Coastline Capital Fund Management

NPN Story: Savannah Dog Lady

Originally published August 20, 2019, on Medium.com. View original post to see photos.

I’ve seen some terrible houses in my day. As a cop in Watts back in the 90s, I saw some pretty nasty crackhead houses and gangster crashpads. I’ve traveled to impoverished, third world countries and seen some real squalor. From 2011 to 2013, I bought dozens of condos in the Inland Empire (CA) and had some rough ones to fix up. But this REO we had in Savannah, Georgia was definitely the worst one I’ve had to ever rehab.

I’m talking dog feces mixed with urine covering entire floors in bedrooms, from wall to wall. I’m talking about vegetation growing on the inside of the house because of broken windows and leaky ceilings. Smells so bad that a real estate agent I called to inspect the property wouldn’t even go in the front door. (That one cracked me up; he seemed a little thin skinned but when I walked the house myself a couple of months later, I could understand his reaction.)

Here’s the story:

I saw this note for sale with the property in Savannah, Georgia, for a second time in late 2016. We had looked at it a year before but there were too many unknowns for us to pull the trigger. We took another look at it and saw that it was a lot closer to foreclosure. The borrower abandoned the property and the seller of the note had to go through a longer foreclosure process because they couldn’t locate him (service by publication). The house looked like it was an old, Victorian haunted house, with the overgrown trees and vegetation, covered windows, faded paint, and dilapidated siding.

House before we bought loan
House before we bought loan other view

I really wanted to get a peek inside and had a hard time finding someone who’d be willing to go up to the window and snap a couple of photos. I lucked out and one of my contractor buddies from my “day” job at the time said that his wife could drive by and check it out. She did and I was pleased at what I could see. There was some junk in there but everything else didn’t look too bad.

Peek at the inside before we bought the loan

Peek at the inside before we bought the loan

Our biggest problem was trying to get a good idea of value. All of our sources showed values ranging from $50,000 to $280,000, which is something I wasn’t used to at the time and is a definite red flag when you see that kind of variation. I called realtors in the area and I got a huge range of values from them, too, $125,000 to $300,000. This was odd.

Old Victorian in Savannah, Georgia

The more I looked into it, I came to the realization that Savannah was one of those markets with huge diversity in real estate that makes comping (valuing) properties very difficult, even for the professionals. The neighborhoods there can and do change drastically from block to block. You could have a historical, perfectly restored Victorian style home worth a million bucks on one side of the street and then have a rundown, crackhouse, 5 or 6 houses down worth $50k.

If you’re doing your values strictly by square footage and room count, you’re at a huge disadvantage and will make mistakes all day long when valuing a property in downtown Savannah. Even locals will make mistakes and you really have to have a good handle on the neighborhood, trends, and what’s happening locally.

(Note to investors: You can have a tremendous advantage in real estate markets that have this diversity in real estate values that require local knowledge when you know the market better than everyone else does.)

Although there was this huge variation in possible property value, we felt confident that it was actually worth $225k to $275k. Still a huge range but worth the risk at the right price. We went back and forth with the seller and they agreed to sell the loan for $70k.

Licenses? We Don’t Need No Stinking Licenses! Uh, Yes, You Do

The loan foreclosed during interim servicing so we got it back as an REO, 45 days after we bought the loan. This was a stroke of luck not only because we got the property back right away but because we found out after we bought it that the state of Georgia was very strict about requiring note buyers to have their lenders license. Georgia requires that investors that buy notes on the secondary market, like us, are required to have lenders licenses and are active in finding unlicensed buyers of notes and forcing them to get rid of their notes. We talked to at least one note broker who told of a client of his who just purchased a portfolio of loans only to have to turn around and sell the whole thing at a loss because the state found out and forced the sale.

Thank God we got lucky and this was now an REO. For the future, we made it a point to make sure we had the right licenses before we bought any loans in a particular state.

Now that the house was ours, I had to find boots on the ground. One method to flip houses from across the country is to find a real estate agent to manage the rehab, get contractor bids, make sure the lawn gets cut, and to turn on the utilities in exchange for listing the property and earning a commission upon selling it.

