In October 2019, during the Wayne County Tax Auction, Kaitlin and I purchased two Detroit houses. One was The McCarty House that I’ve previously written about.
The other was a typical Detroit bungalow on Algonac St.
I had spent many weeks researching the list of properties that would be auctioned off. I drove and walked probably three dozen of them.
The McCarty House and this Algonac Bungalow were the only two homes I purchased.
But unlike the McCarty House, I did NOT overpay for the Algonac Bungalow.
I won the auction for just $26,000.
Note: This is the sixth rental property performance update. You can view the entire page of updates here.
While it definitely felt like we got an amazing price for the home, it wasn’t super clear if it was a good deal or not.
The home was occupied and I hadn’t seen the interior before winning the auction. In fact, it would be several months until I was able to see what I’d gotten us into.
I’ll talk more about that in a bit.
For now, here’s how the home has performed over time when I plot out the total cash we’ve invested as well as the historical debt:
We had about $61,000 invested in the home before the refinance. That means the rehab was $35,000 which included a new roof.
The home appraised for $61,000 which is absolutely wild to me because that’s exactly what we had into it.
So we pulled out $45,750 after a refinance.
Obviously, from a pure BRRRR perspective this wasn’t a huge win. In theory, we could have bought a deal like this on the MLS.
But the reality is you couldn’t buy a deal like this on the MLS for $61,000, even in mid-2020.
The rehab quality was beyond what you could get on the market for this price point, and unfortunately the appraisal just didn’t reflect that.
Still, this house has been a big win for us, largely due to the stability and very little maintenance we’ve experienced.
In fact, since our initial tenant went into the home in September 2020, we’ve realized over $27,000 in net cash flow as of August 2024.
That’s about $6,750 per year, or $562 per month! And remember, we only had $15,250 left in this deal after our refinance.
And while it’s been pretty smooth sailing since getting it tenant occupied, it was a bit of a journey getting there (like always).
Below is the story of our Algonac Bungalow and everything we’ve done to get to this point four years later.
It Was Love At First Site
Again, I’d done a lot of research to prepare for the Wayne County tax auction.
And I distinctly recall walking around the Algonac Bungalow because it was in an area that I knew nothing about.
It’s in a sleepy part of Detroit’s east side and the first thing I noticed was how quiet and suburban-like the street felt.
Beyond that, the home appeared to be in decent shape and occupied. In fact, I even remember a note on the door telling people to stay off the property.
I don’t remember the exact message, but it was clear that I wasn’t the only one that had been poking around in preparation for the auction.
So really, I decided I’d take a shot at bidding on the home simply because the area seemed nice and the home appeared to be in ok shape.
As luck would have it, I won the auction for just $26,000.
Taking Possession Of An Occupied Auction Property
Like The McCarty House, my first move was leaving a note at the home, explaining I was the new owner and asking the occupant to get in touch with me.
I honestly can’t recall if they reached out or not. What I do know is that we started an eviction on 10/30/2019.
Since we won the auction on the 19th, I assume we didn’t hear anything from the occupant.
Starting this eviction at this time was a big mistake, but I had no clue at the time. The problem?
I didn’t have the deed from the county yet.
I assumed, since I had won the auction, that I could properly start the eviction process. Unfortunately, my attorney did not tell me otherwise.
We didn’t get the actual deed until 11/25/2019 and it was dated 11/19/2019.
This would come back and bite us down the road. But more on that in a bit.
Enter Vonda Evans
On November 27th, 2019 our eviction attorney informed us that Vonda Evans contacted their firm but did not say what she wanted.
He forwarded her contact information to me and I gave her a call.
Vonda was (and still apparently is) a retired judge and current attorney in Detroit.
I distinctly remember having the conversation because I was leaving The Dougie Fresh Duplex and figured I’d give her a call after seeing my attorney’s email.
She was representing the occupant of the Algonac Bungalow and, apparently, wanted to negotiate a sale of the home from us to the occupant.
According to Vonda, the occupant had lived and owned the home for something like 30 or 40 years and had a stable job at DTE Energy.
Don’t ask me how they managed to fall behind on their property taxes then!
I declined, saying that my intention was to own the home for many years.
And that was the last I heard from Vonda.
Switching Eviction Attorneys & More Legal Threats
By December we’d become quite frustrated with our attorney.
Communication wasn’t great and there seemed to be some bait and switch on pricing.
We hadn’t done a lot of evictions before, so we didn’t really have a regular attorney. But we went back to the firm we’d previously had a good experience with and asked them to take over.
And as we talked over the situation, they quickly pointed out an issue.
The eviction notice was dated prior to the date on our title. Any savvy lawyer would point this out and have the ruling dismissed, leaving us to restart the process.
Ultimately, we decided to wait for our hearing date and see what would unfold, trusting our lawyers to represent us to the best of their ability.
On December 3rd, the same date I called to tell our initial attorney we would no longer be working with them, they informed us another attorney had contacted their office.
So, once again, I phoned an attorney representing the occupant. This guy, Ivan, was a fast talker and pretty aggressive.
He claimed that there were all sorts of issues with the tax foreclosure, that the occupant was not properly notified (yeah, right!) and he had a 20% success rate of having these transactions reversed.
I honestly don’t recall exactly what he wanted, but I figured it was likely just a tactic to give the occupant more time, etc. And our attorney concurred.
Ultimately, our hearing finally came on December 23rd, 2019 and it wasn’t a stellar result. Ivan, the occupants attorney, correctly pointed out our mistake.
