Manslaughter and a Crackhouse: How My Husband Became a Real Estate Investor

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The story I’m about to share with you is based on a true story. The facts have not been changed to protect the innocent because the party involved is my husband and I have distribution rights for his story!!

The Excitement Begins

It all began in a free real estate investing seminar. You know the ones … they promise you freedom, cash and super easy success. Believing that if you can do just half as well as they promise you’re going to be rich, you sign up for the $2,000 weekend seminar. At the weekend session they teach you just enough information on half a dozen techniques to make you want to learn more, and then they sell you over priced mentor packages so you can REALLY learn everything you need to know. And hey, one deal done and you’ll have paid back that $20,000 expense anyway! Or at least that is how they pitch it to you.

My husband Dave was determined to succeed as a real estate investor so he figured this was the best way to guarantee his success.

Through the program teachings and his mentor’s coaching he found a couple of great looking deals. The numbers were juicy. He could get into these deals for practically no money down and he’d pocket $1,500 a month in positive cash flow from the two properties. He was pumped!! It wouldn’t take too many deals like this before he could quit his job.

He had a hard time finding a property manager for these places but in the end the previous owner came through with someone that would do the job. And for awhile, the money was coming in nicely. There would be vacancies here and there and the odd repair, but for a little while Dave was making buckets full of money. It was more work than he expected though. He had to spend 3 hours driving there and back every month to collect rent and meet with the property manager. But it was worth it to Dave because of all the money that was coming in.

The Trouble Begins

Then one day he got a call … his property manager had punched a drunk and rowdy tenant at another property he was managing. The tenant had come at him, so he defended himself with a punch. But, the punch proved fatal when the tenant fell on the sidewalk and hit his head.

With a manslaughter charge looming, the property manager began to spiral into a deep depression. More and more issues arose at the properties. Vacancies went on forever, yet when Dave checked on them, they were occupied by transient looking folks. The property manager said these people were looking after the units to prevent damage while he tried to fill them. Dave tried to resolve the issue but was unable to. Tenants began to find Dave’s home number and called him to complain about maintenance issues and noise concerns. And then one day, Dave received a notice from the fire department about fire code violations.

Dave became aware of the fact that his one property had been turned into a known drug distribution center… which is just a nicer way of saying it had become a crackhouse. The fire code violations went to court and Dave was basically forced to plead guilty.

He sold one of the properties at a loss. And he paid thousands in fines, thousands for repairs, and couldn’t sell the worst of the two properties even at a big discount.

Lessons Learned the Hard Way

It took several years to get rid of the crackhouse property. And from those properties some of our greatest real estate lessons were born. And to this day, Dave is a cautious and analytical real estate investor always making sure he:

  • Researches the area around potential properties thoroughly. He learns crime rates along with vacancy rates, rent rates and other typical market research details.
  • Speaks with at least one reputable property management company before buying a property. We both make sure that there are professionals that will manage the property even if we plan to. You never know when you might need them. We also ask them about any potential issues with that property or area. Dave bought these two properties quickly and without making sure he could hire a reputable management company. That’s a mistake he’ll never make again.
  • Investigates vacancies quickly and thoroughly. If somebody is not paying rent they are not residing in our property – no matter what reason a property manager might give us.
  • Looks at more than just the numbers on a property. Being able to buy a property for little to no money down and have it cash flow is not enough. The property needs to be in an area that will attract good quality tenants and have potential for growth and appreciation.
  • We do not accept rent in cash. Period. Dave had to watch over the property manager closely because most of the rent was paid in cash. It made record keeping challenging. It made it hard to prove or disprove when rent wasn’t paid. And it made Dave’s return home very stressful because he would be packing $2,000 or more in cash until he could get to the bank.

And that my friends, is our story of manslaughter and a crackhouse. We never heard if the property manager was charged in that case or not. It took years for it to go to court and by then we lived on the other side of Canada. Dave was eventually able to sell the second trouble property, also at a loss, but at a great relief. And Dave went on to become a very successful real estate investor buying millions of dollars worth of low stress but positive cash flow properties and, together with his wife (me!), living a life of freedom thanks to real estate investing!

Image Credit: Dave Peniuk

About Author

Buy and hold real estate investing in Canada since 2001, Julie Broad is now a full time real estate investor and investing educator.

