Mint.com on Walking Away From Your Home

I just finished reading a Mint.com blog post about whether or not you should walk away from your home. It was especially interesting to me because I made the decision almost a year and a half ago to walk away from all three of my rental properties when I saw what was happening to the market. If you're not familiar with my situation, you can read my comment on the post, or below, for a quick overview.

I purchased my first rental property at the age of 21. Everyone said I would make a killing and was really smart for investing so young. I wish I had done more research and seen that we were approaching an inevitable bubble. I bought my first property (a 2-family) for $190k in 2003. Within a year it was valued at double that.

After refinancing and putting money into the first property, I bought two more properties the following two years. I had 12 tenants total (being a landlord is no easy task!). The mortgage lenders were pushing ARM’s like crazy… and they made sense to an investor like me. I needed the lowest monthly payment so I could take the little income left from the rent to put back into the properties. Plus, I could always just refinance my 2-year fixed / 28 year adjustable mortgage before the 2 years-fixed were up (refinance to a conventional 30-year fixed)… right?

Well, taxes went way up. I had a few tenants that cost me over $15k in lost rent (damn tenant-rights laws!), unexpected property damage from frozen water pipes, a couple more bad tenants, and while all this was happening the value of my house secretly dropped below the amount I owed… oh sh*t.

Then I get a letter in the mail saying my monthly mortgage payments are going to increase by more than $600 a month… but wait, I’m already dishing out over $200 a month from my pocket to pay for the properties (assuming all the units are fully rented)! I can’t refinance because the value of the property is less than what I owe. I can bust my ass for the next 5-10 years trying to keep up with the payments or I can let everything fall down, file for bankruptcy, and move on.

I’m filing. And I’m damn glad. $450k multi-family properties are now for sale at $140k… less than I bought my first property in 2003. For me it’s easy because they were investment properties, not houses my family lived in (I’m single). I’m renting now and saving as much money as I can, because when things start to turn around I want to be ready, not buried under a million dollars in debt.

Mortgage Lender IndyMac Seized by the US Government

I was shocked to see news that IndyMac, the holder of the mortgage for my second property (Bowers St), had been seized by US regulators. The mortgage for that property went to foreclosure back in March (my first foreclosure), so needless to say, I contributed to their downfall.

IndyMac's fate was sealed after Senator Charles E. Schumer wrote a letter about the bank. Mr. Schumer spoke strongly about the agency:

“IndyMac’s troubles, like Countrywide’s were caused by practices that began and persisted over the last several years,” he said. “If O.T.S. had done its job as regulator and not let IndyMac’s poor and loose lending practices continue, we wouldn’t be where we are today.”

IndyMac held $32 billion in assets and its demise is being called the biggest failure in 24 years. In addition to loans, IndyMac Bank held one of the largest savings in the country. The FDIC said nearly $1 billion of the $19 billion in deposits held by IndyMac were uninsured, affecting about 10,000 people. When news got out that IndyMac was in trouble, people started taking their money out of their bank accounts, to the tune of $100 million per day. Things like this are exactly why I feel uneasy saving money at all. It feels safer to invest in things that are real, be it a car, motorcycle, boat, education, health, general experience, or yes, even real estate.

Coupled with the craziness that happened to Fannie and Freddie yesterday, the reality of what's happening in the US is finally starting to sink in. Fannie and Freddie, which own or guarantee almost half the $12 trillion of home loans in the U.S., plunged as much as 49 percent and 51 percent yesterday. ^[1] Think about that for a second: half of all the home loans in the U.S. This happened as investors feared failure in the market would cause the U.S. government to rescue both companies, which would wipe out the shareholders.

Buyer Backs Out of Sale

The buyer who was interested in purchasing my $350,000 property for $180,000 has decided to back out (even after the bank accepted the offer, despite it being $170,000 less than what is owed). I rushed like crazy last weekend to clear all my stuff out thinking the property would be in someone else's name by the end of last week.

There are numerous reasons why he backed out, but mainly because of complications with the illegal studio apartment in the attic. It was clearly stated in the MLS listing that it was a 2-family property with an illegal in-law unit.

Needless to say, the bank's $180,000 offer acceptance is only good through April 10th and I received a letter in the mail stating the foreclosure date has been set for April 28th. My agent has relisted the property in MLS and is desperately looking for a new buyer.

Hard Work Weekend

The past three days (including today) have been spent clearing out the 12x16' shed and the basement of my first property in preparation for the sale that is supposed to take place at some point this week.

I am exhausted.

