How To Keep Your Rental Investment Property Drug and Crime Free

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There are some dreaded scenarios for longterm buy & hold real estate investors out there, and most revolve around the dumb things tenants can do in and to a property. One thing that most new investors can easily overlook is crime. It’s amazing some of the stupid criminal enterprises that can be set up in rental properties from low-level drug dealers to sophisticated chop shops. I should know — I have seen my fair share of criminal activity after managing 2,500 properties. I have come to the conclusion that unfortunately crime is a reality that is sometimes out of your control.  

No investor or property is truly immune from the possibilities of illegal activity. The best real estate investors can do is to mitigate the chances of crime on their properties as much as possible. The last thing you want is to find out too late that crime occurred on your property. That usually involves legal notices and questions about your own awareness of the criminal activity and in some cases can lead to properties being placed under lock and key until an investigation is complete, and that can take a long time! So what can you do to ensure that rental investment property stays on the up and up?

Watch the Neighborhoods You’re Buying In

This is the easiest piece of information to misunderstand, and I will share an anecdote shortly proving that point. You are not able to pinpoint where drug or criminal activity will take place, and you cannot point to a neighborhood and say that something will or will not happen. But there are neighborhoods where past activity has occurred. There are neighborhoods cut off from transportation routes and businesses — and yes, these tend to be lower-income and economically challenged areas of town — where statistics will show there is a greater propensity for this kind of activity.

If you want to avoid having to deal with the local D.A. and having to evict immediately because your tenant is behind bars, then factor the neighborhood and your lack of desire to deal with those issues in your decision-making. A smart investor assesses ALL the risks before they purchase and not just the surface risks like tenants and toilets! While no neighborhood is immune to illegal activity in rental homes, some are more susceptible than others.

Make Sure Your Property Management Is Paying Attention

Unless you’ve taken on the day-to-day landlord responsibilities yourself, you may not be close enough to your investment properties to identify suspicious activity. Whoever manages your investment property, whether it’s a single person or a team, needs to be diligent in looking for the warning signs of crime on the property. The best you can do is make clear what they should be on the lookout for.

While you don’t want to be overly paranoid, being observant and aware of anything out of the ordinary or suspicious, particularly over time, will help spot warning signs. Make sure your property manager knows how to safely handle the problem; should one arise never let a manager confront suspected criminals alone. Create a plan to take note of suspicious activity and call the authorities to take it from there.

How To Spot a Drug Deal

Some drug deals are more overt than others. In many cases, however, there is a pattern that develops when deals are taking place on your property. Note that many drug dealers try to find neighborhoods (or apartment complexes) in which neighbors are isolated or don’t communicate with one another. As a real estate investor, I am not looking for neighborhoods that fit that pattern. Some investors reading this article may find that these types of neighborhoods are perfect for them based on any number of factors including location, proximity and price point.

Related: Tenant Screening: The Ultimate Guide

Regardless, I have had a personal experience with a property located in a very nice neighborhood that did not fit any criteria that are identified as “prime target” neighborhoods for drug trafficking and yet drug activity occurred at my property. With that in mind, understand that it can happen anywhere, and you need to be aware as a real estate investor.

These warning signs from Nicoma Park Police department are an excellent reference for things to watch at your investment property.

  • Excessive traffic to and from the property.

  • Loitering in or around the property.

  • Frequent, unusual traffic patterns. Stop, enter, leave. Drug deals are often quick.

  • Frequent traffic stops outside the property, especially if the resident goes out and speaks to the people in the car.

  • Gang activity in the neighborhood.

  • Sudden increase in criminal activity.

These aren’t all the signs, but a few tell-tale red flags that should prompt suspicion. It may benefit you to get involved with Neighborhood Watch (or start one) if it seems as though there are suspicious activities happening. It will also definitely help to knock on the doors of houses surrounding your house and encourage them to call you if there are issues. The same goes for your management company. They may not be able to do it or they may not want to do it, but if you feel there is a problem and you employ a management company, ask for them to get involved and keep an eye on the neighborhood.

