This deal was one that I found on Craigslist advertising two side by side brick 4 plexes on the West end of Council Bluffs. I actually recognized these buildings from the pictures on the posting because I had looked at them about 7 years ago before the current owner bought them. The owner was another local investor who was marketing them FSBO with an asking price of $375,000. The buildings were on adjoining lots, almost identical in layout.
Only 1 out of the 8 units was occupied, which I thought was odd. When I asked the owner about it, he said he didn’t have time to work on them and was planning to sell, so he thought it would be easier to show the units while vacant. He also mentioned that one of units had caught fire the prior year and the unit was gutted and rebuilt by a professional remediation company, including new wiring and plumbing. The owner let me know that he had several people call with interest and was making appointments to show the properties. I let him know that I want to see it right away, so we set a time for later that evening.
In doing a little prelim stalking/research on the Pottawattamie County Assessor site, I discover that there are delinquent taxes owed on the properties, to the tune of about $12,000, most likely one of the more pressing reasons he is looking to sell. I make a mental note of this and head off to the appointment.
After going through the vacant units and looking at the common areas, I like the deal, but not at $375K. Both buildings had roofs that were likely 20 years old. Not leaking into the upper units yet from what I could tell, but they had definitely been no stranger to the notorious hail storms we get every spring. The units themselves were more like studio apartments instead of 1 bedrooms, which I don’t really like as a long-term hold, because there is a lot more turnover and they are tougher to rent. The units also had kitchens and bathrooms that needed some TLC. However, all 8 units should conservatively rent for $550, if not a little higher, plus income from the coin laundry in both buildings. So this would be a good value add opportunity.
I end up making an apologetic offer on the properties at $275K. He doesn’t hang up on me, which is a good sign. We end up haggling a bit, and settle on a price of $280K for both buildings, on the condition that I close in 2 weeks, as is (no repairs). Almost $100K less than the asking price! Awesome – now I have enough room to sell them as-is to another investor and still make a good chunk of profit. This just goes to show that it is ALWAYS in your best interest to make offers, because you just never know…
This is where the crazy starts to happen. I start getting some showing requests from other investors, and I give the lockbox code so they can take a look without me having to meet them there. One of my investor friends calls me after he looked at the buildings and tells me that a lady living in the house next door to the 4 plexes came out to talk to him when he was there. She proceeds to give him an earful, talking about the tenant that died in the fire the year before, the only remaining tenant in apartment 3 was a thief and she thought he was stealing cars and was constantly harrassing her and her family.
I say, “Wait, back up. Did you say a tenant died in the fire there last year?” He confirms that this is indeed what she told him. He also says that the lady may be a little mentally unbalanced and/or disabled. I hang up and am processing all of this not so great information when my phone rings again. It is a local agent/investor I know named Mark from Council Bluffs. He says, “Hey, did I hear that you might be selling those apartments that the guy died in the fire last year?”. Sigh. A little bit of Googling does in fact confirm this in a Daily Nonpareil article from last January.
Well, it’s certainly not great news, but as long as I disclose the fire/death to prospective buyers, things should be OK. Unless some buyers are worried about ghosts… The unit that had the fire was completely remodeled by a restoration company and was by far the best out of all 8 units.
Somehow, the neighbor woman gets ahold of my phone number and starts calling me. A LOT. She tells me that the tenant in apartment 3 is “an awful person” and that he is always harassing her child, calling CPS on them. She calls and leaves long, rambling messages about how apartment 3 guy hit her house’s gas line with a stolen car, she calls the cops on him all the time, he needs to move out, etc. I have no idea if there is truth to any of this, but I can’t really evict the only paying tenant on hearsay.
Fast forward a bit to where we get these babies under contract to sell. A new investor who I had gotten to be friends with decides that he wants this to be his first investment property purchase. We agree on a price of $310K, and he is going to partner with another investor who will put up the downpayment and rehab funds. We write up the deal with a closing date of 12/31. Sweet – a cool $30K profit in about 6 weeks, no real work done to the property, and a new investor gets a still pretty decent price on what should be a couple of quality assets in the end.
Well, the whole 12/31 closing date doesn’t happen due to several reasons, but ultimately I have to take accountability for it. I mean, I should not have expected a new investor to know how to get a closing done and be able to check all of the boxes involved in buying a deal with another investor/partner. I should have taken more control of the situation instead of assuming things would go according to plan. Lesson learned.
Predictably, since we didn’t close on time, the only tenant now decides to not pay rent. I am still hopeful that we are going to close fairly soon, so I am hoping that this will soon fall under the category of, “Not My Problem” and I won’t have to go the route of eviction and collections. I let the new buyer know about the late rent.