But one thing is for sure: I have too much stuff. Mostly tools, hardware, and other house-related things -- I can partly justify having so much stuff because for many years my sole intention was to own properties for long term investment and do most, if not all, of the repair and maintenance myself. Now plans have changed.

One of my new years resolutions for this year is to reduce what I own and that's exactly what I intend to do. I estimate everything I own would take at least a dozen, maybe even one and half dozen, truck loads to move using my pickup. I'd like to reduce that to at least half a dozen or even three truck loads by the end of this year.

Bank Accepts Offer on the Sale of my First Property

A few weeks ago someone made an offer on my Cumberland Rd property and my agent submitted the offer to my bank to get approval of a short-sale (I owe $350k on the property and I'm trying to sell it for $180k).

Late this week, my agent called to inform me that the bank has accepted the offer (they're probably happy to get anything kind of offer in this market) and the closing date has been set for March 28th. That's only a few weeks away and I still have lots of stuff in the big shed I built and in the basement I renovated. This weekend and next weekend are all I have to move everything out.

It still doesn't feel real, but I suppose owning the house and all the work I put into it also hasn't felt real. I'm already beginning to feel the mental relief with one of the houses no longer in my name and I suppose it can only get better from here.

My First Foreclosure

Friday evening I called one of the tenants living in my Bowers St property to see when I could stop by to pick up rent. When he answered the phone I asked how things were going and he responded by saying "Not good". When I asked what was wrong he told me that someone came by his apartment earlier that day and gave him a notice telling him that house had been foreclosed on and that he must move out within two weeks. Keep in mind that his wife is due in one week, he has two other kids, and his parents (who are in and out of the hospital) are living with him. Plus he works his ass off to support all of them! It was understandable that he was freaked out.

After explaining to him that the law is on his side and no one can legally make him move out, I called my bank to find out what was going on. They told me they foreclosed on the property on Monday! Five days had passed and I had not received a single call! The same day my realtor received an offer to buy the property. When he called to submit the offer to the bank, they told him it was too late because the property had already been foreclosed on!

So Friday evening I visited all of the tenants on Bowers St and explained to them what had happened. I explained that the letter they were given telling them to move out was meant to scare them into leaving because it would make it easier for the bank to sell the property.

Having been a landlord for the past five years, I've learned a thing or two about tenant rights and the local laws protecting them. Unless the landlord has a really good reason to kick the tenant out, it's very difficult (if not impossible) for the tenant to be legally evicted. Even if the landlord had lots of valid reasons to kick the tenant out (for example if the tenant was doing something illegal in the property), it could still take more than six months before the tenant is forced to leave. That's just the way the laws are around here and it sucks (for the landlord).

The Bowers St property was the second investment property I purchased and probably the one that has caused me the most trouble. At the same time, it was the best property because all the tenants were excellent and paid their rent on time. The units were also the largest of all the properties with three bedrooms in each of the three units.

It's now Monday, exactly one week since it was foreclosed on, and I have yet to hear from the bank. They're probably going to stick me with the $280k that was owed on it, but I will deal with that when the time comes.

On Sunday evening, one of the Bowers St tenants was having trouble with his heating system. He called me. He was aware that I no longer owned the property but he had no one else to call. I felt somewhat obligated to help him out since he had never paid his rent late, he had helped paint the apartment, and was otherwise a great guy. Since I was in the area and didn't need to be anywhere in a hurry, I helped him out.

It definitely felt weird standing in the basement and realizing that I no longer own that house.

Offers Accepted on Two More Properties

A few weeks ago I accepted an offer on the sale of my first property. The two other properties I own are both facing foreclosure so I told my real estate agent to see if he could get any kind of offer on them.

Within a few days he found a cash buyer who is interested in buying both of the properties, for $100,000 each. Keep in mind that I bought these properties two years ago for $280,000 a piece and put at least $30-40k into them.

The way I see it is any sale is better than a foreclosure. Now I just have to wait to see if the banks will approve the short-sale.

Offer Accepted on the Sale of my First Property

In 2003 I bought my first property, a two-family house in the Centerville area of Lowell, for $213,000. Within six months I put about $75,000 into the property and another $50,000 over the next few years (not to mention endless amounts of my own sweat and time).

This week I accepted an offer to sell the property for $180,000. It just doesn't seem right, but I know it's the best thing to do. All three of my rental properties are listed on the market right now for much less than I owe and yet this is the first offer I have received in over 8 months. There are more than 300 houses for sale in Lowell right now. There are houses on the market for $175,000 that only two years ago would have sold for over $300,000! Just one year after purchasing my own first property, it was reappraised for double what I paid for it.

