“Holy crap, it reeks in here.” I pulled my sweater up over my nose and dared one more step into the threshold. The house on Haber Road bore signs of disrepair from the street: peeling paint, a few broken windows, beer bottles littering the yard. But that was nothing compared to the surprise that welcomed us when we opened the door. “I can’t stay here. Let’s go.”
“Not so fast,” Dylan said. “Do you know what that smell is?”
“Rotting corpse?”
“That, my dear, is the smell of money.”
“No, Dylan, that’s the smell of poverty.” I spoke in a nasal voice to avoid having to inhale. “Rich people don’t smell like that.”
“Money comes from identifying value where no one else can.” Dylan pulled me by the elbow further in “There’s a reason this house hasn’t sold before. I bet everyone who walks in here tears the hell out. Never forget, you’re buying a house for 30 years. Don’t let a little stench you can eliminate in two days deter you. Especially if it drives down the price.”
“OK.” I recoiled into his chest. “Let’s discuss it in the car. But I’ve got to get out of here. I’m going to puke.”
Twenty minutes and fifteen dollars later, we were back. We’d picked up two medical masks and a bottle of peppermint essential oil. I doused the mask in oil, pulled it over my mouth and nose, and could still just barely handle being in the house. We did the fastest walkthrough I’ve ever done, then got the hell out of there.
“We’re going out for coffee.” I got back in the car and took off my mask. “I don’t want to hear a peep of protest.”
We called Jade on the way to the cafe. She laughed off the objections to the smell. “Professional hazard. I always keep a pack of cotton balls and plenty of perfume in my glove compartment. Half the houses I enter, you’d rather not get a whiff of.” Then she told us the deal. $210,000 to the seller, plus $5000 to her. “Once you fix it up, I figure it’ll be worth 320K easy.”
Dylan didn’t object to stopping for coffee, but I was surprised when he ordered one himself. I was downright shocked when he paid for us both. It was as if we were a normal couple, sitting in a cafe, listening to jazz, and sipping $10 worth of coffees that probably cost $0.25 to make. The first sip of coffee soothed my nerves, and the aroma covered up any lingering odor I may have picked up from The Death Trap on Haber, as I nicknamed the house. I held the cup just below my nose and stared at Dylan through the steam. “OK, smell aside, what did you think?”
“Jade’s right. It’s a steal.”
Of course, Dylan’s mind went right to value. “Other than the money, did you like it?”
“I actually did. The house has character. How about you?”
It was hard to get past the image of the trash and bird poop covering the floors, but I closed my eyes and tried to imagine how, with a bit of love, I could transform that place. “Yeah. I did too. I love the arches in that second-floor apartment. I could picture painting them a cornflower blue.”
Dylan laughed and almost spit up his coffee.
“What’s so funny?”
“It’s OK. It’s your house, do what you want with it.”
“Go on, tell me.” I nudged his sneaker under the table.
“It’s not a work of art—it’s a rental property.”
“It’s still going to be somebody’s home. Wouldn’t you want it to be cozy?”
“Cozy? No. I want it to be easy to manage.” Dylan smoothed his napkin on the table. “I use one shade of off-white paint for all my properties. It’s a color that doesn’t fade much over time, so I can go in and do touch-up jobs whenever someone moves out without having to do a whole new paint job or match past colors. Plus, I can buy it in bulk, knowing it’s the only color I’ll ever need.”
Coffee aside, this was not a normal date. “Always practical, aren’t you, Dylan? I suppose you have a point for the tenants. But that’s my favorite apartment. I want to live there.”
“That one?” Dylan’s head tilted back, and his eyes searched the ceiling, as if trying to recall the details of the place. “It’s a bit big for one person, isn’t it?”
I sipped my coffee and avoided his eyes. “That’s true. What about for two?”
“If you took on a roommate, the numbers for the house look a lot better. But I figured you were past the roommate stage of your life.”
Dylan could be awfully thick sometimes.
“I am.” I took another sip of my coffee, watching him as he sputtered.
Dylan leaned in, and his eyes narrowed. “Are you saying what I think you’re saying?”
“Yep. What if we made this our place?”
A smile started riding up his face, but then it stopped midway. “Why the sudden shift?”
