When to flip and when to stick
A steady decline in flipping houses could signal an end of the buy to sell gold rush for many average Americans.
According to a report by RealtyTrac, only 5% of all single family homes and condo’s sold in the third quarter of 2015 were flips.
This represents a 7% drop on the second quarter of 2015 and, though 18% up on the third quarter of 2014, it still represents part of an overall decline since a peak in 2006.
But what if you weren’t planning to buy low and sell high? What if, instead of flipping houses, you were looking for a dream home in a neighbourhood where dreams are cheap? Would you buy a house in “the ‘hood?”
In 2006 that’s exactly what I did. You might be surprised at what I discovered.
Farmer tans and baseball caps
For me, raised in the United Kingdom on a diet of US TV, my arrival in the American Midwest was nothing short of a great adventure. From Toby Keith hats and farmers tans to baby boomer’s in baseball caps; it was all exactly as I had imagined it would be.
With my wife and daughter, a pair of Coldwater gals, we moved into our first home in the summer of 2006, when we took an apartment in the city of Kalamazoo – spiritual home of the Gibson guitar company.
We lived just a hop from the lake shore at South Haven, beautifully described in Audrey Niffenegger’s stunning 2003 début novel, The Time Travellers Wife.
Our mid-priced apartment on North Drake Road was spacious and well maintained, with communal swimming pools and carefully tended lawns.
But as much as we loved “the Zoo,” apartment living was always going to be temporary. What we really wanted was a house; a home of our own.
We wanted turn of the century and hardwood floors. We wanted a big yard and a huge porch where our daughter could play with the neighbourhood kids. Like most people, we wanted more than we could afford.
Until, that is, my father-in-law took a wrong turn and found himself in what some consider to be a less than desirable neighbourhood.
In the town of Battle Creek, Michigan, he stopped to ask directions and the person he asked happened to be a realtor.
She was just leaving a four bedroom, two bathroom, turn of the century property on a 4,356 square foot lot. There was a front yard, back yard, a garage and an open front porch.
The hardwood floors had long since gone, but you can’t have everything, I guess.
Flipping houses isn’t always profitable
The realtor accepted $12,000 with a handshake deal struck right there on the front lawn. It was cheap for a reason, but suddenly we were home owners. Or at least house owners.
It would be a few months before the property, in Battle Creek’s infamous Post Addition neighbourhood, would be liveable of course. Even then, well, there is more to a home than just four walls, right?
Before the old place would become a home, there would be a lot of work to do. Had our motivation been to make big bucks by flipping houses and moving on, then the margin for error would be as small as the margin for profit.
According to Lisa Smith, writing for Investopedia, flipping homes is not a quick route to easy money:
“If you are able to make a 10% profit on a house that cost $50,000,” says Lisa, “you’ll make a $5,000 profit.”
“For many people,” Lisa continues, “it might make more sense to get a good job, where they can earn that kind of money in a few weeks or months via a steady paycheck – with no risk and a very consistent time commitment.”
But again, we weren’t in it for the money, and a good thing too.
Before we could move in the old roof would come off and a new roof would go on ($7K). It would require new siding, damp proofing and flooring ($9.5K).
A new furnace and water heater would come in at around $3K, and a basement wall would be shored up with a few tonne of fresh concrete – including materials and labour, close to $2K.
The numbers just kept mounting up, and though most of it had been planned for in advance, the costs involved can quickly spiral.
Killer bats and giant rats
As you would expect with any fixer upper, there were more than a few surprises along the way; things we hadn’t planned for and which could have potential costs in terms of downtime and discomfort.
The house, for example, had at one point been condemned. This meant there would be more costs to bring it up to code. At one point we found ourselves without water and would spend weeks showering at a local truck stop.
We had family breakfasts with bikers and grizzled drivers of grizzled 18 wheelers, none of whom – oddly enough – looked anything like Kris Kristofferson.
For me, this was all part of some great American adventure. Everybody was friendly and wanted to know about England, and the pronunciation of “aluminium” became a standing joke.
For my family, however, it was draining and depressing. Which goes to show, you can never plan for everything and there were more surprises to come.
One evening, for example, I discovered what appeared to be a gigantic rat, napping in our garbage can.
It was actually a Possum, but what did I know? I’m the guy, after all, who tried to befriend a family of raccoons in the back yard by reaching out to them with half a hot dog.
And who knew that bats could have rabies? Bats! Cute, furry little mice with wings, right? Wrong. In America, I learned, bats could be infected with rabies.
In fact, so could dogs, Possums, Raccoons and cute little kittens. In England rabies doesn’t exist. In America, rabid rodents – or even the possibility – can stop a home renovation project in its tracks.
You can imagine my surprise when the guy fitting a water heater came crashing out the back door with his shirt over his head, jabbering about bats! And this was a big guy; a real “good ole boy” construction type.
To look at him you’d have thought this fellow could spit nails and use his fist for a hammer. Fair to say, he did not like bats.
So little did he like them, in fact, that work stopped until we could have somebody come and humanely remove them.
By then it was beginning to seem as though almost everything in the Midwestern United States could kill me – Racoons in the yard, bats in the attic, and Possums in the garbage. What next?
