So… I bet the word “prostitute” caught your attention… Especially in real estate investing, right?
Every time I share this story, it turns people’s heads… There’s a real estate investing lesson to be learned from this story as well.
Plus, I took one for the team by going through all sorts of headaches, troubles and emotional roller-coaster just to tell you a VALUABLE lesson at the end of this story.
So this all started in April of 2017. One of my good friends from high school reintroduced herself to me and she took me out to lunch. (I may have to credit my bank account) It appeared that she needed some help and so did her friend that she at the time. For privacy sake, let’s call my high school friend “Mary” and her friend “Sarah”. This is ALL a true story! Hence why I’m protecting the names here. So, Mary and I went out for lunch couple times and she mentions that she has a friend, Sarah, that is going through some financial troubles. I later found out that they were both going to go homeless because they didn’t have a sufficient credit history and they had challenges with their income (it appeared that way). Sarah told me how her relative borrowed money from a bank using Sarah’s credit but never paid back. Sarah basically told me her side of the story to get my sympathy. Mary told me that Sarah was getting some help from a guy named Larry in terms of finances.
In that process, I was in middle of negotiating a 3 unit apartment deal. My original plan was to acquire this for buy and hold situation for $15k down. The purchase price on the property was $195,000. I was originally going to ask my mentor about this deal but at the time, I felt pretty confident about doing this deal on my own. So I found out that one of the units was going to go vacant in few days. I made a suggestion to Mary and Sarah that they can move in to my vacant unit (2nd floor) since they were in the verge of becoming homeless. Their current living situation was not in a good shape. Being a nice guy that I am, I decided to let them move in with a month’s rent and the security deposit. Also, I already knew that their credit was trashed and I never bothered to check their background because I knew them for a month at that point.
They wanted to move really quickly and I couldn’t move them in until I close. Because I was in a rush, I never really had a moment to think straight when it came to negotiating. All in all, I ended up agreeing to $20k down to expedite the closing and decided to close on the property couple days before Mary and Sarah can move in.
So couple of weeks go by, Sarah texts me saying they’re having issues with the toilet and few other things. In which, I agreed to fix it for them if they gave me couple of days to gather my cash reserves to pay for the repair. I showed up to the property to see what I could fix on my own time and budget. Much of my effort ended up being useless. Eventually, the situation escalated to a point where Sarah was asking me to break the lease and get all of their money back. At that point, they lived in the property for a month. I told her that she can move out and I will return the security deposit but not the rent because she already lived there for a month. She refused to accept that proposal and at this point, she was threatening me with a lawsuit and complaints. I did end up spending $2,000 to fix all the problems she was having.
I didn’t understand how the situation could escalate to this… Even after showing her my generosity of moving her in without any background check or credit check. I moved them in despite the fact that they will not have a single chance of getting accepted elsewhere. I even helped Sarah with some basic credit repair and even paid her to help me with painting a property. Now Mary was against Sarah at this point. Mary wanted none of the whole “lawsuit threatening” that Sarah was rattling about. Mary agreed to move out even at the fact that she’s going to surrender her security deposit which she agreed to. Sarah on the other hand, was basically trying to squeeze every single dollar she can get out of me. I knew the cost of a legal battle would be high. Even just the fact that I have to pay my attorney to initiate a lawsuit would cost far too much. Unfortunately in the city of Chicago, tenants are qualified to receive a legal representation for free. So I stood no choice but to peacefully negotiate with here. We agreed that she would be allow to stay at the place for 2 months for free and she would move out at the end of the 2 months. We signed a contract and the whole “nine yards”.
I did more research on how the city of Chicago was not so friendly to landlords. I finally decided to talk to my mentor about this deal and he grilled me for about an hour about this deal. He told me how the figures did not work and this property will get me in bunch of troubles. So, I did what any smart person would do. I decided to sell the property. I had it listed for $215,000 and my realtor was very successful at finding a buyer in less than 2 weeks. By week 3, we had the property under contract. Keep in mind, I bought it for $195,000 and sold it for $215,000. Not bad!
One day, I got a phone call from my real estate agent saying that there was a problem….
There were 3 code violations that were found in which all 3 have been filed during my ownership of the property. I simply couldn’t believe it! I decided to go online and look up the details of the code violation and there it was…. 3 code violations all pertaining to the 2nd floor…. Hmm… I wonder who filed a complaint! I wasn’t 100% sure that it is Sarah but knowing that all the code violations occurred on the 2nd floor, it had to be Sarah who filed the complaint! How could have she done this?!?! I gave her 2 months of free rent! And we agreed for a peaceful resolution.
Something else I found out…. Sarah was sleeping with her “helper” Larry for money…. Well, I don’t know about you guys but that’s clear as a daylight that she’s now a prostitute. I asked Mary about this and she confirmed it. Mary told me that she also slept with some other guys for money.
Now… I don’t personally believe in revenge but my mentor told me that she needs to be put in jail so that she can stop sleeping around for money. So I decided to tip her to the Chicago Police Department. I personally knew a sergeant that worked for the Police department so I decided to get some help from her.
SO!!! The moral and the lessons in the story are pretty clear…. Couple of things:
The fact that I chose not to share this deal with my mentor was a disaster of its own. Even without the crazy drama, this would have made me bleed money. If I had my mentor take a look a this deal from the beginning, I would’t even had to buy this property and I would had to point Mary and Sarah to another property that I personally didn’t own. Plus, her “helper” Larry is a real estate agent himself. She could have easily gotten his help without my intervention. Also, it was really stupid of me that Sarah had a “mentor” figure by using Larry to coach her on what to do to put me in trouble. So if you don’t have a mentor that you’re working with, someone else will to crush you.
This is a recipe for disaster. The fact that I had Mary and Sarah as my tenants gave them “free leisure” to complain about the smallest things because they feel like they deserve it from you. The things that Sarah complained about were not actual code violations. Let alone, these code inspectors find their every reason to keep their job. Even if it means to pick out the smallest things and make it into a code violation. That way, they can always have things to do to keep their job alive. Sometimes, the people that actually end up hurting you the most are your friends and family.
The fact that I “expedited” the closing trying to help Mary and Sarah was a mistake of its own. Never rush the deal. Who cares if Mary and Sarah ended up getting homeless because I couldn’t close the deal with the right figures and favorable terms? You HAVE To protect your business and self-interest at somettime. I’m not trying to say to not be generous or help other people. What I’m saying is to never be that “nice guy” that bends your back for someone else’ well being. Don’t sacrifice your profitability and your sanity for other people’s satisfaction. If you feel the urge to satisfy other people and sacrifice your deal, then don’t do this business. You’ll do better as a nurse…
Luckily, I’m plugged in with a nationwide real estate investor group that also happens to have an office here in the Chicago area. I was able to consult with few people about this situation and what the best course of action was. Having a mentor is one thing but having a local real estate investor group to help you is HUGE. Let alone, I was able to take some classes and training that this group offered and it helped me a lot to stay confident and courageous through this entire process.
That being said guys… If you guys want to work with my mentors and my nationwide real estate investor group, go to thekwakbrothers.com/learn. Fill out your information there and we’ll set up a time for us to chat on how you can get plugged in with my mentors. ALSO! If you guys want to know what happened to Mary and Sarah, fill that information about and I’ll briefly tell you the ending of this story without giving away TOO much. Guys… You NEED a mentor to help you steer away from trouble like this. Reacting to a problem is one thing but preventing it all together is where you want to be. You do NOT want to turn away from this opportunity of working with me, my mentors and the nationwide group. I want you guys reading this to never have to face problems like this. You deserve a mentor….