Lessons Learned

61 thoughts on “Lessons Learned”

  1. well, This is what economists call “rent seekers” or Soviets call “social parasites”. Lots of good, modest paying government jobs for college graduates who wish to spend time relaxing, maybe getting “tips” from politically connected developers. This is a good reason to vote and work for Libertarian candidates, most of whom are good people and not odd balls. Libertarians get more votes, other politicians get more reasonable. Pity to lose your elective office because the key 5% of the vote went elsewhere.

    1. You’re touching on some important concepts that intrigue me.

      The “rent seeker” is based on the concept that someone has an unnatural political or social advantage over most other people and that unearned advantage is used to extract continuous payments from the population while doing nothing productive in return. For example, a member of an aristocracy may inherit land as well as the serfs who occupy the territory. The peasants toil and pay rent to the landlord while the landlord does nothing.

      In the context of this $15,000 house in a neighborhood that was full of such properties for many years – stripped of the copper pipes and wires, a long festering leaky roof that left the wood framing spongy with rot, a compromised foundation, broken windows and doors, et cetera… Whoever bought the place was obliged to spend a substantial amount of money to bring it up to a respectable level. In other words, actual value was added to the place at some considerable expense so this wasn’t an unearned situation. If the property can’t be rented after the work is done, why would anyone bother to do the work in the first place?

      If you believe the house should be owner occupied rather than a rental property that gets you to another sticky point. Most people don’t have enough cash on hand to purchase a house and do the required repairs and upgrades without a loan. As long as the “owner” has a mortgage he or she doesn’t actually own the property. The bank does. The bank collects rent in the form of a monthly mortgage payment. If you don’t believe in banks, or lending money at interest (a perfectly legitimate belief held by many mainstream religions) then at least your logic is consistent.

      FYI, I was one of those kids who filled a duffel bag with Levis and travelled around the Soviet Union from Leningrad to Moscow after the Berlin Wall fell in 1989 / 1990. So I’m intimate with the communist experience from back in the day. No one owned anything back then. And no one maintained anything either – with the exception of country dachas. https://granolashotgun.com/2015/01/29/authoritarian-planning-regimes/

  2. Moved to Cincinnati a few years ago from California, was really excited by the idea of moving in to an abandoned building and carving out a home and life for ourselves.

    We didn’t even get as far as you did, our experience was no one would sell at any price unless you were part of the good old boy’s network of “in” developers. All in all Cincinnati was a massively xenophobic city that boxed out outsiders with bureaucracy and fought change tooth and nail. Top it off with the culture of laziness and “leave well enough alone” with a side of alarming racism and I could not move out fast enough.

    We now live in another Midwestern city and have realized our dream. Cincinnati has good bones, but a poisoned soul.

  3. I live in Price Hill, Cincinnati.
    I work construction as a “contractor” . I have seen that at the low end people simply hide what they are doing,pull no permits, get it done,and move on with life.
    At the high end, someone seems to “fix” things for them,for example I have worked a job stripping paint in a 100 plus year old structure.
    No fancy abatement,no training, open air to to a busy street.
    Mind you it was part of a fancy redevelopment, lots of money,but none for lead abatement.

    Meanwhile I am being fined by the city for not painting my house…

    1. Yep. That’s how it works pretty much everywhere.

      I’m not an anti-government type. There are all sorts of really good reasons to have all manner of rules and my intention is always to do the right thing for health and safety. But bureaucracies (all bureaucracies in every society throughout history) eventually become dysfunctional, sclerotic, and self serving. We’re well past that point now.

      I know Price Hill. Loads of great old homes there – and some really nice people.

  4. Wow, just discovered the blog and like it very much. I think you gave one of the readers above some very good advice for navigating what appears to be a continuing economic slide into, well, who really knows? I am in the ending stages of setting up my own little house in rural Maine and doing so without debt meaning the place is much smaller and not as nice as I’m really used to as a middle class professional. It’s amazing how little you can really afford without debt (640 sq ft comes to mind). The city ordinances even out here in rural Maine were byzantine and often ludicrous so much so that in the end they weren’t enforced. For example a frontage regulation requiring at least 90 feet of road, OK I guess, but the road had to be public two way road. My property is on a private road, numerous owners, so essentially nothing new could ever be built there. The town’s committee realized it was silly and allowed me to ignore it but it still ate a month or so of my time and that was just one of many problems. We are almost done now but the cold weather, not at all like SF, really slows the process down a lot. Our goal as you so eloquently reinforce throughout your posts is to create something that we could live in on the resources available to us should one or both of us lose our jobs which actually seems rather likely. Best wishes for a happy new year and success in your endeavors.

