Non-fiction: The Time My Friend Made a Really Bad Decision to Buy a House in West Baltimore at an Auction
Around 2006, I would talk up real estate investing to my friend–let’s call him Kyle–encouraging him to get in on the game in Baltimore. It made sense for him to buy in Baltimore as opposed to DC, where he lived, because as much as the boom hit Baltimore, it hit DC even harder and house were going for even more ridiculous prices there.1
So on a rare visit to Baltimore from DC,2 we meet at the Starbucks in Canton. We have coffee and he tells me that he wants to start buying investment properties in Baltimore.
The strategy we laid out was similar to the one I used to purchase my own rental property–I had targeted the area just north of Patterson Park and south of Johns Hopkins hospital. At the time, Hopkins was in the process of buying up tracts of boarded up blocks near the hospital as part of a big Biopark development plan. The land was to be completely redeveloped with a big research facility and lots of brand new residential and commercial construction (as far as I know, the plan is still being implemented).
My brilliant theory went something like this: to the south of my target area, we have Patterson Park, which is a really nice park (with a Pagoda!). Everything below the park (Canton) was already full of young professionals3 and to the north of my target area was the planned Hopkins development, which was just east of Johns Hopkins hospital itself—one of the best hospitals in the world, according to magazines.
My theory was that these two developing areas would gradually expand, converging in the middle, right where I had already purchased a rental home. As the prices increased, people would start rehabbing, yuppies would move in and all of a sudden the house that I bought for $68k could be rehabbed and flipped for $250k, maybe 5 years down the road.
This plan wasn’t totally crazy and I say that because the first two blocks directly north of the park had already seen this happen, where you had crazy nice rehabs on the street going in the mid to high 200s. What’s happened since 2008 when I left Baltimore, I don’t know.
All of this is a very long-winded way of saying that my friend and I, we had a plan and I was going to be his trusted but non-fiduciary adviser.4
During the next few months, I kept my eye out for new listings and auctions in our target area but nothing happened until one week he emails me about a big auction happening in Baltimore. The auction was on a Saturday morning at 8am or 10am—I want to say 8am only because that makes me look less irresponsible for sleeping in and showing up an hour late but it was probably more like 10am. I went out and got drunk the night before, slept through my alarm, and showed up at 11am.
While I’m driving to the auction house, my friend calls me and says “Carter! I bought a house!”
“Ut oh” I thought. The plan was for me, as his trusted but non-legally-responsible advisor, to carefully evaluate each property as it came up for auction. That way, I would be able to tell him if the property was in a good neighborhood or a good block. I don’t know if that plan would have worked—in hindsight we probably should have prepared—but we didn’t even get a chance to test it out.
When I arrived at the auction house, Kyle, giddy with excitement, waved to me from the back of the room. I met him in the back office where he was busy filling out paperwork and writing a deposit check for his new investment—a newly renovated $50,000 house.
Now, my first thought was “wow! Only $50,000. What a great deal you got, why do you need me?”
My next thought was “wait, why was it so cheap? Where exactly is this house located that it’s so cheap? Oh God, what have you done and how much of this is my fault?”
But I didn’t say any of that out loud because he was so excited. So excited that he kept saying “I bought a house! I bought a house!” and who wants to ask difficult questions at a time like that?
At this point, I should say that my friend is a very smart guy, one of the smartest and most successful people I know and certainly way more successful than me at the time, in terms of income and net worth and probably everything else if we’re being honest, even down to the little things in life, like not getting drunk and sleeping through alarms and showing up an hour late for big important business meetings.
Back in the office, there was a map of the city. We looked up the address. His new house was right in the middle of the worst neighborhood I knew of in Baltimore. Literally a no mans land.
“What a great up and coming neighborhood” I said, trying to figure out just how much I was to blame for his terrible decision. Teachable moment here: don’t buy anything in a city that you know nothing about, especially if it’s a binding contract with a $10k deposit, five miles away from the area that you have been carefully targeting for months.
He wanted to see the house, so we got into his BMW (he was there with another friend as well) and drove to West Baltimore, right into the heart of The Wire territory. Going to that area was always a bit frightening but I had only been to West Baltimore in a beat up Toyota station wagon, a car that I hated so much I would have welcomed a car jacking just to get rid of it. Driving around in a BMW, with one white guy, one black guy, and one middle-eastern guy, we were not exactly doing a good job of fitting in.