And, instead of going through the entire eviction process again, both sides agreed to a move out date of February 22nd, 2020 which is about how long an eviction would take us anyway.
So for the next couple months we sat around, doing nothing, while the occupant hung out in the home for free.
Finally Securing The Algonac Bungalow
The fun part about the February 22nd, 2020 agreed upon move out date was that we had already planned on being in California from February 16th through March 16th that year.
We would not be in town to make sure the occupants were out and to secure the home.
So I called in a favor with a friend who agreed to meet a locksmith at the house, check things out, and get it secured.
The photos my buddy took and sent to us were the first time we “saw” the inside of the house. And I was pleasantly surprised that it seemed to be in decent shape.
Ready, Wait… Rehab
Once we finally had the home vacant and full possession, we did absolutely nothing for about four months.
Yep, we just let it sit empty.
Back in 2020 I was aggressively building our real estate portfolio. We had a HELOC, some savings, 401(k) loans, etc. and were going at it hard!
Part of that was to always have 1 – 2 projects in rehab mode and 1 – 2 “on deck”, ready to go once I finished something and completed a cash out refinance.
Like most folks, I didn’t have unlimited capital but I did have enough to take this hectic approach.
But something interesting happened in June. I was turning over the upper unit at The Dougie Fresh Duplex after a short 6-month lease.
I showed it to a prospective tenant that had been looking for a place to rent for months. He wasn’t wild about it, voicing he wanted something on a quieter street, preferably a single family house with a yard.
He had a young family and that’s really what he was looking for.
I didn’t have anything else available, but I did have the Algonac Bungalow… kinda.
When I mentioned it to him he was very intrigued and asked if he could take a look at it. I prefaced that the house was a complete mess and still needed rehab, but he insisted on seeing it.
He absolutely loved the house, the street, and the yard. And he had the vision to look past the mess.
So we made an agreement.
I agreed to rehab the house quickly for him as long as he understood that it wasn’t going to be a high-level renovation.
He was excited about it, so we got to work.
The rehab included a new roof, refinishing the hardwood floors, painting, cleaning up the basement, adding a half bath to the basement, and some other odds and ends.
All told, we spent about $35,000 and knocked it out in about two months.
The tenant moved in August 1st at just $850/month.
I cut them a pretty nice deal because, in a way, I felt like they were helping me out. Their desire to live in the house lit a fire under me to get it done rather than just having it sit.
When you spend just $26,000 on a home it’s easy to keep putting other projects in front of it.
But when you have a well qualified tenant that’s excited to live there, it really helps motivate you.
Cashout Refinance Curveball
With the house now renovated and tenant occupied we were ready to do a cash out refinance.
We started the process in mid-October 2020 and things seemed to be going smoothly until we were notified, on November 20th, that the property was “uninsurable”.
Apparently there was an old lien on the home and our lender recommended we undergo quiet title action to clear it.
That was not ideal. As mentioned previously, I was quite aggressive in building our rental portfolio.
That’s code for really pushing the limit financially.
There were many months when finances were extremely tight, usually when we were expecting a cashout refinance to be done but, instead, got delayed.
This was one of those times.
And, while I didn’t know much about the quiet title process at the time, I did know they can take 6 – 12 months and cost a few thousand dollars.
That really wasn’t an option for us, so we started digging.
We discovered that the home previously had a mortgage before it went to tax foreclosure.
This mortgage should have been wiped out during the foreclosure process… so what happened?
CitiFinancial, the lender, was not “properly notified”.
That seemed strange. So when we looked at the notification letter and looked up the address, we realized that it was an old CitiFinancial location that no longer existed.
Things started making sense!
In short, CitiFinancial never received notice of the tax foreclosure because they no longer had the branch location the notice was mailed to.
The loan, for all they knew, was still valid and, as a result, on their books.
It took a fair bit of calling and being passed around to many different departments, but my wife finally found someone at CitiFinancial that could help.
Within minutes they were able to clear the issue and provide us a letter stating the lien was released.
We had that letter on November 27th, just 7 days after our initial notice from our lender that they couldn’t proceed.
Amazing!
It was almost exactly one month later, on December 28th 2020 that we received our cash out refinance proceeds.
The lesson here?
If you ever find yourself in a situation where someone is telling you that you’ll need to do a quiet title, start digging!
Chances are you can figure out what the actual issue is and solve it faster (and cheaper!) than a quiet title process.
The Algonac Bungalow Today
We still have our same initial tenant in The Algonac Bungalow today. We started them at $850/mo.
This was well below market at the time, but again, I was doing a more basic rehab here instead of our more typical nicer renovations.
In a way, part of me felt like the tenant was helping me out by lighting a fire under my butt to get this house up and running.
I was happy to have an appreciative, chill tenant, and I made it clear to them that we were giving them a deal on rent the first year.
Upon renewal, we upped rent to $950 in year 2, then $1,000 in year 3, $1,050 in year 4, and we just renewed the 5th year at $1,100.
We’re still probably $100 – $200 below market but I’m ok with that. Turnovers are expensive and difficult to execute from afar.
I’d be ecstatic raising rents $50/year and the same tenants staying another five years!
The home is probably worth about $100,000 today. By no means a home run, but I believe this area will continue to experience growth and stabilization.
Our mortgage payment is only $205 per month. Then I pay $102 per month in taxes and $58 per month in insurance.
So hard costs are $365 each month on $1,100 monthly rent. I’m ok riding that for a while longer and it’s plenty of cushion in case I decide I want to do a cash out refi in a year or two.
It would be hard giving up my 3.5% rate but if I can better use the capital somewhere else it might be worth it.