Epic Real Estate Investing - Real Estate - The Good. The Bad. The Ugly. | 897

Episode Date: January 14, 2020

Even though real estate offers a vast range of possibilities in creating passive income and ultimately wealth freedom, it’s not always cotton candy and roses. This Tuesday, Mercedes shares a particular issue that she had with one of her rental properties in Cleveland, Ohio. Stay tuned and find out how our turnkey girl solved the ugly problem and what she learned from it!   Learn more about your ad choices. Visit megaphone.fm/adchoices

This is Terio Media. So you want to be a real estate investor, but you don't want to do the work. If there were only a way where someone else could do it for you, now there is. Tune in here each and every Tuesday on the Epic Real Estate Investing Show for Turnkey Tuesdays with your host, Mercedes-Torres. Hello and welcome, welcome to Turnkey Tuesdays brought to you by Epic Real Estate Investing. my name is Mercedes Torres, your turnkey girl, and I help busy professionals acquire passive income through real estate investing so they don't have to work so hard and maybe even retire sooner.

So this show is here to share tips and advice and real life real estate experiences so that you two can create passive income in your world. That said, if this is your first time here, glad you made it, make yourself at home. If this is not your first time here, welcome back. Well, happy New Year's to you, my friend. I hope that you're lining up with some new goals in this year. Notice how I didn't say resolutions. I said goals.

I don't really care for the concept of resolutions. as statistics show that most people, 80% of them, actually fail to achieve their New Year's resolutions. So I'm a more of a goal kind of a girl. I like to set goals and I like to set a timeline for goals, and then I like to set a plan to achieve my goals. And one of my common goals is cash flow. specifically cash flow through real estate, passive income, if you will, because I love the idea of doing all the work once up front and then reaping all of the benefits later. Now, on many episodes, I talk about the benefits of real estate investing in cash flow. It's no secret.

I love cash flow. and I often talk about the pros. I talk about just the cash on cash return, the ROI. I talk about appreciation, depreciation, and how to maximize those tax benefits. I mean, I've done full on episodes on all of the benefits a investment property offers you. In fact, I even did an episode on my own person. story when I gave birth to my son and I was holding my little one literally hours after I gave

birth to him and I thought, oh my goodness, I was a first time mom and I felt the responsibility of not only having to provide to my little one for the rest of my life, but really his education. I thought about, oh my goodness, when this kid is 18 years old, mind you, he was hours old, I am going to have to put him through college. And then I started doing the math in my head of what college was going to cost. So I instantly made a decision and I said, you know what little guy? I said, Mateo, I am going to buy you your first home. I mean, Mateo was hours old.

So sure enough, I bought his first investment property and I bought it with the sole motivation of having this property pay for his college education. Now, Mateo is eight years old today and about four years ago, I got really, really lucky. His investment property is located in Birmingham, Alabama. and for those of you who follow the trends of the market, you'll know that Birmingham about a year and a half ago announced that the Amazon headquarters, the Amazon Hub, was going to be based out of Birmingham, Alabama. So values skyrocketed in the specific area where I had bought Mattel's first investment property. So fast forward to today, that little and investment property that I bought for Mateo is now two properties. And the cash flow of property

number one is going to pay for his college education. And the cash flow of property number two is going to pay for his wedding. I only have one child. I don't have a girl. So that's what property number two did. But my point is that I panicked being a first time mom, not knowing where I was going to find the money to pay for his education, because let's face it, when he was born, I didn't have the real estate portfolio that I have now, and I didn't know what college was going to cost me specifically, but I knew that it was my responsibility. So I created a plan, and I did a podcast on that specific topic. Fast forward to today, he's got the two properties now.

He's cash flowing wonderfully. the kid is eight years old and he's going to be very, very okay. So I talk about all of the good that cash flow properties bring to you. But today, I want to share about something not so good about real estate. And it's something that is happening to me personally with one of my rental properties. And I want to share the situation because I want you to know that sometimes real estate is not all cotton candy and roses. There are some, you know, thorns along the road.

