Manslaughter & a Crack House: No Money Down Real Estate Deals
“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