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