“Your rental home is a meth house!”
Imagine hearing these words from a trusted contractor. As he’s standing in your rental home… 1,486 miles away.
That’s exactly what happened to my friend and fellow real estate investor, Brian Hamrick.
This is a story about the importance of trusting your partners and contractors—and getting second opinions. And it reminds me why I love multifamily investing.
Brian is a seasoned Grand Rapids investor now. Like me, he is crazy about multifamily investing. But like all of us, he had to start out somewhere. And “somewhere,” for Brian, was in distant Albuquerque, New Mexico.
The year was 2003, and Brian was eager to get into the real estate investing world. He acquired a three-bedroom, two-bath home long-distance through an investor network. They did all of the hard work, and he got in for only $5,000 down.
For about six years, Brian rented out this home successfully. He wasn’t making any profit, but he was paying down his mortgage and had never regretted his decision to own remote single family residential property.
Until he got that phone call in 2009.
Brian’s management firm had just evicted a very bad tenant. This had cost him a few thousand dollars. And it was his first indicator that perhaps his management company was not doing a great job screening tenants.
Then his home sat vacant for a few months. It seemed the management firm had no qualified tenants who were interested. Brian’s irritation turned frustration was now at a boiling point, and he fired them.
Brian was remotely screening new firms, and one of them was touring the home when the neighbor showed up with a startling announcement:
“The last guy who lived here was running this as a meth house!”
The manager immediately called Brian with the news. (Have you ever had a moment where you were stunned or upset, but you didn’t even know how upset you really should have been?)
Though Brian was stunned, he had no idea how badly he should be stunned. Yet.
He hung up the phone and began Googling “meth house” and “remediation of meth house.” What he found shook him to his core.
The management company informed him that they wouldn’t touch it. They said he had a huge problem.
A house that’s used to cook meth basically becomes a toxic waste dump. Biohazard Central. It’s really a big deal. All of the surfaces can be contaminated. And the plumbing. And perhaps the heating and cooling system.
Related: What to Do if You Find Out Your Tenant is Involved With Drugs
Brian said, “I was beginning to see how extensive the remediation may be. I found a trusted local guy who immediately asked me if the police knew: ‘Because if they know, they’ll slap a red tag on the door, and it will be marked forever. Like a Scarlett Letter!’”
The guy had elevated Brian’s pain and fear, but he calmed him down a bit when he informed him that he was an expert in testing for meth. “Maybe it was a false alarm. Maybe the neighbor is full of crap. I can tell you the truth with complete certainty!”
Brian asked the expert how common meth was in Albuquerque.
“You see it everywhere now,” he said. “In every socioeconomic sphere. Not just lower income tenants, but rich and poor alike. You may find it anywhere and everywhere.”
Thankfully for Brian, this guy could sniff out meth with his nose, and he had a blue light to detect it with certainty.
Brian got the guy in the house, and the long distance call came minutes later. He had walked into the living room and immediately confirmed Brian’s worst fears.
Brian’s rental home was a meth house.
“I could smell it as soon as I walked in. And my trusty blue light doesn’t lie. They’ve been cooking meth in here. This is gonna be costly to fix!”
In shock, Brian asked the guy for a remediation estimate. Fortunately, this was the guy’s specialty.
He hung up the phone and hung his head in discouragement. His dreams of quitting his day job and a Trump-like real estate empire were slipping through his fingers faster than the digits in his bank account balance.
His thoughts were racing. “Could I get called into court? Will I have to bulldoze this home and sell the vacant lot? Will even the lot be contaminated?”
It wasn’t long until he got the expert’s estimate. Much to Brian’s surprise, it was much less than his fears had told him to expect. Only $15,000.
“We can thoroughly scrub the walls, then repaint.”
Brian was relieved—and about to learn a few lessons in trust. “Apparently the dire warnings I read about were overstated. I guess you never know who to trust on Google.”
This guy with a good sniffer and the blue light had become Brian’s beacon of hope.
The management company who rejected him said that his insurance company might actually cover this. Brian called the insurance investigator who said he would probably not be covered for remediation, but may be covered for certain damages.
He also convinced Brian to get an independent chemical lab to verify the existence of meth. This turned out to be providential.
Brian already had a free estimate from the Blue Light guy, so he was initially unwilling to pay a lab $2,000 to verify meth. But after considering it more, he reluctantly ordered the lab test.
To Brian’s happy surprise, the chemical lab returned a surprising result:
No trace of meth in his rental home.
Blue Light Bob was a complete fraud.
Stunned and relieved, Brian realized he almost blew a lot of money trusting a guy he’d never met to sell him remediation services he never needed—for a problem he never had.
Brian hired a new management firm, got a new tenant, and sold the property a few years later. This home cash-flowed for almost a decade, but in the end, Brian said he only made a few dollars. The eviction, the empty months, and the $2,000 lab bill ate up virtually all of his profits.
Brian said he learned that in single family investing, one or two problems can eat up your cash flow for years. A costly eviction or a tenant who trashes your home can devastate your investment.
“And imagine what would have happened if they really had cooked meth in my home!”
Brian went on to sell six of his seven single family rentals, and he’s trying to sell the seventh one now. He has completely realigned his strategy into the realm of commercial multifamily investing. Brian likes the economy of scale in multifamily investing much more than in the single-family world.
Related: I Checked Out a Drug House So You Don’t Have To (With Pictures!)
Like me, Brian knows several people who have had success in the single family rental world. “But those people are hyper-local and hands-on—totally focused on their investments.”
Brian said he learned several lessons above everything else from this scary episode:
- Don’t invest in single family homes (unless you want to make this your life).
- You have to be sure to trust the right people.
- Always get a second expert opinion.
Brian Hamrick now manages multifamily real estate through the Hamrick Investment Group.
So what about you? Have you had success with long-distance single family rentals?
Let me hear your best stories!