    1. After various experiences all over the country I now tell people to avoid building anything new or radically altering anything old. Keep it simple. Skip all the endless bureaucratic mishegas. There’s an unlimited supply of pre-existing properties out there that just need a little cleaning up and tinkering with. Life’s too short for variance requests and outraged neighbors who think your second floor addition will destroy their way of life. Good luck with your project in Maine – a beautiful location, I’m sure.

  5. I’ve had similar aspirations about helping to revitalize my beloved homeland of the Midwest, but have been turned aside before even jumping in precisely by the bureaucratic processes this article highlights. I have heard that Detroit technically has the same “hair-pulling” regulations that most cities have, but New Urbanists like Andres Duany claim that the city is too poor to enforce them. I was wondering what your experience was if you had any in Detroit?

    1. Looking back at prices for equities (stocks, real estate) in the early 2000’s it was clear that they were highly inflated and unstable. Price-to-earnings-ratios for stocks. Home values relative to median incomes. Pick whichever metric you like. The numbers were way out of whack.

      The crash of 2008 brought prices back to more reasonable levels. I know people who couldn’t afford to buy a home in 2006 who could do so after things stabilized at more reasonable levels in 2010. The crash was necessary. It was painful, but the market needed to self correct to get things back in line with reality. We (collectively as a society) could have used that opportunity to explore what contributed to the bubble and resulting crash and make structural adjustments to the system. Banking reform, a public conversation about speculation, the virtues of thrift, saving, living within our means, and maybe even a serious look at labor, trade, etc… We could have directed our efforts at helping individual families cope with the pain of foreclosure.

      Instead we re-inflated the market with Quantitative Easing, Zero Interest Rates year after year, and massive bail outs for the biggest banks. Prices are now back up to where they were before the crash. Inevitably, this bubble will also have to pop. When it does things will be even more unpleasant than last time and the feds will have fewer tools to manage the next crisis. And the population will not tolerate any more shenanigans from the feds. The Trump victory (like it or not) was a reflection of a very different mood across the country. I don’t know where things will go next time, but it won’t be pretty.

      Big picture: Twentieth Century economists based their theories on endless economic growth and expansion. Things work fine as long as growth is infinite. When growth slows down – or Heaven forbid – stops, the entire economy unravels. We’re now hitting up against limits of all kinds and the old economic models and regulatory responses need to change. We’re not ready to have that conversation.

    1. You’re asking me why I didn’t conformed and submit to an onerous and dysfunctional bureaucratic process. I’m asking why the system makes it illegal to put a second story on a one story house. Spot the difference?

        1. I was told that nothing is possible as-of-right because the entire 1890’s neighborhood was non conforming relative to the 1950’s suburban style zoning code, but variances were routinely granted when reasonable requests were presented. I walked away after a year of dealing with that process.

  6. Don’t to disagree with your hardship, but the first failure of many developers is that they buy a property without knowing or securing entitlements. Did you know of the zoning issues before starting or did you find out after it was too late?

  7. For what it’s worth, Cincinnati tried to implement form-based codes in several neighborhoods which would have made projects like yours possible. In four neighborhoods, the old 1950s Euclidian zoning codes were tossed out and replaced by something more fitting of urban neighborhoods. However, that was under the previous mayor. Then the new mayor came in and said that form-based codes are “scary” (yes, he actually said that) so it never got implemented in any other neighborhoods.

    1. I’m well aware of the attempted form based code. I was at the ceremony when Kathleen Norris accepted the award for how great it was. Past tense. As for Mayor Cranley… He represents the constituents that elected him very well.

      1. Very much this. Cranley was a disaster, but the majority of Cincinnati elected him, and he represents the culture and heart of the city without question. Reward the cronies, halt innovation, and keep the city in its place.

