As an investor you do your level best to make sure your house is in perfect condition, you price it a little below market to generate interest, and screen potential tenants. In a perfect world you have the best house in the neighborhood and the best tenants to occupy the house. And then there are times when Murphy’s Law rears its ugly head on your portfolio.
We received a call from a fellow investor about two months ago concerning a house he owns in a very nice neighborhood in Houston. He was visiting his son’s college when he received a call from Houston Police Department, HPD. HPD was not releasing any information and simply requested the owner to meet the narcotics officers at his rental house ASAP. The investor drove quickly to his house.
The house is a beautiful 2800sqft house on the north side of Houston. The tenants, who’s background was clean and their rental history was perfect, rented the house 10 months prior to the incident. The interior of the house had been converted into a greenhouse. The tenants installed custom air conditioning, arborist grade lighting, and rerouted electrical to ensure adequate power for their operation. The house is very well insulated so the heat load was almost undetectable and they taped directly into the electrical grid before the meter, so their electrical use was unnoticed by the power company.
The damaged to the house caused by their operation was extensive. The flooring was destroyed by bio gel water filled beads used in potting soil and the electrical was rewired to suit the needs on the a/c units, sheetrock was destroyed from erecting rooms within rooms to house the plants and the moisture from the operation eroded interior finishes.
The damage was extensive, nearly $35,000 worth! Click here to see the story from the local news. Click here to see our photos after HPD collected the evidence.
Now put yourself in this investors shoes. What do you do? Here are his options.
Fix the house
The investor has to come up with $35,000 to perform the necessary repairs and evict the tenants. Then he has to find new tenants, this time let’s hope they are not running their own drug ring. This whole process will take about three months. Let’s take a look at the numbers. If he owns the house all cash, meaning there is not a mortgage, and rents the property for $1500/month. He spends about $500/month on insurance, HOA, and taxes so he pockets about $1,000/month. It would take 39 months to break even, $35,000 in repairs divided by $1,000 a month in profit, plus three months while the property is being repaired. This works if we assume that the owner has $35,000 to fix the property, most people we meet with are not that liquid. His other option is to sell the house.
Sell the house
His fastest option maybe to just sell the house; however he can’t sell the house to a retail buyer because the house is in such poor condition it would not qualify for a loan. His third option is to sell to an investor like AlamoHouseBuyers.com. This would relieve the owner of costly repairs and managing the legal system to evict the tenant. He would get his cash quick and could move on.
Does this story sound familiar? Your best option might be to sell the headache, check us out at AlamoHouseBuyers.com or call us at (832) 900-7288. You can also visit our website and fill out our easy web form.