Sayonara Japan and to Rental Prospect #3.

Must all vacations come to an end?

The goal someday is to have enough passive income so that my wife and I can live in Japan not as temporary tourists, but as permanent residents. It’s always been a dream of ours to live in a foreign country. We both grew up bilingual and want our children to learn another language by being immersed in another culture.

Until our passive income is high enough to cover all of our expenses and then some, we’ll continue to visit other countries as tourists.

Much to be Thankful For

I had an amazing time in Japan visiting relatives during Cherry blossom season. This trip wasn’t filled with excursions to many touristy locations or late night Tokyo bars. Rather it was to bond with my 92 year old grandmother. Time is precious and often taken for granted. As I age, I’ve come to appreciate more every opportunity that I get to spend with my aging relatives. On this trip, I was fortunate to dig deep into a lot of  my family history.

My grandmother is remarkable. She’s 92 years old and in great physical health for her age. In addition to her daily Radio Taiso exercises (basically calisthenics exercises), she goes on an hour walk every morning. She’s been doing this for her entire life. Yet, she still can have a large mug of beer with me and my uncle (see us below with our stylish yukatas).

My grandma lived through WWII. Literally survived through it as her home was one of the hundreds of thousands burned down by the destructive fire bombing that fell onto Tokyo. At the age of 19, she along with her brother and parents fled with nothing more than the clothes on their backs. They remained homeless through the end of the war and had to start over from nothing.

Hearing such stories makes me recall how often as a kid my mother and grandma would caution me to finish all my food and to not waste even a single grain of rice.

Life was tough for them. Food was scarce at times. Living in the US today we have so much to be thankful for and the challenges I’ve faced in my lifetime don’t even compare.

After 2 weeks, I’m heading back to the states with a renewed sense of gratitude for what I have. I don’t worry about being hungry because I can afford food. I have a place to live. I have my health and a job. I’m thankful for my wife and my family. There are so many blessings that I am grateful for each and every day.

Rental Property #3 Update

And thank goodness for property inspections.  The Indy property I had under contract was looking pretty good until I received the results from the inspection report. Prior to the report, I thought I had a good grasp of what to expect. I mean, I walked through the house a couple of times with my realtor and a contractor. I knew I needed a water heater, some new windows, a new bathroom, and some water moisture in the basement that needed to be addressed. My rehab estimates were looking to be around $5k.

Though when an inspector spends several hours investigating every nook and cranny of a house, they’re bound to find a handful of items that go unnoticed by the untrained eye. Such was my experience here. The major items that came up from the inspection are the following:

  • Active knob and tube wiring in the attic and parts of the basement.
  • Electrical panel is ungrounded
  • Chimney brick and flue in major disrepair
  • Major fire in the attic, requiring a structural engineer to assess further.
  • Missing A/C unit

The first 2 bullets sent off warning flags in my head. This property was built in 1920 and still had active knob and tube wiring. This is a fire hazard and many insurance companies won’t even touch a property that has such out-dated wiring. I disclosed this issue with my insurance carrier and luckily they said that it would still be insurable without an additional cost.  Nevertheless, removing the knob and tube wiring as well as grounding the electrical panel would need to be handled by a licensed electrician. These are additional costs that I didn’t initially expect.

Another item was the attic. There were clear signs that a major section of the attic had a fire. There was even one purlin brace that was noticeably bowed out. The inspector recommended a structural engineer to take a look to assess whether the structural integrity of the attic was still adequate in holding up the roof.

The chimney was also in major disrepair and needed to be completely rebuilt. Not a major item, but still more cost to the rehab.

Lastly and the most unexpected to me was the A/C unit. At the time I had walked the property, the A/C unit was very much intact and nearly brand new. When I got the inspection report, however, it was stated that this house had no A/C! I was very confused and started to doubt whether I had actually seen A/C here or not. I went back and looked through my pictures and sure enough, there was A/C. See the pic below.

A/C       No_AC

So what happened? Well, someone stole the A/C! Unfortunately, stolen A/C units are not that uncommon with vacant properties or houses that sit listed on the market for a long period of time.

So let’s recap. The additional repairs found from inspection include: electrical work (knob/tube wiring, ground electrical panel), chimney repair, possible attic structural work, new A/C.

So long story short, we requested a $5k credit. Seller rejected and after not coming to terms, we moved on.

Lessons Learned

Stick to your guns. Don’t go buying something unless you’re completely comfortable with the property and after having double checked or triple checked your numbers, the numbers still make sense.