      2. We have big hopes to replace him in this year’s election. Maybe upswing of the slow cycle of change will come to Northside after all.

    2. Sounds like he was too cheap to pursue rezoning for the duplex, which also could’ve solved the second story problem. Would be interesting to hear the rest of the story.

  8. Wow – great story…esp. interesting because as I was reading I was thinking that I (and many) would have made the exact same decisions along the way that you did. I’m also with you on the post-QE bubble. So I was wondering when you wrote in answer to one comment: “I will avoid any projects that require special permission from the authorities” what you might be thinking specifically. Are you planning simple by-right rehab projects or do you have different strategies in mind that you wouldn’t mind sharing? Thanks for these postings!

    1. This is a great time to sell any property you may own – particularly if you’re holding any debt. Think 2008… Put your money someplace other than a bank. They can’t be trusted at the moment. Thirty day treasury bills work well enough. Rent. Wait out the next crash. Then buy back in to a much more pliable market.

      There will be no point in attempting to build anything new when there will be a glut of cheap existing buildings on the market.

      1. So I’ve heard people say similar things: sell off property with debt and go back to renting. What if ones’ current mortgage is much less than renting? Is the idea that when the bubble pops and the recession gets going in earnest, that all rents will be going down by a lot? As a Land lord, are you anticipating a time in the near future when you will have to lower rents by 1/3 or half even? Or are rents in trendy coastal cities buffered from the downturn. Here in Portland (and many other places) we’ve been building a crapload of luxury (or unaffordable in general) apartments and they seem to have a lot of lingering vacancies.

        1. “What if ones’ current mortgage is much less than renting?”

          The idea of giving up your home with a relatively modest mortgage in exchange for lesser rental accommodation at a higher price is really hard to wrap your mind around. I understand. And no one can time the market. But ask yourself this question: Can you continue to make your mortgage payments in a prolonged crisis situation with a serious reduction in income and/or rising costs for other everyday necessities? That’s the problem you’re solving for over the next decade. In a painful market correction assets often become liabilities. There’s less of a difference between owning and renting than people think. If you have a mortgage you don’t actually own your home. The bank does. If you stop making those monthly mortgage payments your landlord evicts you with foreclosure. Renting and having a house-sized pile of cash on hand will give you options many other people won’t have.

          “Is the idea that when the bubble pops and the recession gets going in earnest, that all rents will be going down by a lot?”

          Rents may go up, down, or sideways in the next crash. Different locations will play out differently. If people lose their homes to foreclosure they may have no choice but to rent. That might drive up rents in a tight market with limited vacancies. But if people are unemployed they may not be able to rent at all and will live with family and friends instead. Plus, a lot of second homes and condos that were bought on speculation in the boom may flood the market in a bust. Who knows? Having debt limits options. Being debt free and holding cash provides wiggle room. That’s true for landlords and renters alike.

          “As a Land lord, are you anticipating a time in the near future when you will have to lower rents by 1/3 or half even?”

          I’ve sold off all but two of my properties this year. The one rental I still have has no mortgage so I don’t care what happens to rents in a future crash. The tenants are wonderful people and my goal is to keep them where they are for the duration by keeping their rent well below market rate and maintaining and improving the place as best I can.

          “Or are rents in trendy coastal cities buffered from the downturn.”

          Coastal cities have benefited greatly from forty years of increased international trade, financial deregulation, and huge flows of capital and human migration. The opposite has been true for the rest of the country which has been radically hollowed out – hence Trump. That process is going to change in unpredictable ways now that the mood of the country (and world) has shifted. Coastal cities may find themselves at a disadvantage relative to the new reality and unable to feed off the usual gravy train.

          “Here in Portland (and many other places) we’ve been building a crapload of luxury (or unaffordable in general) apartments and they seem to have a lot of lingering vacancies.”

          The best way to provide a generous supply of affordable housing is to build lots of luxury housing… then wait.