It will be quite some time before I know whether or not the bank will approve the short sale and even if they do approve it, they will almost definitely leave me with the balance: $170,000. My other two properties are in the same situation and I'm not alone.

I have read dozens and dozens of articles in the newspaper about other homeowners who took adjustable rate mortgages so they could have lower monthly payments. They never intended on keeping the mortgage past the two year fixed term but instead planned to refinance the property after its value increased. When the values made a dramatic run in the other direction, owners were stuck with owing more than the value of the house. This meant they couldn't sell and they couldn't refinance.

I wish I had the cash to buy properties right now because within 5 years all these houses will probably be selling for upwards of $400,000. Real estate value always increases over time. Thats the thing about real estate: it's real. But with all investment comes real risk. Regardless of what happens to me financially over the next year, you can be sure I will be taking the lessons I've learned and applying them in the future.

Flames Shooting Out From Behind a Gas Stove

Last night I was driving to my parents house when one of my tenants called me. I knew something must have been wrong because we had already agreed on a time for me to pick up the rent, which meant he had no other reason to be calling me. Sure enough, he tells me that his mom just called him and said there was water coming down though the ceiling from the second floor. It's been very cold (close to 0 degrees) the past few days, so I feared the worst.

Luckily I happened to be very close to Bowers St and drove over there in a hurry. My truck was in the shop and I realized that I did not have the keys to the second floor on me -- I hoped someone was there and that I wouldn't have to break down the door. When I arrived, the second floor door was unlocked. There was 2" of water on the entire bathroom floor. There were no wet ceiling tiles on the second floor and I quickly ruled out a broken water pipe. When I went back downstairs, three guys from the fire department were there unplugging electrical stuff from around the wet areas. The tenant's mom called 911 after she called her son, not knowing that I would get there before the fire department did (how's that for response time!).

I couldn't figure out exactly what happened, but either the tub or the toilet overflowed. The tub had 3" of water in it and it wasn't draining out. The tenant that just moved into the second floor told me he took a shower a few hours earlier and noticed it wasn't draining. He said he tried using a plunger to unclog it, but when he was unsuccessful, he left it and went to work. Apparently, someone else must have used it after him and let it over flow.

After using a drain snake to try and unclog it, I discovered the problem: the trip lever and linkage system that holds up the plunger was gone. There was nothing holding up the plunger, so it was sitting at the bottom of the drain blocking it! By total luck, the drain snake caught onto part of the plunger and I was able to pull it out of the drain. Now the water drains perfectly.

If you've read this far, you're probably wondering where the "flames shooting out from behind a gas stove" comes in. Well, after cleaning up the water, I went downstairs and talked to the tenant's mom. She said she was sorry for calling 911 and that she didn't know I was going to get there so quick. She told me a story about how her previous landlord got angry at her for calling 911 when the old gas stove in her apartment caught on fire due to a gas leak (the landlord told her he would be there in 30 - 40 minutes, when he lived 10 minutes away). He replaced the stove with another used stove and told her he would hook it up himself (he didn't want to pay a licensed plumber). When he turned it on, the stove leaked gas and he was going to leave it that way. She threatened to sue and then he put a new stove in and had someone else hook it up.

That story made me realize why so many of my tenants appreciate having me as a landlord.

Attic Studio Renovation

Back in 2003 I spent about $30,000 turning the attic of my 100 year old house into a beautiful studio apartment. I found these pictures while browsing my computer today.

Most of the framing and insulation was done by a contractor. I helped my uncle sheetrock the entire place. My dad and I did the painting, built the two closets, installed custom kitchen counters, and did some of the plumbing. I installed the lights, the hardwood floor, and the shower.

I lived in this studio for a few years until I moved into the partially renovated basement (where I happened to install the exact same shower). This attic studio is now rented for $750 a month.

Bush's mortgage plan doesn't help MY situation!

Forbes has an article today about the "Bush Administration's plan to rescue the housing market" -- well I'm a landlord who owns three multi-family houses, all of which have adjustable rate mortgages and all of which have seen interest rate hikes of double what I was originally paying. If my profit margin was $300 per-month when I originally bought the properties, all of that has been washed away with mortgage payments increasing by $700 per month, per property!

FTA:

It also won't help the 16% of subprime borrowers who are already delinquent or in default, and it won't help millions of other homeowners who either will be deemed able to pay the higher rates when they adjust, starting in January, or who have the unhappy circumstance of having a house worth less than their mortgage or a loan that has already reset to the higher rates.