As we get closer, I could tell that Kyle and his friend were getting uncomfortable. I imagine that this is when my friend started to question his decision, i.e. “the contract said the sale was final but was it really final final? This is America right? You can always find a way to get out of a contract in America. I wonder how much a real estate attorney charges for this sort of thing…”
We finally arrived at the house, which took longer than it should have because the street sign on his block had been flipped around, something that gangs do to make it harder for cops to navigate the neighborhood.
And the house..man, it’s so funny, thinking about this now. The house was the only house on the block that’s was standing. All of the other houses on the block had been abandoned and torn down by the city so there it is, my friend’s new house, just sitting there on a block where all the other houses had given up. I couldn’t believe that someone would choose this house to renovate as an investment. It was so absurd that it was comedic in a way.
So we got out of the car and look around. Scary stuff. Drug dealers on the kitty corner from us. Junkies milling about. And just a general feeling in the air that felt like You. Don’t. Belong. Here.
And my favorite moment of this whole experience… there was a guy swaggering down the block towards us who shouted at the top of his lungs: “check it out! These mother fuckers is buyin some mother fucking real estate!”
I would have fallen down laughing if I hadn’t been terrified that he was goign to come up to us and steal the car and our wallets and who knows maybe shoot us for the fun of it and leave us in that house that absurdly turned out to actually be really nice inside. Like whoever rehabbed it had put some thought into it—it wasn’t just a bare bones rehab for a low-income rental. It would’ve been a nice place to live if it hadn’t been on the saddest, most terrifying block in the city.
None of us were willing to admit that we were terrified to be there so we went inside and did a cursory inspection of the house.
‘Looks good to me.’
‘Yup, looks good.’
‘OK, so should we leave immediately and never come back.’
‘OK, great!’
‘Sounds good to me!’
We jumped in the car and got the hell out of there. My friend was beside himself. Two days later he called me to ask me what he should do. He tried getting a management company to run it because that way he wouldn’t ever have to go there. Every company he called told him it wasn’t worth it, that any tenant they put in there would be more trouble than it was worth.
Eventually he decided that the best course of action was to get out of the contract (and lose his deposit) by telling the seller that not only did he not want the house anymore but that he had to travel immediately and permanently to Iran for the rest of his life and that if she didn’t let him get out of the contract, she would have to come to Iran to collect the money. Which worked.
When the bubble popped, housing prices in DC and the surrounding Maryland/Norther Virgina suburbs didn’t take nearly the hit that places like Baltimore, Vegas, California, and Florida took, in large part because the federal government continued to grow during the crisis while the private sector was losing jobs. ↩
A lot of DC people are snobbish about coming to Baltimore. Basically, they think of Baltimore as a shithole. But people in Baltimore know better—DC is the real shithole. First of all, DC is full of politicians and lawyers and lobbyists so there you go, it’s a shithole. Aesthetically, it’s more a matter of opinion. DC is probably prettier in its nicest parts but Baltimore is far more interesting aesthetically, in my opinion. As for the people, it’s true that the average DC resident is more cosmopolitan and more educated, but that gets canceled out by their attitudes. One thing that I enjoy about living in the Midwest is that the people here are not as status-conscious as the east coast, especially DC. In DC, the first question that most people ask you when you meet them is “what do you do?” Besides being a completely unimaginative first thing to ask someone, its extra annoying because it’s really a question about your self-worth, as in “should I care about you and can you help me? Are you an important person or just some shlub with a clearance? Will knowing you give me an advantage in my career?” I imagine LA is the same way, but at least in LA people are making movies and not screwing taxpayers or giving out hand jobs just to rub shoulders with powerful people that get to do the screwing. I guess we’re all whores in the end but I digress. The bottom line is that DC is full of lawyers and lobbyists and politicians and for me that’s enough to make it a shithole. ↩
The crazy drunk guy that lived in a shack, yes an actual shack, behind my house notwithstanding. ↩
I honestly can’t remember now if I had a real estate license at that point or not. Either way, we didn’t have a signed agreement stating a professional legal agreement between us. I was just acting as a friend, helping out. All the usual caveats about free advice apply here. ↩