          Here’s a compromise. If you have any paper assets like stocks sell them now while they’re at inflated prices and pay off your mortgage if you can. Those stocks won’t have much value after a crash anyway. Also, find ways to have your home generate revenue rather than be something that costs you money every month. Rent out a spare bedroom if you can. Test drive the concept by taking on a traveling nurse or grad student for a few months to work out the kinks. Screen people very carefully to avoid problems before they start. And cut back on unnecessary spending in your life.

          1. Thanks for the very comprehensive answers to my questions, Johnny. Yes, I gotta say it’s hard to wrap my head around the idea of renting at a higher expense as being a smarter scenario…but then if we had a cushion of money to siphon off of, it does make more sense. most people I know (both renters and homeowners) don’t have more than a couple thousand in the bank at any one time and selling their house would result in a chunk of equity that still wouldn’t be enough to pay off their credit cards and student loans….which is to say, most of us are gonna be pretty screwed.

            1. I should mention that you’re describing the precarious economic position of the fortunate people in prosperous cities with high property values and pretty good incomes. How do you think people in Toledo feel?\\

              There’s the possibility that holding cash may be a huge problem if inflation ramps up quickly. Then the buying power of savings will evaporate relative to increasing prices. There are so many ways things could go terribly wrong. Personally I think people should “collapse now and beat the rush” by radically simplifying life and weening themselves off the usual systems. That’s really hard to do.

              Selling your home in Portland right now and paying cash for a comparable or better property in a much cheaper location is one good option. But then you lose your social networks, family ties, and career connections. Pick your poison. Most people are going to do exactly nothing. The next crash will come, wash over everyone, and we’ll all deal as best we can day to day. That’s life.

  9. On the one hand you single out Cincinnati:

    “Meh. I’ll bring my money and enthusiasm to some other place next time. Cincy got what it deserves. Nothing.”

    While also conceding that their issues are no different than anywhere else in the country:

    “I’ve poked at every inch of North America and there are no places with more accommodating regulations. It’s the same (with variations of the same themes) everywhere.”

    So which is it? I can taste your bitterness, but is it because you expected Cincinnati to rise above other cities? Is it just the straw that broke the camel’s back? I got the impression you really liked Cincinnati and felt it was something worth caring for, but after this particular setback you just pull up all stakes and burn the bridges. There’s an air of petulance about that which I didn’t expect from you. What am I missing?

    1. Guilty as charged. I am bitter. And sad. And frustrated. The bureaucracies in Cincinnati are in no way unique. It’s essentially the same in most places. https://granolashotgun.com/2016/06/14/affordable-housing-that-might-have-been/ I do love Cincy. I do believe the future will be kind to smaller Midwestern cities over time relative to the current flashy coastal hot spots. But the time isn’t right. Not yet. I’ve sold all but two of my properties in the past year while values are artificially inflated by QE, ZIRP, etc. I’m holding cash (short term treasury bills) and waiting for the next crash. I’ll buy back into the market when property is available at a deep discount. I will avoid any projects that require special permission from the authorities.

  10. Even reading this is infuriating, so I can only imagine how frustrating it was for you. Ignorance, stupidity, and “shoot oneself in the foot syndrome” are the plagues of our age. I wrote about similar issues on my blog recently, as I see similar things happening in Europe. The result is stagnation, malaise, and eventually, ruin,

  11. The house is being renovated as I write this.

    Did you talk to anyone in the neighborhood about your options? I don’t remember seeing this project come before community council for a variance.

    1. I’m aware of who bought the place from me and I spoke with the contractor who is doing the work. A group of local investors pooled their money, bought eight or nine properties in the neighborhood on the same streets/blocks and are in the process of flipping them. The profits are then divided up among the investors. The shotgun will be on the resale market by spring from what I gather. They’re pragmatic people who will get the job done in a cost effective manner. Whoever buys the house from the flippers will be your new neighbors. Is this process better, worse, or the same as what I attempted to do?

        1. There’s a collective fiction involved in getting the numbers to work. It’s about ribbon cutting ceromonies and up front promises to generate growth in the future. If the statistical extrapolations are to be believed money will gush in for decades due to X or Y being built.

          Let me give an example. I was in Columbus, Georgia a couple of years ago and an official boasted about how much new film and video production work was pouring in to the state as a result of their new tax credit. Her town was busy developing and expanding film and video departments at the local university and planning for all the growth in that sector. She specifically noted that much of this production used to happen in North Carolina which had a less generous subsidy.

