In a Big Hole for a Detroit House, but Happy

http://www.nytimes.com/2016/04/23/your-money/in-a-big-hole-for-a-detroit-house-but-happy.html

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DETROIT — Many residents of high-cost areas entertain the dream, at least occasionally: Give up the rent or mortgage grind, liquidate assets and start over someplace cheaper, perhaps one that could use a few spirited new residents.

Amy Haimerl and her husband, Karl Kaebnick, fell hard for Detroit and thought they could make their own dream of financial freedom come true when they moved here in 2013. But this is what happened: They put more than $400,000 (including all of their retirement savings) into a 3,000-square-foot, 102-year-old home in the city’s West Village neighborhood that was most recently appraised at just $300,000.

They claim, however, to be 100 percent satisfied and genuinely happy. Which raises a question: Are they insane?

Ms. Haimerl’s book about their migration and renovation adventure, “Detroit Hustle,” will be out on May 3. It’s a love song sung to a house and a city, but it’s also a money memoir, one marked by ignorance at the outset and a triumph of feelings over financial facts. It does not end in ruin, but it does end in debt.

So let’s start with those facts. Ms. Haimerl, who is 40, and Mr. Kaebnick, 44, had about $10,000 in liquid assets when they decided to move. They settled on a house on a block where only two homes were boarded up.

They bought the smaller one, a wreck with no wires or radiators or doors or pipes, for $35,000, liquidating Ms. Haimerl’s retirement account to close without a mortgage. “There is essentially nothing left inside the walls,” she writes in her book. “What we have is a pile of bricks with character.”

For the renovation, they were counting on the $110,000 that would be left from Mr. Kaebnick’s accounts. The previous owners had figured it would take $150,000 or so to make it habitable. What could go wrong?

Well, the couple was missing two crucial bits of knowledge, one about the Detroit market and the other about themselves.

First, they realized only after they had bought the house that there were no construction loans available. That was because there wasn’t any evidence that after renovation, homes like theirs would be worth more than what it would cost to fix them. So whatever work the couple wanted to do, they would have to pay for it themselves. Then, they could try to get a mortgage after the work was done and take out cash to repay any other debts they incurred along the way.

And it turned out that there were a lot of those debts, in part because the couple misjudged the amount of work they would need and want to do. They started by looking at options for doing just $100,000 of work, but that might have forced them to move in without any water. The only contractor who made them feel comfortable figured it would take $300,000.

He went to work, and they ended up spending $400,000 total, not including the purchase price. You’ve heard versions of this story before, but the specifics here involved a balcony from a crumbling church that made incredible wainscoting but begged for matching custom woodwork and installation that eventually cost $65,000.

So they borrowed $75,000 from Ms. Haimerl’s father and $40,000 from her grandparents and aunt. Mr. Kaebnick’s family chipped in with kitchen appliances in lieu of a wedding or a gift, and the rest came from a $25,000 Lending Club loan, $50,000 in USAA personal loans and some credit card debt.

The result is by no means extravagant, though it is a lot of space for two people with no designs on having children. The interior trim is bare, and the house still needs paint in many rooms. It’s missing a porch, and the garage out back is crumbling.

On paper, Ms. Haimerl is about the last person you would expect to go all in like this. She grew up poor and lost a house to a foreclosure in Denver several years ago, when a previous relationship disintegrated. She has even worked as a personal finance editor.

The money scold in me believes she should have known better, but she believes she knows plenty. “As a contractor’s daughter, I grew up with men who want to do it right,” she said. “You don’t skimp on work now because you pay for it later.” So they shored up the roof and rebuilt the rear of the structure.

Then, there is her take on retirement. Her father had $75,000 to lend to her because he had been forced to liquidate a once-thriving business that he built after the family’s earlier lean years. “I never grew up with any idea that there would be retirement,” she said. “You were trying not to go to a payday lender. My dad’s retirement was supposed to be the business.”

Ms. Haimerl is a writer and Mr. Kaebnick is a computer programmer, and perhaps they can work well into their 70s or 80s. In the meantime, their net worth is negative. They did get a mortgage after the work was done, and the appraiser assigned the $300,000 value to their home, a triumph in their neighborhood at the time.

They pulled most of that money out in a mortgage to repay many of their other debts and write a giant check to their contractor, Calvin Garfield. They still owe him about $80,000, but aspiring Detroit residents should not expect loose terms if they come to town.

“I’m confident other contractors would not have made the same call,” Mr. Garfield said. “But I do think everyone we have done business with has become a friend, and in that mix of things, this seemed to be the right thing to do.”

The couple desperately wants to repay him, and because their income is just over $100,000, they expect to do so sooner rather than later. Ms. Haimerl freelances, and they have an Airbnb side business going using some of that 3,000 square feet. For just $65 a night, aspiring Detroit residents can soak up plenty of sober-minded advice and bear witness to the kind of house that a lot of money and worry can buy.

But how best to explain away their lack of retirement savings? Plenty of people who sank their life savings into real estate in less desirable parts of Brooklyn or San Francisco a decade or two ago are probably thrilled.

So is that how they think about the money they have put into their Detroit dream? That they bet on a city instead of a bunch of stocks? “We have gotten gun-shy about talking that way,” Ms. Haimerl said. “People here say, ‘How dare you treat our city like an investment.’”

Mr. Kaebnick said he understood the sentiment. “So many people who stuck it out here for so long never had anything to show for it,” he said. “To them, we might come across as privileged newcomers who are going to ride it to the bank.”

In fact, they are true believers who love the city enough to go all in and then some. Others have found their own way of demonstrating their commitment to the city, and at least one of them, Drew Philp, is writing his own book about the house he bought for $500 and fixed up without borrowing anything. His BuzzFeed story about the experience describes the two winters he had without much, if any, heat, among many other unsettling experiences.

Families without the means for $400,000 investments or the fortitude to see their breath indoors can buy houses that have electricity and running water for half that amount or less. And a new program called Detroit Home Mortgage aims to make it possible for people to get loans before they start their renovations.

In the meantime, Ms. Haimerl and Mr. Kaebnick have not found financial freedom in Detroit, though they insist that they are so much richer for having moved. In a poignant moment early in her book, Ms. Haimerl describes gazing longingly into a window in a newly gentrified Denver neighborhood, before her dream of homeownership there turned into a nightmare. The living room looked like luxury, a place where the residents weren’t constantly hustling to hold things together.

Aspiring homeowners in Detroit may well walk down her street someday soon, see her through the window and wonder how she had it so good. Would they be jealous? Should they be?

“I thought maybe that once you were inside the window, you didn’t have to hustle,” she said. “But the truth is, we’re all hustling.”