Recently I had the opportunity to work with one of the more unusual characters that I have come across - EVER! This guy really has a different perspective about most everything. I've never seen anyone manipulate the system to such extremes and then hold everyone else accountable to a higher standard.
A little history - He came to this country - got a great job and purchased a home. After about a year or so he found that his home had appreciated considerably more than his honest $75,000 a year job had earned him; so he pulled out some equity and purchased a few more homes to rent out. WOW, great story so far, huh?
18 homes later... Yup, this can be done if you know how to manipulate the system. 18 homes, most with interest only loans, some differed interest to keep the payments low; all rented out. Although the rental market hasn't been considerably strong this individual was getting above market rents - I bet at this point you are wondering how the heck he's getting above market rents and has 100% occupancy?
I'll let you in on his little secret - build a wall, separating the family room from the kitchen, and another wall separating the dining room from the living room; you can increase the number of bedrooms from four to 6 maybe 7 bedrooms - Now, place a dead bolt on each bedroom door; rent them to illegal immigrant families as studio apartments with kitchen and bathroom privileges for $700 to $800 per month. Oh, I forgot, when the master bedroom has a large walk-in closet, that room is then considered a 1 bedroom apartment with kitchen and bath privileges. That yields about $900 to $1,000 a month.
Let's do some math - 18 homes with a minimum of 6 bedrooms; averaged at $700 per month each = $75,600 per month; subtract expenses; netting approximately $310,000 annually. Not too shabby. That's just a little better than the $75K year he was making the year before. OK, so it's illegal, who's going to care. Now, call it a church or some religious group home and now it's tax exempt as well. Are you still following me?
This guy gives new definition to slum lording; he busted down doors, entered residences when ever he wanted; rented to drug dealers - didn't maintain the properties and when he needed to evict someone - he would dismantle the power and shut off the water, if they still didn't leave he'd call the city and tell them to remove the trespassers, now that's knowing how to work the system! All that's left is to get new renters and start the cycle over again.Pretty good, eh?
Wait, there are other ways to earn money, when he had to evict the entire house for not paying or because he found someone who would pay more, he called the insurance company, claiming the tenants destroyed the houses, ruined the carpeting, broke the doors and stole the appliances... He'd collect a check for vandalism and put the appliances back in the house and voila, ready to go!
The various city and county officials got wise to him after about a year and tried to shut him down; they told his tenants they didn't have to pay rent, so they didn't - this time he hired an attorney to do the evictions and got new tenants - by this time he stopped paying the mortgages, taxes, water, garbage, HOA dues...
His exit strategy - This was the perfect time for him to cash out his equity and run with his chubby little fist full of money. He listed the properties at high market value with several Realtors over several months with no activity, primarily because they were trashed, had 20+ people living in each one and were levied by the county for various fines and penalties. Not to mention any potential buyer was greeted by the torch wielding villagers - AKA the neighbors.
This is where I come in. He gives me this song and dance about how everyone has taken advantage of him when he was just trying to help these poor illegal immigrants have a roof over their heads; blah, blah, blah - what ever - So, we negotiated purchase contracts for an investor to buy all his properties giving him a fair return - Although he wanted much more and solicited other purchasers into contracts at the same time trying to string both along all the while trying to get cash in advance - huge drama... The little greedy stopped all the escrows because I wouldn't lie to the lenders about how much money he was to make, or deceive the investors about how much he actually owed on the properties...
End result, he's losing all the properties to foreclosure and can't understand why EVERYONE is out to cheat an honest businessman like himself. His business ethics should come in handy now that he's opening his own real estate office.
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