My Beautiful Idea

Last fall, I bought a three bedroom brick ranch about a mile from our home. I bought this home, which had been sold by the children of the previous owner at a substantial discount, as an investment. Real estate is part of the American dream, and in the last decade, being a real estate landlord has been a new iteration of that old story.

My decision to follow that path was not a sudden idea. I remember searching for property more than five years ago, in the spring of 2004. I thought it about carefully. I decided that houses were too expensive. It was a shrewd estimation.  Still, the idea that I had made a good decision stayed with me. I had a sense of having been right. It gave me some confidence when I surveyed homes in Durham last fall. Prices were low, homes were plentiful, and borrowing money couldn’t have been much cheaper. Even by a conservative analysis, my home in Northern Durham was going to have a substantial cash flow. Before taxes, I expected a return on my investment of about 17 percent.

Rehabbing the home was easy. It had been the home of an older lady, and it needed to be updated to reflect new taste. I tore down a wall to expand the kitchen. I put in an island. I replaced a lot of things – commodes, cabinets, vanities, sink, and the sidewalk. I purchased a new stove, as well as an older washer and dryer.

And, less than two weeks after we finished, I had a lease agreement with an ideal tenant. A 54-year old woman, without kids, with a job as a housekeeper and a son with a big job in Seattle.  It wasn’t just that. I felt comfortable with her because her story made sense. I could understand her motive for moving. She was paying $800 to live in a small house,  in an area that is full of crime.  Sure, she had bad credit and not much income, but her son was on board. I asked him to co-sign, and he did.  She put down $500 to hold the place.

Except, her son changed his mind. I guess he came to the same conclusion that I did – it was a fine time to buy. I was actually at the home, shoveling the snow off of the driveway, when her daughter-in-law called.

“I’m sure you can understand,” she said, “that it just makes more sense to buy.”

She was calling because she wanted her $500 back.

So, I had the February mortgage covered, but I still needed a tenant. It costs money to have an empty place. The heat has to stay on, and so do the lights.  It is not absolutely essential to have water, but then again, its not convenient to go without.

Thus began the hardest stretch. My first tenant came from word of mouth, but after that, I ran ads with the Durham Housing Authority and in the Herald-Sun. I put a notice up with Duke Community Housing. Craig’s List is a bit of a bust. There are too many ads, and more than a few are not really rental ads.  It is the new thing for realtors to list a home as available at the cost of a mortgage payment.

Section 8

Over the next two months, I gave showings of my home to more than forty or fifty families. Some didn’t like the house, either because of the age of the home or the location or the gas heat, but about 12 families did fill out an application. Most were from Section 8.

Section 8, if you are not familiar with it, is one of the ways that our government provides housing for poor people. It is more cost-efficient than most government interventions. Rather than build housing, a la “projects,” the Department of Housing and Urban Development pays all but a small portion of rent to private landlords.  Landlords are held accountable to provide decent housing, because tenants are given choice over where they live.  Tenants have to pay up to 30 percent of their income to rent.  HUD pays the rest. It is easy, too. The HUD checks arrives, via direct deposit, on the 30th of the money.

Those forty or fifty families have colored my sense of poverty in America.  What I have found is that these families are often the most fortunate households among several generations. The voucher holder has a claim on secure housing. It is more than likely that their children, parents, or grandchildren are not so lucky. Poverty is generational, and it brings its own habits.

The typical Section 8 family is a single African-American woman with children. Every section 8 family, save for two, that I met would have met that description.  The other two were married. Many have jobs.  Although they have income, they have very litte in the way of assets. For most, a car is their most significant possession. That creates some challenges for a landlord.  My $1,000 deposit is a formidable obstacle. Offering to take the deposit in two payments is rarely much of a difference maker.  I just got done writing about this on my other blog (for work). The short explanation for what I found is that most single families led by a woman are living day-to-day, or even hour-to-hour. The median sum of assets for these women, nationwide, is only $5.  I can’t imagine the stress.

The deposit issue is a systematic hurdle. It undermines the entire hope for Section 8. Scores of multifamily housing developments exploit this to their advantage, offering bad apartments for high rents, but with $79 deposits. See an example here.  They are cash flow machines.

I couldn’t accept any of those families. Maybe I am too conservative, but I like to ask a lot of questions. I ask about every source of income. I ask where they have lived in the past. I find out the phone number for their old landlord. I find out the number for an employer, if they have one. I scour MySpace, Facebook, and the North Carolina Depart of Corrections Offender Search. I don’t just get the name of the tenant. I find out who else will be staying there.

This last query was a real sticking point. There is a problem with many Section 8 households. All too often, there is a very hard-working person at the head of the family, working a job and running a home and finding a fix for all of the unexpected things that come up in the course of a life. But, then at the same time, there are all kinds of stragglers in the background. I had for applicants that wanted me to let them house a felon – either a boyfriend, or a son. If you don’t ask, I suppose that you don’ find out. But I did, so I had to turn away a lot of people.

In the end, I jumped when I did find a family that had it together.  Charles and Jamie were married and they both had jobs. He fixes kitchens, and she manages a department at the Wal-Mart.  No smoking, no pets. Also, no voucher. Their references checked out. They were moving, after four and a half years, because their neighborhood had turned bad.

I really liked Charles.  He had a job. He had a wife. His wife had a job. He had kids, but no dog. He didn’t smoke.  I guess you could say that he stood out from the crowd. Having grown weary of my applicants, I decided to make an effort to do what it would take to get him in the house. His wife didn’t like my carpet. I put in a new carpet in the master bedroom. They owned a washer and dryer. I took out my washer and dryer.  They wanted a bit less on the rent.  I dropped down to $950. He signed an 18-month lease. He paid rent and the deposit in cash.

I was satisfied. I could relax. I could plan a weekend without having to mow that lawn. I immediately updated my facebook page! I bought a new laptop. I bought the laptop that I am now using to write this post. Looking back, it was a hard process to get here, but I had done it.

– – –

They moved in on May 1st.

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