Boots on the Ground

I called quite a few agents before I found one with great reviews on Yelp! Yelp.com that agreed to go have a locksmith change the locks and inspect the property. This was the poor guy who took one look at the inside and basically said in a southern accent, “Hail, no!” Some realtors like more polished listings but, to be fair, this place was disgusting.

I found my “boots on the ground” through Biggerpockets.com. I posted about needing to find someone to help me out and a newbie investor, local to Savannah, answered my call. She got a HUGE amount of experience and some pay and I got a local project manager.

Disaster? OMG

We very rarely see any of our properties in person but this one had its challenges. I flew out from California and this is what I saw:

House before without vines
House before we bought without vines other view
Old broken trailer in backyard
Kitchen before with junk

I wasn’t exaggerating. Dog feces, urine, wild vegetation growing inside and outside the house. Abandoned RV in the backyard. We halfway expected to find a dead body once the backyard was cleaned up.

Poor, Poor Dogs….

From what we could see, someone had built wooden dog kennels in the two upstairs bedrooms. There were a couple of kennels downstairs in the bathroom and closet as well. It broke my heart to see the inside doors of these kennels with claw, scratch, and bite marks from what must’ve been desperate animals trying to get out. The corners of the doors had been chewed back. It was awful.

Makeshift dog kennels, chewed up and clawed doors

One of the creepiest things was a chain tied to a high branch of a tree in the backyard. Especially given that we were in the South, it felt very strange.

What was this chain used for? Creepy…

What was this chain used for? Creepy…

As a cop in Watts, I’d seen a lot of cruelty to animals, usually gangsters raising dogs for fighting. I suspected that this house had been used for that purpose. I thought that the kennels, the poor conditions, were all consistent with some gang or hoodlum using this abandoned, vacant house to raise fighting dogs.

While my PM and I were waiting outside the house for a contractor, a neighbor approached us. She told us that the house had been occupied by a mentally disturbed dog lady. She took in all of the neighborhood strays. She didn’t turn away a single one. The last that the neighbor heard, the woman left to go out to the “country,” some remote part of Georgia away from everything else.

I felt better that I was wrong about the gangster dog fighting but it wasn’t much comfort to think of a poor, deranged woman taking care of these animals, given what I’d seen….

It took 3 months to clean up and fix the mess. If you didn’t know the history, you would never have guessed what was there before. Cleaning up the initial mess and landscaping cost a few thousand bucks but made the place look 10 times better. Some more work and it shined up like a new penny. Here are some before and after pics:

After pics of the outside

Dining room before and after

After Kitchen pics

Before and after downstairs Bathroom

After Upstairs Room (this one had the wooden kennels)

Before and after Upstairs Bathroom

Before and after Upstairs Trunk Room

Things I learned:

– Do the extra work to get your values right. You mitigate your risk and open yourself to bigger profits when it’s even more valuable than you think.

– Check the state you want to buy your note in to make sure you have the proper licenses.

– When you’re willing to take on additional risk (valuation risk, unknown extent of rehab with older building), make sure you get enough of a discount when buying. Get paid to deal with problems that others don’t want.

– If dog feces and urine aren’t your thing, leave it to someone like me who’ll put up with that shit.

– When you’re dealing with older buildings (especially in historical district), include a generous cushion in your repair estimates. Once you start opening up walls, you’ll find additional problems that need to be addressed.

– I love Savannah, Georgia for many things but it remains a place of great opportunity for the fix and flip investor willing to get to know its neighborhoods.

Final Numbers:

Purchase Price: $70,000

Total Cost Basis: $159,483 (repair cost about $80,000)

Net Sales Price: $251,783

Net Profit: $92,300

Days Held: 283

Return on Investment (ROI): 57.6%

Annualized ROI: 74.3%

Coastline Capital Fund Management LLC

27702 Crown Valley Pkwy D4 #268
Ladera Ranch, CA 92694

P: (949) 371-6749

andy@coastlinecapgrp.com

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