I’ve been writing recently about the situation across the street with my neighbor’s rental house.  My neighbors built their dream home and decided to keep their house across from me as a rental.  At first they put it up for sale, but it sat there for three months and after several price drops they decided to keep it.  The numbers allow it to cash flow a few hundred a month and it seemed like a great idea at the time. 

It would have been a great idea, and still IS a great idea, however… attention get rich quick investors… effort required!  If not on the investor’s part, on the property manager’s part.

It all started with an arbitrary pick of property management companies.  My neighbors called a For Lease sign on our street and gave the company the business without checking references or asking too many questions. 

Look.  When you have a 100-unit building, you want an experienced management company.  When you have one single family home, said management company does not care about you!

The management company was hired and they came to the outside of the house once to take a photo for the website.  The photo was posted along with a boring classified-style ad.  I never could find the listing on the MLS.  Interested parties helped themselves to the lockbox and showed themselves the house.  I saw many people come and go away mad because they could not get the lockbox open.

One day the tenants showed up to move in but they couldn’t get in because there was no key.  My neighbors had to bring over a key.  They saw that they had two dogs despite them never having approved of pets.  The tenants signed a 24-month lease option and put $6,000 down.  The management company got half of that.  The tenants paid rent three times (late) and then they stopped paying.  My neighbors had to pay the management company the late fee since the tenants did not pay it.

The tenants were a full 30 days past due and since my neighbors didn’t receive their check that month, they called the manager.  “Oh yeah, we better serve them a notice.”  My neighbors had to pay the company a fee to serve the notice, along with $900 in other fees to get the eviction done.  They are left with a $2,100 judgment and suspect they will never collect it.  Probably a good hunch.

Meanwhile I see that a brand new vehicle shows up in the driveway.  There were four adults, two kids, and two dogs living in the house with one car.  Now two.  Brand new SUV.  I also notice that the house next door to this one has a For Sale sign in the yard, which just turned into a For Rent sign.  It’s renting for $100 more/month than my neighbors are getting.  I see the tenants walk over a few times and peer in the windows of the other house.

Low and behold, a couple days later the tenants are moving their stuff from the house they are evicted from to the house next door!  How convenient to not need a moving truck, or even as much as a single box.  Arm loads did the trick just fine!  I’ve never seen the owners of this house.  It’s been empty for most of the time since it was built.  This is very typical of out of state investors who came here for the gold rush a couple years ago, but who knows.

So at this very time, my neighbors contact me to ask if I can keep an eye out for anything suspicious while their tenants are moving out.  As in, maybe I’ll see them damaging the place somehow or hauling out appliances, fixtures, whatever they can remove. 

Well as it happens, that night just before sunset I indeed see them wheeling the refrigerator out of the one house and into the other!  Wow, that takes guts!  I was having internet access issues at the time and could not get into my email to get my neighbors phone number until an hour after it happened.  I was getting so anxious as I was getting my email issue fixed, I almost went over there myself and thought about calling the police.  I was mortified that they were stealing right in front of me. 

I tried to think of any legitimate reason they thought they were entitled to the fridge.  Any reasonable story at all.  Any way there could have been a misunderstanding.  Maybe my eyes were deceiving me and this was a different fridge than the one I helped move in a few months earlier.  My neighbors bought a new one at a scratch and dent sale, so no, the one I saw being stolen had the same dent.

I finally get the phone number out of my email and call my neighbors, who are both police officers BTW.  I’m all hyped up and tell them what I just saw, thinking they would be over here right away.  All that wasted anxiety I had!  Their reaction was so nonchalant I couldn’t believe it.  “Really?  They’re stealing our refrigerator?  We already have a judgment for $2,100 that I doubt we’ll collect.  I bet we never get the fridge back either.”  I asked them what they planned to do about it and they said maybe they would call the cops on Wednesday (this was Monday).  WHAT?!

I’ve since had a long talk with them about their whole experience and if it has tainted them against investing forever.  They said they’re putting the house up for sale because they need the money and won’t be re-renting it.  They had pulled out equity when they moved out to pay for a new truck.  Then they sold their car to pay for their landscaping at the new house.  They need to buy another car and thought they would use the house proceeds for that.  They’ll lose about $6,000 to a prepayment penalty if they sell within a year of their re-fi but that’s fine with them.

This house isn’t going to sell anytime soon.  The days on market right now is long, and they will have to price it under value.  It’s a buyers market to be sure!  It will sit empty for months while they make two mortgage payments.  I don’t get it.  I’ve offered them a good property management contact I have, and I told them I would help them screen their tenants if they wanted to be involved in that part this time.  The house is brand new and they live 20 miles away.  They could manage it themselves without much work at all. 

They could get the place re-rented and start collecting cash flow, or they could get a cash advance on a credit card to make the mortgage payments until it sells.  They’ve told me they are unable to make the payment otherwise.  If they can get a paying tenant and ride out this buyers market, they could make out really well in a few years.  To me it seems the numbers provide the answer on what to do.  But, they don’t want to have to mess with anything, they’re bitter about property management companies, and they want the new car.  I guess if REI was easy and turned out new vehicles just like that, we’d all be doing it.