Mortimer Learns From His Elders
Took a moment away from the family to drop in on a local watering hole (no, not a progressive one with craft beers) recently and picked up a new technique for making a living.
At first, it sounded like a pretty foolish idea. It's based on the junkyard idea that a modern automobile is worth much more in its component parts than as a whole. Let's say a car goes into a lake. Body damage is minimal, but the electrical system and the interior are totaled.
With the right set of wrenches in hand, a capable mechanic can disassemble the remaining parts and shop them on, say, eBay, or simply park the wreck in a yard. Of course, if you have absolutely no mechanical skills, you can alway hire someone to do it for you.
I tried to imagine how that would work in my industry. Could I cut my paperbacks into two, and still sell each half for the full price? Could I separate my hardcovers into three pieces, and sell the thirds for the publisher's suggested retail price?
Of course, my inventory would no longer consist of anything that could reasonably be called a book. But, so far as I know, there is no inspection or regulation of just what constitutes a book. If I can find someone to pay the price, it must be good, right?
I wonder if anyone ever thought about doing that with a house? You could take a three-bedroom house and chop it into three apartments. Keep your work quiet (or pay off an inspector) and you wouldn't even have to go before the board of zoning appeals to get approval. So far as I know, the building inspectors don't have search warrant powers, so once you've finished, you wouldn't have to worry about a subsequent surprise inspection by the building commission staff.
You could troll for unfortunates (maybe in the bars?) and desperate folks (women on the run from abusive husbands?), newly divorced people who only need a way station, and assorted transients, ex-felons, etc. Once these folks become dependent on you (or your "kindness" in allowing them to pay when they can - don't forget the late fee income), you'd be pretty much set.
Of course, you wouldn't want to live nearby, but then all you'd have to do is find a pocket where the neighbors won't complain.
But what would you do when the neighbors complain? How could you see to it that the "gummint" stays off your back?
And what would you do when those new tenants complain, or what if they come up short because they lost their money drinking, gambling, smoking, or lost their job?
What would a slumlord do? How could he game the system so it's a no-lose situation?
At first, it sounded like a pretty foolish idea. It's based on the junkyard idea that a modern automobile is worth much more in its component parts than as a whole. Let's say a car goes into a lake. Body damage is minimal, but the electrical system and the interior are totaled.
With the right set of wrenches in hand, a capable mechanic can disassemble the remaining parts and shop them on, say, eBay, or simply park the wreck in a yard. Of course, if you have absolutely no mechanical skills, you can alway hire someone to do it for you.
I tried to imagine how that would work in my industry. Could I cut my paperbacks into two, and still sell each half for the full price? Could I separate my hardcovers into three pieces, and sell the thirds for the publisher's suggested retail price?
Of course, my inventory would no longer consist of anything that could reasonably be called a book. But, so far as I know, there is no inspection or regulation of just what constitutes a book. If I can find someone to pay the price, it must be good, right?
I wonder if anyone ever thought about doing that with a house? You could take a three-bedroom house and chop it into three apartments. Keep your work quiet (or pay off an inspector) and you wouldn't even have to go before the board of zoning appeals to get approval. So far as I know, the building inspectors don't have search warrant powers, so once you've finished, you wouldn't have to worry about a subsequent surprise inspection by the building commission staff.
You could troll for unfortunates (maybe in the bars?) and desperate folks (women on the run from abusive husbands?), newly divorced people who only need a way station, and assorted transients, ex-felons, etc. Once these folks become dependent on you (or your "kindness" in allowing them to pay when they can - don't forget the late fee income), you'd be pretty much set.
Of course, you wouldn't want to live nearby, but then all you'd have to do is find a pocket where the neighbors won't complain.
But what would you do when the neighbors complain? How could you see to it that the "gummint" stays off your back?
And what would you do when those new tenants complain, or what if they come up short because they lost their money drinking, gambling, smoking, or lost their job?