“It’s not sudden. It’s anything but sudden. But it is a shift.” I leaned in to meet him and got so close I could feel the heat radiating off his skin. “I guess I keep wondering what I’d do if I weren’t scared. The answer that comes to me is always the same: I’d open my heart up to you and this crazy way of thinking you’ve brought into my life.”
“Wow.” He reached out and took my hand. “If you can do that, I’ll personally paint the walls any color you want.”
I blushed and sank back into my chair. “How about you? You’ve never been scared of me, but there must be something that scares you. What would you do if you weren’t afraid?”
Dylan sighed. “I guess I’d BRRRR.”
“Sounds chilling. What’s that?”
“You know what house flipping is, when you buy a house cheap, fix it up, then sell it at a profit. A BRRRR is like flipping a house to yourself. It stands for Buy, Rehab, Rent, Refinance, Repeat.”
“Woah.” I pulled out my notebook. “So that’s B and how many R’s?”
“Four. You buy a cheap place, fix it up, and rent it out.”
I wrote down Buy, Rehab, Rent. “What are the last two R’s?”
“Since it’s now a nicer place and bringing in more rent, appraisers will give it a higher valuation. Your next R is to refinance it based upon the new valuation, ideally getting back the money you invested in the house. Then you take that money, and the final R is you repeat the process.”
“And banks will just allow you to borrow more money on it?”
“Why not? Banks are in the business of lending money. They just have to know there’s enough value there to support it. Within a year, we should have no problem refinancing The Death Trap on Haber. Once we fix it up and rent it out, the value will shoot up.”
“You really think it will be worth $320,000?”
Dylan leaned in. “With one small change, I think it can be worth even more.”
“What’s the change?”
“Adding a bedroom to the first and second-floor apartments. There’s space for it, I checked.”
“Where?”
“Right here.” Dylan drew on his napkin. My writing was neater, but there was no way I could have redrawn the house from memory, especially after such a short walk-through. I suppose all those years in real estate gave him an eye for details, for he drew out the full floor-plan. “See right there? We could build a wall down that line, make the living room a dash smaller, and add a whole extra bedroom. My guys and I could do this in a couple days. It’s pretty standard work.”
“How much value can a bedroom add? I mean, it’s not going to make the place any bigger, we’re just taking the space from somewhere else.”
“It depends. If you went from a four-bedroom to a five, you’d gain next to nothing—you might even lose value. But there’s a huge difference in value between a two-bedroom and a three.”
“Why?”
“Families. Think about it, if we were looking to buy a long-term home and start a family,” Dylan lifted his gaze to meet mine, “what’s the minimum number of bedrooms we’d want?”
My mind flooded with images of us living in a house full of kids. I loved kids and always dreamed of having two boys and two girls. “I guess three. A boys’ room, a girls’ room, and a master.”
“Exactly. And families are a big chunk of the market. Jade doesn’t just go out looking for people in dire straits. She’s looking for unrealized value. Most of her clients are looking to either flip or BRRRR. For it to be worth their while, they need to raise the value of the property by a huge margin.”
My heart was still fluttering. I gripped my pen and refocused on my notebook to get my bearings. “How much exactly is huge?”
“There’s something called the 70% rule. Ideally, investors want their costs, including the purchase, closing, rehab, all of it, to add up to no more than 70% of the after-repair value.”
“After-repair value?”
“The house’s market value when they’re done fixing it up.”
I wrote everything he was saying but wanted to make sure I understood the reasoning behind it. “What’s so holy about the number 70%? Is that just considered a good profit margin?”
Dylan nibbled at the shortbread that came with our coffee. “It’s more than that. A commercial loan might only lend you 70%-75% of the value of the property.”
“So if you stay under that number, you can get all your investment money back?”
“Exactly.”
“It sounds like a practical way to do real estate,” I said. “Why does it scare you?”
“It’s something I could potentially do after hours, but the longer a rehab takes me, the longer the apartments will just sit there, unoccupied, making no money.” For the first time since that night at the beach with Kyle and Libby, I saw Dylan twisted up. He picked at his cuticles, and his eyes darted around as he spoke. “If I’m going to throw myself into this strategy, it makes the most sense for me to leave my job and make this my main income. The long-term rewards are greater, and I could build my Cash Machine that much faster.”