Well let's see... I'm already delinquent and in default on all of my properties, check. I'm one of those in the "unhappy circumstance of having a house worth less than their mortgage", check. My mortgages have already reset to higher interest rates, check. Great, I don't qualify.

The big problem with the sub-prime situation doesn't only apply to the single-family owners who bought a bigger house than they could afford -- it also applies to all the landlords who purchased or refinanced multi-family properties and who provide housing for the more than 34 million renters in the USA. Speaking of the rental market, it is projected that the number of renter households will increase by more than 1.8 million between 2005-2015 [1]. I'm sure that number doesn't even take into account all the people who lost their homes (and their good credit) and now need a place to live.

I've given up trying to afford my properties. I'm ready to walk away. There is no help in sight and stressing about trying to pay for them isn't worth my health. I already know its financially impossible for me to afford them (rental income is $7,000 per month, new mortgage payments are $10,000 per month), so why fight the inevitable? I have all three of my properties listed for sale with a broker, at prices totaling $195,000 less than what I owe the banks. The real estate market is bad because everyone is waiting for the prices to keep falling. Even if my properties do sell, I'm going to end up owing the banks over $200k -- which I also cannot afford.

The good in others

Believe in the good that exists in all human beings. Never assume you know the way someone will react to a situation or believe that you understand a person enough to make assumptions about their future choices or decisions. Negativity can only make a situation worse (and if I say, "an already bad situation worse", then I'm being negative).

My Dad always says, "When you assume, you make an Ass out of You and Me", and that's exactly the way I felt last night. I assumed something about one of my tenants and it turned out to be the total opposite. When I realized how much I had been thinking negatively about the situation, I felt grateful for the opportunity to realize my mistake.

Labor Day Weekend

I had a good Labor Day Weekend. I went up North to the White Mountains with the intention of camping and just relaxing. I ended up hiking three mountains and making myself as physically exhausted as I've ever been. It was incredible. I had never hiked to the summit of any mountain in NH until this weekend (the only other summit I have reached was in Utah, Frary Peak on Antelope Island (6,596')).

My sister Meera, and my brother-in-law Thea, drove North on Saturday morning to hike the Falling Waters Trail in Franconia Notch with me, which Thea and his friends had started, but not finished, a few weeks earlier. The trail leads up and crosses two peaks above the alpine zone before finally reaching the summit of Mt. Lafayette (5,260'). We only got as high as the first peak, Little Haystack (4,760'). Meera and Thea returned home, but I was already feeling a calling to go back to the mountains.

On Sunday I decided to hike another trail, this time along the Kancamangus Highway. I bought a small book of 200 hiking trails in the White Mountains at a local shop. After glancing at a few trails I decided to hike to Mt. Hancock's North (4,400') and South (4,274') Peaks. This hike was definitely a step up from the hike to Little Haystack. I don't like taking my time and enjoying the sights; I like to make it physical. I walked as fast as I could and kept my pace as steady as possible. My heart rate must have stayed at 120+ BPM the whole time. I was sweating non-stop for over 6 hours. My feet were so incredibly sore by the time I got back down that I could barely feel them touching the ground. I loved it and I was hooked. That night, I fell asleep at 8pm.

On Monday (Labor Day), I woke up at 7am and decided to ignore the pain and fatigue I was feeling and hike another mountain. From the trail book I choose Mt. Osceola (4,340'). The book only talked about the East Peak of Mt. Osceola (4,156') but I told myself I would push the extra 1.5 miles and go all the way to the top. This time, I made sure I packed enough water, and enough food. Hiking at such a fast pace burns an enormous amount of calories. I had about 800 calories for breakfast and 1 hour into the hike I was already hungry. Even though I consumed over 4,500 calories that day, I was probably still running a deficit. If anything, the hike to the top of Mt. Osceloa was more a test of my metal endurance than my physical endurance. This hike had the most dangerous, and challenging, climbs of all three mountains. There were a couple of places where if I slipped, I would plunge a few hundred feet to the rocks below. Definitely not for those afraid of heights!

I took plenty of pictures and I'm sure you'd like to see them, but you'll have to be patient. I've decided that I will post a new post each day for the rest of this week detailing each of the hikes. I took close to 200 pictures total and since I can see hiking becoming a big part of what I do in my free time, I'd really like to document each hike as best I can.