2 months pass, and I am now getting concerned that this deal is not going to close, despite assurances from the buyer that he still is going to proceed with the purchase. Still no rent from apartment 3, now 2 months behind, so I send a 3 day notice just in case we end up needing to evict. I also discover on social media that the apartment 3 tenant may not be the most mentally stable person, and also obviously owns a gun. Uh oh.
It was a cold Thursday morning in February, a day I had planned on making a “home office day” in light of the ensuing hangover I was going to have after the monthly investor networking meeting the night before at Paddy McGown’s. My phone rings pretty early that morning with a number I don’t recognize (not uncommon in the real estate biz). I answer, and I hear, “Mr. Dashner, this is Sargeant Jackson with the Council Bluffs police department.” I say, “Oh man, this can’t be good.” He sort of half laughs, then proceeds to tell me, “I wanted to inform you that one of your tenants has a felony warrant, and we are going to attempt to serve the warrant and apprehend him. So, I wanted to see if you might be able to let us into the building.” I say, “Absolutely – I will be there in 30 minutes.”
Now, I am fully awake and my mind is racing, half worried that my dragon breath is going to result in an uncomfortable situation with the police I am about to meet. Do I even have keys to apartment 3? Shit! I pull up to the side of the vacant building and get out of my truck. 3 unmarked police cars roll up on me fast. Officer Jackson gets out of the one in front and we talk for a minute. He has on a bullet proof vest, a scowl and sunglasses and looks ready to rock. I have on a B&G Tasty Foods tee shirt, sweatpants, and a faint aroma of fear and IPA’s emanating from my pores. I let him know that I needed to get into the back of the vacant building to get the front entry key for the building where Mr. Naughty lives.
My adrenaline is pretty jacked at this point, so it takes me a minute to get the combo correct to the lockbox. I go inside and what do I find after a mad scramble of searching? All of the keys I need except the one to apartment 3. Figures. Well, I guess at least I can get them into the entry door of the building. I come back out and tell Officer Jackson about the key situation. He lets me know that that they will likely need to force entry in to apartment 3 if they are unable to get in peacefully. He apologizes in advance for any property damage.
Here we go. I park my truck at the end of the street and sit to watch the excitement unfold. Six officers and a K9 unit approach the building. 2 cops cover the back of the building and the alley, one covers the front of the building, and the remaining 3 and the K9 unit go in the front entry. The lead officer has a riot shield, and they are carrying assault rifles. The K9 unit is a machine, laser focused and ready for action. Holy crap – this is the real deal! I roll my window down so I can hear, and about 30 seconds after entering the building, I hear, BOOM BOOM BOOM! “Council Bluffs police department, open the door!”. And then silence. About a minute later, I hear a huge crash and the sound of splintering wood.
Officer Jackson comes out about 5 minutes later and informs me that Mr. Grand Theft Auto was not in the apartment, but they had another pretty good lead on where he might be that they were going to pursue and would hopefully be able to pick him up there. He apologizes that they had to use the battering ram to force entry into the unit. I ask him if I can take a look. He says no problem and walks with me over to the building. I ask him if they had searched any of the other apartments in the building or in the basement in case he was hiding there, and they had not. So, I let them in each apartment unit (in hindsight I should have just handed them the keys) so they can clear them. He is nowhere to be found.
I check out apartment 3. Wow – battering rams are no joke! The door was busted completely off of the frame about 5 feet away. I go through the apartment to the kitchen and see that he had barricaded the back door to prevent entry. This guy knew the day of reckoning was near.
I lock the front entry and leave to call my business partner to let him know about the morning’s excitement. I think he is glad that I live closer to Council Bluffs than he does. Officer Jackson calls me later in the day to let me know that they did in fact pick him up and he is now in custody. I ask, “So, does this mean he is now evicted and I can change the locks (only half jokingly)?”. He laughs and basically says, “Nice try.” It is a civil matter and would have to be handled through the eviction process. Damn.
So, the ending of the story is a little anti-climactic (thank God!) I inform the buyer of the properties what just happened, holding my breath that this is not going to mean the deal falling apart. He thanks me for telling him about it and that we could call it even for taking so long to close. We actually end up closing on the sale about 1 week later, and I never had to end up fixing the door or going through the eviction process. Hopefully the tenant from apartment 3 is now enjoying free rent from a state funded institution instead of a private landlord.
Omg this is the best blog I have ever read.
Thanks Jenni! There will be more to come…