What About Methamphetamine?

You obviously don’t want your tenants to pull a Walter White in your investment property. Meth is not only illegal, but its preparation has a significant chance or fire and explosion, and the toxic residue is impossible to get rid of. Rental properties are often at a greater risk for being used as meth labs.

Remember too that insurance rarely covers these types of damages, which can add up to tens of thousands of dollars out of your pocket. Even if you manage to get the property back into a presentable condition, you’ll have to disclose the environmental hazard present.

Ideally, you and your property management will be able to identify this illegal activity before it starts. How?

First, know the ingredients needed to cook meth:

  • Ephedrine or pseudo-ephedrine (in allergy, cold or diet medicines) in large quantities.

  • Lye, or as it’s also known, sodium hydroxide

  • Anhydrous ammonia (usually in coolers)

  • Large amounts of iodine

  • Red phosphorus (large quantities of matches)

  • Ether

  • Drano

  • Brake fluid

  • Butane

  • Hydrochloric acid

Any combination of these, particularly in large quantities, should raise a red flag. What else should you look for?

  • A neighbor reporting shady activity. This is why it’s a good idea to get to know the neighbors — they can keep an eye out for you. They may smell something funny (the ammonia, ether, lighter fluid or sulphur in most cases) or notice that your tenants are taking their trash somewhere other than their trash can.

  • Blocked or boarded up windows.

  • Odd patches of dead grass where toxic byproducts may have been dumped.

  • Behavior similar to that of the drug deals listed above.

  • Sheets or other fabric discarded and covered in a white powder.

  • Rent suddenly being paid for in cash.

Again, if you suspect a meth lab or any other criminal activity, do not let your property management confront the situation alone. Call the police. If you are a landlord, the same goes for you. Get the authorities involved as soon as possible.

Related: Are You Still Struggling to find Great Tenants? Struggle No More!

How Do I Prevent It From Happening?

Remember, be on alert for signs of criminal activity. You should also check in with your property management company and make sure they are continuing to monitor your property on a routine basis. It helps tremendously when a management company is managing more than one property in close proximity. It allows them to be in the neighborhoods and on the look-out.  Try to get to know your neighbors, and make communication a regular part of your relationship. This is your investment property, but in the case of your tenant and your neighbors, it is their neighborhood. Most will want to make sure they are safe and free from crime.

Perform Thorough Tenant Screening

Don’t get bamboozled by bad tenants. Always perform thorough tenant screening, including verifying their source of income and contacting previous landlords and references. Listen to your intuition — if something doesn’t feel right, it’s probably for good reason. Be clear and check local and state laws before setting policies such as a no rental policy to convicted felons, but it may be wise if it is legal to have a policy that convicted drug dealers are a no-go. 

I know that sounds like a no-brainer, but you should not be shocked to hear that MANY landlords and management companies fail to do proper background checks and are easily talked into renting to the wrong people when they do a background check. This is the last line of defense, so be diligent!

Include Regular Inspections in Your Lease Agreement

It’s a lot harder to run illegal activities when you have inspections on a regular basis. Remember that there are legal guidelines for giving tenants notice for visits, so be sure to heed them. While a drug deal can be hidden more easily than a meth lab, regular inspections can deter criminal activity from starting up. Inform your tenants upon move-in that there will be regularly scheduled inspections and that they will be given proper notice. A little deterrent goes a long way!

How do you deter crime from taking place on your rental properties?

If I missed a tip that you like to use or something that just HAS to be shared….please, share with us in the comments!

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About Author

In 2005, Chris Clothier (G+) began working with other investors and has since helped hundreds of investors purchase over 2,300 properties in Memphis, Dallas and Houston through the Memphis Invest family of companies.