On Sunday morning, before my hike up Mt. Hancock, I passed a truck with a giant 350LB black bear in the bed. I stopped and talked to the people around the truck and they said they killed him last night, in Bethlehem, NH, which is only a few minutes away from were I was camping. What a waste of a beautiful animal.

Another major thing that happened early this past weekend was my firm decision about what I'm going to do with my properties. I've decided I will get rid of all of my properties, even if that means going bankrupt. I simply feel the time and energy I will spend maintaining even one property is not worth it. I would much rather have the freedom and clarity of mind that goes with knowing I don't owe hundreds of thousands of dollars on a property while still being responsible for maintaining it. Owning a property will greatly restrict my options for travel and the financial freedom to do what I want with my life. Even if it means going bankrupt, I believe I'm making the right decision. At least I'll have a clean slate to start with (excluding the fact that my credit will be screwed for the next 7 years due to the bankruptcy).

I'm glad I made this decision early in the week because the experiences I had during each of the hikes seemed to reaffirmed my decision. I'll be listing all three of my properties with a Realtor later this week for a price lower than what I owe the banks. When I have a buyer, I'll submit the offer to the bank and if they reject it, or if they accept it with the stipulation that I will still owe them the remainder, then I will tell them to foreclose on the properties and then I'll file for bankruptcy. Hopefully the banks will work with me and I won't have to go the bankruptcy route.

What should I do?

I haven't explained what's been happening with my properties over the past few months, mostly because I haven't been sure of what I wanted to say about them. A few months ago I listed two of my properties (Ware St and Bowers St) on CraigsList for $315k and I have been dropping the price ever since (as far down as $289k). A few nibbles, but no bites.

The past few months it has come to the point where I simply haven't been able to afford them. I transitioned from a consultant to an employee at Aerva in July, which meant I now receive $800 less every month due to taxes. The two properties have an adjustable, sub-prime, rate, and one of them recently adjusted -- the new payment is $500 more per month. So a few months ago, I stopped paying the mortgages on two of my properties. I told myself, "What was the worst that could happen? The banks foreclose on the houses and my credit is hurt." But my credit is already screwed (under 550 credit score due to a couple of late house and credit card payments) so I'm not too concerned about that. The problem is if the banks foreclose on the houses, they may still try to come after me for the money I owed, upwards of $600k between the two mortgages. This debt would most likely haunt me forever, even 10 - 15 years down the road.

I already submitted my financial statement and a forbearance letter to one of the banks a few weeks ago. They called me Thursday evening and told me they can't do anything about my monthly payment and that my best solution is to try and sell the house, even if I have to sell it for less than what I owe. This is known as a Discounted Payoff, which means the bank may accept a sale of the house, including closing costs, and forgive the rest of what I owe. This would be great because I would get rid of the houses and not have to worry about any debt associated with the properties. The standard procedure all of the banks follow is that I need to find a buyer, and fax the mortgage company a buyer pre-qualification letter, along with a HUD 1 or Net Sheet (which shows where all the money is going), and the Purchase and Sale agreement. The bank will review the information and decide whether or not to accept the sale.

So that's what I'm going to do with Ware St and Bowers St. Next week I will list them with Paul Brouillette from Century 21 for whatever price he says will make the property sell fast, which will no doubt be much less than what I owe (probably $20-$30k less). He is the one I originally bought the properties through a few years ago and I have developed a good relationship with him. Listing the houses with Paul means he will do all the work, but he will also get his $20k commission, hopefully paid by the bank. If the banks don't accept any offers that come through, they will have no choice but to foreclose on the properties. And if they foreclose and tell me I still owe them lots of money, I will have no choice but to file for bankruptcy.

So by now you might be wondering what I'm referring to by asking "What should I do?". If you've been following, you probably noticed I've only been talking about two of my three properties. The third property is the first property I purchased, Cumberland Rd, in 2003 for $213k. As much as I hate to admit it, I do have an emotional attachment to the property. I lived in the renovated studio apartment of this property for several years, built my first 16'x12' shed in the back yard, I spent countless weeks carrying out dirt from the basement to increase the height of the basement, and then many more weeks pouring concrete forms. I've put a lot of thought and planning into what can be done to make the property better and it's definitely the nicest of my three properties. But, I also owe $352,000 on the property (refinanced many times to pay for purchasing the other investment properties and for upgrades in the property). Luckily I have a fixed rate that will never go higher than 6% for the life of the loan, which means my monthly payment, barring any major increases in taxes or insurance, won't be higher than $2,700 a month. I currently have three units which can be rented, and if the basement is finished and rented I can be bringing in about $3,000 a month. Of course, I still have to deal with everything involved in owning a rental property, the very thing I'm trying to remove from my life by getting rid of my other two properties.