And so I'm faced with a situation that in my entire 14 years of real estate building and my portfolio, I've never encountered the situation of bedbugs. Now, I own a duplex, and this duplex is in, Cleveland, Ohio. And in Cleveland, Ohio, the city is called Shaker Heights. And it's an area that has what we call a point of sale. For those of you who invest in Cleveland, you understand what a point of sale is. And it's very similar to like an HOA. There is no additional fee to have your property in this point of sale area. But whenever you buy and sell a property. property, the city holds you accountable to keeping the property up to a certain standard.

So I love the idea of point of sales because it allows a uniformity and it allows the investors to keep the property up. So I really appreciate that point of sale. And mind you, I've owned this duplex for about, I want to say about five years. And I love it. It's one of my favorite performers. It's a little bit older. It was built originally in the late 40s, but I redid the entire property about five years ago.

We did a full rehab. And it's been performing amazingly well. In fact, one of the tenants I have is an original tenant. That's my downstairs tenant. And the upstairs tenant has been there about almost two years. Well, I get a maintenance request just a couple of days ago. and the maintenance request was astronomical. It was $1,200 to treat bedbugs.

So instantly, I got on the phone because in many states, bedbugs are a tenant's responsibility because the tenant owns the bed. The bed usually, I don't furnish my unit, so the bed is the tenant's responsibility. and if there are any type of bed bugs, then in most states, it is not my responsibility.

It is the tenant's responsibility. However, this is a duplex. And my downstairs tenant, apparently, is the one that has the bedbugs or the one that has the problem that's producing the bedbugs, but the tenant upstairs is the tenant, that's unfortunately having to reap the trauma of the bed bug bites.

I don't know. I just think about it, and it grosses me out. But when I called my property manager and they told me the story and they said, you know, Mercedes, the downstairs tenants hygiene is not so great and we can't make them clean their house. and the upstairs tenants' house is immaculate and complains constantly about the pest situation downstairs. Now, I did about a year and a half ago, maybe two years ago, we treated the property for pest because, of course, we had a turnover upstairs. I rehab the unit upstairs and I treated both units for pest.

Well, now fast forward to two years, the upstairs tenant is now complaining about bedbugs, which she claims come from downstairs. So the only way I could verify this is indeed if we verified that the bedbugs were coming from downstairs. So property management went and did a full inspection to both properties. Now, mind you, because both properties are tenanted, property management then has to schedule a full-on inspection with each unit, and as you may know, each unit is occupied by two completely different properties, or excuse me, two completely different tenants, so property management had to make two trips to go inspect each of the two units.

Long story short is downstairs the hygiene is less than favorable, and it has been proven that indeed there are bedbugs there. And it is highly probable, as the verbiage that the inspector used, highly probable that the bedbugs are coming from the downstairs unit. Therefore, I technically can make, the downstairs unit responsible for the entire fumigation to eliminate these bedbugs. Long story, I know, but here's the problem. What do you do? As a homeowner and as an owner of the duplex, yes, it is my responsibility to treat for pest. But there is also the tenant's

responsibility to maintain their property. And because I was so concerned about the bedbugs that were biting the children that live upstairs, I not only had to make sure I did everything to cover myself as an owner, but I also had to do my best to protect the innocent tenants that were unfortunately having to be exposed to the terrible situation due to the lack of hygiene of the tenants downstairs. So terrible situation. And the solution was, yes, not only did I have to pay for our property management to take two trips in order to ensure that the bedbugs were actually coming from the downstairs

unit. but I had to prove beyond a reasonable doubt the source of these bedbugs because if I didn't treat the source, then it was going to be pointless. So fast forward to this whole fiasco, it was a very expensive treatment. It was $600 of treatment twice. So we do a first treatment and then come back a couple weeks later to do the second treatment. And then we had to tell the tenant downstairs, you have bedbugs. And the only way you're going to get rid of them is if you get rid of the mattress.

