Epic Real Estate Investing - Rental Properties and The Worst Possible Scenario | 1132

Episode Date: March 16, 2021

Recently, our Turnkey Girl, Mercedes received a question from a podcast listener asking what has been the worst situation that she has experienced in regards to buying and holding the properties. Hence, Mercedes decided to share her story and the story of her client when things went wrong. Tune in and find out how Mercedes and her client dealt with challenging tenants and solved the issues!  Learn more about your ad choices. Visit megaphone.fm/adchoices

This is Terrio 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. Now, when I say retire, I don't mean retire at the age of 75 years old when you have a few years left in your life.

I mean, retire whenever you want to so you can dedicate your time. to the things that you want to do in your life when you're young enough to do them. So if this is your first time here, glad you made it. If this is not your first time here, welcome back, my friend. Oh, so much to share this week. First and foremost, I really want to say thank you to you. I get emails on a weekly basis just about things that I share on this show that really resonate with you. You know, whether it's an interview that you can connect with, I appreciate your words and the time that it takes you to reach out to just put your thoughts on paper and send it in an email to me.

not necessarily on paper. Put your thoughts in an email that gets sent to me. I appreciate it and I want you to know that I read each and every one of your reviews, your comments, your emails, and know that they are not taken lightly. So along those lines, I also get questions from listeners that sometimes ask me for advice on certain situations. whether it's a closing or whether it's a, you know, a wholesale deal or a fix and flips or a question about closing. Could be about markets, could be about strategies. But last week, I got a question from Stacey M. from New Jersey. And she asked me, what was the worst thing or what has been the worst thing that I've ever experienced in regards to real estate investing and just buying and holding

properties. And she specifically asked, you know, how much money did I lose and how did I overcome it? And it got my wheels turning. It got me to think. So on today's episode, I am going to share two scenarios, one that happened to me personally, and then one that happened to one of my clients, and I'll go through the entire story. I'll spare no details. But Stacey M. of New Jersey, this is for you because I literally can write a book about these two experiences that have transpired in my world of real estate investing. And I really hope. that it sheds light on the possibilities of what can happen when you own rental properties and how to overcome what could be experienced or what can be summed up to a tragedy,

so to speak, okay? So first, I'll share my story because it's one that I get asked about all the time, and it has to do with a Section 8 tenant. Now, I personally am a huge fan of Section 8. tenants because I just have been able to see through my years of having my own personal portfolio that I'm fond of them because it's almost guaranteed money. I mean, Section 8 is subsidized housing by a local or the government, but a local entity could be a veteran society, a local one, or it could be the Router Club of the location. Oh, or it could just flat out be Section 8, a government subsidized program. And in one of my properties in Memphis, Tennessee, I had a single mother with three kids. Now, there was a man around. I don't necessarily

know that it was the same man because the rent checks of the difference of the subsidized housing came in different gentlemen names, but that didn't matter to me. My tenant was my tenant for four years, and she paid like clockwork. She called our office and said, you know, she will pay us on the third of the month. And indeed, by the third of the month, sometimes even the fourth, she would pay her portion of the rent. Now, the rent was $850 a month. Section 8 covered $700, and she, my tenant, was responsible for $150 of that subsidized housing, which, again, she paid on time to sell them late, and she almost never called in for a service call.

I think she had in four years three service calls throughout the entire four years. And then one day, she started becoming late. Now, with this particular tenant, because she was a tenant for four years, around January, she always kind of was a little bit late. And she was very honest, and she would say that she spent her money for Christmas presents for her kids. But long and behold, by March 1st, she always caught up. I think she would do her taxes and she always got caught up with her taxes. But we never really questioned it because she was.

would always communicate with us when and if she was late. So she became late this one time, and it wasn't the beginning of the year, like normally. It was around May. And so she called in, and she said she was going to be late, and she created a payment plan. And come two months later, she didn't honor her payment plan. And finally, three months in the rear, I mean, I have a fiduciary duty. I still have to collect her $150, even if I'm getting the $700 that Section 8 are paying. So we started reaching out to her. And by this time, I simply just said, hey, you know, we're going on three months is everything. Okay?

She's like, oh, Ms. Mercedes, I'm going to get it. I will get it next month. And we gave her the benefit of the doubt. And again, month three, she defaulted. So I felt no other choice but to serve her with a three day or quit. So she has three days to make the payment or she has to let us know that she's going to quit. And this will automatically trigger an eviction. So of course the three days went out.

