A lose-lose situation
We try as real estate investors to create win-win situations when constructing our deals. This endeavor takes a lot of practice and a lot of training to accomplish. We spend countless hours reading books about negotiating and creative deal structuring, and we regularly attend seminars on the subject. We do this so we can be prepared to help as many people as possible solve their real estate problems.
Through that training, I’ve learned that almost any situation can be turned into a win-win, meaning both seller and buyer feel they benefited from the deal. And we have done some crazy things to accomplish this.
For instance: one time we foreclosed on a seller.
Yes, you read that right. We foreclosed on a seller. And they were grateful for it. The reason was the seller had a messed-up title and couldn’t sell their property, but they needed to move to a different climate because of health concerns.
The title was messed up because my seller’s mom was the original owner of the property and had purchased it with owner financing from an individual out of Dalton. The mom sold half of the property to my seller and retained the other part. She then sold her portion on a faulty contract. It changed hands again and then somehow made it back to the mom who passed away, leaving her portion to my seller and her sibling. And none of the changing of hands was done with an attorney closing, so there was no title insurance or even correct deeds to back up the “sales.”
With all that, my seller couldn’t get a clear title. So, we approached the individual who owner financed the property and bought the existing note at face value. Once we owned the note, we foreclosed on it, which cleared all the title mess that happened after the original sale.
This is called a friendly foreclosure. It didn’t hurt the seller because we didn’t report it to a credit agency. We actually did it to help the seller out and once it was done, we paid them what we agreed to, and they loved us for it.
It was a win-win.
But there is one situation in real estate that is a lose-lose situation: evictions.
Even though I understand they’re a necessary process as a landlord, I hate evictions. The reason I don’t like them is because if we have gotten to the point that we have to file at the courthouse, things have gotten out of control. It forces our hand and puts both us and the tenant in a bad situation.
The tenant will have an eviction on their permanent record, and that will hurt them both short-term and in the long run. But it also disrupts their lives. Once we go through the magistrate, the amount of time they have to exit the property is written in stone. And it’s often not very long. And with the availability of rentals being so sparse right now, trying to find any place to move quickly will prove to be a task.
For us, yeah, we are getting our property back. But it’s not on good terms. When we have normal tenant turnover, we almost always get our houses back in great condition and are able to rent them right back out without incurring much of a vacancy or having to do many repairs. This is because we incentivize our tenants to leave the houses in great condition.
But when someone is leaving in a hurry with hurt feelings, they are less likely to leave the house in great condition, which means in addition to vacancy costs, we are also going to have an unexpected rehab to add to the mix.
Now, I have heard tenants say in court that we want them out just so we can raise the rent. That’s just not true. Think about it. Let’s say we were able to raise the rent $200 a month. That’s an additional $2,400 a year. If we have to do a rehab on the place with just paint, floor covering and minor fixes, plus the holding costs associated with a vacant house, it’s going to take between three and four years for us to break even on that rent increase.
That doesn’t make sense. It would better if we could work things out with the tenants and have them stay and keep paying.
Unfortunately, we can’t always accomplish that resolution, and we have to terminate our relationship. This puts hardship on the tenant as well as the landlord. And that is why evictions tend to be a lose-lose situation.
Joe and Ashley English buy houses and mobile homes in Northwest Georgia. For more information or to ask a question, go to www.cashflowwithjoe.com or call Joe at 678-986-6813.