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Show highlights include:

  • Why a 30-year mortgage will suffocate your cash flow and cause endless headaches (even if it seems profitable) (6:57) 
  • The insidious way lead wipes out all your profits and forces you to sell the properties at a loss (9:14) 
  • How to do a lead clearance test on all your rental properties without bankrupting your business (9:55) 
  • A creative way around the backwards lead clearance rule in Cleveland (12:25) 
  • How to scoop up houses that have been cited for lead violations for a 70% discount (and the easy way to fix them) (14:29) 

Hey! Want to do a deal? Need my help? No cash to make an offer? Send me a quick text at 440-389-3883 or shoot me an email at REbroker216@gmail.com and we’ll work together to get you the deal.

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Welcome to Cleveland Real Estate Investor. On this podcast, you'll hear about every aspect of the real estate investment business. You will talk to your rockstar investors about their businesses, how they built them, where they came from, and where they're going. Who am I? I'm Joe Lieber and I've made millions of dollars from the real estate investment business over the last 20 years. If you're ready to hear the good and bad from a guy who's learned this business from the school of hard knocks and get educated by some bad ass entrepreneurs, then put your helmet on, strap on your chin strap. Let's ride.

(00:54): What's going on, guys and girls. Thank you. Thank you for tuning in. We're going to have some fun today. We're gonna talk about lead paint. This is some serious stuff what's going on. Appearing. See town. All right, let's get into this. Let's think about it. So I remember I've been an agent for like, I don't know, 20 some years. I remember when I first got into the business, you filled out two forms. Your broker taught you the residential property disclosure form and the lead based paint form. Any home built before 1978 required a lead based paint form that the seller would fill out this to tell you if the home had lead based paint or not. I didn't really understand it ever. I swear every deal I ever did for the first five years, just like the seller's knowledge of lead based paint, no seller had reports of blood-based bank.

(01:45): No, and seller would sign it and you'd ask them, do you have a base paint and all hell I'm talking about? No, does Lisa? I felt that's what went on. Then you start thinking and learning what is lead based paint? Well, what's going on? And what it is is I'm explain this to you. Why it was explained to me. So prior to 1978 paint companies put lead in the paint, they put it in the paint because it would make the paint brighter, the colors, more vibrant and more durable. And that's what they did for as long as paint companies were around until then, then in 1978, some little boy, not in 1970, probably 1976, something like that. Some little boy was eating the paint chips in a New York apartment and he died and they did testing and found out he had excessive amounts of lead in his body.

(02:40): So this big thing started to, they found out lead will kill you. If it is ingested, inhaled, it's not good. So that's when it started to everybody had to have this form signed. There was selling a piece of property or renting a piece of residential in the country. That much talk about it though. Like that was it. You signed this form and very unusual you would hear about, about a lead case, right? Like hear about it on the news. Maybe, or read about it in some law book where so-and-so got his in all kinds of trouble. But I don't know, at least for me, it never like early resonated. It's like, Oh, that always happens to somebody else. You know? So about 10 years ago, the city of Cleveland started like a led coalition, right? Like they're going to fix this. And I had been cited over the last 10 years, a few different times for having homes that contained two high amounts of lead paint.

(03:39): Well, how did I get cited? You probably ask like, how do they find you? Well, what they do in Cleveland is if you live in the city and when a child goes to the doctor, it's an automatic lead test. They do a lead test, no matter what, if that child comes back with high lead, then it gets automatic trigger to city of Cleveland building department. And they have a team there that goes out there, risk assessors, and they go out and they do samplings and they test around the windows were all the lead painters were on the windows, the door jams, the soil, the exterior of your home. And they send you out and they say your home has been sighted and needs a little bit done. And you can't get out of this. You have to do it full disclosure. I want to do it.

(04:29): I don't want anybody getting sick. I mean, obviously, so you have to do it. So my experience has been over the last 10 years, I've been stopped a few times, but, and, and I've had, you know, risk assessors do the property. And it cost me a small fortune to do a lead abatement. You have to bring in a lead by Bateman contractor. And then they have to like encapsulate and, you know, close off areas and replace windows. And then they bring behind them. And I'm going to mess this up. So don't get mad at me here, guys, I'm still learning this. I'm just sharing information with you. They bring behind them a dusting sampling techniques. So as soon as they're done clean the house, and as soon as they're done replacing and windows and like doing the abatement, they bring in the dust sampling technician and they test all the surfaces.