“Why don’t you?”
Dylan slumped. “I’ve never been much of a risk-taker.”
I allowed myself a giggle. “How can you of all people say that?”
“You know what’s risky?” Dylan popped right up, ready for a fight. “Taking on massive amounts of educational debt in the hope that you’ll be able to find a good enough job to support yourself and pay it back. The only reason it doesn’t feel risky is that everyone’s doing it.”
“Woah.” I put my hands up as if under arrest. “Chill out. I’m just saying that it seems to me like you’re not mister play-it-safe.”
“Seriously?” Dylan’s tone softened, and he sank back into that nervous posture I’d seen moments before. “Look at my life. I spend a tiny fraction of what I make and put the rest in investments that generate passive income. Can there be any more conservative a path than that?”
I reached out and raised his chin so that our eyes met. “You’re wrong. It takes a bold man to go against the grain the way you did. You can do this too.”
Dylan held my gaze and breathed deeply. “I can.” His face tightened. “But I leave myself with less of a safety net. I’d go from being an employed guy with a steady, active income to a full-time investor.”
“Didn’t you tell me that once you’re financially independent, you’ll be able to take risks?”
“But I’m not independent yet.”
“You must be. You spend nothing on housing, nothing on transportation, next to nothing on food. You must be independent.”
Dylan pinched his lips, as if pondering what I said, and a twinkle lit his eye. “You know what else? Guess what my taxes were last year?”
“How much?”
Dylan’s eyes danced. “Nothing.”
“How’s that possible?”
“That’s for another time. What I’m saying is, you’re right. I’ve measured financial independence based upon the lifestyle I want to lead in the future. I need to have enough to support not just me, but the family I want to have. But by the true definition of financial independence, I’m there. My passive income covers more than my current cost of living.”
I knew Dylan. He wouldn’t make the decision right away, he’d chew it over first, but I could see the wheels turning in his head. We walked out of the cafe hand in hand. “You see,” I said. “I could have been yours all this time. All you had to do was shell out for coffee.”
I grew up on plastic. One quick flick of the wrist was enough to purchase anything I needed. Now, even my credit cards were becoming outdated. More and more, I paid with my phone without even needing to pull out my wallet. But buying a house was a different story.
Before I could make the purchase, I needed an inspection, a title search, and dozens of other things. No doubt, every step would have stressed me out had Dylan not been through it all before. “Real estate is a team sport,” he said. “The better the team you build, the better you’ll be able to execute amazing deals.” Fortunately, he already had the people he liked to work with, so it only took a few calls to get an inspector and an attorney working on the case.
Miraculously, this house that the Munsters would thumb their noses at passed inspection. Not on all counts, mind you. The electricity was a mess. Some of the piping needed replacing. A section of the roof had cracked shingles. Despite all that, the inspector said the foundation was solid, and there was no sign of mold (though how he would have even smelled mold over the odor of rotting corpse, I didn’t know).
Dylan went with me to the bank the day after we got back the inspection report. “Now, when it comes to renovations,” Gregory asked, “just how extensive is the work you’re planning on doing?”
“The place is a total disaster,” I said.
“Will you be repairing any structural damage?”
I had no idea how to answer and felt immediately relieved that I had Dylan by my side. “No, the structure is good,” he said.
“Will you need over $35,000?”
“I’m not sure.” I shrugged. “Why? Is that all I can roll into my mortgage?”
“There’s technically no limit to the amount you can borrow under the 203(k) loan. However, there’s a streamlined version for loans under $35,000 that don’t require any structural work.”
Even the loopholes had loopholes. “And the advantage of the streamlined version is…?”
“That you don’t need an outside consultant, who will charge you to weigh in on your repairs.”
Again I turned to Dylan. He said, “We’re planning on doing much of the work ourselves. I think we can keep it under $35,000. But just barely. Let’s borrow $35,000 exactly.”
“Very well.” Gregory typed in some numbers on the computer. “The money will be put into an escrow account where you can draw on it for renovation purposes only. The renovations must start within 30 days of closing and must be finished within six months. Any questions?”
