My phone is ringing.
"Good morning, sir. This is Lawrence Pickering, Building Inspector for Del Mar County. I'm terribly sorry to bother you, sir, I know this must be a hard time for you. I just need to know when you'll be able to board up and secure your building on 30th Avenue. You are aware, sir, I'm sure, that it is your legal and moral obligation to do so for the safety of the community."
"I'm sorry, I must be confused," I told him. Surely there was a mix-up. Typical county mismanagement. "Why do I need to board it up?" I'm not really listening.
"Sir, the fire burned out the front door, back door, and pretty much the entire rear of the building. The property is unsecured and is a hazard to the neighborhood."
Now he's got my attention. "What fire?"
I got into investment real estate a few years ago: a few houses flipped at break-even, a few houses bought, renovated & rented, minority share ownership of several small apartment buildings, a couple of small commercial properties, some other projects. In a relatively short period of time I've dealt with cockroaches, flooding, called loans, embezzling contractors, evictions, sewage leaks, crime, market declines, crooked partners, tenant drugs, police on the scene, and even a foreclosure or two.
But this week brought my first fire. The real thing, not some scorched kitchen paneling hassle. No one hurt or injured, luckily. But two or three fire trucks, sirens, smoke and flames, hoses blasting water into the sky, whirling red lights, people yelling and cursing. From what I understand, it was intense.
So it goes, I guess. The building was empty anyway, or it was supposed to have been. 4 two-story units, one compact cheaply
From the start, we had issues with the property. We had broken appliances, burst pipes, roof leaks, unsealed toilets. We had lock problems and electrical problems and doors that won't close and floors that rotted out. Then there were the tenants. They couldn't keep their garbage in the bins, they couldn't keep the party noise at legal levels (at least 8 police reports), they threw dirty diapers at each other (I am not making this up) and they couldn't be reached by phone. Our maintenance costs and our time spent were both more than double what we had budgeted. On top of that, since our 2007 purchase we had at least 9 different tenants rotate through the 4 units-- and not one of them was ever able to keep up with the rent as written in the lease. We would come down to collect (it was literally too much to ask that they put a check in the mail) and get a lousy week's worth of their month in cash, sometimes even as little as $20-- and then only if we posted 3-day Pay-or-Vacate notices to threaten them. It was crazy. Our monthly mortgage payment became unsupportable fast.
By the start of 2010 the real estate market crash had wiped at least 30% off our building's mortgaged value, based on neighborhood comparables, and we were cash-flow negative as well. We spent a couple of months firing calls and letters at our lender asking them to modify our loan-- ideally to recognize the valuation change and decrease our principal balance, or at least temporarily lower the payments to help us through. But, not so terribly shockingly, they ignored us.
So in April 2010 we stopped paying the mortgage. "Strategic default" is the term the Fortune 1000 use for it: basically, when a big company realizes it's bought or leased property which it doesn't want but which contractually it can't get out of, it stops paying for it, gives back the keys, takes a loss on its books and moves on. Perfectly legal. (Though apparently it's immoral when individuals do it. So I'm told. )
We hired a specialist real estate agent to try to short-sell it (a "short sale" is the sale of a property for less than the amount owed on it. The bank takes the hit and the buyer is out his down payment as well) No bites. The agent lowered the price a couple times, and we got an offer in February 2011 ... which fell through once the buyer got a look inside. I do not for one second blame him-- had I seen the inside beforehand I wouldn't have bought it either.
A month after that we learned that the last of our tenants had been driven out by neighborhood drug dealers who demanded they either become new customers, refer new customers, or take a hike. It didn't matter much-- we had expected the bank to take it long before and had warned the tenants to get out. We even stopped paying some utilities to encourage them to go (they just brought electric power over by extension cord from a neighbor).
By April 2011 we had four officially empty units and at least 2 squatter "families." We released our agent, fired the short sale/default/foreclosure attorneys, and begged the bank to take the building back. Nothing. It sat.
Last weekend, a fire. Apparently someone dropped a cigarette-- or crack pipe light?-- into the couch in Unit 3. (Unit 3 of course had been empty, no power no water, since January, Why was there a couch in there at all? Never mind a person?) The fire took out the entire unit, both floors, staircase, kitchen ... and most of the second floor rear walls of the other 3 units as well.
There is neither significant financial loss nor gain for us in all this. We have only the nuisance of it, dealing with fire inspectors and building inspectors and the sheriff's department and endless insurance hoops to jump through. Not to mention the embarrassment, the brain-burning frustration, of an investment gone so horribly sideways.
My investment partner thinks the whole story is so outrageous and unlikely and tragi-comic that we should get a reality show. I think I'd rather have an aspirin and go to bed.
Drifting to Fifty | Random unrelated nugget of the week:
Stretch for a few minutes three times a week-- especially your legs and your back. The older you get, the less likely you'll be to injure yourself and the better you'll feel as a result.