New Financial Route

One of my recent visits to my future triplex was a cat-astrophe…

Terrible cat puns aside, I wanted to give you all an update on my purchase of a triplex fixer-upper — the good and the bad.

Overall, the process has been going smoothly (fingers crossed!). I’ve created my LLC. I’ve submitted all of the needed information to the hard money lender and I’ve found an insurance company. At this point, I just need to wait for the closing company to receive a few more documents before scheduling the closing. Hooray!

The hard money lending underwriting process has been a bit more cumbersome than I would have thought to be honest. The approval process for a hard money loan is viewed as less bureaucratic than that of conventional lenders. But what I’ve found is that both can be bureaucratic, but in different ways. Hard money lenders do not care about your income, so pay stubs and W2s are not required. However, there was still a ton of other paperwork I had to submit like LLC formation documents, operational agreement, and renovation scope of work. An inspector also had to come to the property to assess its condition, which led to them requiring me to increase my scope of work as well.

The other part of the loan approval process was for the internal appraisers to determine the ARV of the property. Since the ARV that they calculated was around the same as what I included in my application, I didn’t experience any issues with this step fortunately.

The more…well…interesting part of the purchase process has came from learning more about the tenants, specifically the one who still lives at the property. When I went to the open house for the property, there was one unit that I and the other investors couldn’t see since it was occupied by a tenant who was sleeping (there was another unit that was technically occupied as well, but the tenant has apparently been on a long-term business trip…more on her later). Once I secured the winning bid, I scheduled a second viewing with the wholesaler to see this unit.

Once I was able to get the property again, I was greeted by the tenant…the tenant, a chorus of meows in a dimly-lit living room and the smell of used kitty litter. I looked down to find a group of cats on the floor. Guess we have a cat lover.

I had a chance to look around the unit a bit and talk to her to get to know her a bit better and also discuss any maintenance issues. The apartment itself was similar to the other units — very worn but not in terrible condition.

What caught my attention more was the fact that there were cats “everywhere”. They were laying on the floors, the furniture, the bathroom sink, the kitchen countertops.

As I was standing in the living room, I felt sharp claws move up my leg and my back until they rested on my shoulder. I turned to my right to find a feline fellow at my side.

“Don’t worry! That means he likes you!” The tenant said as she took the cat away.

We spoke for a bit longer until I parted ways. The conversation I had with the tenant was fine, but I knew that there were a few larger issues at hand. The first was the cats. I figured there must have been some pet damage done to the other units given the smell during my first visit, but I didn’t know just how many pets were on the property until I visited again.

The other issue was that the landlord also had a close relationship with Cat Woman, so he was less strict with condition than other landlords would have been and offered a comically low rental rate ($350/month). From what I understand, the landlord and the tenant didn’t really even have a formal rental agreement. That meant that raising her rent to market rate would be difficult.

I figured that I could look at this situation as a challenge I can overcome.

I still feel that way, but I started to doubt myself when I went to the property a second time a week later to review code violations with the local fire department (building inspections are required before purchasing a property for the borough).

When I walked to the front of the building, I was greeted by an older man — who I found out was the current property owner — and an inspector from the lending company. An inspector from borough did come, but we told him the home purchase was going to be as-is so he left without inspecting. We greeted each other and spoke about the property as we went through each unit.

“It looks like you have your work cut out for you.” the lender told me as she exited one of the first floor apartments. We walked through each apartment, finishing on the third floor.

The inspector looked nervously at the missing pieces of plaster on the walls in the hallway between the second and third floors. When we got back to the second floor, she whispered to me “are you sure you know what you’re doing?”

The nervousness was contagious. What the heck was I thinking buying this property? Shouldn’t I have tried to buy a one that needed less work? “Umm, Yes?”

We walked to the back of the house, and into the basement. After asking the current owner a few questions about the property, she promptly left. It was then that I had a chance to ask the owner more information. One of the “tenants” has been a long-time friend of his (Cat Lady), and the other is a real estate investor herself who was living in the one of the units well below market rate to fix it up (which didn’t go well, as you can imagine).

While we were talking, we heard a knock on the garage door and a voice. “Hello?” Who could that be? Wasn’t the inspector just here?

The current owner opened the door, where we found an older man dressed in uniform with a stern look on his face.

“I was double-booked in meetings and couldn’t make it here earlier, but I’m just going to step out because the smell of cat urine is unbearable!”

“Well sorry, I didn’t do it” the owner joked as we all walked out of the basement together towards the front. I came to find out that the tenants had been living in the property illegally since 2019. There was no occupancy inspection, which is required by the borough.

The inspector then entered the occupied unit but left immediately. “I can’t even be in here. The cat urine smell is too strong. I can already tell just from walking in the apartment that this property is in deplorable condition”

Cat Woman walked outside and spoke to the inspector directly.

“How many cats do you have?” he asked.

“About 20.”

“You aren’t allowed to have that many cats in one unit. I don’t remember what the limit is off the top of my head, but I know it’s less than 20”

“I was told that I could have as many cats as I wanted as long as I was taking care of them.”

“If you were taking care of them, the unit wouldn’t smell the way it does.”

“I don’t smell anything, I just smell incense”

“That’s because you’re used to it. Do you all smell anything?” He asked me and the current owner.

I was honest and nodded my head. The owner agreed as well.

The inspector went on to grill the owner on various aspects of the house, but I couldn’t stay since I had a meeting for work. As I walked home, I started to question myself. Man, this is going to be one big project. Like, really big. Can I do this? Am I biting off more than I can chew? What am I going to do about the tenant living there? How long is it going to take me to fix everything?

All these concerns only added to the anxiety of making this purchase. However, the next day I decided that I was not going to be afraid. As the saying goes, one man’s trash is another man’s treasure. One man’s land of cats is another man’s land of opportunity.