3 Real Estate Horror Stories that Kill Deals and Eat Profits
The exhilaration of getting to “yes” in any type of deal in real estate is the ultimate high. Regardless if you’re wholesaling, rehabbing, or keeping to rent, stitching a juicy deal together never gets old.
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Then comes the inevitable: you start to get in your groove, money starts flowing in, then, one of your deals goes poltergeist on you (Hang on, there’s more Halloween references to come.)
In the spirit of the holiday, let’s cover the scariest possible things that can, and probably will happen to you at some time or the other if you start to do any sort of volume. The following are all actual horror stories from investors I know. Vets…I expect to read your scary stories in the comment section!
1) The House Burns Down
One of the investors I used to work for was rehabbing a house on the west side of town. He was watching the news when a late-breaking story of a house fire came on. He recognized the area and thought to himself, “Wow, that’s pretty close to one of my rentals.” Upon watching the on-scene broadcast for another moment, he realized, that WAS his rental.
Firetrucks, news coverage, and a house burnt to the studs. Just the sort of PR most investors don’t want.
Luckily, no one was in it and he had adequate insurance coverage, but nonetheless, having one of your properties burn down is a nightmare within itself.
2) Mold Issue
This isn’t the “condensation on the top of the bathroom ceiling” run of the mill mold. This is “Freddie Kruger haunt you long after you think” sort of mold.
Another investor friend of mine here in Arizona had, like many others, had success in rehabs here and decided to take their chances in other parts of the country. (This story will probably antagonize the optimistic articles on investing out of state). Him and his partner purchased several properties in Idaho and were planning on selling them from a hefty profit.
Until, the call came. No, no, the call wasn’t coming from inside the house. It came from the neighbors curious to the sheets of ice coming from underneath the doors in the front yard that their kids were playing on.
Another call from Johnny Investor to the Property Management Company (further known as the “Stupidest Property Manager Alive” or SPMA) began the horrifying chain of events. After explaining the situation, the S.P.M.A. then profusely apologized for never having the house winterized. (Really? In Idaho? This never occurred to anyone?)
To make matters “better”, the SPMA went over to the property to investigate further. The house was flooded with water, due to broken pipes. To try to cover her tracks, her next brilliant step was to crank the heater up to 86 degrees to try to “defrost” the home. (I couldn’t make this stuff up).
By doing so, she single-handedly created one of the worst mold problems one could ever envision. Orange, dripping mold sliming down the side of the cabinets, stringing of the ceiling fan. An overall The Shining effect… but with mold.
The most unlucky party in the situation? Insurance Company. To the tune of $168,000. And hopefully “Susie Stupidest Property Manager Alive” got fired and joined the brainless undead, a role perhaps better suited for her level of intellect.
3) Lurking Monsters
They can be dormant, just waiting to be taunted to rear their ugly heads and eat your profit margin. I’ve heard of an investor not realizing there was an underground storage tank and being forced to have it remediated. Luckily they had gotten the house at a severe discount, and broken even when it sold. But, there’s nothing that makes the hairs on the back of your next stand up then knowing months of hard work and tens of thousands of dollars are all going towards selling a house for free.
This can also come in the form of missing major plumbing issues, a horrible foundation issue, or anything else you would have never known until you start “digging in” to the property.
If you’re buying from auction, site unseen, or in other like situations, you may get only days, if not hours or minutes to inspect the property, often with no utilities on.
But, like many scary movies, bad things happen in cruel ways. Bottom line? Don’t buy with tight margins, and get really, really….good insurance.
(Cue “Thriller” laugh…)
Happy Belated Halloween everybody!
What about you? What are some of the worst campfire horror stories for one of your deals, or someone elses you know?