’t necessarily recommend going as far as doing full gut rehabs. But I can confidently say that this experience significantly helped me grow as a real estate investor.

With Real Estate, Time Can Fix A Lot

They say you need to “buy right” when it comes to real estate.

Yes, that definitely helps but it’s not required. 

What is required is thick skin and a willingness to keep going when faced with adversity.

If you can do that, real estate has a knack for bailing you out even when you “buy wrong”. That’s exactly what happened with us.

According to the appraisal I was into this house for 20% more than it was worth.

Ouch!

And I had a lot of money stuck in the deal. But I had a long-term mindset. I was confident that if I just let time do the work I’d be ok.

It’s worked quite well. Today I not only have some great equity in this home, but it’s a nice little cash machine for us.

It was hard to imagine nearly five years ago!

Overall, I’m thankful I was able to learn these lessons for so cheap. I’m sure I’ll make plenty of others as I grow but I’ll always remember the ones Wrecked On Rutherford taught me.