I was beginning to get out of my comfort zone on this one. I don’t particularly go for such old houses. This one was built almost 100 years ago. There are bound to be unknowns on a house this old. Not to mention, this would have been my first purchase in the Indy market. So the team members I’m working with (i.e. realtor, PM, contractors) are untested. That’s not to say they won’t be great, but it’s just another variable that equates to risk for me.

So with a new market, new team, and much older house, there was just more risk than what I was comfortable with taking on.

Lastly, I was still in Japan! While it’s certainly possible to purchase a property while overseas on vacation, it makes the due diligence process much harder. Calls need to be made during business hours, but when you’re 13 hours ahead, scheduling a call can be quite difficult.

All in all, I wasn’t sad to see this one go. Spending time with my grandmother was time better spent. It also put things into perspective. There’ll be more houses to pursue. So canceling the contract and spending more time with her was the right decision by far.

Until next time…happy investing 🙂

8 thoughts on “Sayonara Japan and to Rental Prospect #3.

  1. Wow — great post! I love your grandmother. She’s adorable, and I’m sure she’s got some really fascinating stories to tell about living through the War.

    Good call on the investment property. I’m sure it was a really tough decision to make, because you feel somewhat invested in a property as soon as you enter into escrow, but you definitely made the right choice. Those would be some expensive improvements! Just eyeballing it, it looks like potentially tens of thousands of dollars, depending on the extent of the damage. The sellers did you a favor by not offering to concede the $5k.

    My sister bought a 1919 property, and she’s had to do a LOT to it, including replacing all the knob and tube wiring with modern electrical, re-leveling the floors (twice, it turned out, because an unpermitted addition was dragging the roof down on one side), etc. If you live there and you’re in love with older houses, and you’re slowly getting to all the improvements, then fine. But as an investment property with a management company, it sounds like kind of a nightmare.

  2. I completely agree! Glad to have let it go, though in the moment especially while already under contract, I did have some hesitation. I mean, just getting a property under contract takes a lot of work! So it was a shame to let it go, but in the end I know that there will be other properties that have far less unknowns and risk for that matter.

    That property of your sister’s sounds brutal, but I’m sure all that sweat and love has turned that property into a gem. I bet no one appreciates that house more than she does 😉

  3. Great post and lessons learned! I hear what you’re saying in the comfort level factor (where you are in your REI career, how old the house is) and not just relying on numbers. How I feel overall about the deal is the deciding factor then just cash flow. I’ve learned another thing from your post regarding the a/c being stolen. I’m closing on a deal now and the seller will install the a/c on the day of closing. Now I’m wondering if he’s doing that so he doesn’t have the vacant property with a new a/c during the 2 week close. Its a B neighborhood but now I’ll need to think about a/c security possibly! Will talk to PM…Thanks!

  4. Thanks for stopping by Neil. For one, I would really push for the A/C being installed prior to the actual day of closing so that you can have the A/C installation inspected. You want to be able to verify that the work is done properly because once you sign the papers, any fixes will be on your own dime.

    One other thing with this Indy property that I failed to mention, which was a big lesson learned is to not trust that the seller will properly install what they say they will. During negotiations with this seller, the listing agent told my agent who then told me that they had installed a new water heater. The seller stated that this installed water heater was equivalent to $1000 (their estimate). I had my reservations so I sent my rehab manager over there to check out this water heater. I’m so glad I did. It turns out that it was an electric water heater, not gas even though the gas line was set up right above it. Why is this a problem? Well, this water heater would draw 30 A on an panel that only has a 100 A capacity. So if someone’s taking a shower, along with the A/C running, the dryer running, and say someone turns on a microwave…well, the panel wouldn’t be able to handle it unless I upgrade it to 200A…much more cost than what’s really needed especially since all of this could be avoided by just installing a gas water heater.

    What’s worse, it wasn’t even installed properly. While they used the right gauge wire, the electrical lines needed to be in a proper conduit to lead to the electrical panel.

    Not to mention, this was a generic brand that definitely did not cost $1000.

    So yeah, I had my agent relay all of this information back to the seller, that I didn’t want the electrical water heater for the reasons above and that I’d rather have a credit so that I can install one myself.

    Long story short, have the A/C installed before closing so you can have the job properly inspected. Otherwise, get some A/C estimates on paper and send that over to the seller so that they can credit you this amount. Then have it installed properly by your own team.

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