A friend would later inform me not to worry about “rattlers” as they tend to be quite timid (unless you stood on one hiding in your garden, I thought) and the deadly brown recluse spider hardly ever ventures as far north as Southwest Michigan.
Hardly ever. Not: “Never.” Just hardly ever.
I thought I was unshockable by the time my car was dive bombed by a very angry Cicada killer wasp. But I wasn’t. When a wasp the size of a sparrow takes a dislike to your old Pontiac, it tends to leave a residual fear of the outside, in general.
And all of that was on our property. Further afield we would face other challenges – though nothing would top that wasp!
Boom and bust in the Cereal City
As with any city of size, in any country in the world, Battle Creek has good points and bad. In my own experience, however, there is generally more good than bad wherever you go and Post Addition was no exception.
Platted by entrepreneur, C.W. Post in 1902, the neighbourhood was originally built for workers in his cereal plant.
Sharing the town of Battle Creek – known as the Cereal City – with major competitor, Kellogg’s, Post believed that workers who owned their own homes would be happier and more productive.
In order to avoid “cookie cutter” housing he even kept an architect on hand who produced six different home designs.
In the late 1960’s Battle Creek began to struggle. As more and more residents moved out to the suburbs the local economy began to stutter.
Those left behind found themselves with less job opportunities and, over time, neighbourhoods like Post began to feel the ill effects of economic decline.
But we knew from the beginning that life in “the ‘hood” might be challenging. We were under no illusions. It is a poor neighbourhood, after all, and that means all of the usual problems; high unemployment, crime, drugs. Post had it all.
Ask somebody from Kalamazoo what they know about Post Addition and they will most likely tell you not to go there. Ask somebody on Riverside, a four minute drive from our house, and they will no doubt say the same.
Ask somebody on Jericho, or Kingman, however; or ask somebody on Caine Street or Cliff, and they will tell you something else again.
One of our neighbours was a pastor at the local church. He and his entire family arrived at our door one Sunday afternoon, bringing with them dishes of home cooked food as a welcome.
Next door was a car mechanic who had lived in the area for a decade or more and swore he would never leave. Directly across the street was a large family with three or four generations under one roof and whose door was always open. If ever I need a hand with anything, from unblocking a drain or fixing a chair, I should “just hollar,” I was told.
During the months we spent working on the house, there was a stream of willing helpers – some gang members, curious to hear an English accent; some seniors, and others just interested neighbours.
During my time in Post Addition our home was never invaded and the family 12 gauge remained locked away, gathering dust.
Through long summers my daughters bicycle would lay on the front lawn, night and day, along with numerous other childhood belongings. None were ever touched.
Over on Caine Street there lived an elderly gentleman, originally from Georgia. He had arrived in Battle Creek as part of the second Great Migration of African Americans from the south.
We would spend many a pleasant hour, sitting on his porch and drinking beer as the sun went down.
He and his family made me welcome in their home, treating me with all the kindness and respect they would offer to an old friend. It was a rare occasion that I managed to leave Caine Street without some southern delight, cooked by his wife and handed to me in a foil wrapped casserole dish.
Up’s and down’s and sound advice
But living in an economically depressed neighbourhood isn’t all roses. It can be dangerous and I would be lying if I said otherwise. There is gang activity, for example. During the summer time, when the nights are long and the humidity high, tempers fray. It isn’t uncommon to hear the pop pop of gunfire, followed by the wail of police sirens.
Living in a stick built house, I was acutely aware of the damage a stray round might do.
For this reason there were times, during the summer months, when I would wake our daughter in the wee hours and make her sit behind the refrigerator.
So yes, there are dangers to consider when blazing a trail into less well off neighbourhoods, though the same could be same of almost anywhere.
It is important to be aware of your surroundings though, just as you would in any strange city.
It is equally important to be respectful of those who have lived there, and whose family’s have lived there for generations, no matter what your personal opinion may be.
There is a saying: When in Rome, do as the Roman’s do. Nobody is suggesting that you rush out and get a gang tattoo. But at the same time, don’t walk around as though you have some divine right to be there, just because you bought a house at a knock down price.
All in all I found Battle Creek to be a welcoming and interesting place to live. It has a vibrant downtown area, replete with chic bars and restaurants, and annually boasts the worlds longest breakfast table event. It has the cosmopolitan feel of a much bigger city, with the friendliness of a small town.
My family eventually moved back to the UK for work reasons, but living in “the ‘hood” was a fantastic experience where I made an array of good friends, many of whom I remain in contact with to this day.
In the future I may well return to Michigan. There are things I miss; tornado season and foot deep snow in winter, for example. If Michigan has anything, it is weather.
And, if I should return, I know where I will return to. As much as I love Kalamazoo, Coldwater and Union City, my first choice would be a turn of the century house on a tree lined street in Post Addition.
See below for a rough breakdown of costs, excluding the initial $12K purchase, downtime and legal fees.
Roof: $7K.
Siding $6K.
Furnace: $3K
Porch: 1$K
Flooring: $1.5K
Wiring: $1K
Water Heater: 500
Cement wall $2K
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