What would a slumlord do? How could he game the system so it's a no-lose situation?
posted by All4Word at 10:49 AM
6 Comments:
Keep the government off your back? How about running for public office? That ought to be enough muscle.
If you can't get elected, try Section 8.
We looked at a couple of Section 8 properties while house shopping. They're supposedly inspected regularly to ensure they meet safety and cleanliness guidelines in order to qualify for government subsidy.
The person that has that inspection gig is either totally overwhelmed or is a freeloader. It just ain't happening.
We even had a listing agent warn us, "It's a Section 8 house so you know what that means."
Here's a fun thought: Why not examine utility and census records and then compare those properties determined to be multi-unit against their respective zoning designations?
What penalties are in place for zoning violations?
If we could get zoning maps, a group of volunteers just looking for multiple mailboxes could cover most of the downtown neighborhoods in a weekend.
That is a great idea. I would volunteer to help.
I was told recently by someone who is knowledgable that New Albany doesn't have many Section 8 vouchers.
I was actually thinking that since Section 8 housing has to meet certain standards that having more Section 8 vouchers might help upgrade some of the rental properties around and help keep the rentals affordable for those that really do need low-cost housing. Guess I was wrong.
Sounds like we should try to find out more about Section 8. My first guess would be that the Housing Authority supervises the Section 8 program but I don't know.
The mailboxes and electric meters would be a good indication of how many apartments are in a house. Sometimes I count the mailboxes and sort of size up the house trying to figure out how they could have made it into so many apartments.
Zoning seems to be the logical place to start. I don't think that a zoning variance exempts them from meeting the building codes so that would probably be the next step.
When I was reading through the buidling codes I remember thinking that a lot of the houses divided into apartments couldn't possibly be meeting those codes.
If I remember correctly, there is a distinction between apartments and rooming houses in the building codes.
When I see a real estate listing that says something like "Could be 2 apartments. Already, has a second kitchen upstairs." I figure that they have been using it for 2 apartments without a zoning variance. I have known people who have 2 kitchens because they love to entertain or bake or something but they usually have large houses and they usually don't put the 2nd kitchen upstairs with the bedrooms.
I thought the same about Section 8. My response to the agent's warning was that it couldn't be that bad because they're heavily regulated. Unfortunately, I was wrong, too.
A lot of what these slumlords are doing is just leveraging one property to buy another.
They buy a semi-decrepit but sizable single family home for $80K. They spend a small amount that should go to repairs on splitting it up into four apartments (some new interior walls and doors, a little plumbing and used appliances).
Once they have those apartments rented for $450 a month, they then own a viable commercial property that produces $1800 a month in income.
They tend to pay for water and sewer for two reasons:
1) New sewer taps are expensive.
2) The sewer is the only utility controlled by the same city that enforces building codes and zoning ordinances. Why tip your hat to the one entity that can ruin your game?
The same applies for garbage pickup on a lesser scale.
Including mortgage payment, taxes, insurance, water, sewer and garbage, the slumlord is still getting out from under each month for a grand or less while collecting $1800 in rent.
Keep in mind that the property is worth a lot more now even though no meaningful repair work has occurred. The market prices of those buildings tend to reflect the amount of rent they bring in more than the condition of the building. The landlord can always use the inflated value of the "income producer" as equity to cash out funds for other properties.
This process continues until the property just can't take any more abuse without serious repairs. A property bringing in $1800 a month would be priced so that a new owner could pay the mortgage and associated fees and still turn a profit, although less than the original landlord. A cushion is built in so that the new owner can negotiate the price down for necessary repairs.
As an example, let's say the slumlord sells their building after 5 years for $120K. That's $40K in their pocket at closing in addition to monthly profits for five years totaling $48K. Even if they have done minimal repairs over the few years, that's quite a return.
The next house is nearly free. This provides bigger profits, higher monthly income and more equity-based borrowing power for additional properties. The growth is exponential.
Never mind the neighbors and the rats. Just repeat until wealthy.
Darned Snerdish of you.
Take it away, bluegill ...
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