Manslaughter
& a Crack House:
No Money Down Real Estate
Deals
by Dave
Peniuk
"
No money down", "100% Annual ROI", and "Positive cashflow"
are all catch phrases commonly used by real
estate investment gurus. It's hard not to get wrapped up in
the hype. I certainly did. After participating in some
investment seminars and reading several no money down books, I
decided to go after my dream of quitting my job by age
35.  From
what I learned, it seemed the only way to do this was to
buy several positive cash flow properties with
little or no money down. After some searching, I
was able to find two of these "gems" in Las Vegas North;
Niagara Falls, Ontario. I bought a total of nine units for
about $5000 of my own cash.
I have now learned there is usually a reason that you can
buy a property for no money down. It is because no one else
wants it!
The first clue that these properties were not a real bargain
should have been when the only one who would manage them was a
shifty character I'll call Bob. I became aware of Bob through
the seller of the property.
To begin with there was an occasional fire code issue and
frequent police presence on the property. And, of course, my
tenants always paid in cash which made it easy for Bob to skim
some extra for himself. These issues were small compared to
what I would face though.
The real problems began when Bob killed a tenant in another
property. In an altercation where the victim was harassing
other tenants, Bob delivered what ultimately was a fatal punch
to the head. The death of this person sent Bob into a drug
induced pit of depression. He slowly turned one of my
properties into a crack house, while letting everything run
into the ground at the other.
All of the crack use and prostitution in the buildings
attracted the attention of the fire department. Several
substantial orders against each property were filed, and
$25,000 later (including a $5000 court fine) I am finally in
the clear with the violations.
No money down, doesn't mean it won't cost
you!
Properties such as this can make you decent positive
cashflow, but they are very stressful. You also need an
outstanding hands-on property manager, and access to a lot of
cash. Property issues often arise because of tenant abuse and
property defects.
We both have very busy full time jobs and several other
properties to oversee. Having a run down stressful building was
not a good fit for our goals, even if there was sometimes
positive cashflow.
We are no longer completely focused on cashflow, and let's
face it, 35 isn't too far away. I am not going to be quitting
work just yet.
We want the numbers to make sense, but that isn't the only
factor we consider in our purchases. We now look for properties
in good or improving locations that have features that will
make them easy to rent, easy to resell and that we can proudly
say we own. These properties aren't on every street, and it
takes more money to buy them, but it is a property type we can
handle.
Published:
May 15, 2006
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