It was posted on her door. She called the office. She said, I will get it in three days. Three days went by. We gave her a two days grace period. Again, she had defaulted. And by this time, we're almost going into three and a half months. of her defaulting. So I filed an eviction. Now, it's a whole hoopla. Now, in the state of Tennessee,

evictions aren't that difficult, but you do have to go to court and you still have to follow the sequence of legality. So we did. We post a notice. We filed an eviction. We took her to court. And inevitably, we won. And I was sad. I was sad because she had been a really good tenant. She was a single mother, she had three kids, and I tried to work with her, but we had to get her out. So because of how it transpired, the whole time, it took us almost five months to get her out from beginning to end. Okay. So we didn't have to force her to move, but we did have to serve her with the documentation and a marshal did have to go. And when she moved out, it was a fiasco.

Long story short, when she moved out and my team went to go do the inspection, it was a living nightmare. The unit was trashed. But I don't mean malicious damage. She didn't cause holes in the wall. She didn't, you know, rip out. you know, the refrigerator from the wall. She didn't do anything damaging.

She just left a whole bunch of trash behind. I mean, I don't even know how she was living in these conditions. And I reverted back to the physical inspection that we did a year prior. And it wasn't even remotely the way that she left this unit. It took us two dumpsters and three days to clean out this mess that she left behind with a full crew of three days, eight hours a day, a full crew. That's how much trash she left behind. It was horrendous. And in my 15 years of real estate investing, it was my worst possible.

imagine nightmare and scenario and I was living it. Now, fast forward to after the dumpsters were placed on the property, filled up, and hauled away, we still had to get the property rent ready. Now, mind you, I was going into five months of collecting no rents and I still had to evictor and then get the property rent ready. So from the time that I started the process of not collecting that first late payment to the time that I evicted, it was a total of five months. And then it took me about three days to clean it all out. And then I had to hire a crew. And it took me two weeks to get it rent ready. So we're looking at six months of, so to speak, no rent. So finally got it rent ready. And we were able to put it on the market. It was a great little property. So I rented

that property, I think it showed for five days. And long and behold, it was rented. Now, here's the upside to this horrible nightmare. When it rented, I was able to increase the rent by $100 per month. Now, at the rent that I was receiving, which was $850 for this tenant, that's the section 8 plus what the tenant was paying, I was still a little bit under market value. But I was able to now rented for $9.75. So it was $25 below market value when it was rented to my section 8 tenant. And then I was able to increase it $100 more. Here's the cool part of it.

I demanded a two-year lease. So I now increase the rent, brought it up to market rent, then increased it by $100 a month, and got a two-year lease. So, although it was a horrendous situation, I didn't collect rents for six months, but the upside is I have a great rent-ready property with a two-year lease and $125 more a month that multiplied my ROI and got me out of that negative number that I was experiencing during that six-month lapse where I was experiencing. this whole eviction with my spot-on tenant that I had had for four years. So the upside was I got a two-year lease for $125 more than what I had anticipated. So that was, I'd have to say, one of my nightmare stories. And I will have to say that in my 15 years of having my portfolio and all of my rental properties, that is possibly the worst possible scenario. Not too shabby, right? Okay, so now I'm going to share a

situation that happened with one of my turnkey clients. I didn't ask him for permission, so I'm not going to share his name, but he is a physician. He is probably a practicing physician. I want to say about 20 years, amazing practice works so, so much and started investing in real estate not only because of the tax deductions, but because he knew that although he has an amazing profession, the moment that he stops serving clients or serving patients, the money was going to stop for him as well. So I started building his portfolio, I want to say about three and a half years. ago. And we have acquired with him probably, I think he's working on property number 14 now.

But by this time, you know, we were working on property number 11 at that time that this whole situation transpired. And when we were working on property 11, he calls the office and he says, you know, Mercedes, I am going to go away for 10 days. I'm going on a convention where I have to speak and then I'm going on a seven-day cruise. So I am probably not going to be available during these, you know, five days just in case you wonder if I'm not answering, you know, your emails or your, your voxers or your, you know, communications. It's because I'm going to be out at sea and I don't know what my reception is going to be like. And I said, okay, no problem. We were doing a closing. So he was closing on another property. And that's why we knew.

he was going out of town. So he goes out of town and then all of a sudden, like on a Tuesday morning at 6 a.m., I get a call from one of my property managers who we share. So as you know, all of my clients use the same property management teams that I use. That's why I know that my clients are taken care of because we share the same teams. And so my property manager calls me at six in the morning. And of course, when you get a call at six in the morning like that, you freak out. And I was like, oh, boy, which property burnt down? That's my immediate thought. And he says, oh, Mercedes, I'm trying to get a hold of the owner of, you know, one, two, three main street because there was a situation. And I said, oh, he is closing a property. And he just told me that he was a

going to be on a cruise and not available possibly for the next, you know, week and a half. What's going on? And he said, oh, my goodness, a property fell, or excuse me, a tree fell on the carport of your investor's property and smashed the tenant's brand new car. And I do mean brand new car. The car was about a week old. So not only did we have a problem with a tree falling on a carport that destroyed the tenant's car. The tenant had no way to get around to take the kids to school and to go to work. And he says, you know, I'm trying to reach the owner and he's not answering. And I said, oh my goodness, he's out at sea. Let's assess the damage. So property manager, their fiduciary duty is to act in lieu of the owner.

