Can i "sqeeze blood from a turnip?"

Question

I love the idea of real estate investing and have been learning so much recently. However i will admit that the "all the what could go wrongs" has me froozen in my tracks. If i were to buy a house in my market, which i prefer starting out i may only pull in maybe $200 hundred or so dollers extra pre month. After half or so of the money is saved for future expenses. If anything goes wrong that could easily erase years of income. For instance i just talked with an acquaintance who told me that he recently sold his rental property because of problems. He explained that the tenant had used meth in his rental so the State had to condemn it. It cost him $12k to make the necessary repairs for the State to allow poeple to live in it again. Not wanting more trouble he decided to sell it. I asked if he took the tenant to court to get his 12k back, he said no, the tenant doesn't have that kind of money.

I'm not someone that likes to sue (and never have) but if i had a rental where someone used meth, even if they didn't have money, could i sue them for the expenses and legal fees? Basically can i force them to declare bankruptcy so i get my money back?

Lynnette E. · Answer

@Bryce McBride if someone does not have any assets, then going to court will cost you time and filing /service fees, and maybe an attorney's cost too.  One can get a judgment, and likely will because the jerk will not show up.  But you will not be able to collect on the original loss, and now you wasted more money on the court costs and your time.

That is why many people do not bother to file against deadbeats.

However, if you win the judgement, you can follow the court rules and renew it, often every ten years.  It will show up on their credit report as long as you renew it.

You hope, that eventually the person will straighten out his life and want to clear the judgement off his record.  That often is ten years out.

My parents had one judgement that they renewed for thirty years.  They never collected anything really, but the jerk also could never buy a house either!  He could never buy a car and pay it off, just lease at an extra high risk cost.  He could not own an asset.  All money accounts were kept in his wife's name after they moved to a non-community property state to avoid my parents getting a judgement to take it.  The initial judgement was so high that he could not afford to pay it off as he trashed the house and built in pool--on purpose because he was being evicted for non-payment.  My parents did not even get a penny on a dollar, most collections did not even cover the cost of collection, but my dad felt that the jerk was learning his lesson in life as he did loos whatever could be grabbed and he never knew when it would happen.

But you have to be really mad at someone to go to that level of trying to collect.  Most people just avoid throwing the good money after the bad.

Tim McKelvey · Answer

@Bryce McBride You tend to focus on the down-side.  While it is important to assess risks and be prepared for the inevitable problems here and there, the whole purpose of investing in real estate is due to the exceptional upside overall.

Aside from just learning about real estate, this is also a mindset issue.  If you read or listen to mindset books like "Think and Grow Rich," "Rich Dad Poor Dad," "The One Thing," etc, you understand that you can do anything and get through anything.

That said, you can't be ignorant in your dealings.  You must buy right, add value where you can, screen tenants thoroughly, and hold them to their lease.  If you do these, you are likely to have many more positive experiences than negative ones.  So your entire portfolio will be positive.

You may have a property here or there with negative returns.  At that point, you need to determine whether it is just a sunk cost that you need to dump, or a place that just started poorly, but can still perform.

If you are one who will turn and run at the first sign of trouble, you may not want to invest--because then you will become the source of a great deal for another investor.

Bjorn Ahlblad · Answer

@Bryce McBridewe all work towards more return; be it cash flow or income from flipping, HML, whatever. 200 dollars per door does not sound like a lot; but it depends on how many doors.

Decide what your goals and criteria are and work to fulfill them. Look for value add opportunities where you can get substantially more return per door.

As an aside, if someone declares bankruptcy that does not mean you will get your money back-it means you won't get your money back unless you are owed child support or have a real lien-and even then only maybe, and in all likelihood nada, nutten'.

Bryce McBride · Answer

@Bjorn Ahlblad thanks for the info! Figured that was going to be the answer. I just need to learn more about screening lol

Bryce McBride · Answer

@Tim McKelvey thank you and you are absolutely right, i differently focus on the negative side of things. Fear controls me. Luckly and surprisingly I don't run from problems. As i learn more i know a lot of my fears will pushed away.

Can i "sqeeze blood from a turnip?"

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