So the question is, what should I do? Should I get rid of Cumberland Rd as well? It's nice to have a fixed rate, but who cares about the fixed rate when I still have to worry about vacancies, property maintenance, collecting rent, and all the other responsibilities attached to owning a multi-family rental property? I will continue to dread every phone call I receive, fearing it's a property disaster. However getting rid of Cumberland Rd means I'll have to hope for a similar discounted payoff being accepted by the bank. I owe $352k on the property and in this market, I doubt the property would sell for more than $270k, an $80k difference. Will the bank simply forgive $80k? Unlikely. This means getting rid of Cumberland Rd increases the likelihood of me needing to file for bankruptcy. However there is one upside to bankruptcy: all of my credit card debt ($27k) would be wiped away.

If I could see the real estate market making a sharp upturn sometime over the next few years, I could understand why keeping Cumberland Rd makes sense. But I don't see that happening and honestly, I don't want to live the next five years of my life knowing I have a $350k piece of debt, which requires constant maintenance, riding on my shoulders. I would rather wipe the slate clean and start fresh.

As you can see, my mind is already more or less made up. This weekend I'm going camping and on the 2 1/2 hour ride up North, I plan to spend lots of time thinking about this decision. I suppose I just need to convince myself that it's the right move. Its a big decision and a major turning point for my financial life.

What do you think? What would you do in my situation?

Forbearance Letter

This is the letter I wrote to Wilshire Credit Corporation's Forbearance Department, regarding my mortgage with them for my Ware ST property. I'm currently two months past due and the interest rate just adjusted from 8.25% to 11.5%. My monthly payment went from $2,450 to $3,000 per month. The property currently brings in about $1600 in rents every month. This letter is apart of an envelope of documents, including a personal financial statement, last two months bank statements for all my bank accounts, last two years tax returns, and W-2's.

I'll be sending a slightly modified version of this same letter to IndyMac Bank, who holds the mortgage for my Bowers ST property.

To Whom It May Concern:

Several years ago I started investing in real estate with the intention of renting multi-family properties for long-term investment. I bought my first property in 2003 (Cumberland RD, my primary residence) at the age of 21. Since this was my first property, I was not experienced with being a landlord and I had to learn a lot on my own. My first tenant, George Demasse, was a good tenant for the first year – but then he started having drug problems and stopped paying his rent entirely. Eventually I went through all the legal processes to have him evicted. In the end, he cost me over $15,000 in lost rent and legal fees.

In 2004 I bought another property (3 family on Bowers ST) which was fully rented. Only 3 months after purchasing the property, all three of the tenants moved out. I was required to spend considerable amounts of time and money cleaning and preparing the units for new tenants. By early December 2004, I had 3 tenants that were ready to move in. Only one week before they were supposed to move in, a water pipe on the third floor froze and flooded both of the units below it. An insurance adjuster came by, and after explaining my situation to him, he told me to get all the work done – he said not to wait and that the insurance company would cover everything. A week later, after spending over $17,000, I received a call from the insurance adjuster telling me my policy doesn’t cover for broken water pipes and that I’m fully responsible for paying the contractors. I spent over a year with the Insurance Complaint Department fighting my case, but they eventually sided with the Insurance Company.

In 2005, I bought my third investment property (4 family on Ware ST) fully rented. A few weeks after purchasing the property, one of the tenants moved out and I needed to spend about $8,000 renovating the unit before it could be rented (it was in bad shape). The following year, another tenant in the same building had drug problems with the police and the building inspector was called in. He demanded I evict the tenant and do not rent that unit until it had been renovated and had an occupancy permit pulled. This required over $10,000 in work. During that winter, I had several other issues with leaky water pipes and a couple of times the water pipes started to freeze. There were many times when I had to leave work in the middle of the day to use a hair dryer on the water pipes; I was afraid they would freeze and cause the damage and expense I experienced in 2004 with Bowers ST. The following summer, the gas company went into the basement to change the gas meters and noticed the two furnaces in the basement were in very bad shape. They refused to turn the gas back on until the gas furnaces were to code. A heating company came by to give me advice on the condition of the furnaces. They told me they were beyond repair and needed to be replaced. So during the fall of 2006 I spent about $12,000 replacing two gas furnaces and having new duct work installed. Since I didn’t want to go through the issues with the water pipes again, I also had the plumber redo all the water pipes in the basement. At this time, one of the units became vacant and I was required to spend and additional $8,500 renovating it (new carpets and kitchen/bathroom floors, three new windows, new kitchen sink & counter, new paint throughout, new bathroom fixtures).