12 Comments

  1. You’ll pay a little more but it’s worth it to have a near zero effort landlording experience!

    Only buy in good high school districts. Just say no to low ranking high schools even if the house is cheap. Cheap doesn’t mean a good deal. I’ve been tracking the landlords here in Atlanta who need this type of blog post. My calculation is that they have a much lower cap rate after 5 yrs then buying more expensive property in a good school district.

    I feel there’s a mis-persception that buying low priced properties in high risk areas makes a lot of money. My napkin math says it doesn’t out perform paying more for a better school district by the numbers and certainly not when you include the hassle factor.

    We only buy in great schools 5 or better and we never hear from our renters. Except once a month when the rent is auto-deposited to our business bank account via erentpayment.com. (there’s cheaper and other auto deposit systems out there)

    Just like in the stock market. It’s never too late to sell your dogs. :) And “no” is a valid business decision.

    • Chris Clothier

      Curt –

      I appreciate the comments. I think I have probably written on here a dozen times in articles that “Cheap” is a killer. It is a shiny object that attracts a lot of investors and can cost a lot of money.

      So thanks again for your comments and for sharing your personal buying criteria. As an investor, you need to have criteria and stick with it. The higher your criteria, the lower your return may initially look on paper, but the better your result can be in the long run.

      Chris

  2. I find credit score to be a great weeder of drug tenants. It is the one thing that a tenant must do something positive to get. A clean criminal records only requires not getting caught…

    • Chris Clothier

      Eric –

      Another great tip! Thank you for sharing and you are correct on the credit score. Of course, that goes back to some of the very basic and original points about good land lording and property management. You have to do the basics such as credit checks and employment verification. If their credit is out of whack and especially for drug convictions (check you local and state laws) that could be yours grounds for saying no to a tenant. On the other hand if they have plenty of money and no work history or job…..just use common sense!

      Thanks for reading and leaving your comments.

      Chris

    • Chris Clothier

      Craig –

      So I laughed when I first read it because I know you say it in jest. And then I quit laughing because I know you also said it from experience!

      There are so many signs that a god landlord or property manager has to pick up on. Some will be obvious and some are not. Some are simply intuitive and you have to be smart enough to pick up on the early signs of future trouble. With you, I know you already get that as a property manager. Hopefully all the readers picked up on it from reading!

      Thanks a ton for reading and leaving your comments. – Take care

      Chris

      • What I said is funny, but Chris as you well know, the stories a Property Manager can tell can go on all day, actually some would be great SNL skits. Although funny, you are right, it is from personal experience.

        When I was reading the blog and came to the headline “How to spot a Drug Deal”…I was thinking to myself…..”Is this the part where Chris tells us what he did before becoming a Real Estate investor?” LOL.

  3. I really liked the article, I was just wondering about introducing myself to members and providing contact information.

    How often would you schedule the inspections?

  4. Nice article Chris. Thanks for shaing.

    During a time when we weren’t diligent enough watching and inspecting our properties, we had the police do a drug bust on our rental house (decent neighborhood), break in the back glass door, and we got to learn about it when a friend called and said “Isn’t that your house on the evening news?!” We got to pay for the door, too.

    Great tips on screening the tenants up front. We do that much better now. I think that and the diligent inspections are key.

    Question, how often does your management company visit a property as a general rule?

  5. How to spot a drug deal? How hard is that, a constant stream of zombie like hoodie wearing people streaming to the property. Drug dealers are like anyone else, they want some time off during the day, so you will see hand written notes say “Don’t ring the F’ing bell or knock” unless the open for business chair, sneaker, blue bike or group of seemingly unemployed youth are hanging out, or ugly fat guy is sitting out front.

  6. Chris,
    You did a great job on this topic.

    I’d like to add that ALL landlords should find the nearest neighborhood watch and encourage them by sending in small monthly donations.

    These groups are typically underfunded and the sponsors get burn out. It’s wise to continually show your support even if you can’t attend the meetings.

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