Property Crime. A Cautionary tale that all investors should read.

[James Wise]

We do not have a Real Estate Failure Stories forum, so I figured what better place than the Real Estate Success Stories forum to post this. Perhaps by coming out of this bruised but not broken, that in itself is the true Real Estate Success Story.

There have been many discussions about neighborhood grades on this site. I created a Cleveland Neighborhood Grades Blog 6 months ago that goes over all the grades I gave to the neighborhoods I am familiar with. At the time of this posting with 4,426 views it has been the most popular blog I have written on this site.

My company operates a large amount of rentals. We work mostly B & C areas. We have a few D properties, but due to the amount of work and risk they are relativity small portion of our portfolio.  

The particular situation that has compelled me to write this blog is a property in a D neighborhood.

Let's start from the top.

This property is an up/down duplex. We own this property with another investor. This particular investor owns this & one other duplex with us.

When we purchased this property we had a long term tenant in the home. Her name was Barbara. Barbara had lived there for 4 or 5 years. Barbara was a quirky older woman but she always paid her rent every single month. We were a very big fan of Barbara. All was going pretty well until Barbara passed away.

When Barbara passed away her daughter (also named Barbara) and her boyfriend illegally moved into the home and of course did not pay any rent.

We filed for eviction on them and at the same time had to file an eviction on the other tenant. We removed both tenants and upon leaving Barbara's daughter and her boyfriend politely took the hot water tank with them.

We fixed all the damage. Got both units ready to show and then had pending tenants pay deposits on both units. One tenant was scheduled to move in 8/27/15 and the other 9/1/15.

My business partner @John Holtonstopped by the property just prior to the tenants move in to make sure everything was completely ready.

Then this happened.

Now this is by no means our first break in. We have 250+ units in our portfolio and have had a handful of break ins this year. This one though, has hurt the worst.

Typically it's a quick hit and run. A few pipes get stolen out of the basement and the thieves usually turn off the water to keep themselves from getting wet and being electrocuted.

This one though, these guys were in there for awhile. They were thorough. All the metal, the water meter itself, and worst of all the electrical.

For those of you keeping score at home, yes that is the roof just above the broken window. That was the entry point. They stacked up those large city garbage cans to gain entry into the home. We had boarded up the lower windows. We believe this was done by a couple of the neighbors as there is no way this could have been done without anyone noticing.

Over a large portfolio a few break ins a year is inevitable. My heart really goes out to our investor though, as he only has 4 units so instead of 5 for every 250 he has to deal with 1 out of 4. Not the greatest odds. This is a business of scale. The bigger your portfolio the smaller the wound.

We are going through the process of filing a police report and talking to our agent about filing an insurance claim. Typically on a vandalism it is not worth it to file a claim as the damages are usually minimal. In this case we are right at the tipping point were it may be cost effective.

The takeaway.

This is real estate. Bad things CAN, DO and WILL happen. Nothing is guaranteed. Crime is inevitable and eventually you can be the victim of it.

We already shy away from D areas. Going forward we will be even more cautious. Can this happen in a C or even a B area? Yes it can. However, it is less likely to happen and if it does the damage likely won't be as severe when it does as the thieves are usually in and out as fast as possible to avoid getting caught. In F areas I have seen this plus they take the furnaces, hot water tanks, electric panels, duct work and even the siding and gutters. 

Will this stop us from investing? No of course not.

Is this the end of the world? No of course not.

Unfortunately numbers don't lie and everything will catch up to you and this likely won't be the last time we encounter this situation. This may not even be the worst of it.

With any investment, but rental real estate especially you have to take the up's and the down's. It can be a tough business. It is not always hugs and rainbows.

UPWARD & ONWARD.

I think I am going to go buy a house today.