(05:22): They test the soil. And then if you pass your good and set, which usually these guys are trained and they're very good at it. And they pass. The challenge is, is a cost of fortune. I've spent anywhere from seven to 15,000 to do one, just one house. And then about three years ago, I had a house. I had a double. I'm gonna tell you a story, actually right now, Hey, let's go into a story. I had a house that I bought with a business partner. When I was doing partners in February of thousand two, it was a double two family up and down on Elmira of West Boulevard. We bought this home. We paid $90,000 for it. We put 10% down. We borrowed $81,000, a 30 year mortgage at seven and a half percent. That was good. Right? That was good. And February of 2002, so bought this house.

(06:22): We owned it for 15 years to the day, 15 years to the day, we didn't make any money on it though. Where the rents were like five 50, a unit, 1100 a month. You had a water bill. You had a big mortgage. The cashflow on paper was maybe 200 a month. And obviously that gets sucked up really quick because you know, you're going to have a turnover. You know, you're going to have a furnace or hot water tank or, or something's going to happen. You're going to lose that 200 a month. And we did hell a lot of times we put money into it. So anyways, they own this home 15 years to the day. And Oh, this is why I hate 30 year mortgages. I will never do a prison sentence 30 year mortgage, as long as I live again, because of this story.

(07:06): After 15 years to the day, we had announced ending principal balance of $67,000. When we sold that property, that's sucks, man, that principal barely moved. Like just don't ever do that. All right, don't ever do a 30 year mortgage. You, I don't care if it's your primary residence or it's a rental. I just don't like them. You know? And you guys are going to argue with me about the cash flow, play in the tax play. And that's fine if you're in it for that, then fine taxes, all that jazz. Great. How was it for cashflow? And it didn't work. So anyways, back to at hands, I got cited on that house for lead. Now think about that an up and down double and Cleveland, you know, a big, this house was each unit was a thousand, 50 square feet, two bedroom living room, dining room, they're big units. And the house was built in like 1920, like Holy cow, dude, that risk assessor came in and destroyed this thing. He wanted all new windows. There's like 40 some windows in this house and needed a roof.

(08:13): The outside needed to be, it was all wood that was chipping. So to have a lead abatement contractor do the painting was like triple what it would cost to get the outside painted. So you had to really was cheaper to vinyl sided. So you talking about vinyl side and a huge house like that. You're talking 15 GS the door sills. They found lead paint everywhere. The cinder block walls in the basement had lead paint on them. Like it was a nightmare. I got a couple of quotes. It was like 40 GS to get this right on a house worth. This is what about three years ago, four years ago now, and a house probably worth 40 on a good day, owing 66. And then I'm going to spend 40 grand doing a Renault hell no. Oh, just to have a piece of garbage in the end anyways.

(09:05): I mean really right? Cause it needed so much more than that. I needed cabinets need furnaces needed hot water tanks needed electrical boxes. It just needed stuff. And I had to put it into thing, other things. So I tapped out, man, I was done tap out. I sold the house for 20 grand and wrote my partner. And I had a split about a $50,000 loss with closing costs and tax credits and all that. So we actually wrote a $25,000 check to sell the thing. Each it sucked cause OLED it's changing the game. I was the motivated seller. I sold it to a real estate investor. He knew what he was getting into. It was full disclosure. You know, he wanted to do it. It was a good deal at 20 grand. Not for me at 67. There's going to be crazy good buying opportunity because of the led thing.

(09:53): All right. So here we are. Let's update a little bit Cleveland, their coalition they're coming now. They're coming in eventually since they're like they're. So they're saying every home in the city of Cleveland, that's a rental property has to have a lead clearance test by March 31st of 2021. And if you're a landlord in Cleveland, you probably got the postcard. I literally in my office last week and I was having like 25 postcards a day arrive because he said one for every property, like have a stack of these things on my desk. And in order to have a rental property in Cleveland has to be done by March 31st. Now, couple things with this, a lot of things with this actually. So how you can get all these done, how are we going to do this and do without going into bankruptcy? Well, I went and they're recommending a landlord's property managers, owners.