          I informed her that Georgia had about five years of this before some other state or province (the Canadians are big players in this field) creates an even more generous set of subsidies and TV and film work flows away from Georgia. North Carolina stole the work away from Louisiana, which stole it away from New Mexico, which stole it away from British Columbia…

          To be sure there’s always some residual activity left behind in each place and some places are better at retaining talent and production than others. But the overall environment is now one of perpetual and pervasive subsidies everywhere. No one would dream of making a TV show, movie, or commercial without shopping around for the biggest give-away first. This is now true in nearly every industry.

          1. Actually, I was asking about the house that investment group bought. And found the answer on your ‘doing what actually works’ page: a classic case of renovate and flip without fundamental changes.

  12. Johnny, you’ve been burned good by Cincinnati! So much for incremental small-scale development. Your entrepreneurial spirit is clearly not wanted there. Alas, there are lots of rust belt cities with declining populations and if you are very lucky, you just might find one that actually wants incremental growth. I know you might not try again, five years getting to know the city being a lot of time invested in Cincinnati. Chuck Marohn calls for incremental growth and I agree. But it seems you have to be a John Anderson to pull it off unless you happen to fit nicely into the specific box that the cities have in mind. It reminds me of Chuck’s Brainerd. The city officials in Brainerd clearly don’t want a Strong Town. Maybe that’s also true of Cincinatti.

  13. That’s too bad. What do you think about Columbus? I see a lot of nice (turnkey) older homes with good walk scores += 100k. Maybe not as exciting from an urbanist point of view but in terms of local economy, crime stats, etc. it seems favorable.

    1. I’m off Ohio for the moment. Actually, I’m off buying property anywhere right now. We’re in another bubble. After it pops I’ll see what the landscape looks like.

  14. Sad. I have dreams of the same in the Oak Park neighborhood of Sacramento. There are all kinds of add-on living spaces here. I suspect if I tried the process would be no less onerous. And if an expert like you could not make it happen, I have no chance.

  15. I live on Mad Anthony and wondered what was going on with this parcel as I noted from the auditor’s site that someone from California had purchased it. Many homes are being renovated on Mad Anthony, as I’m sure you’re aware, and the one next to mine will likely be listed in the low-$200ks in the coming months (bought at auction for around $13k). I appreciate your interest in development in Cincinnati, and while any city’s code can be problematic, I feel as though with some creative thinking you could have found a solution which benefitted everyone.

    You may know that two abandoned homes are being renovated by NEST – Northsiders Engaged in Sustainable Transformation – into “kinda-tiny homes” almost directly behind this property on Fergus St. The empty lot at Chase and Mad Anthony will receive new “kinda-tiny” construction from NEST. Another developer has plans to renovate and expand this shotgun-style home, and its twin next door has already been renovated and has fantastic curb appeal (http://www.dumps2dreams.com/1434-apjones-street/).

    While Cincinnati does not have the kind of affordability crisis that coastal cities are experiencing, the city is becoming increasingly unaffordable. I would not be able to purchase my home in Northside today given current market prices. You allude to the Gantry development, which is out of reach and undesirable for many people. Immediately after you sold the home, work began on both the interior and exterior. I have no idea what the new owner’s plans are, but I am happy to see the property no longer languishing with overgrown weeds while an out-of-town speculator wrangles with the city seeking what amounts to profit-maximization.

    1. How in the heck do you think prosperous cities were ever developed? “Profit maximization” was a big part of it.

      You remind me, to be frank, of people living in tract homes who pack city council meetings fulminating against “evil developers”. As if they were virtuous pioneers who built their homes with lumber hewn from their frontier farm with their own hands.

  16. that really stinks that you had to pull the plug on your Cincy project. Do you have your eye on any new locales with more accommodating regulations?

    1. I’ve poked at every inch of North America and there are no places with more accommodating regulations. It’s the same (with variations of the same themes) everywhere. I’ve actually sold off all but two of my properties. We’re in a bubble and it’s a great time to cash out. I’ll hold cash and wait for the next market crash and buy back in to the market when everything is on offer at a deep discount. I have no idea where that might be.