17 Comments

  1. Excellent article, Julie! This is exactly the type of situation I see a lot of investors fall into when chasing only the money investing in real estate. Sure, it can be nice for the short term but in the long term it can end up costing more time and money in the end. It definitely can be an expensive lesson. I agree about the property managers, the good ones really do know the areas well and can be a great resource. Thanks for sharing this story, looking forward to reading more of your articles!

  2. Robin Samuel on

    Its really amazing Julie, We are also Corporate Realty Advisors but your story give us more concept about Investment to deal our clients. I appreciate your though.
    Thanks

  3. Hi Julie,

    I liked reading this story about some of Dave’s initial experiences with real estate investing.

    I would like to highlight one really important point that Liz touched on in the comment section.

    Liz said, “Kudos to Dave for hanging in there.”

    Kudos to Dave indeed, because after this experience, he could have easily thrown in the towel…

    As you know, what differentiates real estate investors who become very successful over the long run, versus those that do not, is their ability to persevere and never give up no matter how tough things get.

    Success through real estate investing (buy and holds) is realized over time.

    What a great story! I look forward to reading your articles!

    Regards,
    Neil.

    ps: Also, great article title as well!!
    .-= Neil Uttamsingh´s last blog ..BiggerPockets Just Got Bigger =-.

    • Thanks Neil!! I really appreciate your supportive words and your positive input. And so does Dave! When Dave purchased these properties he and I had partnered up on several other places already. I went with him to tour the properties before he bought them. I took one look at them and said “count me out!”.

      You see … that was many years before we were married and his decisions were his decisions. I could just say “count me out” and he was on his own. At least he was on his own for awhile … eventually we were living together and then getting married and we were in the mess together whether I wanted to be or not!!

      But somehow we got through it and we can both see the good in all that we went through. That really kept us going through it all… well that and the experience makes for some really good stories!!

      Thanks again!!
      .-= Julie Broad´s last blog ..Tony Peters and Creative Real Estate Tips =-.

  4. What an incredible story. I thought my first couple of investments were bad when the tenants wouldn’t pay the rent … that is nothing compared to the challenges you guys faces. I agree with Neil … sticking with it really is the key to success. Great story. Thank you.

  5. This is an awesome post, and very much like my experience in real estate here in Pennsylvania. When you have more excitement and belief than experience, these things tend to happen! I had a tenant who “fell” off of the balcony of a two-story house, but strangely wasn’t injured. This one even had a next-door “witness!” This whole thing nearly destroyed me and my business. After years of dealing with this, we finally got the truth – the balcony fell on its own, the person was never on it, and the renter had cut a deal with the “witness” to give them part of the settlement if it all worked! I couldn’t prove any of this, so in the end I just lost the property. This made me wisely never be a landlord again, but go strictly to wholesaling, where I made much more money with a lot less effort. Anyway, congrats to you on a great post. Keep it up!

    Harold

    • Wow!! That is quite the story too!! Some tenants can be very creative in how they get to you!! Thankfully after nearly 10 years of having rental properties we really only have one terrible tenant story … and she only cost us 3 months of rent not an entire property. Most of our other stories revolve around property manager issues or just bad buys in general.

      Joshua was thinking Bigger Pockets should have series of posts or a contest of some kind where we all share our early investment stories that started in hell… or something like that!! I think most of us have at least one really “good” story to share!!

      Thanks for your story and kind words Harold.

      – Julie
      .-= Julie Broad´s last blog ..Tony Peters and Creative Real Estate Tips =-.

  6. Dave Simmons on

    Thanks for the great lesson in Real Estate. I am just getting started, so I appreciated the information and will make sure not to rush my purchases.
    @DavidRSimmons

  7. Pingback: What I Hope Is Not a Farewell Message! – real estate investing made easier

  8. This is a great article Julie! After several years of managing non-profit housing, my husband and I have set up our own property management company here in Niagara Falls, Ontario. So much of the scary stuff that happens around here exists because of absentee landlords and little or no property management. Your articles have been a great resource for us as we come to understand the needs of responsible real estate investors.

  9. Thanks Dan, Dave and Anon! 🙂
    Smaller markets like Niagara Falls do create an interesting challenge for real estate investors because there are very few good quality property managers to choose from. The good ones can be VERY selective about the properties they manage. Good luck with your business.

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