But as a courtesy, they were reaching out to the owner and I just said, listen, this is likely going to be an insurance claim. I'm very lucky to know this owner personally. So I know that he's going to want to not only take care of the tenant, but take care of the carport and the car. So we revved it into gear, we got a rental car for the tenant, and then we instantly figured out how to get the brand new car repaired and how to get the car port repaired and the tree hauled out of it. Because naturally, a tree on someone's property, well, that's a problem. I knew from experience that this was likely going to be an insurance claim.

I also knew that my client, who had purchased several properties, was going to really, really want to ensure that his tenant was taken care of. So moved it into gear, got everything taken care of not only for the tenant, but the tenant's vehicle, got the car taken care of, and got the tree removed. Everything was hunky-dory. And of course, when my client comes back, fast forward to, I think, four days later, he calls frantically saying what happened. So property management explained exactly what had transpired. And by that time, it had been four or five days since it happened. So we had rented a car for the tenant. And we had already hauled the tree away and we had gotten quotes on rebuilding the carport.

and then we had the tenant get quotes on what it was going to cost to repair the car. So, long and behold, everything moved forward. We absolutely took care of everything. And then we had the owner reach out to the insurance company to file the insurance claim. Now, nightmare for both, property management and the owner, and more so for the tenant who had a brand new, Honda cord sitting in the carport that they worked ever so hard for. Luckily, although the tenant was very upset, understood that it was no one's fault.

It was a tree that had fallen. I can't even say it was an act of nature because it wasn't like there was an earthquake or there wasn't thunderstorms. Yes, it was windy, but the reality is the tree that was really not on the property line of our owner had fallen on the carport. Whole different story, but needless to say, it was an insurance claim, and fast forward to about six weeks after the filing, my client received a check for the fallen tree, the car being repaired for the tenant, the rental car that we had to get the tenant,

and the brand new carport. So, upside to this entire situation, there was communication between my client and I prior to my client going on vacation. And our team did everything possible to reach out not only to the client that they couldn't get a hold of. So the investor, the owner of the property, they reached out to me and said, Mercedes, what do I do? So we jumped. in, made an executive decision on behalf of our client, and because it was all covered by the insurance, or at least I had a really huge hunch that it was going to be covered by the insurance company, it was taken care of. And this horrible scenario, and I do mean horrible for all parties,

was taken care of within a matter of probably a week. Now, when you're experiencing this, it is like terrible. I mean, you think about it. about it. Sometimes it might keep you up at night. But fast forward to when it's all said and done, if you have all the key players in place, there's no reason why a rental property should cost you sleepless nights. Here's the moral of the story. Real estate is risky. But in almost every scenario, a rental property can throw your way, there is always a solution. I mean, always. Think about it.

A tree falling on a carport. What can get worse than that? Maybe somebody getting hurt or being in the car, sure. But the reality is, if you think about the scenario, at an arm's length of way, there is always a solution. And yes, it can royally suck when you're in the process of it. But at the end of the day, even if you're out a few bucks in the interim, it almost always works in your favor. Whether it's more rent, maybe even longer tenants, an insurance pay out. Who knows?

There is almost always a certain recovery at the end of the road, even in the worst. possible scenario. Now, if you have questions for me or have a scenario that you want me to discuss, just email me. Email me and who knows, I may do an episode at the very least. I will respond to your email for sure. But if you're asking the question, it is likely that somebody else has the same question you have. So send me an email at Mercedes at Epic.com. real estate.com. That's Mercedes just like the car. Or if you want to learn about acquiring your rental property, reach out to my team. Go to cashflow savvy.com. That savvy with tubis. Hit the contact me, myself or one of the cash flow savvy consultants can hop on the phone with you and can help

you figure out how to get that ball rolling to get you rental. To get you rental. properties. Remember, real estate is the final frontier where the average person has a legitimate chance to create financial freedom. And this includes you. That's it for today. Until next week's episode where cash flow is key. If waiting for your investments to grow feels like waiting for pink to drive, there's a powerful secret. Your financial planner does 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 cashflow savvy.com. That's cashflow savvy.com. This podcast is a part of the C-suite radio network. For more top business podcast visit c-sweetradio.com