Like all nightmare scenarios, this one starts off with nothing out of the ordinary. You’ve done your level best to get good tenants in your rental property. The house is in perfect condition. Rent is a little below market. You have a comprehensive screening process.
In other words, you have the best house in the neighborhood with the best tenants occupying it. They pay rent on time and let you know immediately when something goes wrong. Other than the occasional routine repair, the house requires almost none of your attention. At the same time, you get your steady, predictable stream of income.
Then you get the call. It’s the police, and they’re at your rental house. As it turns out, the tenants had turned it into a drug grow house.
This might sound outlandish, but it actually happened to an investor friend of ours. He owned a house in a very nice Houston neighborhood. The tenants, who had clean backgrounds and perfect rental histories, rented the house 10 months prior and had zero problems in that time. So when the Houston Police Department called him, he was naturally shocked. Worse, they wouldn’t release any information over the phone, so he had to drive all the way from his son’s college to the house before learning what happened.
The tenants had converted the interior of the beautiful, 2800 square-foot house on the north side of Houston into a greenhouse. The house is well insulated, so the heat load was almost undetectable. To power the custom air conditioning and arborist-grade lighting, the tenants tapped directly into the electrical grid and bypassed the meter. Not even the power company noticed their excessive electricity usage.
How much damage can such an operation cause? Consider the flooring, which the tenants destroyed with water-storing gel beads used in potting soil. The excessive moisture eroded interior finishes. The tenants destroyed sheet rock as they created rooms within rooms. Rewiring the electric system is no small chore.
In total, the damage bill was nearly $35,000!
Now put yourself in this investor’s shoes. What do you do? Here are his options.
Fix the house
At $35,000, the damage bill already seems excessive. But that’s not the only cost the investor incurs. He loses months worth of rent, since no one can live in the house during repairs. Chances are he’ll need to get it inspected again. How long will that take? Even if it’s three months – probably a liberal estimate – that’s plenty more money out of the investor’s pocket.
Let’s say the investor rented the house for $1,500 per month, and that he spends $500 per month on insurance, HOA, and taxes. That brings the total bill to $38,000 in the best-case scenario. At his $1,000 per month profit, it would take him more than three years to break even from this incident.
Even worse: this investor has to be seriously well off in order to pay the $35,000 damage bill out of pocket. Chances are he’ll have to take out a loan of some sort. Add the interest to the total bill. That extends his timeline to break even.
Selling the house starts to seem a bit more palatable.
Sell the house
After such an incident, our investor friend might want to cut his losses and sell. But he can’t sell through traditional real estate channels. The house is in such poor condition that it would never qualify for a loan. And who would even put in a respectable bid?
He could, on the other hand, cash out with a home buying company such as HoustonHouseBuyers.com. We would walk through his property, assess the damage, and make him an all-cash offer. He can then weigh his options. Is it better to put all that money into the house, only to get back to even in three years? Or is he better off taking the cash and investing in something else?
Keep in mind, the cash offer might not seem all that bad. We make repairs at scale, so we can get the job done for less than the $35,000 he’d pay. If our investor friend doesn’t want to spend all that time just to get back to even, he very well might consider cashing out right now.
Stories like this illustrate exactly how everyone benefits with our cash-offer model. Our investor friend gets to walk way from this enormous headache. A contractor gets a new (and in this case, pretty interesting) job. A real estate agent gets to list and sell the house. HoustonHouseBuyers.com and our investors make a profit. It can work, even when someone has been growing hundreds of pounds of marijuana in your house.