It’s been 10 months since the new furnaces were installed in Ware ST and I still owe the plumber over $4,000. He has threatened to sue me, so I’m making $100 a month payments to him. I’ve already exhausted all the credit on my credit cards to help pay for many of the renovations in the rental units. I was unable to pay my American Express payments for several months and in July I made a couple of payments. Now I’m two months behind again. I’ve also had to sell all the stocks I owned to help cover bills related to the properties.

Over the past few years, being mostly self-employed (I do freelance technical consulting), I’ve struggled to maintain a steady income and maintain the properties at the same time. In April of 2006 I started working part-time at a software startup company in Cambridge, MA called Aerva. It was a very good opportunity, however being a startup, they have had to be very tight with money and have been unable to pay me market rate since I began there. As of July 1st, 2007, I started working at Aerva full time as a W-2 employee.

My tax returns are done by a CPA. I have included the 2005 tax return with this letter. I have filed for an extension for 2006’s tax return, and I have included the extension with this letter.

I have two checking accounts, however I only use the TDBanknorth account. I also have two Savings accounts (INGDirect and ETRADE), however I don’t use either of them (since I don’t have any money to save!). I have included the latest two months statements from all accounts as requested.

I do not have a vehicle in my name, but I use my family’s business vehicle and simply pay for insurance, gas, and maintenance.

Because of the condition many of my rental units are in, I must rent them for a discount. The properties are also not located in desirable locations, so renting them is more difficult. It’s also very difficult to find tenants who will actually pay every month and who won’t destroy the units. The taxes and insurance have increased on all of my properties since I bought them, which has increased my monthly expense. Many vacancies, bad tenants, and expensive property repairs over the past few years have drained me of any backup funding I had saved.

The recent rate adjustment on the Ware ST mortgage with Wilshire has increased my monthly payment by $500. I was already having trouble making payments!

If my monthly payment cannot come down to $1800 a month including tax and insurance ($1300 a month principle and interest), I will be forced to request a discounted payoff and try to sell the property at a huge loss. About a year ago, I attempted to sell the property for $305,000. It wouldn’t move at all and there was very little interest, so after 9 months on the market, I took it off. If this property is listed for $240,000, I believe it would move very quickly. If I do end up having to go the discounted payoff route, I can get you a proposed listing agreement and estimate of closing costs.

If you have any other questions, please feel free to call me directly anytime.

I await your response,

Thank you,
Raam Dev

Another leaky Saturday

I received a call Saturday morning, three calls actually, while I was in the shower. They were from an unknown number. Since they didn't leave a message I figured it wasn't important. After I got out of the shower they called a fourth time. This time I picked up. They said the words I dread hearing: "It's raining in the hallway!"

I rushed over to Ware St. Thankfully it wasn't quite as bad as I feared. Part of the drain pipe for the second floor shower had eroded away, leaving a 1/4" hole in the pipe! Because of the old type of drainage system, every time the second floor took a shower the drain pipe filled up with water and some of the water poured out of the little hole.

The drain pipes were the old cast iron type, so simply replacing it was not something I could do easily. I finally decided since the drain pipe never has much water pressure, I could simply clamp some rubber over the hole and that should fix the problem. I went to the hardware store and bought a 1/2" rubber coupling with ring clamps, which looks this:

Rubber Coupling

Since I didn't want to, or rather since I could not, disconnect the drain pipes, I had no way of slipping the coupling over the pipe to cover the hole. So instead, I removed the clamp rings and sliced the coupling down the middle. I had some duct tape in my truck, so I decided to wrap the hole on the pipe with duct tape first, hoping help lower the amount of water pressure exerted on the rubber coupling. I then placed my sliced rubber coupling around the drain pipe and then secured the clamps around it.

I asked the second floor tenants to turn on the shower and let it run for a few minutes. To my relief, no more leaks.

Another wet basement weekend

I didn't post much this past weekend because on Friday morning at 7am I got a call from one of my tenants telling me their kitchen was soaked, and water was still dripping down from the apartment above. The tenant called again 2 minutes later because she felt she didn't make it sound urgent enough the first time.