So we then had to put in writing that the tenant needed to do something about the mattress, which put the tenant in a situation because what if they can't afford the mattress? So whenever there is a situation when it comes to any of the properties that are in my portfolio is I try to look at what did I learn from it? You know, there are failures that transpire every single day, but I turn them into learning experiences. And I can't necessarily say they're failures because I didn't really do anything to cause these bedbugs.

But what I try to do is I try to do my best to get to the source of the situation and then to look at how am I going to avoid such a situation happening to me again. So there is a benefit to this whole fiasco. And what I learned was after I analyzed the numbers, the cost to treat these bedbugs with two treatments was a total of $1,200. The reality is, I cash flow roughly between $380 and $400. So the cost of treating the unit for bed bug or the units, because it was two of them, was three months of rent. But this is what they say that you have to save for a rainy day. I had reserves, and the reserves that we've had, that by the way, I had not touched

in about three and a half years since the last situation covered the cost of the treatment. And the reality is I was able to not only pay the cost of the treatment, but I do get to deduct that treatment at the end of the year. So it is an absolute tax deduction. But more importantly, is that the tenant is responsible. The downstairs tenant is. responsible for this particular situation. Now, this may not always be the case, but we were able to prove that the bugs were in her bed, and I tried to do the best that I could to make it not an uncomfortable situation. And so what we did was we offered her a discounted brand new mattress. So it was her responsibility to remove the mattress. We got her a new mattress and we allowed her to make

payments on the mattress. In addition to that, she agreed to pay for one of the treatments, which we also did a payment plan. Now, I could have been a stinker because technically she was responsible for the whole thing. But she was truly embarrassed and flexible. And although her hygiene was not the best, she was super compliant and, again, embarrassed and willing to do what it took so that I did not evict her. Now, evicting her never even came to the top of my mind. But apparently, she must have had experience with this in the past because she was very afraid that we were going to ask her to leave. So this just happened recently and she's already made her payment for, her rent payment for the month and made her first payment towards the mattress, which was half of it,

and said that at the end of the week she was going to pay another $50 towards the treatment. The reality is I created a win-win situation. out of this unfortunate, horrible situation that has never, ever happened to me. So when you hear me talk about all the glorious benefits of rental properties and passive income and all of the benefits that we reap, there's sometimes a tinge of dirt in your experience, but it's the reality of it. So I wanted to share it with you. I do my best to try to make every situation a good one at the end of the day. And even if it's not a good situation, I try to make it a learning experience. Oh, and by the way, what we've done with this situation

is from this point on, I have added verbiage in all of my property management agreements that if we do find beg bugs in your unit, you are financially responsible for the treatment of the entire unit. So that was the learning experience from this whole fiasco. Don't let a situation like this story deter you from becoming a real estate investor because at the end of the day, this is not a great situation, but I still made money due to the tax deductions and due to keeping a tenant. happy. So there you go. It is absolutely my pleasure to share the good, the bad, and the ugly with you. I hope you were able to reap something good out of this whole episode. If you want to connect with me

or learn more details about how I manage my portfolio and how I make a win-win situation out of not such glorious situations, go to my website, cashflow savvy.com. Lots of information there to learn from and just to reach out to me. If you'd like to reach out to me, feel free. I can be contacted at Mercedes at epic real estate.com or cashflow savvy.com. That's savvy with two V's. You can reach out to me and my team and learn more about how to get properties without bedbugs.

Have a great day. Talk to you next week. If waiting for your investments to grow feels like waiting for pink to drive, there's a powerful secret your financial planner doesn't want you to know. You can accelerate your investments growth by two, three, or even four times. That's bad news for Wall Street, but great news for you. We're cash flow savvy, and we'd like to offer you free information that will show you how to take control of your investments

and double, triple, or even quadruple their returns. And it's yours for free. For the secret your financial planner doesn't want you to know, go to cashflowsavvy.com. That's cashflow savvy.com. This podcast is a part of the C-suite Radio Network. For more top business podcasts, visit c-sweetradio.com.