Making $ and Making the World Better - An Example from One Project

Last October, we embarked on our most ambitious rehab project yet.  We purchased the property as a 6 unit MFR in San Diego, but only 3 of the units were legally recognized.  To top it off, the property had been vacant for at least a year, had code enforcement actions against it, a recent history of vagrancy, and, how shall I say it, some very unhappy neighbors.  A decade of problems tends to wear on neighbors, apparently.

Because the project would involve several months with City planners before construction could begin (and because of that history of vagrancy problems) we wondered whether it made sense to rent out one unit in the meantime.  Would it work?  Would having someone onsite help protect the property until we could rehab it?  Or, would it be more hassle than it's worth?  Why not ask BP Nation?!

https://www.biggerpockets.com/forums/48/topics/240...

The original idea was to rent the unit to an aspiring real estate investor - what better way to learn about property rehab than to live through it, right?  As it turns out, that's a pretty specific person to look for.  Instead, we posted it on Craigslist and BAM ... here's what happened.

The Craigslist ad laid out a few conditions of the offer:

1. Rent was $500/m, substantially less than the $1100/m rent for a 1bd/1ba in the area.
2. Don't call me to fix anything. You can move out if you can't deal with it.
3. You may lose water or power at times as the plumbers and electricians work. You gotta be able to roll with it. Gave them a 5G bucket to keep by the toilet. :)
4. Lease is per week. You can leave or I can ask you to leave with 7 days notice at any time.
5. I can enter the unit at any time with 15 minute notice.
6. You have to keep the front of the property raked, swept, and tidy.
7. You have to walk the property daily to verify doors locked, windows closed, nothing out of place.

We got 48 responses in the first 6 hours.  Another 10 or so accused me of running a Nigerian scam to steal money from people.  No problem.

Most of them had a "sob story" element to them.  Though I'm not opposed to helping people, I needed to be sure I wasn't getting involved in any drama because I needed to be sure the tenant wouldn't slow down construction in the least bit. 

I had a friend of mine categorize the responses into 3 buckets - bad fit, good fit, great fit. There were 6 people in the "great fit" category. I Emailed them with a date and time to look at it. 4 said they'd come by. 3 did.

Long story short, I rented the 1bd to a guy who works for a contractor and needed a place to stay for a while. That's worked out great - he's helped me dig trenches, do landscaping, skimcoat walls, taken care of all stucco patching, and some other stuff around the property as rehab moved forward. He's still there.

The really cool part, though, was the third guy who came by.  He led with "I'm the best tenant you'll ever have," and proceeded to tell me why.  He sounded great.  His backstory, though, is crazy.  Turns out he and his wife just had a baby who needed emergency heart surgery and 4+ months in the hospital before a second operation. His wife and other child moved into a Ronald McDonald house at a hospital 90 miles away from their home that could handle the neonatal intensive care for the baby.  The baby would need life-long specialized treatment, so in a matter of weeks he had to:

• Sell his house
• Transfer his job to San Diego (for long term care at Rady's Childrens Hospital here)
• Deal with all the medical bills
• Keep his young family sane under the pressure

When I met him, he had been staying at $80/night hotels, which wasn't an affordable solution.  I offered to open up a second unit that, though it lacked heat and some drywall, was at least livable.  He was ECSTATIC.  He stayed there for about 4 months and recently reunited with his family at Ronald McDonald house San Diego.

Don't get me wrong - I profited off of both tenants, so I'm no selfless saint. But, there are a couple things that I (re)learned from this experience:

1. You won't know opportunity is at the door if you're not listening for the knock. I've posted a number of times about a desire to combine profit-making and "the greater good." I get that they're often at odds with each other, and I'm committed to seeking profit first.  But, in every way, I think this situation was win/win, and it wouldn't have happened if we weren't listening for that knock.
2. Don't underestimate the power of BP.  This isn't the first time I've reached out to BP (in general) or folks I've met on BP (specifically) for advice on some idea.  Landlording can be a lonely pursuit, and having people to bounce ideas off of can make all the difference.
3. People take note of your intentions.  Remember how I said the neighbors were angry with the property?  My tenant shared with some neighbors that he was there to look after the place and keep it tidy.  I wouldn't say all my neighbor challenges are complete, but your reputation is a culmination of everything you do... might as well start building a good reputation by doing win/win things now.
4. It pays to go just a bit beyond status quo.  We've had some painful and expensive delays with this project.  Those things would have happened no matter what we did with the short-term rentals.  Because we went just a bit outside the comfort zone and found a way to make sure the units weren't wasted during the time, the pain was somewhat cushioned by the fact that (A) My hard holding costs (utilities, landscape, insurance) are covered by the rent, (B) I'm getting some work done way cheaper than I would have otherwise, and (C) At least two people are better off than they would have been.

Conclusion

I'm a big believer that success comes from finding and tackling the biggest problem you can durably solve.  Running a profitable business puts us in a position to do just that.  While I don't yet know how my REI business fits into the big problems we have in my city, I hope that all of us, as investors, will continue listening for the knocks, and be curious enough to open the doors.