I drove back to Lowell from Cambridge and sure enough, her kitchen was SOAKED. I went into the vacant unit below on the first floor -- nothing. It was dry as could be. Puzzled, I went into the partially finished basement, where I stay during the weekends. I discovered about 3" of water on the basement floor. As I walked through the water with my sandals on, the water came up to my ankles. I stood in the huge pool of water and looked over towards where my server, external hard drives, and router was plugged in -- all the power cords were partially submerged in the water... and I was standing in that same water. I realized how easily I could be electrocuted and slowly walked over to the breaker panel to turn off the main switch.

I wondered how so much water could come from the air conditioning unit on the third floor without making the first floor wet at all. As I stood there assessing the damage, I heard a dripping sound coming from the other side of the basement, near the hot water tanks. Come to find out, one of the three hot water tanks had eroded and was leaking water! It must have started earlier in the week because mold was already starting to form on the carpet and desk where my computer equipment was!

After paying $95 to have the A/C system fixed, I looked in the phone book (well actually, yellowpages.com on my Blackberry) for plumbing companies. I called 5 numbers, only one person answered. He came over with his girlfriend (or wife?), who surprisingly helped him with most of the work and knew the names of all the tools and fittings (I'm not being sexist, she just didn't look like someone who would know anything about plumbing). Within an hour he had the hot water tank disconnected and the water was turned back on. Looking around at how much stuff had been ruined by the water, I knew how the rest of my weekend would be spent.

With Sitha's help, we managed to clean the entire basement over the weekend, the first real cleaning it's had in two years. The A/C issue that was supposed to have been fixed on Friday morning was not fixed at all and I had to have an on-call A/C tech come back Saturday morning. He explained how the installation techs who install the systems don't understand what kind of access is needed to service those systems. He said if anything major happens to the system, I'll have to tear apart the bathroom walls just to gain access to the A/C unit (the unit is inside an attic crawl space of the finished attic).

After 8 years, I'm finally getting tired of the nuisances that come with living in basements or attics. This weekend I'll be moving into a second floor apartment in Cambridge, inside the same building I'm currently in, but with 5 huge windows and plenty of light. I will be quite an experience and I'm looking forward to it.

Cumberland RD Studio Rented

A few weeks ago I listed two of my vacant rental units on CraigsList. One of them, the studio, has been rented (for $750, not $800 as shown in the AD). This was the first time I've used CraigsList to rent one of my units. In the past, I've always placed an AD in the Lowell Sun, which costs $110 for two weeks -- a lot more expensive than CraigsList, which is free. I also feel that advertising online pre-screens most of the tenants. Those who have a computer and know how to use one are more likely to be reliable tenants than someone who picked up a newspaper off the street.

I tasked my brother with taking the calls and scheduling showings, which took a huge load off my shoulders. This was the first time I've ever had a rental agreement signed, and the deposit in hand, without ever meeting the tenants in person.

Vacant Cumberland RD Units Listed on Craigslist

I've listed both of my remaining vacant units on Craigslist. This is the first time I've used Craigslist to place an AD and I'm excited to see how well it works, especially considering it's free. Craigslist is where I found my current job. If I don't get any good response from the ADs within two weeks, I'll have to spend $130 per listing and place an AD in the local newspaper.

Here are the two ADs:

Cumberland RD Studio
Cumberland RD 2 Bedroom

It's going to be a long weekend

Today I have a dentist appointment at 4:20pm, then I have to go buy the kitchen cabinet, countertop, sink, and faucet for Ware ST.

Tomorrow morning I'll be dropping off my truck at the Chevy dealership to have something fixed for a safety recall (its free). Then I have to install the kitchen cabinet, cut the hole in the countertop for the sink, install the countertop, install the sink, install the faucet, and hook up the faucet. After that's done, assuming nothing goes wrong, I'll install the bathroom toilet. But before I install the toilet I have to replace the wax ring. Then I need to install and hook up the bathroom sink.

Sunday, assuming I get everything done at Ware ST, will be spent finishing up a programming project for work.

Monday evening I fly out of Boston for a business trip in PA.

Tuesday evening I fly back to Boston.

Wednesday evening, after work, I have an appointment to fix a server issue at one of my new clients here in Cambridge.

Yes, this is a typical week! I'll try to take some before/after pictures of the work I do at Ware ST and post them on Sunday. And because of all this stuff, my blog posts might be irregular over the next few days.

Where the hell did the preview button go in WordPress? After upgrading I can't seem to find the preview button when composing a post.

I took a sauna last night -- 30 minutes at 150+ degrees Fahrenheit. The last 10 minutes were pretty difficult and I struggled a few times to stay conscious. I wonder what the maximum temperature is that a human can survive in for 30 minutes. Anyone know?