(10:50): They were recommended. They go get RRP certified, which I just went yesterday to this class. It is, I don't know, RP stands for repair. It says it on the paperwork. I don't have a written down guys. I'm sorry. There it is. Renovation, repair and painting are RP certified. So I went to a class yesterday all day and I got our RP certified. What that means is that I can go in there and I can do an assessment with this fancy stuff to see if my home contains lead paint. And then it allows me to do the renovation with my team. My team does not have to be licensed just me. I'm allowed to be licensed. I have to be licensed. And then under my expert to tillage, I'm going to show them how to do the renovation. And you know, basically we're going to scrape and repaint and then retest.

(11:49): Now here's the part. I don't know that they didn't even know what the class, the question after we do the repair, the renovation, can I retest or do I have to get a dust sampling technician to come in and do it? I believe that I have to get a dust sampling technician to do it that I don't know the answer to. So if one of you cats do know email me, but by the time you hear this episode, I'll probably have the answer anyways, but email me anyways. That's what's going on here. It's serious. I, you know, I guess a couple ways look at it. This is crazy. This is a great for people to be healthy, but here's, what's not fair about it. Like I'm all about not having a house with lead paint. Don't get me wrong. But if the house next door is owner occupied, they do not have to have the house heavy lead clearance test for the house.

(12:38): So if it's an owner occupied home, no lead clearance is required. So me as a landlord, I have to have my house clear, but if there's a six year old child next door there, okay. Don't count for them. Just counts for uncle Joe over here. Uncle Joe has gotta be the one to make sure it's clear. I'm hearing some crazy stories. Like I'm hearing some landlords out. There are actually, they have a long-term tenant, like a five, six, 700 tenant. They have a good relationship with, and they're getting cited for lead paint. Or if they notice this coming down, they're actually selling the homes to the tenants and then putting in a first lien position, mortgage and note against it. And it bypasses all that. Now all of a sudden it does not have to have a led clearance test because they own the home and this can get really expensive.

(13:26): I mean, not all landlords are just rolling in the dough, man. It's good times not everybody's rolling like that, where you have 10 houses and it costs you 15 GS a house to get it through, get a led clearance $150,150,000. Cash is a lot of money to get through led clearance, especially when you're not really doing a whole lot of cap ex items. It's more just, you know, whatever stuff to get through led clearance. When you really want to do roofs and you want to do furnaces and you want to do hot water tanks and kitchens and baths. It's none of that. That's not led the LED's around the windows, the outside of the property and the soil. I had a house over on 89th street that I had to have a Bobcat come in and I had to scrape off four inches with a Bobcat of the front and backyard and recycle it.

(14:17): That happened to like 2013 or something. I remember that that's expensive. Even get a Bobcat for the day they had, my guys will get it and drag that thing over there. And you know, it's for real. So that's, what's going on. It's going to create some really good buying opportunities. If you can get the lists, which I'm going to probably have my acquisitions manager go chase that list and see who's been cited for lead paint. They probably want to. So guys going to be a good opportunity there. You can get that data somehow, press a call up here and knock on doors in the city of Cleveland. Like, you know, downtown the courthouse and all that. But you can find that list with a little bit of work. And if you start buying houses like that, thank you, uncle Joe and friggin, call me with them.

(14:58): I want to buy that's all I know. So I went and got this certification. You should probably get it too. And at least you'll learn more about it. It's for real, it's not going away. He could tell you that it's legit. You'll get your cards. I got mine last week. Your cards are coming. If you've got a property there. Oh, Oh, here. So I'll tell you too. So if you don't have a lead clearance that you can't get a rental registration and the rental registration has a, how they know of you. Cause you're, if it has a different text mailing address, I said it already signifies. It's a rental property. So if you have rental property here, I'm sure you have a rental registration. Cause you can't do any eviction without a rental registration. So they got ya. So if you think you're going to turn a blind eye to this, you're not because when you go and do an eviction, you have to have a rental registration. Well, they're not going to renew your rental registration check and they'll do an eviction. So you have to do it. You're going to have to do this stuff, but you have a great property. That's led clear, you know how to lead clearance and I'm your money, baby. All right, that's all I got. Thanks for tuning in hope you enjoyed the episode, have a great day.

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