When I first started in real estate investing, I was working in some of the small, rural towns near the city I live in. I did a few deals out there because there was much less competition and the prices were cheaper. I also learned one of the most important lessons of my real estate investing career. That is to always ask the neighbors.
A Story of Murder
We found a nice home that had been foreclosed on. It needed very little work, was in a nice part of town and the price was right. We went and looked at it, ran the comps and estimated the repairs. Everything looked good so we pulled the trigger and bought the property with the intent to rehab it and sell it on the retail market.
Upon closing, we drove out to the property to go over our checklists. It was after 5 o’clock by this time so the neighbors were home from work. It was not long after we got to the property when we heard a knock on the door. A curious neighbor had come over after seeing some activity. He asked if we had bought the house. We told him yes. His next statement floored us. “Well y’all know about the murder right?”
No, we did not know about the murder, but everyone else in town did. It seems that a sensational murder plot had resulted in a prominent member of the community losing their life in the house I had just bought. “You can still see the blood splatter on the walls if you look real close,” said the neighbor. And you could if you looked at it right. “Who in the hell was I going to sell this house to?” I wondered. Who is going to buy “the murder house?”
Long story short, we fixed up the property and listed it. What else could we do? We had to come way down on the price but someone from out of town came along and bought the property. I think I ended up making about $0.10 per hour on the project, so I did come out slightly ahead. But I would have written a check to get that one behind me. Thankfully it worked out and I did not have to write a check and I believe the buyer is still there today.
Hindsight is 20/20
Hindsight being 20/20, I wish that I had just talked to the neighbors as part of my due diligence process. In doing so, I would have certainly found out about this home’s unique condition. Perhaps I would not have purchased it. At the very least, my offer price would have been much, much lower and I could have made a decent profit.
Today, whenever I am looking at properties I always make it a point to talk to the neighbors. Since many items do not have to be disclosed or can be hidden, you have no idea what you might find out. This is especially true when buying properties “as is.” I have learned about flooding and foundation problems and other neighborhood or situational issues that have influenced my offer and decision to buy.
So put “Talk with Neighbors” on your potential property purchase checklist. You have no idea what you might find out. By doing so, hopefully you can avoid having to sell or rent “the murder house.”
Photo: Mick AmatoAsk the Neighbors: A Story of Murder, Hindsight, and Real Estate Investing by Kevin Perk