Another year … another Halloween … another classic collection of creepy catastrophes from our listeners.
The stories you are about to hear are all true … terrible, but true!
And while these investors paid the price, YOU don’t have to … if you learn from their experiences.
Tune in for terrifying tales of toil, trouble, and real estate!
In this episode of The Real Estate Guys™ show, hear from:
- Your spooky host, Robert Helms
- His cooky co-host, Russell Gray
Broadcasting since 1997 with over 300 episodes on iTunes!
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Halloween horror stories … and important lessons learned
Welcome to another bone-breaking edition of Halloween horror stories!
Alarming anecdotes and deals that went wickedly wrong can contribute compelling lessons for real estate investors.
It’s our annual edition of Halloween Horror Stories!
Real estate is a messy business … but this episode isn’t designed to scare people off. Instead, it’s a way for us to share tribal knowledge.
Somebody paid full price for these lessons … so you don’t have to.
The never-ending cosmetic refresh
Curtis Drake and Ryan Pedit acquired a property in a market that they were previously in. It was light rehab … and they wanted to do the cosmetic piece.
They met with their on-the-ground property management company and went over the timeline and expectations for the updates. They closed on the property … and took off.
But the whole project went sideways with no revenue income.
What they learned was that they were doing things that were outside of their management’s wheelhouse. That team typically just managed property … they didn’t handle cosmetic overhauls.
Many property managers have a bevy of contractors in their network. So, when you say you want to do some light rehab, they think, “Yeah, we can do that.”
But rehab isn’t the same as upkeep.
Curtis and Ryan also share the importance of having a written agreement with dates and times established. Their handshake agreement left them without any leverage to fall back on.
Should have built from scratch
Loe Hornbuckle has been on the show before. He is a super syndicator … but even he has a horror story to share.
Loe did a project where he bought an existing assisted living facility. There was a lot of due diligence involved … but even then, some things slip through.
Turns out the property had an illegal fire suppression system that was not caught by any of the previous inspections.
Instead, it was caught when they filed for a permit to expand the property footprint into the garage.
Loe began working with the city to resolve the issue. It took six weeks for the city to articulate why the system hadn’t been caught and what the next steps needed to be.
Turns out the city allows certain fire suppression systems in single-family homes and others for businesses. When the property applied for a permit, the city thought it was an SFH.
But the property actually had an assisted living component … and with a certain number of residents, a different class of fire suppression systems is required.
So, Loe and his team had to rip out the old system and install a new one … about $15,000 worth of unexpected cost … and they lost 15 to 16 weeks of time.
Lessons learned … there may be more to your due diligence than you think. Really focus and take account of the physical pieces of the building.
Just because something has been checked off … it doesn’t mean it’s correct.
Another lesson Loe walked away with is that there is power in building from the ground up.
When you purchase an existing property, there are things you will need to tear out and replace. Sometimes, you might as well start from scratch.
Tragedy turns into lawsuit
Our good friend and wonderful attorney Kevin Day shares one of his own client’s horror stories.
This particular client had an apartment building. One of the tenants had a boyfriend who was home babysitting her son, left food on the stove … and went to sleep.
A fire started, and only the boyfriend was able to get out. The family went after the apartment owner in a lawsuit.
It ended in a settlement with insurance, but there are lessons to be learned.
Kevin says the big lessons are to separate targets. As you do your business and estate planning … remember that privacy is important.
The lower profile you have … if they don’t know you have five other rental properties … the less of a target you are.
Fully occupied … or not
Patti Hussey and Andrew Thruston from PJ Hussey … a property and construction management team in Phoenix, Arizona … have their own Halloween horror story to share.
The team was taking on a 28-unit apartment complex in the northeast portion of Phoenix.
One thing they noticed was that all of the tenants’ leases were month to month.
It was a hundred percent occupied with rents through the roof … but the day the deal closed, they lost 10 tenants.
The previous owner was calling tenants and telling them that they were free to move into the next property. The strategy was to build up residency in these multi-family apartments, sell them … and then move tenants to the next property.
Everything was to give the allusion of high residency.
The PJ Hussey team jumped in and worked to fill apartments with appropriate leases … but it was challenging.
The big lesson the team took away is to really be careful how you do your vetting. Talk to the tenants and ask them how long they have been there.
If things look suspicious … trust your gut.
For more Halloween Horror stories … and lessons learned … listen to our full episode!
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