You might be an entrepreneur if…you’ve moved out of the house you were buying and are renting it because you can’t afford to live in it. But the more interesting part is who we ended up renting our house to and the ensuing chaos. Imagine this: Your renters are a month behind on their payments and you get a call at work from a guy who says “I understand you’re renting to so and so?”
“Yes” I reply.
“Well, I’m from the Department of Homeland Security, and we arrested so and so a few days ago.”
The nice thing about real estate is that it’s an investment like no other because of leverage. Imagine if I went to a bank and said “Because I have such a good credit rating I’d like you to loan me $200K at 6%, and I’m going to go invest that in the stock market.” They’d think I was a few clowns short of a three-ring circus, right? And yet that’s exactly what happens when you get a loan for a house, with one key difference–real estate is less of a risk.
What this means is that people who otherwise would not be able to invest in anything can plow hundreds of thousands of dollars into a house, and that’s exactly what my wife and I did back in…2001? Or thereabouts. After living in the house for a few years we got an offer to housesit for some relatives. By this time we weren’t too fond of our mortgage payment because I wasn’t bringing home a paycheck, but we did like the house. House sitting offered us the chance to cut $1,000 off of our monthly expenses while allowing us to keep the house as an investment. So we promptly rented it out to a nice young couple for six months (we couldn’t find anyone to commit to 12).
After six months we had to rent it out again. We had a couple come by and look at it and it turned out the guy was Brazilian, and I was an LDS missionary in Brazil so I was thrilled. We spoke Portuguese for a while and developed some trust, as we missionaries are want to do. At least I learned to trust him, which was a crucial mistake.
Now that we look back on it all it’s hard to believe we ever rented to this couple, but we were ignorant and all too trusting. Here are some of the red flags we saw before we signed an agreement to rent to them that should have made us at least slightly suspicious:
- “You don’t do credit checks, do you?”
- “I’m starting a business, but it’s kind of hard to explain what I do.”
- “My wife and I met because we worked at the same place.”
- “My wife and I just got new jobs.”
- “My wife and I have new jobs at the same place.”
- “Is it ok if only my wife signs all the papers?”
- No license plate on renter’s car.
- “Can we sign the papers at 11pm on Tuesday?”
- We can’t get a hold of any of the references.
This is only a fraction of what made us suspicious. Nothing they said seemed to match up. The husband would tell us one thing, the wife would tell us another, and their dates and facts just didn’t quite match up. But just the same, we went ahead and rented to them. Here are some red flags that came up within the first month of renting to them:
- Bounced the first rent check. Yes, the one they gave us upon signing the papers. The deposit went through.
- Ended up paying for first month’s rent in cash.
- “My wife has messed up our books, is it ok if I just wire the money to your bank account? I’ll just need your checking account and routing number. That way our check won’t bounce again.”
Less than two months into the situation I got a phone call at work.
“Hello, is this Joshua Steimle?”
“I understand that you’ve been renting to a —– —–, is that correct?”
“Well, I’m —— —— with the Department of Homeland Security. We arrested —– —– three days ago and we’re getting together evidence to arrest his wife within a few days, do you mind if I ask you a few questions?”
At that point I replied that finally everything made sense, at which point the guy became quite interested and peppered me with questions. Turns out the male part of the couple renting our townhouse was from Cabo Verde, off the coast of Africa, and not from Brazil, although they do speak Portuguese in Cabo Verde. His visa had expired eight years previously. Since then he had been touring the western US ripping people off. That is, fraud, forgery, and theft, including the car he was driving. His wife was also being tracked by DHS for forgery.
DHS came to my office and had me and my wife look through photos to identify the wife. They said they already had plenty of evidence against the husband, but had been trying to get enough evidence on the wife for two years, but they didn’t even have an accurate photo. They also told us not to say anything to the wife, who was still living in our house, because she didn’t know that we knew that her husband had been arrested.
At this point, my wife and I are trying to figure out what we do about our own situation. The renters owe us a month’s worth of rent, plus next month’s rent, and we had left some of our furniture and electronics at our house, which we just discovered was a den of thieves.
We called the wife, who told us that her husband was in Brazil visiting relatives (Yeah right, he’s in jail lady!). She told us only he could sign checks and she couldn’t because he hadn’t set her up on the account yet (how ironic, considering that her specialty was signing checks she wasn’t supposed to), but that she was going to have a garage sale to sell some of their furniture and see if she could get the rent money for us.
We decided to show up to the garage sale ourselves. Imagine our surprise when we discovered several items that belonged to us up for sale. And then there were all the other people living in our house.
“Oh, that’s my mom.”
“That’s her boyfriend.”
It didn’t look like someone likely to be her boyfriend, given the 20 year difference in age. He also had a bump on his head like someone had recently taken a heavy metal pipe to it. I never found out what the bump was about.
“And who is this?”
“That’s my younger sister. They’re all just visiting.”
Well, to make a long story short, DHS got enough evidence to arrest the wife on Monday. Unfortunately, the wife got wise and took off at 3am Monday morning in a UHAUL truck with all of the property we had left in our house, other than the large appliances. However, they did leave us a chair that looked like a giant hand, so it’s not as though we didn’t get anything in return.
They tracked her down a week later and arrested her. They also arrested the “sister” who was wanted on prostitution charges.
The husband was sentenced to four years in prison for “aggravated identity theft.” I’m not sure what “aggravated” means. The wife was sentenced to 18 months probation, and they were both ordered to repay us for the rent they owed plus the value of the stolen furniture. That was over a year ago and we haven’t seen any money yet.
Since then the house has been rented successfully. We had one great young couple who paid six months up front, and the latest couple is actually paying enough for us to just cover our entire monthly expense on the townhouse, meaning we’re building equity without spending a dime. It’s a nice situation, but it took a little education for us to get there.
My advice? If you’re a poor entrepreneur and are forced to rent out your house, make sure to do credit and background checks on potential renters so that you don’t end up renting to an illegal alien from Cabo Verde whose sister in law is a prostitute and who will end up being arrested by the Department of Homeland Security for aggravated identity theft and stiff you for two months worth of rent. I hate it when that happens.Liked it? Share it!
Wow, I thought I had a rough experience with townhome renters (besides having dogs, trashing our carpet and paint, having their kids arrested for pot smoking, etc.) it was pretty quiet.
Then I said, not for me. I posted on it a while back. http://www.jeremyhanks.com/2006/07/17/doing-chicken-and-doing-chicken-right/ I do 1 thing and only 1 thing now, I try my best to run Doba.
I’ll leave that real estate investment stuff to more risky people like you. 😉
That’s probably why you have 100 employees and billboards all over the place while I languish about in the entrepreneurial underworld 🙂