    1. The city created a byzantine set of rules and procedures that make every small project an administrative burden for multiple bureaucrats. I understand why no civil servant would want to open that can of worms for a piece of crap project like a simple second floor addition. I feel the same from my end as a property owner who walked away rather than deal with the system. The solution would be to strip away most of the ridiculous codes so administration is easier for everyone. If each property were permitted to do these simple projects incrementally with less red tape the city could double its tax base without massive apartment complexes. I don’t expect that to happen in my lifetime. Now I know not to try this sort of thing ever again.

        1. I still love Cincy and Northside. Will I return? Meh. We’ll see. I will never again buy a property with the intention of doing anything with it that would involve interacting with the city authorities beyond basic interior remodeling. Life’s too short.

      1. Administrative burdens can also preserve a neighborhood business district from being torn down…I would feel your hardship if the rules were changed on you midproject but it doesn’t sound like they were.

  17. I’ve given Cincinnati’s zoning code a bit of a pass in the…past…because it really is a lot more accommodating that most suburban examples. It mostly conforms to existing built conditions, it has a number of form-based elements in the pedestrian-oriented commercial districts (having pedestrian-oriented districts at all is a win), and for the most part residential uses are not excluded from commercial zones, and mixed-use buildings are allowed.

    My criticisms have been in the balkanized nature of the zoning itself. While not spot zoning technically, the boundaries are carefully drawn to prevent anything growth or expansion of more intense uses. Downzoning is a common response to neighbor complaints, and the zoning map looks like a technicolor quilt rather than any sort of rational plan. This problem is independent of the code, it’s more about its application.

    As I’ve looked into and worked on more projects in the city though, I’m liking the code itself less and less. What are supposed to be fairly high density residential mixed zones are surprisingly unaccommodating. They seem to be geared more towards controlling large apartment complexes, but they squeeze out row houses.

    The RM-1.2 zone for instance, which supposedly is for medium to high density residential, mandates 1,200 SF lots and allows only one unit per 1,200 SF of lot area. That sounds pretty dense, and a 1,200 SF lot doesn’t sound big, but 25′ x 50′ city lots are quite common and should be affordable. The trouble is that most zones require a 25′ lot width, and there are MANY lots that don’t meet that criteria. On top of that, in RM-1.2 there’s a 20′ front yard setback, and a 20′ rear yard setback, plus a total of 5′ side yard setback required for single-family residences. So the buildable envelope on our 25′ x 50′ lot allows for just a 10′ x 20′ shack. If you actually wanted to build a multifamily development in this multifamily zone, your side setbacks increase to 17′ total and 30′ in the rear. A total non-starter.

    I was surprised to see that Northside has basically no multifamily residential districts at all in the center of the neighborhood. There’s a little along Virginia Avenue and on the climb up Hamilton Avenue towards College Hill. Everything else is single-family, which for such a dense neighborhood is strange. Clifton and Avondale, which most would describe as less dense, have much more multifamily development and zoning. Even Hyde Park along Madison Road, or parts of Oakley have more. I wonder if there was some sort of cut off the nose to spite the face situation in the past where Northside residents petitioned for a broad downzoning to try to prevent decline, but instead hobbling redevelopment due to non-compliant properties. Price Hill seems to be in a similar predicament.

    1. At the end of the day I was never going to be given permission to do anything and I walked away. The city got The Gantry which I don’t mind – it filled a big gap on Hamilton Ave and is a general improvement as far as I’m concerned. But the complete smothering of small projects means there’s a winner-take-all approach. Meh. I’ll bring my money and enthusiasm to some other place next time. Cincy got what it deserves. Nothing.

      1. There’s no “complete smothering of small projects”. Yes, big economic development projects have lobbyists and get prioritized, but there are dozens and dozens of rehabs going on in Northside. I think your experience may be unique due to not understanding entitlements prior to starting the project.

      2. There is no “complete smothering of small projects”, there are in fact dozens of rehabs completed or ongoing in Northside. I do not disagree that big economic development projects have lobbyists and get prioritized, but they also are much more aware of the entitlements, wrong or right, that you apparently weren’t aware of.

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